Common Law - The FindLaw Consumer Protection Law Blog

October 2009 Archives

CFPA Update: House Committee Approves Creation

Yesterday the House Financial Services Committee approved legislation that would create the much anticipated Consumer Financial Protection Agency (CFPA). Though the process is far from over, as it looks now, the CFPA would bring financial products from payday loans to credit cards to mortgages under one federal regulator. It would not, however, have power over auto financing by auto dealers.

As reported by the AP, the CFPA legislation passed an important hurdle, but much debate remains before it becomes a reality. Though details could very well change when the full House and the Senate get their hands on it, the legislation approved yesterday shows who at least won this round of battle.

Here is some background about the fight for creating the CFPA. Here is a visual depiction of how CFPA proponents believe it could simplify the regulation of financial products.

So, what are the takeaways from the legislation approved yesterday?

  • Common financial products like credit cards, mortgages and payday loans would be regulated by the CFPA.
  • Though all banks selling regulated financial products would have to follow CFPA rules, only banks with more than $10 billion in assets will have to open their books to CFPA compliance tests.
  • Auto dealers who engage in car purchase financing will not come under the CFPA (though any banks involved in such deals would). This had been a particular subject of contention.
  • Retailers would also not come under the CFPA. For example, stores would not be under CFPA jurisdiction because they offer a store branded card, but the institution that provides the financing behind the scenes for such cards would have to answer to the CFPA.
  • There is no requirement to offer "plain vanilla" contracts such as fixed 30 year mortgages. Nor is there any mechanism for ensuring that consumers understand the financial products they buy (which was viewed as difficult to enforce). These were part of the original call for a CFPA.

While it will still face further wrangling within the House and Senate, CFPA proponents already faced an intense lobbying and PR assault by the banking and financial industry lobbies, as well as the US Chamber of Commerce (which spent $2 million in advertising against the CFPA, and launched stoptheCFPA.com).

The stage is now set for the next round of debate.

Related Resources

MoneyGram Fraud: $18 Million to Settle FTC Charges

The nation's second largest money transfer service, MoneyGram International agreed to pay $18 million dollars to settle charges by the Federal Trade Commission (FTC) that MoneyGram allowed its system to be used by scam artists. The FTC alleged that MoneyGram not only did too little to watch out for fraud, but that it punished whistle-blowers and turned a blind eye to the fact that MoneyGram employees were actually participating in some of the schemes.

According to the FTC, from 2004 to 2008 consumers were likely bilked to the tune of at least $84 million in MoneyGram transfers solicited by scam artists. MoneyGram, the FTC alleged, either knew about it or turned a blind eye to it.

The FTC claimed that 131 MoneyGram agents accounted for a whopping 95% of all consumer complaints regarding MoneyGram transfers from the US to Canada. The FTC also claimed that "at least 79 percent of all MoneyGram transfers of $1,000 or more from the United States to Canada over a four-month period in 2007 were fraud-induced."

How did the scams most often go down? According to the FTC, the most common scams were telemarketing scams that told people they’d either won a lottery or prize, or were eligible for a no questions loan, and that the person simply needed to send a MoneyGram to cover taxes, fees, interest or “insurance” on their free money.

The FTC accused MoneyGram of not only knowing about fraud occurring on their system, but of retaliating against employees who brought it up and discouraging the enforcement of its own internal policies.

At least 65 MoneyGram agents in Canada have reportedly been charged or are being investigated for participating in fraudulent schemes.

Under the settlement order, MoneyGram has to implement a comprehensive anti-fraud program and must pay $18 million, which will go toward reimbursing fraud victims.

SMiShing: Phishing via Text Messages for Your Identity

As consumers are repeatedly forced to learn, identity theives will attempt to utilize just about any form of communication to part you from private information such as your social security number, your bank account number or your credit card number. Phishing is the use of email or websites that look to come from a trustworthy source, but actually trick people into handing over private information. SMiShing is doing this through SMS messages (text messages) sent to mobile phones.

As reported by the Dayton Daily News, the Better Business Bureau has received reports of SMiShing attempts. One such scam involves text messages sent warning recipients of an emergency with their bank account, and giving them a telephone number to call immediately. The phone number leads to a recording purporting to be a 24 hour banking service, and asks callers to leave their credit card number.

Like any form of phishing, SMiShing can be done in many ways. The text message might ask you to directly respond in order to "confirm" private information like your account number. Or it might direct you to a phone number or website that will ask you to enter your information.

One rule to remember: Never, ever include sensitive information in a text message. This includes social security numbers, bank account numbers, credit card numbers and passwords. Text messages are not encrypted, and an actual bank will not ask you to send such information through a text.

Next, call your bank or credit card company if you get any sort of text message relating to your account. This can quickly let you know if you've been SMiShed, and can help your bank get the word out to others.

Plum Organics has recalled containers of its Apple & Carrot Baby Food in Portable Pouches. The recall includes pouches with a best buy date of May 21, 2010 and "890180001221" marked on the bottom of the package. Plum initiated the recall out of concern over risk of potential contamination with Clostridium botulinum, the bacteria associated with food borne botulism.

These have been sold at Toys-R-Us and Babies-R-Us stores, where they can be returned for a refund.

Here is information from the Center for Disease Control about botulism. It points out that:

"Infants with botulism appear lethargic, feed poorly, are constipated, and have a weak cry and poor muscle tone. These are all symptoms of the muscle paralysis caused by the bacterial toxin. If untreated, these symptoms may progress to cause paralysis of the arms, legs, trunk and respiratory muscles. In food borne botulism, symptoms generally begin 18 to 36 hours after eating a contaminated food, but they can occur as early as 6 hours or as late as 10 days."

According to Plum's press release, the recall comes after testing showed that the "formulation was incorrect" and that "a mixing error was to blame which resulted in an improper blend of carrots and apples." It's unclear how an improper blend of carrots and apples would lead to contamination with Clostridium botulinum.

Though no information has been given as to exactly what caused any contamination in the Plum Organics pouches, botulism has been and remains a concern for commercial and home canned foods.

Leading consumer rights non-profits have asked Congress to ensure that auto financing by car dealers will come under the oversight of the yet to be created Consumer Financial Protection Agency.

As we've discussed previously, the Consumer Financial Protection Agency (CFPA) being debated would serve as an agency to protect consumers from dangerous financial products. It's proponents describe it as an agency which could protect consumers from dangerous and deceptive practices regarding financial products like credit cards and mortgages, much as the current Consumer Product Safety Commission helps protect us from dangerous consumer products like lead painted toys and household chemicals.

While debate continues over how much power the CFPA would have over core financial products like credit cards, Congress is also deciding the extent to which financing by auto dealers will fall within the purview of the CFPA.

What would this mean? Depending on the proportion (if any) of types of auto financing regulated by the CFPA, it could mean new rules and hopefully more clarified deals for car buyers who finance their purchase through the dealer instead of lining up separate financing or paying cash.

Both sides (consumer rights groups and the National Auto Dealers Association) agree that if a buyer pays cash or finances elsewhere (through their bank for example), the auto dealer would not come under CFPA rules (which, remember, don't yet exist). Recent discussion drafts of the legislation include such an exemption.

However, the two sides disagree about what happens when dealers engage in car financing related activity.

A recent letter signed by 28 consumer rights non-profits asked House Financial Services Committee Chairman Barney Frank to ensure that all car financing activities of auto dealers be included under CFPA jurisdiction.

What auto financing practices are they worried about? As explained by Consumer Reports, the letter expressed specific concerns about dealers:

  • "Selling retail installment contracts to lenders.
  • Engaging in bait-and-switch financing, also known as 'yo-yo' financing.
  • Engaging in "loan packing" -- misrepresenting the costs to finance over-priced add-ons.
  • Forging loan documents and/or signatures.
  • Failing to pay off outstanding liens on traded-in vehicles, as promised, a.k.a. 'car kiting.'
  • Charging excessive, hidden dealer 'markups' of interest rates.
  • Price gouging by Buy-Here-Pay-Here lots, where dealers carry their own finance paper.
  • Engaging in other predatory lending practices."

Related Resources:

Microsoft's Danger and T-Mobile Sidekick Users' Data

What if your data gets lost in the cloud?

This weekend, T-Mobile subscribers using the popular Sidekick mobile devices received word that data including their contacts, calendars, notes and photos had almost certainly has been lost. The data was reportedly lost by the aptly named Microsoft subsidiary Danger, Inc. With more and more individuals and businesses storing their data "in the cloud," the massive data loss has sparked fear and questions about what, if any, legal recourse consumers have.

Fist of all, what is "cloud computing"? In the wake of the Danger/Microsoft/T-Mobile mess, tech folks are debating the finer points of what exactly "cloud computing" means. For our purposes (and those of T-Mobile users who may have lost their data), cloud computing simply refers to delivering services in which people's information is stored outside their own PC and network. Here, Sidekick users' contacts, photos and such were stored by Microsoft/Danger (who contracted with T-Mobile to store the information). Web-based email can be another common example of cloud computing, when messages are not stored on the user's computer or network, but by Google, Yahoo, or any other provider.

Information stored in "the cloud" can be accessed and used through the internet, with users not necessarily backing up the information themselves. That is, unless the data vanishes from the cloud.

The initial message from T-Mobile indicated that perhaps all Sidekick users' data had been permanently lost. Now, T-Mobile has stated that data services have been restored (hopefully with better back-ups) and that most Sidekick users' data will hopefully be restored.

So, what rights would a T-Mobile customer have if their data was lost? As with many consumer issues with cell phone carriers, the answer may come down to the reams of fine print in their T-Mobile user contract.

Like many consumer contracts, cell phone contracts contain provisions limiting the carrier's liability. These contracts often include language stating that the user may not sue for negligence or for a wide range of damages (often including lost or damaged data). Unfortunately for consumers, such limitations of liability have routinely been enforced by courts.

This does not mean that we won't see lawsuits over the fiasco. In addition to trying to overcome limitations on T-Mobile's liability, users may decide to seek damages from Microsoft/Danger.

For now, T-Mobile is offering a month of free data service (valued at $20) and a $100 gift card to those who it determines "have experienced a significant and permanent loss of personal content."

Two Telemarketing Scams Shut Down by FTC

The Federal Trade Commission (FTC) has settled two cases resulting from "Operation Tele-PHONEY," last year's FTC crackdown on telemarketing scams. These scams illustrate three things to keep in mind on the phone: 1) know (or find out)who is on the other end; 2) be extremely careful with bank account information; and 3) know and confirm the terms of any purchase you make.

The two cases respectively involved overpriced magazine subscriptions and bogus medical discount plans. Details of the FTC settlements and proposed orders can be found in the FTC's press release.

The medical discount plan scam shows us how important it is to know who is on the other end of the line and to not hand over bank account information lightly. In that case, "Union Consumer Benefits" targeted senior citizens (including some on the Do Not Call Registry) to sell them "medical discount plans" that proved to be prescription discount cards which did not work.

The worst part? According to the FTC's complaint, callers from "Union Consumer Benefits" pretended to be from the Social Security Administration, Medicare, or from customers' banks in order to win the confidence of victims. After giving their bank account information, customers found themselves charged almost $400 before receiving the worthless prescription discount cards.

The magazine scam illustrates the importance of noting the price you are quoted versus what you end up getting charged in any purchase that is initiated over the phone. The FTC alleged that victims were quoted one monthly price at before giving billing information, then given a higher price in subsequent calls or when charged. They were then allegedly denied the opportunity to cancel their subscriptions.

So, what are some simple things you can do to avoid scams like this?

  1. To verify who the caller is, ask for their individual name, company name and a call-back number. If after researching the company you wish to continue, call them back instead of having them call you.
  2. Never give bank account information over the phone unless certain of who is on the other end. Consider asking them to bill you by mail to avoid having to give such information over the phone at all.
  3. Confirm the amount of any purchase or contribution before giving any billing information. Then confirm that you are actually charged the same amount. If not, consider making a complaint to the FTC.

Today, President Obama made a strong case for the Consumer Financial Protection Agency. The White House hopes to push Congress into action despite well-moneyed opposition from the banking and financial industry lobbies.

Here is quick primer on the potential Consumer Financial Protection Agency (CFPA) and why many think we need it.

The President spoke bluntly about opposition to the CFPA. "They're doing what they always do -- descending on Congress and using every bit of influence they have to maintain a status quo that has maximized their profits at the expense of American consumers."

In terms of financial reform, this is where the rubber meets the road. While Congress and the President intend higher level reforms of the "rules of the road" for Wall Street, the CFPA is how the Obama administration intends to put protections for individual consumers into place.

Chief amongst Obama's arguments made by Obama: the fact that current responsibility for protecting consumers from deceptive financial products is spread across 7 different agencies. As Obama put it, the result is that "no one whose chief responsibility it is stand up for the American consumer and for responsible banks and financial institutions."

Opponents have argued that a CFPA and clear understandable contracts would detract from financial "innovation." Obama characterized much of the innovation we've experienced as the wrong kind of innovation: banks and credit card companies coming up with the newest and best ways to confuse consumers.

His arguments echo those made by Elizabeth Warren (a catalyst in calls for a CFPA), who has argued that if we had clear contracts which consumers could understand, we'd see useful innovation, with consumers able to compare different options and choose the one that actually suits their needs.

We've already heard that the "plain vanilla" contracts called for by proponents of the CFPA will likely not be part of the deal. As the wheels of Congress turn, we'll see how much weight the words of President Obama carry in the debate over the CFPA.

10 Riskiest Foods that Aren't Meat or Poultry

Recently, the Center for Science in the Public Interest (CSPI) released a list of the 10 riskiest foods regulated by the Food and Drug Administration (FDA). Though the report from which the list comes provides useful information, looking at the list alone misses a very important caveat -- the FDA does not regulate meat or poultry, which are more often linked to many food borne illnesses, including E. coli and salmonella.

Here is a breakdown of the foods that made the list.

Though widespread posting of the list sometimes mentioned it in passing, more attention should be paid to the fact that the FDA does not oversee meat or poultry, which come under US Department of Agriculture (USDA) purview.

Some (like Katie Couric's blog) expressed surprise that stuff we normally consider good for us (like leafy greens) topped the list. Reporting on the list trumpeted leafy greens as the most dangerous food linked to outbreaks of food borne illnesses such as E. coli and salmonella. But according to the CSPI report, they are a leading FDA regulated food linked to such outbreaks.

Leafy greens may top this list, but most E. coli outbreaks come from contaminated meat that is eaten undercooked (particularly ground beef). Even the E. coli outbreaks that come through leafy green vegetables have origins in livestock. The vegetables that bring us E. coli have come into contact with contaminated animal feces (through manure in fertilizer, contaminated irrigation or poor handling practices, for example).

A recent New York Times story tracking the origins of a particular E. coli tragedy suggests that keeping it out of the ground beef may be the best way to prevent outbreaks.

Poultry is the food most commonly linked with salmonella outbreaks. As with E. coli, vegetables linked to salmonella outbreaks typically get contaminated through contact with animal feces.

But salmonella can come through beef as well. In late July, we had a recall of over 200 tons of beef, and another recall of 400 tons of beef just weeks later due to concerns about a drug resistant strain of salmonella.

So, pay attention to the list to 10 riskiest FDA regulated foods, but also watch the meat (particularly undercooked meat) and poultry if you really want to avoid E. coli and salmonella.

While lawsuits alleging products liability or negligence may help those injured recover, it's better to know which foods are really most likely to make you sick.

Currently, there is no system in place to track most of the medical devices routinely implanted into patients, such as plates, screws, fasteners, and artificial joints. Often even doctors do not receive word of a medical device's recall. Experts call for creation of a system to track the devices so that once recalled, doctors and patients know about it.

In a nice summary of the need for such medical device tracking system, MSNBC notes that though the number of medical device recalls is soaring, there is nothing to guarantee that doctors or even the patients who have such devices in their bodies ever get word.

Unlike auto recalls, where the auto industry has a centralized system to track parts throughout their lifetime, medical device recalls often suffer the fate of many other product recalls: a notice goes up on the FDA website, distributors get notified, but beyond that, there is no mechanism to track the product to the end consumer (or patient).

Some specific medical devices are tracked, including breast implants, pacemakers and heart valves. Most however, are not.

According to MSNBC, the first 7 moths of 2009 saw more than 1,000 medical device recalls, with over 100 of them Class 1 recalls (meaning their was a "reasonable probability of adverse health consequences or death").

Here is the database of all medical device recalls. A quick query reveals voluminous recalls -- a virtual sea of recall information which most doctors are unlikely to peruse on a regular basis.

The FDA does maintain a list of the medical device recalls it considers most vital to consumers.

What might help? Many are calling for varying types of registries which would track medical devices, serial numbers, doctors and patients so that once a recall went into effect, those most affected could be informed.

Devices associated with artificial joints are a particular area of concern. Due to a surge in their use, along with the fact that they break or experience relatively more problems than many other devices, the FDA is exploring creation of a registry to track them.

Bloggers and Paid Reviews: New FTC Guide to Endorsements

How can you tell when a blogger or online reviewer has been paid to review a product so glowingly endorsed? Well, right now you really can't. That's part of why, for the first time since 1980, the Federal Trade Commission (FTC) has revised its guidelines governing endorsements and testimonials. The new guidelines include provisions requiring bloggers and online reviewers to disclose if they've been compensated to write the review.

Previously, we've discussed growing concerns over attempts to create false word-of-mouth buzz through blogs and online product reviews that are more akin to paid advertisements than objective reviews (sometimes called astroturfing).

The old FTC endorsement guidelines were geared toward traditional paid advertising. They allowed advertisers to pay for less than objective endorsements as long as they included the caveat "results not typical."

That safe harbor is gone under the new guidelines. Simply stated, under the new guidelines, those endorsing products or services must disclose any "material relationships" they have with the maker of the product or service. "Material relationship" means whether the endorser has received payment or "payment in kind" (i.e., free stuff). This could come straight from the maker of the product, or perhaps from a PR or advertising agency between the product and the online reviewer.

Here is the full text of the new FTC guidelines on endorsements (beginning at page 55). It contains example of common practices and how they would be interpreted by the FTC.

What's the punishment for not complying? The FTC could issue a warning letter, or pursue corrective action including a fine of up to $11,000 per violation. Both advertisers (such as a product maker) and endorsers (such as bloggers) may be held liable under the guidelines.

Some have complained that a freebie for a review is common practice, and has been the practice for reviews in traditional review outlets such as newspapers, print magazines, TV and radio, which are not subject to the same disclosure requirements.

The new guidelines, however, are not strict law. In fact, they are not law at all. They are guidelines for advertisers and endorsers meant to give them warning about how the FTC interprets existing federal law against deceptive advertising. Any action against advertisers or endorsers will be decided on a case by case basis, with the FTC still having the burden of proving a violation of federal law against deceptive ads (not simply a guideline violation).

With the rash of large scale fakery through corporate sponsored (but undisclosed) social media campaigns, it seems the FTC will be more concerned with organized attempts to mislead consumers than one-off bloggers who receive a free device to review.

And though it might be tough to fit into a tweet, online reviewers who have received freebies can simply disclose that fact to avoid running afoul of the guidelines.