Current Events in October 2009

Abuses and abusers from the subprime mortgage market have begun showing up in the reverse mortgage market, putting at risk the equity and savings of millions of seniors, according to a report issued by the National Consumer Law Center.

"In the reverse mortgage market, seniors face some of the same aggressive lending practices that were common in the subprime lending boom," said Tara Twomey, an NCLC attorney and author of the report. "Well-funded marketing campaigns and perverse incentives to brokers are targeting seniors' home equity and using reverse mortgages as their tools."

Annual reverse mortgage volume has topped 110,000 units and $17 billion, with top banks like Wells Fargo and Bank of America and large insurance companies like Genworth and MetLife leading the way. Despite a slowdown in originations due to the recession, reverse mortgage originations in 2009 continue at a record pace.

"Many of the same players that fueled the subprime mortgage boom -- ultimately with disastrous consequences -- have turned their attention to the reverse market," says the report titled Subprime Revisited: How the Rise of the Reverse Mortgage Lending Industry Puts Older Homeowners at Risk.

"Lenders, including some of the nation's largest banks, view that market as a source of profits that have dried up elsewhere. Mortgage brokers see it as a new source of rich fees. Predators who once reaped profits from exotic loans have now focused on wresting more wealth from vulnerable seniors. And securitization, which allowed subprime loan originators to disassociate themselves from the downside risks of abusive lending, is becoming commonplace in the reverse mortgage industry," according to the report.

U.S. Senator Claire McCaskill says the report validates the need for regulatory improvements in this industry in order to protect America's seniors as well as our tax dollars. "We've seen this movie before and it didn't have a pretty ending. Abuses in the subprime lending market almost brought down our economy. Now we're seeing similar abuses with reverse mortgage lending - something needs to be done before more lifesavings are depleted and more tax dollars are drained," said McCaskill.

The report describes what's termed "the growth of an aggressive and dangerous reverse mortgage sales culture that has outstripped the limited resources and uncertain funding for the counseling agencies that current laws rely on to prevent reverse mortgage abuses."

"We urgently need stronger protections for reverse mortgage borrowers, especially a suitability standard that obligates those who arrange and profit from reverse mortgage deals to seek to avoid harming the financial interests of elderly clients," Twomey said. The report also calls for the extension of reverse mortgage protections to all equity conversion products aimed at seniors, a prohibition on yield spread premiums and other perverse incentives in the reverse mortgage market and better data collection by lenders.

"Reverse mortgages are complicated and expensive financial products that must be used wisely and regulated carefully, or profit and volume driven sales efforts can open the door to abuses and fraud," said Odette Williamson, an NCLC attorney.

The report also highlights what it calls "the danger of predators who use reverse mortgages as tools in schemes to steal the home equity of unsuspecting seniors, or to fund the purchase of expensive insurance and financial products that pay high commissions."

By Mark Huffman
ConsumerAffairs.com

October 7, 2009
Consumer complaints about health clubs are quite common - the clubs' sales and marketing techniques in particular. But in Massachusetts, Attorney General Martha Coakley has encountered a new one.

Coakley's office has filed a lawsuit against Fit 'N Fitness, a Taunton, Massachusetts health club, its manager John Copell and an employee Gail Barbas, for their roles in soliciting and collecting membership fees for a health club that failed to open.

"Particularly where our economy is still fragile, consumers should be careful before signing contracts and paying advance fees," Coakley said. "It is not uncommon for a business to fail before it has a chance to open. Consumers need to know with whom they are contracting with and the circumstances under which they are able to cancel the contract."

The complaint alleges that the defendants knowingly solicited membership fees for a health club that they knew was not going to open. The lawsuit seeks restitution for consumers who paid the advance membership fees.

According to the complaint, filed in Bristol Superior Court, the defendants solicited consumers from September 2007 through September 2008 with false promises that the facility would open in January 2008. In order to persuade consumers to pay up front fees, the defendants represented to consumers that if they signed up before the facility opened, they would save money.

The complaint further alleges that consumers pre-paid between $99.00 and $349.00 for different membership levels and were told repeatedly throughout 2008 by different employees of the health club that the club would be opening "soon." Coakley says that in November 2008, 10 months after the club was slated to open, the property appeared to be abandoned.

Although new-vehicle buyers visit automaker Web sites and third-party automotive Web sites at the same rate during the shopping process, buyers rely on each type of Web site for different types of information.

That's the key finding of the recently released 2009 Web Site Performance Tools Report-Wave 1, a collaborative effort between J.D. Power and Associates and Compete Inc.

During the six-month period preceding a new-vehicle purchase, more than three in four new-vehicle buyers use the Internet to shop around. Sixty-six percent of all buyers visit at least one automotive brand Web site during this time frame. Likewise, 66 percent of new-vehicle buyers visit a third-party automotive Web site during the same time period.

However, while overall usage rates are the same for these two different types of sites, the reasons that buyers visit them vary widely.

Third-party automotive Web sites

Among third-party Web sites, such as AutoTrader.com, Edmunds.com and kbb.com, buyers most frequently access such features and tools as inventory search capability, product reviews and trade-in information. Overall, 31 percent of buyers who visit Edmunds.com access the site's vehicle reviews, while 55 percent of buyers who visit kbb.com use the site's trade-in information pages. Among new-vehicle buyers visiting AutoTrader.com, 61 percent use the site's inventory search tool.

Automotive brand Web sites

In contrast, buyers who visit automotive brand Web sites while shopping most often use vehicle configuration features and seek out information about local dealerships and special offers. Among manufacturer Web sites, Ford, Honda and Toyota garner particularly high visitation rates from buyers.

The report also finds that among buyers who visit specific brand Web sites, sales close rates vary widely. For example, among vehicle buyers who visit the GMC Web site, 34 percent ultimately purchase a GMC vehicle. However, among buyers who visit the Saturn Web site, the close rate is just 4 percent.

"By understanding the different patterns of usage among actual new-vehicle buyers, both automotive brands and third-party automotive publishers may optimize their sites to provide the information used most often by the visitors they care most about-actual buyers," said Arianne Walker, director, marketing and media research at J.D. Power and Associates. "For manufacturers, improving sites may help maintain in-market shoppers throughout the shopping process. For third-party sites, improvements may help attract in-market new-vehicle buyers, thus increasing advertising opportunities on the sites."

Additional key findings

The report finds that, at six months prior to their vehicle purchase, one in four new-vehicle buyers visits a manufacturer Web site and one in four buyers visits a third-party site. However, this Web site visitation rate of buyers increases considerably during the month of purchase, with 34 percent of buyers visiting a manufacturer site and 33 percent visiting a third-party site.

"During the earliest stage of the shopping process, new-vehicle buyers tend to rely equally on third-party sites and manufacturer sites, although tool usage on those sites differs," said Skip Streets, executive director of sales, automotive at Compete Inc. "As buyers get closer to making their final purchase decision, particularly during the month of purchase, there is an increase in tool usage.

"For example, more users use vehicle configuration tools, particularly on automotive brand Web sites. To support buyers throughout the entire shopping process, both types of sites need to provide the various kinds of information new-vehicle buyers are looking for through easy-to-find, easy-to-use tools," Streets concluded.

It turns out that losing your homework has its advantages.

Amazon has agreed to fork over $150,000 for removing copies of the novel 1984 from users' Kindles without warning. Eligible consumers will receive a new copy, and $30 for their trouble.

High school student Justin Gawronski brought the suit in July after discovering that George Orwell's classic had been wiped off his Kindle. Amazon refunded Gawronski the amount he paid for the book, but he sued anyway, claiming damages for time spent creating annotations rendered useless by Amazon's actions. Kindles allow users to make notes in the margin of books, but erasing the text makes it nearly impossible to match those notes to the proper portion of the book.

Amazon said it deleted the book after learning it had been sold without a proper license. After a tepid response failed to please consumers, Amazon CEO Jeff Bezos apologized profusely, calling the company's actions "stupid, thoughtless, and painfully out of line with our principles." That the company's Big Brother-esque move was directed at a book about omnipresent surveillance and thought crimes could not have been lost on Bezos.

Gawronski's suit emphasized that Amazon gave customers no notice that books could be removed after they were purchased. Indeed, the Kindle's terms of service seemingly guaranteed consumers the right to a permanent copy of works they bought.

Under the terms of the settlement, filed on September 25, Amazon will not be allowed to delete e-books without first obtaining permission from the owner, or unless the work contains a virus with the ability to harm the Kindle.

The case highlighted one of the many pitfalls inherent in the movement toward digital media. Just as an entire iTunes library can be wiped out when a hard drive decides its number is up, an electronic book can vanish into the night as if you never owned it in the first place. Indeed, Gawronski's lawyers, straining to find a sensible analogy, compared Amazon's actions to that of a bookseller who sneaks into houses and takes his books back.

The settlement amount may seem large, given that the suit centered around handwritten notes in the margin of a 60-year-old book. The good news is that, rather than keep the fee to which they are entitled, Gawronski's attorneys have decided to donate the entirety of that fee to charity. The settlement provides that KamberEdelson LLC, the firm representing Gawronski, "will donate its portion of that fee to a charitable organization that promotes literacy, childrens issues, secondary or post-secondary education, health, or job placement."

October 6, 2009
Michigan authorities say they have uncovered a Ponzi scheme that was aimed at defrauding African-American churches around the state.

Two men - Michael J. Morris and William T. Perkins - have been charged with attempting to defraud twenty-one churches in Detroit, Flint, Saginaw, Inkster, Ferndale, Highland Park, Port Huron and Ypsilanti of approximately $660,000.

"In this difficult economy, families depend more and more on good works provided by local churches," said Michigan Attorney General Mike Cox. "By essentially pilfering the bank accounts of these ministries the defendants didn't just violate the sanctity of the church, they stole from the entire community."

Morris and Perkins, representatives of Television Broadcasting Online and Urban Interfaith Network, allegedly schemed to obtain money from leasing companies, leaving the churches responsible for repayment of the funds. The defendants approached Michigan churches and offered to provide electronic kiosks free of charge for use in religious education, community events and fundraising.

The pastors were told that a "national sponsor" would cover all costs in exchange for advertising that would run on the machines. They were then convinced to sign leases, described as a formality, on each kiosk. In reality, the churches unknowingly became responsible for the full purchase price of the kiosk, Cox said.

The complaint alleges the defendants took the agreements, along with greatly inflated invoices for the cost of the kiosks, to leasing companies to obtain funding. The leasing companies then paid Morris and Perkins approximately $27,000 for each of the kiosks, generating substantial profits for the defendants.

However, since there was no "national sponsor" to make the payments, Morris and Perkins used some of the funds from the leasing company to make the initial payments and pocketed the rest, Cox says. When the defendants later stopped making payments, the leasing companies, following the terms of the leasing contracts, demanded payment directly from the churches. In some cases, the contracts allowed leasing companies to take funds directly from church bank accounts, leaving churches in economic distress.

In addition to the alleged fraud against Michigan churches, Cox says Morris and Perkins are accused of targeting over 160 churches in 13 other states and the District of Columbia.

Banks and credit unions collected nearly $24 billion in overdraft fees last year, an increase of 35 percent from just two years earlier, according to a new study by the Center for Responsible lending.

The explosion in overdraft charges has drained the wallet of as many as 51 million Americans whose accounts become overdrawn annually. It is particularly harmful to financially vulnerable families already hit hard by the recession.

"Banks and credit unions have become so sophisticated in driving up overdrafts that Americans now pay more in overdraft fees every year than they do for books, cereal, or fresh vegetables," said CRL senior researcher Leslie Parrish. "These billions of dollars drained from consumers each year represent lost opportunities for families to save for a rainy day or buy necessary goods and services that could help spark the economy."

The most common trigger of overdraft fees are small debit card transactions that could easily be denied for no fee. This is how things used to work, and according to a 2008 nationally representative survey, it's what the large majority of people prefer.

Thousands of bank and credit union customers have complained to federal regulators that overdraft policies are unfair. Customers typically haven't explicitly agreed to these high-cost overdraft loan programs but are automatically enrolled by their bank.

When consumers try to avoid these abusive fees, they often find themselves tripped up when, for example, institutions needlessly delay posting deposits or process purchases from largest to smallest to purposely generate multiple overdrafts.

• Jarrod A. of New York City tells ConsumerAffairs.com that he has been charged over $350 in overdraft charges In six days by Chase Bank. "I received $175 in refunds," he writes, "only to see it taken back by over $300 in overdraft fees the next day." Jarrod says he is a grad student "and this has made me miss class, late for work and unable to make my next tuition payment."

• Frank J. of Stoughton, Mass., says Bank of America charged him over $300.00 in overdraft fees. "What they did," he tells ConsumerAffairs.com, "was start charging by not clearing deposits quickly. They then placed my largest debit card expenses first, then the smaller ones. In this way, they compounded the overdrafts from one to multiple." Frank says he got no satisfaction when he took his complaint to bank representatives.

• Benjamin C. of Wilmington, N.C., says he's tired of being charged $35 for overdrafts and that he would prefer the transaction be denied if his account is overdrawn. "I never signed up for an overdraft protection program," he tells ConsumerAffairs.com. "They did it automatically I guess."

Because overdrawing an account by just a few dollars triggers a fee averaging $34, cash-strapped households -- particularly younger adults and seniors on fixed-incomes --often are thrust even further into debt by this overdraft "protection."

The changes to their overdraft programs several banks announced last month do not address some of the most abusive features of the programs and can easily be reversed once the spotlight shifts. CRL says reform of overdraft practices should be set into law -- and soon - and recommend that policymakers:

• Require that institutions deny debit card purchases and ATM withdrawals, without charge, if the funds aren't there. As a limited exception, an overdraft fee could be charged if the lender gives the customer a real-time warning and chance to decline.

• Require that overdraft fees bear some relationship to a lender's cost of covering a shortfall.

• Limit the number of fees that can be charged to a customer during a year before the institution must enroll the customer in a reasonably priced overdraft product, such as a line of credit, if it wants to keep charging for overdrafts.

• Consolidate and streamline existing federal consumer protection authority by housing it in one organization: the proposed Consumer Financial Protection Agency, which would focus solely on what's in the best interest of consumers.

Consumers wanting whiter teeth should be wary of online ads that tout products promising brighter smiles.

That's the latest warning from the Better Business Bureau (BBB), which says it has received a "recent onslaught of complaints" from consumers who believed theyd signed up for free trials of teeth whitening products and were later billed for items and services they didn't want or authorize.

ConsumerAffairs.com has received similar complaints about these teeth whitening ad, which often appear on popular online news sites like FoxNews.com, CNN.com, and ABCNews.com.

The ubiquitous ads usually link consumers to phony blogs and fake news sites designed to look like impartial third-party endorsements of the products, according to the BBB.

The phony endorsements then direct consumers to a main Web site that claims the product sold is "As seen on" ABC, Forbes.com, CBS News, CNN, and USA Today -- and even includes the logos of these news outlets.

"From the complaints we've received, it's obvious that many consumers are unfortunately letting their trust in respected news outlets influence their level of trust in the products being advertised on their Web sites," said Steve Cox, president and CEO of the Council of Better Business Bureaus. "While it may be true that advertisements for the teeth whiteners were placed on major news Web sites, reporters for USA Today or CNN did not write stories about the efficacy of the specific products being sold."

Web sites for these teeth whitening products claim to offer a no-risk, money back guarantees, and free trials of the product. To receive the products, consumers must provide a credit or debit card number to cover shipping and handling.

But some consumers say the companies billed them before their trial periods ended -- and continued to charge them after they cancelled their orders. Other consumers have discovered mystery charges for companies and services they didn't know were included when they signed up for their "free" trials.

Consider what happened to Christopher S. of East Setauket, New York, who responded to an advertisement for teeth whitening products on MSNBC.com. He told ConsumerAffairs.com that a company called Clean Whites charged him nearly $50 during his "free" trial period.

"I ordered the free trial and thought that it was fairly normal," he told us. "A day later, I received a call from a customer service (representative) to confirm my order. The phone was extremely hard to hear and she confirmed my order of the FREE trial. All I had to do was pay a $5.95 shipping and handling fee."

The company, however, wound up billing Christopher eight times that amount.

"A day after that, I was charged $49.95 to my (credit) card," he said. "Upon seeing this charge, I called the company only to stay on hold with them for about 30 minutes (and) only to get no response. I have been unable to get anyone on the phone to cancel my order, and (I) never authorized any $49.95 charge. This is the biggest scam I have ever come across."

A Texas consumer told us Clean Whites duped her, too.

"I ordered a 14-day risk-free trial of a teeth whitening system for $99," said Sharon R. of Aledo, Texas. "I was never told I would automatically be scheduled to receive a monthly shipment in their 'membership' for $79.95 + $5.95 shipping."

"This is a scam and they do not answer the phone," she added. "I cannot cancel their phony membership or my Visa on their Web site as it repeats the offer to get a free trial. I do not want my credit card charged again and I want my name, address, and Visa abated from their system forever. This is a fraud."

Sharon claimed she was allegedly taken by another company selling teeth whitening products. That company, she said, is called Purely White LLC.

"I ordered a teeth whitening 'pen' over the Internet that was to cost only $4.95 plus shipping and handling," she said. "Today I received an e-mail (that I couldn't reply to) that I was charged $94.90 + 89.90 by Purely White, plus $79.95 and $83.90 for Health Cleanse, neither of which I ever ordered. None of these charges were made known to me."

"I want these charges abated, but cannot get through to them," Sharon said, adding her Visa company told her it has received other complaints about this company's billing tactics.

A New York consumer who responded to a trial offer for teeth whitening products from an outfit called Dazzle White told us the company later made several unauthorized withdrawals from his bank account.

"While on my computer I observed a trial offer from Dazzle White for teeth whitener for $4.95 only for shipping and handling," said Dennis B. of Riverhead, New York. "I ordered the product, without thinking, and received numerous phone calls thereafter soliciting me for more products, which I emphatically refused.

"On Wednesday September 16, 2009, I received a package via USPS, which contained three silver cartridges from Dazzle White. I immediately checked my bank accounts and found several unauthorized withdrawals." Those unauthorized withdrawals -- to various companies -- totaled more than $170.

Dennis immediately contacted his bank, which tried to help him track down the companies that made those withdrawals.

"The bank officer and I called the numerous toll free phone numbers and spoke to several 'customer care' agents," Dennis said. "With each call the names changed -- both of the companies and representatives. The officer and I both questioned the withdrawals and received very vague information."

Dennis, however, did learn that one unauthorized withdrawal of $8.95 gave him unlimited access to a "weight loss counselor."

"From teeth whitening to weight loss what a deal," Dennis said. "Dazzle White and the people behind it, in my opinion, are operating a criminal enterprise, which is bilking unsuspecting individuals throughout North America. I was scammed out of $173 illegally withdrawn from my checking account. If I didn't view my checking account I wonder how many other thieves would help themselves to my money."

Other complaints

The BBB said it has received complaints about Dazzle White and other companies selling teeth whitening products, including:

White Smile, Teeth Smile and Dazzle Smile:

The BBB serving Edmonton (Canada) has received 506 complaints in the last 12 months from consumers in 47 states, five Canadian provinces, and the United Kingdom about Dazzle White and these three other companies. Consumers say the companies billed them as much as $79 for their "free trials." They also told the BBB they were charged for several other services, including a weight loss program;

Ivory White:

The BBB serving Denver has received 611 complaints from consumers in 46 states about this company. Consumer say the company charged them as much as $78 a month for a free trial. Other related companies include Ortho White and Bella Brite, which are mounting complaints as well, the BBB said. Agency officials have asked the three companies to add more disclosures to their Web sites about their free trial offers. The BBB has not yet received a response to these requests;

Advanced Wellness Research:

The BBB serving West Palm Beach, Florida, has started to receive complaints from consumers about this company's teeth whiteners, which are sold under the names of Max White, My Whitening, Gleaming White Smile and many others.

Protect yourself

To protect yourself -- and your checkbook -- from getting taken by companies selling teeth whitening products online by, the BBB recommends:

Be wary of "third-party" endorsements for these products. Be cautious of any ad that links to a blog or Web site news articles. The blogs and articles were likely written by the company and are not endorsements from consumers or reporters;

Always read the fine print. Many Web sites offering free trials of teeth whitening products do not disclose the billing terms and conditions or do not have these details prominently displayed on their sites. Before giving the company any credit or debit card information, review the Web site and be aware that free trials typically result in repeated billings;

Find out if the company has any complaints on file with ConsumerAffairs.com, your state's attorney general's office, or the BBB. Consumer can file a complaint about any company that rips them off with their state's attorney general's office or the BBB;

Regularly check your bank account and credit card statements for any unauthorized charges. If you find any, immediately report them to your bank or credit card company.

October 5, 2009
Credit card holders are angry. More than one-third (32%) have paid off and closed a card since January 2008, and half of those that canceled did so in direct response to the actions of credit-card issuers, such as cutting limits, hiking rates, or imposing fees, according to a national poll by Consumer Reports.

Twenty-one percent of respondents said they were treated unfairly by card companies, and only 41 percent said they were highly satisfied with their card issuer, making credit cards one of the lowest-rated services that Consumer Reports covers.

The level of public anger about card issuers shows in the results of Consumer Reports nationally representative survey of 1,211 credit card users, conducted in July, as well as in scores of irate letters and e-mails Consumer Reports has received from readers.

The survey also found that 45 percent of respondents say they charging less, 43 percent say they are spending about the same, and 11 percent are charging more than they did a year ago.

How much they owe

How much don consumers owe?

• 54% pay their balances in full each month
• 13% carry balances over $10,000 (Median $17,366)
• 33% carry balances up to $10,000 (Median $2,554)

Consumer Reports survey showed credit-card users tended to fall into three camps. One group is made up of consumers who generally pay their bills on time but use cards for convenience or to rack up rewards. Then there are those who reported moderate balances and reasonable prospects of eventually paying off that debt.

The third group includes consumers with debts totaling $10,000 or more, often from spending for emergencies; 44 percent of that group said they wouldnt be able to survive financially over the next six months without relying on their credit cards to meet monthly expenses.

Depending on which camp your credit needs fall into, Consumer Reports November report offers a complete strategy guide to dealing with credit card issues, finding the right cards for your needs, and protecting your credit score. The report is available at www.ConsumerReports.org.

Another pet food company has quietly withdrawn some of its products from store shelves.

Deficiencies in the thiamine levels of certain bags of Premium Edge Finicky Adult and Premium Edge Hairball cat food have prompted Diamond Pet Foods to pull the products from distribution.

The company made that announcement Premium Edges Web site.

The action comes just days after Nutro Products quietly removed from the market three types of its puppy food because of a production error.

Nutro confirmed its decision to voluntarily withdrawal the puppy food on its Web site last Wednesday, saying it had discovered pieces of melted plastic in the production line of select varieties of NUTRO dry dog and cat food products.

In this latest product withdrawal, Diamond said it is pulling from the market Premium Edge Finicky Adult and Hairball cat foods that have the following date codes: RAF0501A22X 18lb., RAF0501A2X 6 lb., RAH0501A22X 18 lb., RAH0501A2X 6lb.

Product testing proved no contaminants were discovered in the cat food; however the cat foods were deficient in thiamine, the company wrote on its Web site. Diamond tracked the vitamin premix lot number that was utilized in these particular cat foods and have performed testing on another lot of Premium Edge cat food that used the same vitamin premix, and it was not deficient in thiamine.

Symptoms of thiamine deficiency will be neurological in nature, according to the company. Any cats fed these date codes that display these symptoms should be immediately taken to a veterinarian, the company said, adding it has received calls about these health issues from pet owners or veterinarians primarily in the Rochester, New York, area.

The company said it asked all stores that received the cat food to pull the products off the shelves. The retailers were also asked to contact their customers via email or telephone requesting them to check the date code of the food, the company said.

Pet owners who have any of the Premium Edge cat foods involved in this action should return the products to the store, the company said.

For more information, contact Premium Edge at 1-800-977-8797.

The Nutro puppy food items quietly pulled off the market last week are:

• NUTRO ULTRA Puppy food for dogs, 4.5 pound bag, best buy date of 9/10/10, and a UPC of 79105 51313;

• NUTRO NATURAL CHOICE Chicken Meal, Rice and Oatmeal Formula Small Bites Puppy, 5 pound bag, best buy date of 9/10/10 and a UPC 79105 23050

Nutro said it shipped those bags of puppy food to PetSmart stores in California, Arizona, Colorado, Texas and New Mexico.

The pet food maker also pulled select 30 pound bags of NUTRO ULTRA puppy food, which were distributed to PETCO stores in California, Nevada, Hawaii, and Utah. Those bags of food have a best buy date of 9/10/10 and a UPC of 79105 51315.

A Nutro representative told ConsumerAffairs.com last week that the company pulled the puppy food off the market after learning a workers plastic hard hat was sucked into the machinery.

Based on our extensive review, it is highly unlikely that any pieces of plastic made it into finished product, the company wrote on its Web site. However, upon learning of the incident, we voluntarily retrieved all potentially affected products.

Although Nutro said it found pieces of melted plastic in the production line for dry dog and cat food products, the company is not pulling any feline food off the market.

Customers who have any puppy food involved in this action can return the product to the store for a full refund or exchange, Nutro said.

For more information, pet owners can contact Nutro 1-800-833-5330.

When you receive a phone call from a telemarketer asking for help for some police, fire or public safety organization, your safest course of action is to simply hang up.

At best, the solicitor will probably take the lion's share of your donation. At worst, the caller is an outright fraud.

These groups may call themselves "Friends of the Police," the "Firefighters Support Brigade," or any number of official-sounding names designed to make you think they are associated with your local police or fire departments. They aren't.

In Oregon, consumers recently have been receiving calls from telemarketers who say they are raising money to support first responders in the state engaged in search and rescue. After conducting an investigation, Oregon Attorney General John Kroger reached a settlement with the company making the calls - A Growing Concern, LTD, which was soliciting on behalf of a group called Search and Rescue Charities.

"Search and rescue team members risk their lives to save Oregonians and play a crucial role in public safety," Kroger said. "Oregonians who want to help search and rescue efforts need to know that their donations are going to legitimate charities."

An Oregon Department of Justice investigation uncovered evidence that A Growing Concern repeatedly deceived Oregon consumers, including falsely claiming that donations would support local search and rescue efforts.

The settlement prohibits the companies from operating in Oregon for at least three years and requires A Growing Concern to pay a total of $5,000. The companies could have to pay an additional $20,000 if they violate any terms of the agreement and an additional $25,000 for each violation.

October 5, 2009
Consumers desperate for low cost health insurance can often be talked into signing up for medical discount cards because marketers are unclear, or downright deceptive. In Minnesota, the state has taken legal action in two separate cases.

Minnesota Attorney General Lori Swanson has sued Consumer Health Benefits Association, a Missouri non-profit corporation with its principal place of business in Florida; and Home Health America, LLC of Nevada, which offered long-term and home care benefits to elderly citizens for fees of up to $4,000 without being licensed as an insurance company.

Swanson accused both companies of scamming Minnesota citizens struggling with the high cost of health care into believing they were purchasing health coverage at an affordable price when they were really purchasing non-insurance products that offered limited benefits.

"Many people are struggling with skyrocketing health insurance premiums. Some companies are exploiting the lack of affordable health coverage by aggressively promoting risky, unregulated health coverage products that offer little or no financial protection if you get sick," said Swanson.

Swanson said the companies are among a niche group of marketers that seek out citizens who are looking for affordable coverage in the face of high health insurance premiums. Family health insurance premiums in Minnesota rose 108 percent from 2000-2009, while median earnings rose by only 22.6 percent, according to a September, 2009 report by Families USA.

The lawsuit against Consumer Health Benefits Association alleges that it targeted people looking for affordable health insurance, misleading them into paying an enrollment fee of $129.90 and a monthly fee of between $129.95 to $149.95 by misrepresenting that it offered health insurance or the functional equivalent of health insurance.

The lawsuit alleges that during sales calls to consumers, CHBA misrepresented that its "New Choice Health Plan" was insurance or just like insurance; covers 80 percent of medical expenses; requires only minimum co-pays for doctor and hospital visits; and has a vast network of doctors and hospitals at which CHBA provides coverage. In reality, CHBA is a so-called "health discount plan" which does not provide insurance coverage or otherwise cover claims, but instead purports to offer certain discounts off the "retail price" charged by certain doctors and clinics. Health discount plans like CHBA are not licensed or regulated by the State of Minnesota; unlike an insurance policy, they do not and cannot legally assume the legal obligation for paying claims.

The lawsuit alleges that CHBA obtained marketing leads of citizens shopping for health insurance quotes on the Internet and then aggressively telemarketed those citizens, in some cases pushing for quick sales by claiming that its current premiums were only available for a limited time or that it could only sell coverage to a few more customers in Minnesota.

CHBA immediately charged citizens a combined enrollment fee and monthly fee in excess of $250 after obtaining their bank account information during the initial sales call, the suit alleges. It only sent written materials describing the plan after citizens had signed up. After learning of CHBA's actual limited terms (e.g. when they reviewed the written materials CHBA sent them after they enrolled or when they needed health care and attempted to use the plan), many people soon cancelled.

Swanson says more than 40 percent of CHBA enrollees cancelled in the first month, 64 percent cancelled in the first three months, 82 percent cancelled in the first six months, and 94 percent cancelled in the first year. Approximately 2,250 Minnesota citizens signed up with CHBA since 2003.

The Attorney General's Office said this case is the latest example of companies engaging in "bait and switch" tactics, in which marketers make extensive oral misrepresentations and then attempt to "cover" themselves through after-the-fact written disclosures or tape recordings in which they attempt to disclaim these statements.

For example, the Attorney General's Office said that it is increasingly encountering telemarketers who "coach" citizens to ignore red-flags on recorded verifications. The lawsuit alleges that CHBA "baited" consumers into purchasing the plan by making extensive oral misrepresentations and charging the consumers the processing fee and initial monthly fee at the end of the telemarketing call, before consumers received their membership packet setting forth the terms and conditions of the plan.

The lawsuit against CHBA alleges that the company violated the State's consumer fraud and deceptive trade practices laws. CHBA was sued by the Illinois Attorney General's Office in 2005. In a 2007 settlement with that office, CHBA agreed not to represent that its plan was health insurance or commensurate to health insurance.

The lawsuit against Home Health America, LLC and its owner, Michael Woodward, alleges that the company sold elderly Minnesota citizens long-term and home care coverage for fees of up to $4,000, even though it was not licensed as an insurance company.

The lawsuit alleges that Home Health America sent elderly Minnesotans mailings describing the high cost of home care. The mailings invited the senior citizens to return a post-card for more information on home care benefits.

People who returned the postcard were soon called by defendant Michael Woodward, using the alias "Mike Woods," who requested to meet with the seniors in their homes. When he did so, Woodward told seniors that Home Health America would provide home care and other long?term care services in exchange for a lump sum payment of between $3,000 to $4,000.

In some instances, Woodward reportedly told seniors that the payment covered one year of home care services. In other instances, he told seniors that their lump sum payment was not limited to any term. Within days of making their payments, Minnesota seniors received letters stating that their "program" had been "upgraded" to include medical services such as 24?hour nursing care and assisted living care.

In some cases, Home Health America refused to pay claims, and the Attorney General's Office said it is not aware of any case did where it paid claims in excess of the citizen's initial payment.

ConsumerAffairs.com has received large numbers of complaints about Consumer Health Benefits.

Discount plans are not insurance.

A health discount plan is not an insurance policy and does not provide insurance protection; instead, at best it offers limited discounts from the retail price charged by certain doctors and clinics. A health discount plan does not pay your doctor, clinic or hospital for your bills and cannot legally insure you for health care expenses. Under Minnesota law, only a licensed insurance company and agent can sell you an insurance policy. If the company is not licensed, it cannot legally provide insurance coverage for your claims.

Read the plan before you buy it.

Some companies pull a "bait and switch" on the consumer. They make all kinds of promises about the supposed benefits of the plan on the phone and then send you written materials describing the actual terms only after you allow your account to be charged for an enrollment fee or monthly fee. These companies may then refuse to make refunds after you discover you were misled. Do not do business with any company that won't send you the written materials to review before you buy.

Walk away if they say "time is running out."

Beware of plans that push for quick sales. For example, the salesperson may tell you that the current monthly fee is only good for a limited period of time or that the company is only allowed to sell to a few more customers in the state. Walk away from companies that try to pressure you to buy without doing your homework by telling you that you'll lose the "deal" if you don't accept it on the spot.

Beware of empty promises.

Sellers of health discount or other non-insurance plans mislead some citizens by using words that sound like an insurance policy; for example, they may call the monthly payment a "premium" or may talk about deductibles or co-pays. Some citizens purchased a health discount plan because they were told it was an "insurance plan" or "just like" an insurance policy or that it had a broad network of doctors. Remember that it is against the law for a health discount plan or non-licensed company to insure or take responsibility for paying your health claims-the best they can do is offer limited discounts at certain doctors. In some cases, the "plan" or "policy" being sold may not even exist.

With Congress set to come back from its August recess and health care reform front and center on the agenda, Consumer Watchdog is urging California Attorney General Jerry Brown to investigate allegations that some insurers are coercing their employees to lobby for weaker measures.

"We write to request that you investigate actions by health insurance companies Anthem/Wellpoint and United Healthcare that may violate the right of employees in California to be free of political pressure by employers," the group said. "We believe that such individual political persuasion by an employer amounts to illegal coercion under the California Labor Code."

The Santa Monica, California-based advocacy group published letters that it claimed were from insurers United Health Group and Wellpoint, urging employees to call Congress with pre-written talking points and included phone numbers.

The Wellpoint letter asked employees to visit the company's "grassroots" Web site the Health Action Network and "contact your elected officials, as well as notifying friends, neighbors, and family members about this important issue."

Consumer Watchdog claimed the "voluntary" request was anything but, in light of the instruction to make the calls during business hours, and the companies' ability to monitor their employees for compliance.

"Wellpoint and United HealthCare are no doubt tracking which employees respond to their demands," said Consumer Watchdog's research director Judy Dugan. "To call such action 'voluntary' defies common sense."

California Labor Code Section 1101 prohibits companies from preventing their employees from engaging in political activity, or directing the activities they may take. Section 1102 prohibits companies from threatening to fire or punish employees from engaging in political activity.

Even if the Attorney General does take notice, that might not guarantee any action, however.

California regulators admitted last year that they could not enforce a previously-levied $1 million fine on Anthem BlueCross, a division of Wellpoint, for rescinding coverage to individuals who made claims, a process called "recission."

The Department of Managed Health Care (DMHC) said that Anthem Blue Cross could contest each recission, which could "tie us up in court forever."

Consumers are drowning in debt and unscrupulous "debt settlement" companies, advertising on radio, television and the Internet, are making the situation worse, says Illinois Attorney General Lisa Madigan.

Madigan, like many of her peers in other states, has recently stepped up the pressure on what she calls "an abusive debt settlement industry." She's proposed legislation that would make it harder for the worst players to operate in Illinois and has filed suit against a Dallas company she said was employing deceptive marketing practices and charging excessive fees without effectively improving consumers' financial standing.

"With credit card debt at an all-time high, increasing numbers of families have become prime targets for debt settlement companies who lure consumers in with elaborate, deceptive promises to dramatically reduce consumers' debt," Madigan said. "Based on my office's lawsuits and investigations of this industry, we've learned that consumers seldom, if ever, see their debts settled and often end up owing more than the credit card debt they originally incurred."

The proposed legislation seeks to ban all debt settlement companies from operating in Illinois, unless they meet the following requirements:

• provide true, individualized credit counseling;

• charge no up-front fees;

• obtain a license and a bond;

• disclose to consumers the risks involved in entering into a debt settlement contract; and

• provide a written contract and a right to cancel the contract.

Madigan said her office has seen a sharp rise in debt- and credit-related consumer complaints. Over the last few years, the Attorney General's office has received more than 12,000 complaints regarding debt and credit issues.

Last year, at the height of the economic downturn, consumer debt-related issues surged to the top category of complaints filed with the Attorney General's Consumer Fraud Bureau, including credit card debt, abusive collections and deceptive debt settlement practices.

Consumers with debt settlement complaints typically report that, after they enroll in debt settlement programs, the firms charge excessive upfront fees and advise consumers to stop paying their credit card bills.

All too often, consumers report that after they make many upfront monthly settlement payments, the debt settlers fail to negotiate with consumers' credit card companies. As a result, the credit card companies add interest, fees and penalties to consumers' credit card balances and begin collection efforts to recoup the debt, which in turn negatively impacts consumers' credit reports. In many instances, credit card companies have sued consumers enrolled in debt settlement agreements in an attempt to collect the balance of the consumers' accounts.

The lawsuit was filed against Credit Solutions of America (CSA) and its CEO Douglas Van Arsdale. The Attorney General's complaint alleges that the company falsely claims that its services can help to reduce consumers' credit card debt by 50 percent.

Madigan's lawsuit contends the company continually fails to negotiate with consumers' creditors even though consumers cease to pay their creditors directly and, instead, make months of upfront payments to CSA. As a result of CSA's failure to take any effective debt settlement action on behalf of consumers, according to Madigan's lawsuit, creditors frequently sue consumers to collect on the outstanding balances.

Chris, of Laytonville, Maryland, signed up with Credit Solutions after seeing the company advertised on the Oprah Winfrey Show.

"They told me to stop paying my creditors and to forward all collection calls and notices to them," Chris told ConsumerAffairs.com. "Yeah right! That did nothing! Phone calls night and day from creditors, most of which stated that they don't and will not work with Credit Solutions."

Madigan's lawsuit charges defendants with violating the Illinois Consumer Fraud and Deceptive Business Practices Act by misrepresenting the services that the company can provide to consumers and the effect the services will have on consumers' credit.

The state is seeking a permanent injunction barring the defendants from engaging in debt settlement in Illinois and asking the court to order the defendants to pay restitution for aggrieved consumers, civil penalties of $50,000 for violating the Consumer Fraud Act, and an additional $50,000 for each violation committed with the intent to defraud.

This is the third lawsuit that Madigan has filed this year against debt settlement firms, following complaints against SDS West Corporation and Debt Relief USA.

Consumer bankruptcies totaled 1,046,449 filings through the first nine months of 2009 -- the first time since the 2005 bankruptcy overhaul that filings have surged past the 1 million mark during the first three calendar quarters of a year, according to the American Bankruptcy Institute (ABI), relying on data from the National Bankruptcy Research Center.

The filings for the first three-quarters of 2009 were the highest total since the 1,350,360 consumer filings through the first nine months of 2005.

"Bankruptcy filings continue to climb as consumers look to shelter themselves from the effects of rising unemployment rates and housing debt," said ABI Executive Director Samuel J. Gerdano. "The consumer filing total through the first nine months is consistent with our expectation that consumer bankruptcies will top 1.4 million in 2009."

The September 2009 consumer filing total reached 124,790, a 41 percent increase from the 88,663 consumer filings in September 2008. The September 2009 filings also represented a 4 percent increase over the 119,874 filings in August 2009 and it is the fourth highest single month since the 2005 law change.

Chapter 13 filings constituted 28 percent of all consumer cases in September, unchanged from the August rate.

Earlier in the week, the American Bankers Association reported delinquency rates hit record quarterly highs in three key consumer loan categories: home equity loans, home equity lines of credit, and bank cards.

The composite ratio, which tracks eight closed-end installment loan categories, also hit a record high at 3.35 percent of all accounts (seasonally adjusted) compared with 3.23 percent of all accounts in the previous quarter.

The ABA report defines a delinquency as a late payment that is 30 days or more overdue.

ABA Chief Economist James Chessen blamed continued job losses, shorter work weeks and falling incomes, saying, "Six consecutive quarters of job losses have taken their toll. The picture won't change until the labor market improves and the economy picks up steam. This is going to take time."

California Attorney General Jerry Brown has sued two California businessmen -- Todd Swick and Michael Sardo, owners of Los Angeles based Executive Financial Credit Services -- for ignoring "repeated warnings" to register with his office and post a $100,000 bond with the Secretary of State.

"Swick and Sardo violated California law by refusing to register their credit repair business with the Attorney General's office and post a $100,000 bond, even after repeated warnings," Brown said. "So today, attorneys from my office are filing suit, sending a clear signal to credit repair firms operating in California that they must register with the Attorney General's office and follow the law."

Executive Financial Credit Services offers to help repair their customers' credit by challenging negative or inaccurate items on credit reports directly with the three credit report bureaus-Experian, TransUnion, and Equifax. Under California's 1984 Credit Services Act, companies providing credit repair services in California are required to register with the Attorney General's office and post a $100,000 surety bond with the Secretary of State.

In late 2008, Brown's office sent a letter directing the business to register and provided information to assist in the process. Brown says the business did not respond. Despite repeated warnings, Executive Financial Credit Services did not register and obtain a bond.

Swick informed the state the business was no longer conducting credit repair services and didn't need to register. Brown's office, however, said it discovered the business was continuing to operate as a credit repair firm.

In early 2009, Sardo informed Brown's office that the business was moving from California to Arizona and would not complete the registration process. Brown's office informed Sardo that if the business continued offering credit repair services in California, it was bound by California law to register.

Nevertheless, Executive Financial Credit Services still has not registered. So Wednesday, Brown filed suit in San Diego Superior Court, contending that the business violated:

• California Civil Code section 1789.18 for not posting a $100,000 surety bond with the Secretary of State's office;

• California Civil Code section 1789.25 for conducting a business without first obtaining a certificate of registration from the Attorney General's Office; and

• California Civil Code section 1789.13(a) for charging consumers money before completely performing the services they promised.

The suit seeks a permanent injunction to keep Executive Financial Credit Services and its principals from operating illegally, civil penalties of not less than $200,000 and restitution for victims.

Nutro Products has provided updated information on its decision to pull some of its puppy food off the market because of a production error.

The company late Wednesday posted information about the action on its Web site, which confirmed it's removing three types of puppy food off store shelves after discovering pieces of melted plastic in the production line of select varieties of NUTRO dry dog and cat food products.

We identified the source as a workers bump cap, similar to a hard hat, which inadvertently made its way into our manufacturing process, the company wrote. We immediately retrieved the affected pet food from our distributors, and only three skus reached retail stores."

The company added: Based on our extensive review, it is highly unlikely that any pieces of plastic made it into finished product. However, upon learning of the incident, we voluntarily retrieved all potentially affected products.

A Nutro customer service representative on Wednesday told ConsumerAffairs.com that a workers plastic hard hat was sucked into some of the machinery and the bags of puppy food may have plastic in them.

The representative also said the puppy food involved in this voluntary product withdrawal was only shipped to PETCO and PetSmart stores in Arizona and California.

But Nutros Web site now states the food was distributed to six other states.

The Web site also lists different UPC codes on some of the puppy foods than the ones Nutros representative gave ConsumerAffairs.com on Wednesday morning.

According to NUTROs Web site, the company is pulling the following flavors of puppy food -- shipped to PetSmart stores in California, Arizona, Colorado, Texas and New Mexico -- off store shelves:

• NUTRO ULTRA Puppy food for dogs, 4.5 pound bag, best buy date of 9/10/10, and a UPC of 79105 51313;

• NUTRO NATURAL CHOICE Chicken Meal, Rice and Oatmeal Formula Small Bites Puppy, 5 pound bag, best buy date of 9/10/10 and a UPC 79105 23050

Nutro also said it is pulling select 30-pound bags of NUTRO ULTRA puppy food, which were distributed to PETCO stores in California, Nevada, Hawaii, and Utah. Those bags of food have a best buy date of 9/10/10 and a UPC of 79105 51315.

Although Nutro said it found pieces of melted plastic in the production line for dry dog and cat food products, the company is not pulling any feline food off the market.

Customers who have any puppy food involved in this action can return the product to the store for a full refund or exchange, Nutro said.

For more information, pet owners can contact Nutro 1-800-833-5330.

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