Current Events in March 2011

If you're single, Facebook and other social networking sites can help you meet that special someone. However, for those in even the healthiest of marriages, Facebook can quickly devolve into a marital disaster.

The source of this observation is the nation's divorce lawyers, who may be in a position to know. A survey by the American Academy of Matrimonial Lawyers found that 66 percent of divorce lawyers say Facebook is cited as evidence in divorces they are handling.

Also, more than 80 percent of divorce lawyers reported they "have seen an increase in the number of cases using social networking evidence" during the past few years.

Connecting online

"We're coming across it more and more," said licensed clinical psychologist Steven Kimmons, Ph.D., of Loyola University Medical Center in Maywood, Ill. "One spouse connects online with someone they knew from high school. The person is emotionally available and they start communicating through Facebook. Within a short amount of time, the sharing of personal stories can lead to a deepened sense of intimacy, which in turn can point the couple in the direction of physical contact."

If a marriage is an unhappy, unstable one to begin with, it's not hard to see how Facebook's online intimacy could lead to trouble. But Kimmons says even strong marriages can hit the rocks if one partner succumbs to Facebook's siren song.

"I don't think these people typically set out to have affairs," said Kimmons, whose practice includes couples therapy and marriage counseling. "A lot of it is curiosity. They see an old friend or someone they dated and decide to say 'hello' and catch up on where that person is and how they're doing."

Too much contact?

It all boils down to the amount of contact two people in any type of relationships - including online - have with each other, Kimmons said. The more contact they have, the more likely they are to begin developing feelings for each other.

"If I'm talking to one person five times a week versus another person one time a week, you don't need a fancy psychological study to conclude that I'm more likely to fall in love with the person I talk to five times a week because I have more contact with that person," Kimmons said.

Stories of people whose marriages were destroyed by affairs that began on social networking sites abound on the Internet. Though there are no hard-and-fast rules to follow, there are some safeguards couples can apply to decrease the chance of online relationships getting out of control. For starters, do a self-assessment of why you're using online sites.

Self analysis

"Look at the population of the people who are your online friends," Kimmons said. "Is it a good mixture of men and women? Do you spend more time talking to females versus males or do you favor a certain type of friend over another? That can tell you something about how you're using social networks. You may not even be aware that you're heading down a road that can get quickly get pretty dangerous, pretty fast to your marriage."

Another safeguard is to spell out from the beginning with your online contacts what your expectations are of social networking relationships. Also, it's a good idea to not engage in intimate conversation with someone who is not your spouse.

"From the start tell your online friend that you're not looking for anything more than establishing old contacts with people to find out how they're doing," Kimmons said.

In some instances, couples could share passwords with each other and place the computer in a common area in the house or apartment.

"It's not that people are going to read what you're writing but they'll see what you're doing, Kimmons said. "Then it's not a secret."

This may be the last year in which tax preparers and their partner banks are able to skim hundreds of millions of dollars from tax refunds by selling refund anticipation loans (RALs). Two major consumer groups say regulatory actions by banking regulators and the IRS may spell the end of the popular but extremely expensive loans.

In their annual report on the issue, the National Consumer Law Center (NCLC) and Consumer Federation of America (CFA) document how regulatory actions by the IRS and banking regulators may potentially spell the end of RALs.

The report also takes a look-back at RAL lending in prior years, finding that the loans drained the refunds of about 7.2 million American taxpayers in 2009, costing them in the neighborhood of $606 million in loan fees, plus over $58 million in other fees. In addition, another 12.9 million taxpayers spent $387 million on related financial products to receive their refunds.

“We will be glad to see the last of these high-cost, high-risk loans,” declared Chi Chi Wu, NCLC Staff Attorney. “It’s not a moment too soon to stop multi-million dollar corporations from skimming off the tax refunds of hard-working families.”

Expensive loans

RALs are bank loans secured by the taxpayer’s expected refund -- loans that last about 7 to 14 days until the actual IRS refund repays the loan. Using the most recent data available from the IRS, NCLC and CFA calculate that about 7.2 million taxpayers received RALs in the 2009 tax filing season (for tax year 2008). This represented a 14% drop from the 8.4 million taxpayers who took out a RAL in the 2008 filing season.

RALs are mostly marketed to low-income taxpayers, including recipients of the Earned Income Tax Credit (EITC), the nation’s largest federal anti-poverty program. According to IRS data, 87% of taxpayers who applied for a RAL in 2009 were low-income, and nearly two-thirds (64%) were EITC recipients

In addition to RALs, refund anticipation checks (RACs) are another product offered by tax preparers and their partner banks. With RACs, the bank opens a temporary bank account into which the IRS direct deposits the refund check. After the refund is deposited, the bank issues the consumer a check or prepaid card and closes the temporary account.

Consumers without a bank account may pay extra to then cash the RAC check. RACs generally cost about $30. In 2009, about 12.9 million taxpayers received a RAC.

More limited, even more expensive

In 2011, RAL availability is more limited, but the loans are more expensive. For example, Republic Bank states that it charges $61.22 for a RAL of $1,500, which translates into an APR of 149%. If the refund exceeds $1561.22, the taxpayer will be charged another $29.95 when the remainder of the refund arrives in the form of a RAC, for a total of $91.17 in fees.

Tax preparers may also charge their own fees in addition to a RAL or RAC fee charged by the bank. These add-on fees can range from $25 to several hundred dollars.

Changes in the industry

During the past year, there have been a number of major developments in the RAL industry. Concerns over RALs have prompted a number of regulators to take action against them. Collectively, these developments signal the end of RAL lending.

“We are pleased that the IRS and bank regulators may have effectively put an end to loans that siphon off hundreds of millions in taxpayers’ hard-earned money and federal benefits meant to lift hard-working Americans out of poverty,” said Jean Ann Fox, Director of Financial Services for CFA.

In August 2010, the IRS announced it would stop providing the Debt Indicator, a service that helped tax preparers and banks make RALs by acting as a form of credit check. The Debt Indicator revealed whether a taxpayer’s refund would be paid or would be intercepted for government debts. Consumer advocates had strongly urged termination of the Debt Indicator, and applauded the IRS’s action.

In April 2010, JP Morgan Chase voluntarily exited the RAL market. Chase had been one of the three biggest RAL providers, serving about 13,000 independent preparers. This left many independent preparers without a source of RALs.

In October 2010, the Office of Thrift Supervision issued a supervisory directive to MetaBank, effectively prohibiting that bank from making RALs. Previously, MetaBank had announced its intent to make RALs, and was expected to be the RAL partner for Jackson Hewitt.

MetaBank also had previously provided Jackson Hewitt with a “pay stub” RAL in the form of its iAdvance line of credit on a prepaid card. The OTS directive resulted in the termination of the iAdvance program, citing “unfair or deceptive acts or practices.”

In December 2010, the Office of the Comptroller of the Currency issued a directive prohibiting HSBC from offering RALs. HSBC had been H&R Block’s RAL-lending bank partner. This followed a similar OCC action in December 2009 that forced Santa Barbara Bank & Trust, which had been Jackson Hewitt’s main RAL lending partner, out of the RAL market.

As a result of the OCC and OTS’s actions and the departure of JPMorgan Chase, there were only three state-chartered banks this year making RALs—Republic Bank & Trust, River City Bank, and Ohio Valley Bank/Fort Knox Financial Services. All three banks are small banks, and have only a fraction of JPMorgan Chase’s or HSBC’s RAL lending capacity. Republic is the RAL lending partner for both Jackson Hewitt and Liberty Tax Service in 2011.

On February 10, 2011, Republic announced that its federal regulator, the FDIC, had notified the bank that the practice of originating RALs without the benefit of the Debt Indicator is unsafe and unsound. Ohio Valley Bank received a similar notice, and its Board of Directors voted to discontinue making RALs. River City Bank also announced that it would exit the RAL business after the 2011 tax season, following conversations with the FDIC.

The FDIC’s actions signal that the three remaining RAL lending banks have been forced out of the RAL market. Two of the banks have accepted the FDIC’s decision, but Republic Bank & Trust has stated it will appeal the decision to an administrative law judge, and potentially to a federal court. Unless Republic’s appeal is successful, the FDIC’s actions mean there will be no banks left that could make RALs in 2012, effectively ending the product.

Future perils

Even with the end of RALs, low-income taxpayers still remain vulnerable to profiteering. Tax preparers and banks continue to offer RACs, which can be subject to significant add-on fees and may represent a high-cost loan of the tax preparation fee. Consumer advocates recommend taxpayers consider alternatives to RACs.

“Consumers should think about opening a real bank account to get their refunds fast, instead of paying $30 for a one-time use account,” recommended Jean Ann Fox of CFA.

Another option is prepaid debit cards, including any existing payroll or prepaid card that the taxpayer already has. There are prepaid card options specifically targeted for tax time, such as the Get It Card from Advent Financial Services or the H&R Block Emerald Card. A few even permit taxpayers to have the costs of tax preparation deducted from their refunds.

Earlier this year, the U. S. Department of Treasury announced a pilot project to offer 600,000 low-cost prepaid cards to families who may not have a bank account to receive their tax refunds, a move applauded by consumer advocates.

Consumer advocates recommended that taxpayers be cautious when considering other types of prepaid card options.

“As with any financial product, taxpayers should compare costs and consumer protections when choosing among prepaid cards,” recommended Chi Chi Wu, NCLC Staff Attorney.

Another development is that the IRS has stated it will explore the idea of permitting a portion of tax refunds to go directly to pay for tax preparation. A split refund option would allow taxpayers to pay for preparation fees out of their refunds without the need for a RAC. Consumer advocates have supported the idea, if properly limited in amount to prevent abuse.

Other potential future developments could be less beneficial. Unscrupulous preparers could partner with non-bank lenders to make RALs, perhaps employing tactics used by high-cost loan companies.

Finally, the reforms that have signaled the end of RAL lending have been issued by the IRS and banking regulators. With different regulators, these decisions could be reversed

easily.

Does AT&T have a right to “personal privacy?” The huge telecommunications company made that claim as it resisted the Federal Communications Commission's (FCC) attempt to release some AT&T documents under the Freedom of Information Act (FOIA).

FOIA is frequently used by reporters, consumer activists, special interest groups and individuals who are seeking access to documents being held by the federal government. It is based on the principle that information held by the government belongs to the people.

There are exceptions, of course. If a FOIA request would cause personal privacy to be violated, the information can be withheld, or at least edited to eliminate the personal references.

That sounded good to AT&T, which apparently sees itself as a person. So it went all the way to the Supreme Court to argue that documents it had provided to the FCC should not be released to the public.

You can see how AT&T might think that. It wasn't long ago, after all, that the Court held in the Citizens United case that corporations can be treated as persons when it comes to political advertising and that their First Amendment rights would be violated if they were prohibited from running political ads. The ruling was seen as strengthening corporations' influence over elections.

But this time the Court took a narrower view. Writing for a unanimous court, Chief Justice John Roberts held that adjectives like “personal” do not always carry the same meaning as their corresponding noun – “person” in this case.

Expounding on that topic, Robert noted the differences bertween “crank” and “cranky,” “corn” and “corny,” “crab” and “crabbed.”

But, with no dissents heard, Roberts ended with the hope “that AT&T will not take it personally.”

Judicial humor aside, the decision protects – at least for now – citizens' rights to see documents of public importance gathered by the government at taxpayers' expense

When a medical emergency arises and health insurance falls short, many consumers look for financing options to take care of health care bills.

But New York Attorney General Eric Schneiderman says this can be a financial minefield, especially if the patient’s clinic or health care provider pushes an expensive credit card option.

Health care debt is the number one cause of individual bankruptcy, says Schneiderman, and your bill can skyrocket when interest and fees are added.

Personal incentives

Some doctors and dentists have arrangements with credit card companies to offer you financing, with health-related names for what are essentially high-interest credit cards. Consumers need to beware these offers, Schneiderman advises.

First, explore all of your options before you apply for a health care credit card, and evaluate whether a credit card is the best way to pay for your health care needs.  Ask your health care provider if you can work out a payment plan to spread out your payment rather than opening a credit card account. 

If you must borrow, check with your bank or credit union to find out whether you can obtain a loan with more favorable terms than a credit card.  If you do take out a health care credit card, only charge what you can afford.  Remember that interest and fees that apply to credit cards can mean you will end up paying much more than the actual cost of your health care. 

Credit card calculator

Schneiderman has a credit card calculator on his website to show you home much you could end up paying with a medical credit card. Using the calculator, we entered $10,000 as the amount of the charge, 29.9 percent as the interest rate, and $300 as a monthly payment.

Using that criteria, it would take you 73 months to pay back the loan, including $11, 639.62 in interest, more than twice the amount charged in the first place.

Don't be pressured

Schneiderman says some health care providers aggressively market health care credit cards to their patients.  Do not allow your health care provider to pressure you into signing up for a credit card that you may not want or need. 

Be aware that health care providers may be promoting these credit cards because the cards ensure that providers are paid in full, not because it is in your best interest to pay for health care with a credit card.  Before applying for a credit card through your health care provider, ask if they have a financial incentive in promoting the card.

Finally, make sure you read and understand any financing documents your health care provider gives you before signing the documents.  Some health care providers may attempt to sign you up for a credit card without explaining that you are signing up for a credit card issued by a third party bank, not your health care provider.

Cuomo probe

Schneiderman's predecessor, current New York Gov. Andrew Cuomo, launched an investigation last year that found some health care providers pressured consumers into using GE Money's CareCredit "through fast-talking sales pitches and deceit."

Cuomo said the investigation also found that medical credit card issuers often pays kickbacks in the form of rebates to the providers based on how much business they charge consumers on the credit cards.

A Virginia girl who went online to buy her mother a present claims in a federal class action suit that she was defrauded by Shopper Discounts, a subsidiary of Webloyalty, in a “coupon click fraud” negative option scam.

The suit charges that Danielle Stryker of Winchester, Va., who was 15 years old at the time, wound up inadvertently signing up for a “membership” that cost her $12 a month, even though she did not intend to sign up for it, had no use for it and never used it.

Danielle's suit charge that the business practice at issue is “as simple as it is deceptive and devious” and is used on a wide network of Web sites that subscribe to Webloyalty's e-commerce services.

In Danielle's case, she was on the Woman Within site looking for a gift for her mom when a pop-up offered her a $10 discount on her next purchase. When Danielle filled out the form, her credit card number and other information were transferred to Shopper Discounts, which began charging her $12 a month, supposedly as part of a 30-day trial.

No disclosure of the fee and membership terms is made prior to the transaction, the suit charges. Webloyalty later sends the customer an email informing them that they have 30 days to cancel their membership or they will be charged $12 per month indefinitely. The supposed discount program, in fact, provides no benefits whatsoever, the suit alleges.

The notification email is purposely designed to resemble spam and is unlikely to be read or even seen by the majority of the customers victimized by the scheme, the suit charges.

Stryker said she did not discover the charge on her debit card until $168 had been taken from her account. The suit says Webloyalty failed to refund the payments, even after being informed via an affidavit that Stryker was a minor and thus unable to enter into a legally-binding agreement.

Many complaints 

The lawsuit alleges that “hundreds of thousands” of consumers have complained to Webloyalty and to local, state and federal agencies about the program, which is marketed under the name “Reservation Rewards” and recounts previous class actions, suits by the attorneys general of New York and Connecticut and even a U.S. Senate hearing, but says the negative option practices continue to victimize customers.

The actions amount to a violation of the Electronic Communications Privacy Act and also constitute unfair and deceptive acts, unjust enrichment, invasion of privacy, obtaining money by false pretenses and computer fraud.

The suit alleges that as a result of its practice of “charging customers $12 for nothing,” Webloyalty generated revenue of more than $100 million in 2006 and has since expanded on that amount by acquiring new affiliates.

Webloyalty is based in Norwalk, CT. Woman Within is owned by Redcats, a New York company that also owns such well-known businesses as Roamans, Jessica London, Brylane Home and Avenue.

Learn more about negative options.