A Government For The Consumer

The best customer service is provided by… customers. I know that sounds confusing; let me explain.

There are two parties to every retail transaction—customer and company.  The essence of the deal is that both parties willfully agree to an equitable exchange products or services.

In most cases, the customer provides money which is of excellent quality and comes with a lifetime guarantee to be free of manufacturing defects.  Money is also universally recognized as having solid value, which is insured by the United States government.

By comparison, the company provides a product or service that we can only trust to have value and to work as promised.  Typically, the company warrantees a product to work for only a relatively short period, three months to a year.

In other words, we consumers are providing something of guaranteed lifetime value in return for something of only promised short-term value.  Yet, companies act like they are doing us a favor by providing any kind of guarantee, and often get upset when we reasonably report they have fallen short of their promise.  (Cash money is such a good value, we should probably charge companies more for it.)

Imagine if we were to tell them that we could only guarantee the value of our money for 90 days. If, beyond that date it loses all value… we won’t feel obligated to do anything about it.  Sound absurd? It is. But that’s exactly what companies tell us when they refuse to provide reasonable warrantees on their products or services.  In the most egregious cases, even if the product doesn’t work as promised or expected, you are still obliged to pay for it. (Think… cell phone company.)

Therefore, the best customer service is provided by customers because we provide a perfect product. The company always provides something less; most often, much less.

Why does the game work this way?  Simple… the deck is stacked.

The legal and financial systems are biased toward companies and against consumers.  If I refuse to pay for a product or service I feel is not what I was promised, the company can file a collection action and ruin my credit rating.  My only option is to sue them, which is too expensive and time-consuming for all but the largest consumer disputes.  On the other hand, companies routinely file collection actions for sums in single digits.

Therefore, my final wish for 2009 is… a new consumer focus for government.   

Consumer spending accounts for two-thirds of our economy, yet there are few real protections for consumers. Sure, the Consumer Product Safety Commission makes sure that products don’t kill you. But there’s no one out there making sure you don’t get nickel-and-dimed to death by $19.95 offers that fail to do what they’ve promised.  There’s no easy way to force a company to enter a dialogue over a $200 dispute. It’s not worth your time or money to pursue in court, so unless you get a national consumer columnist to champion your cause—or read his book—you’re likely out of luck.

Beyond consumer safety, we need much tighter controls on deceptive advertising, one-sided contracts and limited warrantees.  Above all, we need an accessible, responsive complaint mediation or arbitration system that will level the playing field for consumers when dealing with uncaring or complacent companies.

Consumers are the people.  Government is for the people. Therefore, what we need is... a government of the consumer, for the consumer and by the consumer... that shall not perish from the Earth.

While working on what should have been a fairly straightforward resolution for a reader of my  column in AARP Magazine, I’ve experienced some very alarming behavior by the nationally advertised firm, TaxMasters (CNN, Fox Business News).

The reader complained that TaxMasters dropped the ball on her case last summer, which resulted in a garnishment of her husband’s social security check and a lien on their home. She had paid the company $4500 for their services. Apparently, they never even started on her case. She wasn't looking to sue them. She only wanted her money back for services never provided. Adding insult to injury, they have refused to return her money. 

I’m amazed that this company is so unresponsive. They spend hundreds of thousands of dollars on television advertising; yet think nothing of brushing-off inquiries from a national consumer reporter. (During my own research, I have been hung up on, twice.) While I've located more than one hundred complaints on the web detailing poor customer service and worse, I’ve yet to locate even one satisfied customer of the company. 

I’m still working on the story. However, I thought it important enough to issue an alert on this company immediately, given that many people are making decisions about tax consultants in these months leading up to April’s individual tax deadline. 

Based on what I’ve learned so far, I recommend not doing business with TaxMasters.  More to come in later posts… and final word in the next issue of AARP Magazine.

“I tried to charge a new computer on my credit card and it was declined,” an AARP member recently wrote me. "I knew I wasn’t even close to my limit and I’d paid my bills. Later, I discovered that the credit card company reduced my credit limit without even notifying me. Can they do this?”

Yes, they can. It’s called "universal default" and is in the fine print of almost all credit card agreements. Credit card companies give themselves the right to change the terms of the agreement—interest rates, payment dates and credit limits—with little or no notice. (Congress passed legislation to improve the situation, but it won’t take effect until 2010.)

Many credit card holders are getting similar notifications these days. The stumbling world economy creates an environment where people are statistically more likely to overextend themselves and end up defaulting on their short-term debt. Accordingly, the same credit card companies that were handing out plastic like lollipops a year ago are now reeling in credit lines and ratcheting-up interest rates in an effort to minimize potential losses. Individual account adjustments are made according to a complex algorithm that analyses a cardholder’s income-to-debt ratio.
 

First of all, I would like to caution anyone from falling into the trap of using credit cards in place of real income for ongoing regular expenses. In times like these, instead of taking on more debt, a better approach is to cut back on expenses or look for other income. As most of us don't pay off our balances every month, every dollar charged on a credit card will typically cost at least two-dollars to pay back.

That being said, there are good reasons why someone might need to retain a higher balance on a particular card than the income-to-debt calculations would initially award them—a card that’s used for business, building airline mileage credits or other special purpose.  

I have some suggestions on how you can improve your chances of getting your higher balance or lower interest rate reinstated. The first step is to call the credit card company and ask specifically why the change was made. If they were responding a negative listing on your credit report, you might be out of luck—at least until you can get it straightened out. However, if you just fell victim to a changing formula, there’s a good chance you can get them to reconsider. As I said, the formula relies mostly on your income-to-debt ratio. This takes into account all of your potential debt, not just what you’ve already borrowed or the balances already on your cards. 

If you’ve got a handful of inactive or “backup” cards in your desk drawer, they are likely cramping your credit consideration. For example, if you make $100K per year and have five credit cards with $10K limits, your income to debt ratio is 50%—it doesn’t matter whether you’ve actually charged anything on those cards.  If you need a $20K limit on your primary card, you can offer to cancel one or more of the other cards in order to improve your ratio. The same principle applies to lines-of-credit and similar revolving debt. Make sure you’re talking with someone high enough up in the customer service hierarchy to make the decision, and document the agreement by taking notes of names, times and specifics of each conversation. 

The same process can be used to negotiate a reduction in your credit card interest rate. In both cases, you will want to stress that you are a loyal customer and will continue to be… if they can only help you out. After all, even in hard times, businesses still need to do business.

Truth in Advertising

Exaggerations, deceptions and outright lies are so common in modern-day advertising that we have begun to accept them as a normal part of our consumer culture. The only problem with this is that we consumers are the folks the advertisers are looking to swindle.

The advertisement that irks me the most is one that any television viewer has probably seen a hundred times… FreeCreditReport.com. That ad is a textbook example of deception. First of all… there is no way to get a free credit report at that web site. To get a copy of your credit report, you must sign up for a credit review service costing $39 per month.  This is only revealed in the fine print on the bottom of the television screen, which is more than overshadowed by the attractive young man singing catchy choruses of “FreeCreditReport-Dot-Com.” This ad campaign is doubly immoral because it attempts to make viewers believe the corrupt company’s web site is actually the government sponsored “AnnualCreditReport.com” web site—where you can actually get a free credit report.

Another ad scheme I wrote about earlier this year is almost as bad. It has to do with a bank that included a check $2.89 to customers in their monthly statements. The bank didn’t owe the $2.89; the check was a come-on to join an online coupon service costing $70 per year. By cashing the check, you were signing up for the service. (Turns out the endorsement space was also a contract signature line.)  When I spoke with a representative of the coupon company, he defended this endorsement shell game as legitimate advertising.  I don’t believe it, and I don’t believe he believes it either. There’s no way that a check in a bank statement can be seen as a legitimate informative advertising piece. It is clearly a ruse attempting to get people to inadvertently sign up for the service. Maybe they’ll like the service and decide to keep it. Maybe they won’t want to hassle over seventy bucks. Whatever the outcome, there’s no way that making the endorsement line the bottom line for an agreement to a multi-year service contract could be considered fair and honest advertising methodology.

We deserve better.  

What I’m getting at here is that what I really wish for is something almost entirely unheard of these days.

What I wish for is… ethical advertising.

I know, you’re laughing hysterically. You almost fell off your chair. I’ve heard it before. Are you done? If so, here are my thoughts.

We’ve developed a corporate culture where everyone plays right against the edge of what is legal, completely ignoring the more basic question, “Is it ethical?” Spending millions of dollars to advertise free credit reports when you’re really selling an entirely different service is not ethical. Camouflaging multi-year service contracts as gift checks is not ethical. Declaring that someone can never be turned down for an insurance policy implies fairness, but not if you forget to also say that there is no protection at all against skyrocketing premiums. Alerting cruise passengers at dockside that there was a viral outbreak on the previous voyage is ethical only if you also inform them that most of the facilities will be closed down on their voyage for sanitation purposes and you offer a full refund. (That one's an upcoming “On Your Side” web column.)

Whenever I call for this sea change in advertising ethics, I inevitably hear complaints of the humungous price tag for such regulation and oversight. My response? It shouldn’t cost anything. Ethical behavior should be voluntary! It should be as automatic as not walking naked into Grandma’s house. We shouldn’t need to legislate fair and equitable behavior.  We shouldn’t have to draft laws to compel corporate leadership and employees to act honestly, speak truthfully and respond compassionately.

I guess what I’m really talking about is a return to true American values. Not the jingoistic viewpoint that everything we do is right. That’s balderdash—we make as many mistakes as anyone else. What I’m talking about is frontier humility, the ability to admit error, apologize, make amends and move on. 

Finally… I can make a good argument that ethical behavior can be a major part of the solution to our current economic crisis. If Americans knew they could trust the domestic companies they do business with to provide quality products and services and to immediately correct any errors, we could be well on our way to an American manufacturing renaissance.

Truth in Real Estate

I was appalled when, earlier this year, a jumble of voices blamed homebuyers for the mortgage meltdown.

“They got in over their heads,” cried the chorus. 

Bull-pucky! 

Buying a home is the single largest financial transaction most of us will make in our lives. We don’t do it alone. To make sure we get it right, we hire a team of professionals. For the benefit of their experience and guidance, they are very well paid.

By closing time, at least five “experts” have given the transaction their blessing… the buyer’s realtor,  the seller’s realtor, the title company representative, the mortgage broker and the home inspector.  In return for their expertise, they get a bundle of fees which often runs as high as 10% of the transaction: Realtors-6%, Mortgage broker-2%, Title and Inspection-2%.  Therefore, on a typical $250,000 home, that team has been paid more than $25,000 to review and sign-off on the deal.

So what happened?

Every cratering subprime mortgage represents tens-of-thousands of dollars paid to a gaggle of these real estate experts—who didn’t do their jobs. It’s easy to see why. None of them has an interest in seeing that the buyer gets a good deal. Most of them only get paid if the deal closes, regardless of how much financial sense it makes. They also have an incentive to see that the buyer pays as much as possible. The buyer's realtor makes more money if the buyer pays more. The seller’s realtor makes more money if the buyer pays more. The mortgage broker makes more money if the buyer pays more. The title company makes more money if the buyer pays more and also needs to keep the realtors happy so she will get their future business. The home inspector wants to keep the other “professionals” happy too, for the same reason.  Not one of them has a financial incentive to closely scrutinize the deal and pull the plug if the bright light of common sense reveals any flaws.

Average Americans may only buy two or three primary residences in their entire lifetimes. They shouldn’t be held responsible for not being intimately familiar with the downsides of exotic loan structures. There’s no reason they should have that knowledge. It’s why we pay those high fees to the real estate experts. Asking a homebuyer to become a real estate pro is the equivalent of asking a defendant to have as much legal knowledge as his attorney before they head to trial.

When the housing market crashed, the big losers were the home buyers—many stuck with upside-down mortgages, skyrocketing interest rates, and facing disastrous foreclosures. The realtors, mortgage brokers, title companies and home inspectors kept their fees and were free of any downside responsibility for the chaos they helped create. Many of these experts were clearly more concerned with getting their fat share than in living up to their professional obligation to make sure that a deal made sense. The street-level deceit in the mortgage crisis wasn’t perpetrated by the home buyers, but rather by the real estate professionals who pocketed exorbitant fees and approved transactions they must have known were foolhardy, at best.

In 2009... I’d like to see the realtors, mortgage brokers, title companies and every other player who looked the other way or signed-off on one of these squirrely deals held accountable for their malfeasance. Then, we need to call on Congress to implement strict regulations and competent oversight over these real estate clowns to make sure that such massive consumer fraud never happens again.

Your ability to get what you paid for has been greatly enhanced by a new capability on Amazon.com.  The online retailer recently gave customers the ability to upload video reviews of products they sell.  As we all know, a picture... or a video… can be more compelling than pages of printed text.

To understand the power of an online video, it’s important to be aware that the greatest leverage you have in any dispute with a company is the power of your own true story of how you’ve been mistreated.  The more compelling the soapbox from which you tell your story, the more interest the company will have in coming to terms with you.

For years, Amazon has given customers the ability to post written reviews and comments on the products they sell. The addition of video adds an entirely new dimension.  Imagine… you recently purchased a new gadget, but it’s not working properly and customer service is giving you the run-around.  Now, instead of just posting a negative review, you can upload a video of the miscreant gizmo.  It doesn’t even matter if you bought the product at Amazon; if you’ve got an Amazon account, you can write a review on any of their products.

Creating a video is quite easy these days, involving little more than a creating a text document. Most laptops and many desktop computers come equipped with built-in video cameras and recording software.  Uploading to Amazon is as simple as click and save.

Your video should be a factual description of what has happened to you, rather than plea to emotions or a slanderous indictment of the company.  If you are in the right, your story will sell itself.  You don’t need high production value, just the facts and yourself.

Now… for the important part. BEFORE YOU UPLOAD THE VIDEO…  contact customer service at the company one more time.  Let them know what you plan to do.  Ask for a supervisor. Let her know what you are going to do.  If she says, “Go ahead and upload it.” Make sure you let her know that you plan to include that quote along with her name in the video.  “Sally… then it’s fair for me to also mention in the video that you said it was okay for me to post it online. Is that correct?”

At this point, she will usually rethink her position and begin to work with you. Why? Few people are fond of the idea they will be the focus of a bad review posted online, and being mentioned in a video review is even worse.   

Actually, you should hope that you don’t have to post your review online, because that will mean that you hadn’t successfully leveraged your story. (Don’t expect an apology; just take the money.)     I know, you’re disappointed… you could have been an online video star.   However, you will be able to take great satisfaction in the fact that you successfully fought for your consumer rights, and won.

NOTE: If you want to post your story anyway, if only to alert other potential customers of how you’ve been treated. Make sure you do it AFTER the check has cleared. - RB

The recent national financial crisis has exposed a weakness in the FDIC account insurance system of particular importance for those of nearing retirement, a weakness that could cost you a large portion of your retirement savings if you’re not careful.

For years we have been told that deposit accounts in banks and savings-and-loans are insured for amounts up to $100,000.  This is only partially true. What is not generally understood is that this limit applies to the sum of all your accounts in a single institution, including any subsidiary accounts that are also referenced by your social security number.  This may include educational savings accounts, certain retirement savings accounts and medical savings accounts.

While many of us may not have more than $100,000 in any single account, quite a few of us may have more than that in all of our accounts, particularly if retirement accounts are included.  (These days, a retirement account with less than $100K is considered underfunded.)

For example, if you have $5,000 in an interest-bearing checking account, a couple of college savings accounts for your kids worth $30,000 each and a cash retirement account holding $75,000, all in the same institution... you may have assumed that you will be made whole by the FDIC if your bank goes belly-up. That’s not the case.  The total of those accounts is $140,000.  Under current rules, you will only be covered to $100,000 for all the accounts.  You could face a loss of $40,000.

Given the reality that just last week the largest savings-and-loan in the country went bankrupt (Washington Mutual), I strongly urge you to review all your accounts. If you have more than $100,000 in any one FDIC institution, you may want to consider dividing your accounts among several different banks.  Different branches of the same bank are not enough, you should open accounts with different banking companies.

Take a close look at your supermarket’s shelves and you might think that Americans are eating less at every meal. Breakfast cereal that used to come in 18 ounce boxes is now appearing in smaller 16 ounce packages.What looks like a quart carton of ice cream is really only four-fifths of that. A “pound” of coffee is light by four ounces.   A bottle of cough syrup will now last only four days rather than five. Moreover, they’re trimming your wallet along with your waistline; compare the new prices stickers against your old receipts and you’ll see that the new smaller containers often don’t cost any less than their previously larger versions.

What’s up?

It’s called “short-sizing” and it’s the retail industry’s way of getting you to pay more, for less. They know that you’re likely to cut back on your purchases if prices go up. So, rather than charging you more they just put less in the box, bag or carton.  Over time, you’re wallet is still thinner that it would have been. That is, unless you actually eat less. (Based on my unscientific observation of the expanding midriffs of America, that isn’t the choice we’ve been making.)

How can you fight back against progressively punier proportions?

Buying in bulk is a time-tested solution, but has problems. While unit prices generally are lower when you buy in larger quantities, it’s not always the case.  You need to check the unit price—ounce, pound, or dose—to make sure. And, many of us don’t have the storage space for a dozen boxes of corn flakes, twenty pounds of potatoes or a case of ketchup.

If you can’t buy in bulk, here are a few other budget broadening techniques you can try:

1.    House brands—Store brands typically run 15 to 25 percent less than their “name” brand counterparts. However, store brands are often manufactured by the same company in the same factory as the name brand versions.  Here are a few examples from my local store:

a.    Ketchup (12 oz): Name brand $2.49, House brand $1.79

b.    Toilet Paper (12 rolls): Name brand $3.39, House brand $2.12

c.    Allergy Medication (Dyphenhydramine, 100 capsules)
      Brand name $14.49, House brand $7.49

During informal taste-testing at my kitchen table, the house brand ketchup turned out to be the favorite of my expert eaters—ages seven and ten.  While the brand name toilet paper promised to be “softer,” my delicate derrière couldn’t tell the difference.  Lastly, the allergy medications were actually manufactured by the same company, giving a clue to how much we actually pay for the cost of advertising the name brand products.

2.    Memberships—I used to turn my nose up at those people who pulled out their supermarket membership card at the checkout counter. I mean, why would anyone want to belong to a produce department anyway?  Lower prices! That’s why.  I happen to shop at Albertsons.  Last year, I finally broke down and joined their little club. Frankly, the savings were more than impressive.  Without paying any attention to the “specials” I was routinely saving more than ten percent at the checkout stand. If I open my eyes and take advantage of the deals, I’ve sometimes saved as much as 20 percent.  Hey, that’s twenty bucks on a hundred dollar grocery bill. (A week’s worth of latte’s is nothing to sneeze at.)  In the retail version of double-dipping, you’ll often get additional savings if you follow step one above and also buy the store brands.

3.    Online ordering—If a company doesn’t have to pay for retail frontage, parking spaces and checkout clerks, they’re going to save money at their end and are often willing to pass those savings on to you.  Online ordering isn’t just for books anymore.  From underwear to umbrella’s, office supplies to oregano, you can likely find an online vendor whose prices are as good as or better than your local store… and they deliver to your door.

4.    Farmer’s market—This is my favorite, fresh food at bargain prices. What’s not to love? These days, most towns have a farmers market of some kind where local growers display their creations.  Unlike supermarkets where it might take a week from field to freezer, much of the produce at the farmer’s market was picked that very morning.  The farmers don’t have to pay for shipping or advertising, meaning that even though their costs might be higher per bushel, they can sell to you for less.  Plus, you haven’t really ever tasted a tomato until you’ve tried it fresh from the vine.

July 31, 2008

As if to make my point for me about the differences in customer service between the US and Japan that I made in my recent journal entry, a query appeared on the On Your Side community page .

David wrote that he’d purchased a new Mitsubishi widescreen TV from Circuit City.  When he opened up the box at home it, the front of the set appeared damaged.  The short version of David’s long ordeal is that when he took the set back to the store to have them look at it… and hopefully provide him with an undamaged set… he was all but ignored. They refused to acknowledge they had provided him with a damaged unit.

David appealed to the store, the company, the manufacturer… and to “On Your Side.”  I’d be very happy to say that we’d been able to straighten this out for him. Alas not.  However, he was taken care of. Not by the American retailer, but by the Japanese manufacturer, the party least responsible for a set broken during shipping or delivery.

Why would a manufacturer decide to fix David’s set free-of-charge even though they clearly had no liability for the damage? The maker of the set wasn’t even a factor in David’s complaint.  There is only one possible answer, Mitsubishi acted in the name of good customer service and long-term reputation building.

While Circuit City’s store manager may have been concerned about his quarterly bottom-line, someone at the factory decided that one unhappy customer wasn’t worth damaging their reputation. 

I receive hundreds of complaints every month regarding domestic retailers and service providers that hard-ball customers over relatively small amounts of money, totally oblivious to the long-term consequences of creating activist adversaries.  Populist capitalist Dale Carnegie wrote the equation more than eighty years ago that every dissatisfied customer is going to tell his story at least ten times. My experience with Japanese retailers is that they realize that it’s better for the bottom line to take care of the customer than to suffer their enmity. The question is then, why aren’t American companies seeing this same equation?

The answer is that we are looking short-term. The Circuit City store manager is worried about this month’s figures—not next year’s. (He might not even be with the company by that time.)  This is a disservice to the company and to its owners, the stockholders, who will suffer the consequences of this management myopia a few fiscal quarters down the pike.

American companies also have the irrational belief that if they make an exception for one customer that every other customer will be banging on the doors for the same deal. Hey, I’ve got news for you. If you’ve got so many unhappy customers that you have to worry about them bolting because you treated one guy fairly… you’ve got much bigger problems on your hands!  The myth of the legions of customers waiting to return items is absurd. When we buy something, each of us hopes we’ve made a wise decision.  We aren’t looking to turn around the next day and return the item. Unless, of course, the item isn’t what was promised or doesn’t work properly. In that case, we’re due a replacement or refund, regardless of any precedent.

How do we get off this merry-go-round of poor customer service and short term management?  I’ll deal with that in a later post.

(NOTE: In the interest of fair disclosure, I gave Circuit City high marks for customer service in my book, “UNSCREWED: The Consumer’s Guide to Getting What You Paid For.” Which just goes to show, even good companies can go wrong.)

July 25, 2008

Thinking of doing some traveling? You might want to think about getting your ticket now, even if you know there’s a good chance you’ll change your plans later.

Why?  Because the $100 fee you’ll be charged to make a change is often far less than the increasing air fares you’ll pay if you wait to make your reservation later.

Here’s an example. For comparison, I chose a trip from Portland to New York on United Air Lines—from the first available Thursday in each month and lasting one week:

In this case, if you needed to fly in October, the round trip you’d pay this week is just $590.  If you delayed until September when your plans were firm, you’d pay $224 more, $814. However, if you decide in September to change your trip date to December, you’d pay a change fee of $100, making the total ticket cost only $660.

If you have to cancel your trip, that cancelled ticket is worth a round trip flight. If the new flight costs more than your original, you will have to pay the difference. However, if your new flight costs less, you won’t get a refund. Therefore, it’s best to have paid as little as possible in the first place.

Of course, there may be exceptions to the rule and different airlines may charge different fees for changes.  In general though, even if you have to cancel your trip, it’s still a better deal to buy the ticket as far ahead of time as possible for your earliest possible travel date.