Have They No Shame?
October 15, 2009
By Angie Moreschi:
Here we are, one year after our entire financial system teetered on the brink of collapse. The good news is most banks, with a strong assist from taxpayers, are now back on steady ground. The bad news, they’re right back to the same slippery slope of executive compensation.
JP Morgan Chase had the good fortune of announcing a second consecutive quarter of surprisingly strong earnings. Chase’s hefty $3.6 billion in profit for the 3rd quarter helped send a wave of euphoria onto Wall Street, sending the Dow Jones industrial average back up over 10,000, for the first time in a year.
It all sounded so positive and reassuring, that maybe the economy really is beginning to rebound. Then came word that Wall Street would also pay out a record $140 billion in executive bonuses, this year. That news landed with a thud and left consumers wondering, “Have they no shame?”
When all of their 2009 profits have a lot to do with being propped up by taxpayer dollars and the drastically cut prime rate, which makes it very cheap for banks to borrow money, it just doesn’t feel right for executives to excessively pad their pockets. It’s down right sleazy when you consider just how much consumers are still hurting, with unemployment approaching 10%. Here we go again. Wall Street celebrates, while Main Street suffers.
Instead of raking in big bonuses for profits made on the backs of citizens, how about sharing some of the wealth? Loosen up credit for small businesses, so they can get a fair shot at staying afloat and keeping people employed. Give that homeowner struggling to pay his mortgage, a real offer on a loan modification.
But no, on Wall Street, we see that greed does not release its grip quite so easily. Mine. Mine. Mine. Maybe if angry consumers continue to protest, we can shame these CEO’s into taking fair compensation, based on the circumstances.
Then again, maybe they’ll just take their millions and get away for a nice vacation in the south of France.
Don’t Get Mad, Get Even: How To Complain Effectively
October 2, 2009
By: John Newcomer
Most people would rather have a root canal than complain about a defective product, an overcharge, or unsatisfactory service. Their reluctance is easily understood. Companies have made it extremely difficult to complain. How many of us dread the thought of the ever present “phone tree.” To successfully maneuver through the tedious steps of the phone tree options requires the patience of Job and the cunning strategy of an Army general.
First you must wait the obligatory 10 minutes, because every company seems to be experiencing extremely high call volume. Then it is “phone tree” time. All the time you are going through punching numbers, listening to the next instruction, punching in the next number, you know deep down inside that you will either get disconnected or there will be no option for complaining.
Mortgage Lenders Deny 1 in 3 Applications
October 1, 2009
By Angie Moreschi:
It wasn’t just your imagination. It’s been tough going to get a new mortgage or refinance, according to a new Federal Reserve report. Lenders made it harder for borrowers by tightening up qualifications, despite billions in taxpayer bail-out dollars that were supposed to loosen up lending.
The Federal Reserve report shows nearly one in three borrowers who applied for a mortgage last year was denied. In the annual report on mortgage practices among the nation’s lending institutions, the Fed says the denial rate for all home loans was about 32 percent last year — about the same as in 2007, but up from 29 percent in 2006.
The denial rates for Blacks and Hispanics were more than twice as high as the rate for white borrowers.
The report highlights massive changes in the lending industry after the housing market bust. Overall loan applications were down by a third from a year earlier, and were half the level in 2006.
The data, collected from nearly 8,400 lenders, is required under the Home Mortgage Disclosure Act of 1975.
5 Ways Drug Companies Put Profits Before Patients
September 10, 2009
By Terry Smiljanich:
When it comes right down to it, drug companies don’t look at us as patients, they look at us as consumers. Their primary goal is not to discover new drugs to make us healthier, but rather to make their shareholders happy by keeping short term profits up.
Unfair, you say? But unfortunately, quite true. Let’s look at some big ways the major drug companies put profits ahead of patients. Here are five drug industry tactics that serve to put their bottom lines above the country’s welfare:
Student Loans - The Next Mortgage Meltdown
September 4, 2009
An entire generation of our country’s young people face a financial Armageddon of sorts. The promise of a better future through education has turned into a means by which student lenders trap kids in oppressive debt, often with outrageous interest rates. These young people, just beginning life on their own, are unable to get out of the debt cycle, often for the rest of their lives. It sounds ominous, but it’s happening.
Students are beginning to fight back against lenders like Sallie Mae. Consumer Warning Contributor Attorney Nicole Mayer is helping them. She was interviewed for the article below by The American Association for Justice’s Trial Magazine.
Student Loan Lenders Face Scrutiny–and Lawsuits
September 2009 Issue
By Carmel Sileo -Trial Magazine , Associate Editor
Take easy credit terms, anxious and unsophisticated borrowers, and a commodity pitched as the ticket to wealth and security. Result: financial meltdown.
If that sounds like the housing market, it’s because the student loan industry has similar characteristics. Like mortgages during the housing boom, student loans are easily available and eagerly embraced by borrowers, lenders, and society. Like homeownership, a college education is promoted as the key to middle-class prosperity, a solid investment worth borrowing to the hilt for. Like mortgages, some private education loans were securitized and sold in bundled packages that mixed high-risk and low-risk borrowers.
And like homeowners facing foreclosure, students face loan burdens so onerous that default seems inevitable.
“As a nation, we have $700 billion in student loan debt,” said Alan Collinge, author of the new book The Student Loan Scam: The Most Oppressive Debt in U.S. History and How We Can Fight Back and founder of the Seattle-based group Student Loan Justice. “Student loans have a higher default rate than any other loan, including credit cards, car loans, home loans, and almost anything else.”
Many borrowers allege that the lenders they trusted used predatory lending and collection practices. Because student loans are exempt from many rules governing consumer loans, the potential for abuse is high, critics say. The growing number of complaints has led to scrutiny by government investigators and private lawsuits against the lenders.
In 2007, a nationwide investigation headed by New York Attorney General Andrew Cuomo found that three major student lenders-SLM Corp., better known as Sallie Mae; Citibank; and Education Finance Partners-had given universities kickbacks in exchange for being designated their “preferred lenders.” The investigation led to a settlement of $6.5 million.
In June, Deanne Loonin, director of the Student Loan Assistance Program of the National Consumer Law Center, testified before the Department of Education about lending and collection practices in the student loan industry, especially at for-profit schools.
“The current messy patchwork of federal law is inadequate to protect students and taxpayers,” Loonin testified, and “using private collection agencies not only to collect but also to resolve disputes with borrowers has been a disaster for borrowers.”
“With the government guaranteeing many loans and without consumer protections, you get predatory lending on the front end and abusive collection tactics on the back end,” said Nicole Mayer, a lawyer with the Tampa-based James Hoyer law firm. “It’s a double whammy of the worst kind.”
There are three types of student loans: federally guaranteed loans backed by the Federal Family Education Loan Program (FFELP), including Stafford and PLUS loans, administered by private lenders like Sallie Mae; federally guaranteed loans by the Department of Education issued directly to students; and private education loans (PELs) that are not federally guaranteed, often those issued by for-profit schools, such as trade and technical schools.
Most students use a mix of loan types. The average student’s debt is nearly $20,000 by graduation-double the amount owed a decade ago. Recent media reports have highlighted the problem of borrowers defaulting on these loans: In July, for example, the newsmagazine program Now on PBS profiled a social worker in Baltimore who was evicted when, after losing her job, she was unable to afford both her rent and her student loan payments despite repeated attempts to renegotiate her terms.
“The Department of Education will tell you that it’s not a big problem, that the system works well and defaults are low,” said Collinge. “It’s a lie.” Collinge pointed to a 2003 audit by the department’s Office of the Inspector General, which found that the lifetime default rate for students at four-year colleges was between 19 percent and 31 percent, depending on the type of loan. For students at two-year colleges, the rate was as high as 42 percent, and students at for-profit schools had a high-end default rate of 51 percent.
Unique legal status
Student loans enjoy a unique legal status unlike most other consumer loans. “You can’t discharge them in bankruptcy. They don’t have to comply with federal truth-in-lending laws, state usury laws, statutes of limitations on debt collection, or much of anything else,” said Collinge. “If it’s a federally guaranteed loan, the lenders can garnish your paychecks, your Social Security and disability checks, and your tax refunds.”
Michael Zahara, a former default prevention specialist at the Las Vegas office of the Student Assistance Corp. (SAC), a debt collection agency owned by Sallie Mae, said, “What we want is to get back what was lost: The protection of the district courts. Let a judge rewrite the terms of a loan, or even discharge it. Give people back the access to the courts.”
Students can only discharge their loans, including PELs, in bankruptcy by proving that paying them poses an “undue hardship.” As a result, hard-pressed graduates have little recourse but to ask for a forbearance.
Granted by the lender when a borrower finds it impossible to meet monthly payments, forbearance halts the collection process. But during forbearance, interest and penalties continue to accumulate, resulting in loan amounts that can double or triple once the borrower begins paying again.
Robert Applebaum, a lawyer in New York who founded the Facebook group Cancel Student Loan Debt to Stimulate the Economy, which claims almost 200,000 members, wrote on the New York Times “Room for Debate” blog in June that he used a forbearance after law school to work in public service law. Then he “watched as the amount I owed ballooned by nearly $20,000 during the time I served the community.”
On his Facebook site, Applebaum writes that the student loan industry has created a generation of “educated poor, with student loan debt making ever more college graduates and young professionals unable to buy a house or start a family or a small business.”
Mayer of the James Hoyer law firm filed suit last year against Sallie Mae, the country’s largest distributor of student loans. The suit alleges violation of the federal Truth in Lending Act (TILA) and the Equal Credit Opportunity Act (ECOA). In March, a district court in Connecticut granted Sallie Mae’s motion to dismiss the TILA charge but did not dismiss the ECOA charge. (Rodriguez v. SLM Corp., 2009 WL 598252 (D. Conn. Mar. 6, 2009).)
Suing Sallie
Many critics of the student loan industry say lenders like Sallie Mae are pressing borrowers to go into forbearance, sometimes even against the students’ will.
Zahara said SAC loan administrators routinely pushed borrowers into forbearance to hide the number of bad loans on their books. “I would estimate that in my facility alone we had about $350 million in bad loans,” he said.
In 2005, Zahara filed a qui tam lawsuit against his former employer, alleging violations of the federal False Claims Act and charging that Sallie Mae and SAC “allowed their employees and agents to falsify loan records pertaining to delinquent FFELP loans held by Sallie Mae.” His suit claims that “fabricating forbearances benefited defendants and defrauded the federal treasury.” In March, the lawsuit was dismissed without prejudice so that Zahara could find a new lawyer. (Zahara v. SLM Corp., No. 1:06-cv-088-SEB-JMS (S.D. Ind. Mar. 12, 2009).)
Last year, Sallie Mae shareholders also sued the company, saying it engaged in risky behaviors by granting loans to high-risk borrowers (primarily students attending for-profit schools). The plaintiffs claim that Sallie Mae “used forbearance as a means to reduce delinquencies and avoid charge-offs on the increasing number of loans that were past due with no documented basis for future repayment and to avoid charging off those loans.” (In re SLM Corp. Secs. Litig., No. 08-CV-1029 (WHP) (D.N.Y. filed Dec. 8, 2008).)
According to the complaint, “If these were private credit loans where the lender bears the risk of loss, Sallie Mae would have forced the loan into default long ago and cut its losses; but because FFELP loans are essentially risk-free to Sallie Mae, it keeps extending the loans knowing that the government is ultimately responsible for paying the loan balance when the borrower defaults.”
The lawsuit also claims that “based on information provided by former employees of SLM that worked in collection centers . . . [the] policy was consistent in encouraging PEL collection employees to move past-due loans into forbearance whenever it appeared that payment was not forthcoming. SLM did anything it could to avoid charging-off a loan.”
Signs of relief
There are signs that the government is trying to head off the problem before the numbers get too dire. Student advocates praised the Obama administration’s decision to remove “middleman” lenders like Sallie Mae and make all student loans direct government loans.
In July, the Department of Education instituted the Income-Based Repayment (IBR) plan, which caps student loan repayments to levels based on income, state of residence, and family size. Also, any debt and interest remaining after 25 years will be forgiven. Students who opt to work in specific nonprofit or public-service jobs could be forgiven after 10 years of IBR payments.
Mayer said she was taking a “wait and see” approach to the IBR, pointing out that it did not affect PELs, which cause most of the hardship. Collinge said the government was taking some good first steps but that these tended to sweep aside the real issue, which is to return bankruptcy and other consumer protections to people who have student loans.
“We’re not fighting to let people skate on their debts,” he said. “We just want people to have the same protection that applies to every other kind of debt.”
Carmel Sileo, Associate Editor
Back to School Shopping Falls Short
August 25, 2009
By Nicole Andriso:
The beginning of a new school year is just getting underway, and retailers are hoping back-to-school shoppers will overlook the down economy and higher gas prices and still go shopping for new school supplies. But according to a recent Gallup Poll, while consumer confidence is relatively high, consumers aren’t expected to respond favorably to back-to-school shopping.
The National Retail Federation’s (NRF) 2009 Back to School Consumer Intentions and Actions Survey states the average family with students in grades kindergarten through 12 is expected to spend 7.7 % less than they did in 2008. According to the survey, the economy is having a major impact on back-to-school spending, as four out of five Americans (85 percent) have made some changes to their back-to-school plans this year as a result. According to the survey, shoppers are spending less, hunting for sales more often, purchasing generic products and using more coupons.
Credit Card Companies Cut Unfair Fee
August 12, 2009
By Angie Moreschi:
One small step for consumers. Two credit card companies announced they are going to drop penalty fees for charging over your credit limit. American Express and Discover have decided to be pro-active in throwing this bone to its customers.
A new law set to take effect next year would force them to do this anyway, but you’ve got to give them credit for moving forward early, especially since it was such a money maker. USA Today reports credit card companies are expected to make $3.7 billion from over credit limit fees this year. That’s up 16 percent from last year.
The whole concept of charging customers for going over their credit limit, instead of just denying the charge is pretty unseamly to begin with, but at least we’re now beginning to see a reversal in some of the most unfair consumer practices of recent years. Let’s hope the trend continues.
Both Discover Card and American Express say they plan to stop charging fees when consumers accidently spend go over their credit limit. The new law only allows fees to be imposed if a consumer says they want the ability to charge more than their credit limit - which would happen rarely at best.
If you go over your credit card limit, American Express and Discover say they use computer programs to decide if they will allow you to splurge, or will cut you off immediately.
Of course, don’t celebrate too soon. Analysts say credit companies may replace the credit limit fees with other charges.
Is Cash for Clunkers Worth The Investment?
August 7, 2009
By Nicole Andriso:
Even though the wildly popular “Cash for Clunkers” automobile purchase program is breathing new life into the automobile industry, many are not convinced the economy will benefit by putting even more government money into the program. Even so, the Senate just approved a $2 Billion cash infusion to keep the program running through September.
The new program, dubbed the Car Allowance Rebate System (CARS), has seen deal-hungry consumers flock to car dealerships faster than officials anticipated. In response to consumer demand, the House of Representatives met on July 31, to authorize an additional $2 billion to extend the program, which the Senate has now approved, as well. The question still being asked though is whether plugging more taxpayer money into the program will have the desired long-term effect as an economic stimulus that was originally expected.
Dealer Woes
According to the official National Highway Traffic Safety Commission (NHTSC) Car Allowance Rebate System (CARS) website, www.cars.gov, under the program, car dealers credit the amount of the $3,500 or $4,500 voucher to customers who buy new cars, then the dealers get reimbursed by the government. According to an article in The Washington Post, dealers are frustrated with the system the government put in place for entering vehicle data on the website. Many dealers also find themselves strapped for money as they wait for government payments, some of them waiting for nearly $1 million in reimbursements.
Consumer Criticism
In a commentary on CNN.com, Harvard Economics lecturer Jeffrey Miron criticizes the plan’s destruction of any used car that is traded in for a newer model, with key parts such as the engine and drive train destroyed. According to Miron, by doing this the plan is “paying people to junk cars that still have economic value.” Many people who might have kept their good, older car for few more years are given an incentive to get rid of it. Plus, those with older cars might have a hard time finding certain car parts because most of them will have been destroyed with the old models, per the “Cash for Clunkers” plan.
Good for the Environment?
One of the goals of the CARS program is to reduce oil consumption.
Some officials are concerned the program will affect its environmental goals. The question is whether there is even sufficient evidence in one week to determine if the program is reaching these goals. Senators Diane Feinstein (D-California) and Susan Collins (R-Maine) recently drafted a letter to Transportation Secretary Ray LaHood posing the question. The letter asked for better data related to the actual mileage of the old cars and what kind of mileage the new cars offer, “to determine if the fleet modernization program delivered significant fuel economy gains and oil savings.”
Plus, according to Miron’s commentary on CNN.com, many people would have traded in their old cars for newer models in the next two years anyway, and with all the new cars on the road, driving and fuel consumption might ultimately increase because people typically enjoy driving newer cars.
Bailing Out Government Owned Companies
According to the Wall Street Journal, some lawmakers have criticized the program as a bailout specific to government-owned companies, and compared the role of government to a used car business. Some are also concerned about the plan’s short, quick fix and doubt the lasting economic effects.
It’s been two weeks and $1 billion distributed, with $2 billion more in the pipeline. In the short term, people seem to be buying new cars. The question is not only whether these consumers can really afford to buy the new cars even with the savings, but whether the short term fix is the best way to boost the economy. And if part of the plan is to reduce fuel consumption and promote the environmental merits of fuel-efficient cars, there might be better ways to do this. Maybe figure out a way to make people drive less and use less fuel, not drive the same amount or more in a better car.
Seven Ways To Lower Your Health Insurance Premium
July 23, 2009
by John Newcomer:
Health Insurance Premiums Out of Control
Everyone knows health insurance premiums are spiraling out of control. But did you know that even if your employer is paying the premium it still impacts you. Katherine Baicker and Amitabh Chandra from Harvard University published a study that concluded that a 20% increase in health insurance premiums increases the likelihood that employers will lay people off by 2.4 % — the equivalent of 3.5 million workers.
More importantly, for those lucky enough to have a job with benefits, a 20% increase in health insurance premiums resulted in an annual wage reduction of $1,700 per employee. A 10% increase in health insurance premiums results in 2.3% decline in wages.
The bad news is that health insurance premiums have been increasing more than 20% over the past three years, and there appears to be no end in sight to annual premium increases. So, if you think it’s just your employer’s problem, you’re wrong. It is everyone’s problem. Everyone has to work together to lower premiums.
What Can You Do About It?
The following are seven ways to reduce health insurance premiums. Some are for businesses (if you are an employee, remember the cost of health insurance is being directly passed on to you). Others are tips for individuals to reduce the cost of health insurance premiums.
- Raise Deductibles. Yes, this shifts more cost to the employee, but it can dramatically reduce premiums. Typically, the employer will also institute a health savings account to off- set the increased deductible. This can result in savings for both the employer and the employee.
- Change Co-pays. This is how much you pay after your deductible has been met. A common ratio is 80/20 in which the insurance company pays 80% and you pay 20%. It’s just like raising the deductible means a lower premium, but it does shift more risk to you if something happens.
- Shop Around. Each time your health insurance is up for renewal look around for better deals. Chances are you can find a better deal.
- Start a Wellness Program. A wellness program can reduce health insurance claims. If employees are healthier and getting sick less often, a business owner can negotiate lower premiums. Wellness programs also have an additional benefit of reducing absenteeism and employee turnover, while boosting morale and productivity.
- Cut-out dangerous hobbies. Hobbies such as sky diving or scuba diving are considered dangerous. Any hobby that poses a significant risk of injury will necessarily increase your premiums. A dangerous hobby is not a pre-existing condition. If you truly want to lower health insurance premiums you may have to alter your lifestyle.
- Get Healthy. This means stop smoking, eat healthy, go on a diet, and exercise. Insurance companies do not like to insure smokers or obese people. If you maintain a healthy lifestyle not only will you feel better, but you will pay less for your health insurance.
- Clean Up Your Driving Record. You may not realize this, but your driving record is taken into consideration when health insurance companies determine your insurance rate.
Goal: Most Affordable Plan
When lowering your health insurance premium keep in mind that you do not want to be foolish. You need to have health insurance that meets your needs. The goal is not the lowest premium, but the most affordable plan that protects you and your family. High deductibles and less favorable co-pays lower premiums, but can come back to haunt you if you think you are at risk for serious injury or illness. Remember almost any serious encounter with the health care industry can bankrupt most middle class families if they are not adequately insured.
One final tip, never cancel any current health insurance policy until you have a new one. Strange things have and will happen even if you are uninsured just for one day.
Airline Safety Update - Cause for Concern?
July 16, 2009
By Terry Smiljanich:
Three new airplane accidents in the past two weeks have many of us examining the safety records of major airlines and the planes they fly.
The topic was the focus of a recent Consumer Warning Network story, which turned out to be one of our most popular.
Talk about timing. When our initial story posted, Southwest Airlines had the safest record among U.S. carriers, but there’s been a chink in the armor, or should we say a big hole blown into it.
Southwest Record Takes a Hit
Southwest made the news on July 14, when a hole opened up in one of its Boeing 737’s on a flight from Nashville to Baltimore, causing an emergency landing in Charleston. No one was injured, but the news reports pointed out that Southwest has an aging family of 737’s.
Among the major American airlines, the average age of Southwest’s fleet is 14 years, but 208 of its planes are older model 737’s with an average age of 18 years. Alaska Airlines and Continental Airlines have the newest fleets (7 and 9.6 years respectively).
As almost a foreboding premonition, back in March of this year Southwest was fined $7.5 million by the FAA for failure to perform mandatory inspections for - you guessed it - fuselage fatigue on its fleet. A doubling of the fine can still be imposed if Southwest fails to meet additional safety benchmarks involving maintenance inspections. Better inspections might have prevented the near catastrophe averted on the Baltimore flight.
Even so, Southwest still has the best safety record involving fatal incidents, having experienced none in its 38 year history.
Yemeni Airlines Crash
On June 30, 2009, a Yemenia (the national airline of Yemen) Airbus 310-300 crashed just before landing in the Comoros Islands, killing 152 passengers and crew (a 12 year old girl survived). On July 15, a Caspian Airline Russian-made passenger jet (a Tupelov TU-154) crashed in Iran, killing 170 when its tail burst into flames shortly after takeoff from Tehran.
As pointed out in our previous article, the safest foreign airlines are British Airlines, SAS, Lufthansa, All Nippon Airlines and Air France, while the most dangerous are Turkish Airlines, Indian Airlines, and Aeromexico. China and Russia, however, do not provide accurate airline safety information, a cause for well-earned concern.
Iranian Airplane Crash
Iran also had a fatal incident in 2006 when another Tupelov TU-154 crashed during landing, killing 29 on an Iran Airtour flight.
Clearly, the air safety standards in some countries, notably Russia, the Middle East and Iran, are in sore need of improvement. Given U.S. and U.N. sanctions against Iran, that country has found it impossible to replace older planes with newer U.S. models.
When flying overseas, stay away from Iranian carriers. Generally, it seems best to stick to the main airlines, which offer better flight training and equipment. Russian-made Tupelov’s in particular have either poorly trained pilots, poor equipment, or both.
The Yemeni crash on June 30 involved an Airbus A310. In production from 1978 to 2007, this Airbus model has a very poor safety record, putting it among the worst passenger planes in current use. 217 planes, operated exclusively by smaller foreign airlines, are still flying.
The lessons to be learned today: Smaller foreign airlines are not as safe. Older fleets are not reliable. Still, America continues to lead the world in airline safety.
Banding Together and Fighting Back!
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