Debt, Credit Card & Consolidation Current News Digest

At a recent gathering of amateur consumer advocates in New York City, discussion turned to this thorny topic: How do you focus the rage people feel about rip-offs on fixing the problem?  Consumers are quick to anger when a company unjustly charges a $35 late fee, but they seem far more reluctant to get involved as Congress debates legislation that would make the $35 fee illegal. Why? One obvious reason: Congress is slow and the legislative process is confusing.  

So here's a quick scorecard on the debate over creation of the proposed Consumer Financial Protection Agency, which would be the first new federal consumer protection agency since the 1970s.  While the congressional made-for-TV kabuki dance that will decide its fate won't take place for another several weeks, the real end game is happening right now, as Washington, D.C., appears to be slumbering under three feet of snow. So this is a good time to pay attention.

In case you missed the last episode, here's a quick background: Harvard bankruptcy professor Elizabeth Warren proposed a new agency several years ago that would regulate consumer contracts on financial matters like credit cards and mortgages. Warren, now a bit of a cult hero in consumer advocate circles, is currently chair of the oversight panel Congress set up to monitor the TARP bailout. Banks don't like her much, but she's the odds-on favorite to head the new consumer agency should it be signed into law.

During his campaign, President Barack Obama supported the idea of a new consumer protection agency, and he has called for its creation several times in the past year. In December, Rep. Barney Frank, D-Mass., ushered legislation through the House of Representatives — barely — that would create the agency. The Wall Street Reform and Consumer Protection Act passed by a 223-202 vote.

Note that this bill does much more than create a new consumer agency; it includes a full set of financial regulatory reform proposals. But creation of the consumer agency appears to be the most divisive issue.  Supporters say that only an independent agency could act as a worthy adversary to the banking industry. Opponents argue that it's folly to create a single-purpose bank regulator that has no interest in the safety and soundness of the institutions or the overall health of the industry.

Given the tight House vote, debate in the Senate was expected to be difficult,  and so far it has not disappointed.

Retiring Sen. Chris Dodd, D-Conn., is head of the Senate Banking Committee, which now controls the fate of the legislation. Last year, he'd indicated unflinching support for it. But in January, he flinched. Numerous reports indicated his willingness to negotiate away creation of the agency in exchange for other regulatory concessions from Republicans – specifically the senior Republican on the Banking Committee, Sen. Richard Shelby of Alabama.

The news sent consumer groups into a tizzy, with some predicting this meant the death of the Consumer Financial Protection Agency.

But turned out the obituaries were premature.  Last week, Dodd's office announced that he had reached an impasse with Shelby, and that he was abandoning efforts at a compromise. Instead, he said, he would propose legislation that resembled the House bill.

Warren, meanwhile, fresh from preaching to the choir during an appearance on Jon Stewart's “The Daily Show,” penned an impassioned op-ed in the Wall Street Journal reiterating the need for the agency.

“The same Wall Street CEOs who brought the economy to its knees have spent more than a year and hundreds of millions of dollars furiously lobbying Washington to kill the president’s proposal,” she wrote.

On Wednesday, Senate reform talks got a jump start, when Dodd opened negotiations with a different Republican on the Banking Committee, Sen. Bob Corker of Tennessee.  Both made public statements about the renewed talks on Thursday.

"Senator Corker has proved to be a serious thinker and a valuable asset to this committee,” Dodd said in his statement. “For that reason, I called him Tuesday night and asked him to negotiate the financial reform bill with me. We met in my office on Wednesday and given the importance of these issues he agreed. I am more optimistic than I have been in several weeks that we can develop a consensus bill to bring about the reforms the financial sector so desperately needs to prevent another economic crisis."

But does that mean creation of the agency is likely now?  Not at all.  Corker said Friday he is merely picking up where Shelby left off

"Like most Republicans I believe a stand-alone agency for consumer protection or separating those protections from safety and soundness are nonstarters,” he said, according to Reuters. 

What are they taking so long talking about?

There appear to be two issues which have bogged down — and might ultimately kill - the agency.  The first  is independence. The second, a bit more subtle, is an effort to protect the independence of state-level consumer protections.

By now, creation of a completely independent CFPA — something Republicans have compared to the Environmental Protection Agency — seems off the table. Most reports indicate that the agency will survive only if it is part of another regulator. It might be housed in the Treasury Department or be a part of the Federal Reserve, but could retain some independent rule-making authority.  And that's the sticking point.

In October, while there was a flurry of stories concerning the potential watering down of the new agency, Warren spoke to msnbc.com and appeared to draw a line in the sand. At the time, some areas of regulation, such as car loans, were removed from its purview by the House of Representatives. 

"I draw the line at independence," she said. "If the new agency isn't independent, it isn't worth doing."

But this week, a source familiar with the negotiations said consumer groups have warmed to the idea of the agency being housed in the Treasury Department, as long as it has full independence within the department, comparable to the Office of the Comptroller of the Currency, which is also technically part of Treasury.

Balber, from Consumer Watchdog, said the key distinction involves independent rule-making authority,

"It would depend on how something like that is structured," she said.  "The key is that no one would have veto power or some other form of power to weaken the agency's decisions. So a stand-alone agency that's part of Treasury could work," she said. "I don’t think it would work if it were housed within a prudential banking regulator (such the Federal Reserve). They are looking first and foremost at bank profits."

Meanwhile, state officials are worried about an issue that rears its head every time Congress considers consumer protection legislation – pre-emption.  Nationwide firms and industry groups often argue that federal law should trump, or pre-empt, state law, so that they don't have to abide by 51 different sets of rules. For example, a new federal law to require 45-day notice when raising a consumers' interest rate would override an existing state provision that requires a longer warning period. Obviously, state lawmakers and attorneys general have bitter distaste for pre-emption, which reduces their power and ability to regulate.

Because of hang-ups over the independence of the agency, negotiators haven't even begun to deal with the thorny issue of pre-emption yet, according to another source familiar with the talks. That means there are still significant obstacles in its way.

Meanwhile, opponents continue to voice their objections to creation of the agency. The U.S. Chamber of Commerce is leading the public fight, airing commercials that say the agency would hurt small businesses and making its case at the Web site Stopthecfpa.com.

Noted Republican pollster Frank Luntz has even gotten into the act, recently publishing a talking points memo called "The Language of Financial Reform." In it, he advises opponents of the Consumer Financial Protection Agency to paint it with the broad brush of "big government."

"Creating another costly government bureaucracy on top of existing bureaucracy isn’t a solution - it helped cause the problem," he advises, according to the memo obtained by The Huffington Post. He also instructs opponents to appeal to their voters by saying the legislation is full of "lobbyist loopholes" for industries like car dealers and pawn brokers.

There are two other x-factors that might become part of the discussion.  If a large U.S. bank supported creation of the agency, that would make it more palatable to Republicans.  Earlier this month, Bloomberg reported that Bank of America CEO Brian Moynihan has told White House officials that the bank was not "lobbying against the agency." The bank stopped short of supporting it, however.

Meanwhile, it's unclear how much the force of Elizabeth Warren's personality and popularity might be adding to the financial industry's aversion to the agency.  Banks are used to dealing with faceless, nameless bureaucrats.  A popular consumer advocate with a ready-made bully pulpit might be part of the reason they are digging in their heels. 

So the future of the agency, and the legislation, seems entirely up in the air, a moving target — another reason that U.S. consumers might find it difficult to engage in the debate.  Most observers feel that Dodd has the votes he needs to pass even the most liberal version of the bill through the Banking Committee, and that he intends to bring some financial reform bill to a vote on the Senate floor, probably in March. There, it is likely to find the same fate as health reform — it won't have 60 supporters and will die a parliamentary death unless at least some Republicans support it.  A source familiar with the discussions said Rep. Barney Frank wants to force a Senate vote, which would require Republicans opponents to cast a potentially unpopular vote against consumer reforms.  Balber is among many consumer advocates who would like to see issue come to a head.

"We are still concerned that something less than consumer agency will come out of this," she said. "Right now, things are constantly shifting. We are calling on Dodd to make his position clear. … Meaningful financial reform must make the marketplace safer for everyday Americans."

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One of the largest tax fraud schemes was blown wide open last year when ex-UBS AG banker Bradley Birkenfeld blew the whistle on a $20 billion tax evasion scheme at UBS. His testimony played a “key role” in showing US investigators how UBS was helping Americans hide assets. As a result, UBS agreed to hand over information on 4,450 accounts and pay $780 million to avoid prosecution. Birkenfeld himself received 40 months of jail time because he personally helped billionaire Igor Olenicoff evade taxes, which he didn’t disclose when he talked about the widespread tax evasion schemes. However, when Birkenfeld leaves prison he’ll be rewarded many many millions of dollars for his assistance in catching these tax frauds. A fairly new federal rewards program lets tax informants earn a bounty for those they turn in.

So, how can you get in on the action?

Whistleblower – Informant Award

Before you start turning in everyone you hate, the IRS’s requirements are fairly stringent. They require that you provide specific and credible information and will pay awards if that information results in the “collection of taxes, penalties, interest or other amounts from the noncompliant taxpayer.” While it’s unclear what is considered specific and credible,

How much is the award? There are two types of awards, one for if the total collection (taxes, penalties, interest, or other amounts) is more than $2 million and one if it is less.

• If the total collection is over $2,000,000 and “a few other qualifications are met,” the IRS will pay 15% – 30% of the total amount collected. Another qualification is that if the noncompliant taxpayer is an individual, their annual gross income must be greater than $200,000. The amount is set by law and you are permitted to appeal a ruling.
• If the total collection is under $2 million, or it’s over $2M and its an individual taxpayer with an income less than $200k, then the award is 15% up to $10 million. For this award, the Commissioner sets the reward (up to the maximum) but you cannot contest the ruling.

How to Report Tax Cheats

The instructions are available here but essentially you fill out Form 211: Application for Award for Original Information and mail it to the IRS here:

Internal Revenue Service
Whistleblower Office
SE:WO
1111 Constitution Ave., NW
Washington, D.C. 20224

One important note at the bottom of the instructions state – “If the whistleblower withholds available information, the whistleblower bears the risk that withheld information may not be considered by the Whistleblower Office in making any award determination.” Could Birkenfeld’s omission of his role in helping Olenicoff evade taxes be a factor in the office’s determination of an award? Hmmm…

Finally, I think the funniest part about the Birkenfeld saga is that UBS now explicitly bans tax evasion assistance.

(Photo: alancleaver)

How to Report Tax Fraud & Tax Cheats from personal finance blog Bargaineering.com.

As an amazing 2009 fades into the sunset, it’s time to review my progress and look forward to the year to come. Am I a better person than I was a year ago? (I believe so.) How can I be even better at the end of this year?

As in 2008 and 2009, I’m not setting resolutions for 2010. I’m setting goals. When I set goals, I don’t feel like I’m trying to become somebody new; instead, I’m trying to achieve something that the current J.D. wants. This method has been very successful for me, so I’m not about to tamper with it.

I’ve also been successful at limiting myself to just a handful of major goals each year instead of creating a huge list. Last year, I had three primary goals. This year, I have only one.

My goals for 2009
Let’s start by looking at how I did with my goals for 2009. I had fair (but not complete) success:

1. I wanted to save $5,000 for a new car. I knocked this one out of the park. Because of a happy set of circumstances (refinancing the house, saving more than I’d planned, setting aside more for taxes than I’d needed), I was able to buy a used Mini Cooper in April. It’s one of the best purchases I’ve ever made. A lot of times, material purchases disappoint, especially if they’re things you’ve coveted for a long time. No buyer’s remorse here. I love my car.
2. I wanted to ride in Cycle Oregon. I didn’t do this. I didn’t even come close. But I did walk the Portland marathon in October. I’m pleased with this, even if I didn’t meet my stated goal.
3. I wanted to “make better use of my time”. Uh — right. This goal was lame because it wasn’t SMART. A good goal is specific, measurable, achievable, relevant, and timed. This wasn’t any of those things. Ironically, it’s probably fair to say I achieved this ill-defined wish. For the past three months, I’ve been a working machine. Too much so, in fact.

I also met all of my secondary goals except for teaching myself about small-business accounting. (Turns out I’m happy to pay my accountant to know this so I don’t have to.)

My goals for 2010
This year, I have no major resolutions that involve money. This may be the first time that’s ever happened. But there’s a reason for it: I’ve worked hard to meet my previous financial goals in recent years. I’ve set targets, met them, and find that I don’t have to worry about them. (Maybe this is part of being in the third stage of personal finance?)

In fact, I only have one major goal (or resolution) for 2010. Around our home, I’ve dubbed 2010 “The Year of Fitness”. My only goal, to which everything else will take a back seat, is to quit messing around and actually lose 50 pounds. I’ve done it before, and I’ll do it again. (But this time, I’ll keep the weight off.)

As soon as I turn in the final chapter of Your Money: The Missing Manual (which should be in about ten days), I intend to live and breathe fitness. It’ll be slow going at first, and I’m sure I’ll stumble. That’s okay. I’ve learned a lot from my financial journey that can be applied to my health. (And who knows? Maybe I’ll start writing at Get Fit Slowly again…)

As usual, I have some secondary goals this year. I want to:

• Fully fund my retirement accounts. This is an annual goal, and I try to meet it as early in the year as possible so that I have no excuses.
• Teach myself French. Kris and I have the Rosetta Stone French course, and I’d like to complete it before we leave for France next autumn. That’s an ambitious goal, but there you have it.
• Sell a second book. This time, though, I’ll make sure my contract gives me breathing room so I don’t have to sacrifice everything else in my life while I’m writing. (The past three months have had no balance.)
• Spend more time with friends. No, this isn’t a SMART goal. It’s as nebulous as can be. But I have some specific plans to make sure I’m making my relationships a priority.
• Finish Proust. My friends joke about my love for Proust, but I love his writing. I’ve put off finishing Remembrance of Things Past for more than five years. I’ll read it all in 2010.

As I said, 2009 was an amazing year, and 2010 looks like it could be even better. For one thing, my dream of world travel will begin to come true. I’ve already booked trips to Belize, Alaska, France, and Italy. There’s a chance I’ll end up in Texas, Alberta, and Washington, D.C. during the year. Maybe it’s time for a new blog: See the World Slowly?

What were your goals for 2009? Did you meet them? And what goals are you setting for 2010?

—
Related Articles at Get Rich Slowly:

• Is It More Important to Be Rich or to Be Happy?
• Ask the Readers: Tips for Tackling Big Financial Goals?
• My First Budget: Drafting a Plan for Discretionary Spending
• Weekend Update: PF101 Edition
• Don’t Confuse Frugality With Depriving Yourself

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A lawsuit filed this week by Washington state against DirecTV could have a secondary purpose: It could serve as a textbook for consumers on tricks companies play to take their money.

The suit filed by Washington Attorney General Rob McKenna alleges so many forms of misbehavior that he thinks DirecTV, the nation’s largest satellite TV provider, has "built deception into their business model." In an interview with msnbc.com, he also said that the firm has "left few deceptive tactics unused."

"It's amazing, the wide variety of ways they've taken advantage of their customers," he said.

Much of the case centers on alleged misleading advertisements, and on a series of pricey early termination fees the firm levies on customers.  For example: Aggressive marketing campaigns tout service for $29.99 per month, but leave less clear the two-year obligation attached to the deal,  or that the price almost doubles after the first year, the lawsuit says. After the first year, consumers face a Hobson’s choice – either pay the higher price or cough up an early-termination fee of up to $480.

"It is what amounts to a bait-and-switch strategy,” McKenna said. “They use a variety of lures to bring people in at prices the customer doesn't actually pay."

But that's just the tip of the iceberg in the complaint, which accuses DirecTV of 16 different causes of action.

Before filing the lawsuit on Monday, McKenna’s office had received 375 consumer complaints about DirecTV this year — more than any other company. Another 59 complaints arrived in the 24 hours after the lawsuit was filed, he said.

In a statement, DirecTV denied the accusations.

“We always strive to provide 100 percent customer satisfaction but, to put it in perspective, we are talking about less than one percent of our customer base in the entire state," it said. "The vast majority of our customers in Washington, and the U.S. for that matter, understand our lease agreement and are happy with our overall service.  We are disappointed that the state elected to file a lawsuit. We believe their allegations lack merit, and we are confident the court will agree with us.”

McKenna said he'd been working with DirecTV for months in an attempt to avoid a court battle, and he was surprised DirecTV refused to change its business practices voluntarily.

Other state attorneys general are also considering suing DirecTV, he said, declining to identify them. Earlier this year, a group of 46 states settled a lawsuit with DirecTV competitor DISH Network. The firm was accused of automatically debiting consumers’ accounts without their consent. The firm admitted no wrongdoing but agreed to change its business practices and refund $6 million to consumers.

"When we go after a company, it's because we have them dead to rights," McKenna said.  "Most companies just want to settle. … If DirecTV wants to take on the states, that's their choice."

Here are a few of the other allegations from the complaint:

• DirecTV requires a 24-month commitment but offers only 12-months worth of discounts. Terms for the offer are spelled out in newspaper ads in 5.5 point-sized fonts, barely readable to the naked eye.
• The sales scripts used by telemarketers include nothing about the terms and conditions on the discount plan.
• To receive the $29 monthly price, consumers must use an automatic payment method.  Failure to do so adds $5 to the monthly bill.
• Customers who refuse a credit check or have bad credit face "hundreds of dollars" in extra fees.
• In order to get the promotional rate, some customers are required to file rebate forms. The rebate, which is applied as a deduction to monthly bills and spread out over many months, can be voided if a customer is late with a payment, bumping them up to a higher price. Also, some consumers complain that their rebates have been unfairly denied. And because rebates can take time to process, some customers say they were forced to pay a higher price during their first months of service.
• When consumers complain about defective equipment and the equipment is repaired, their service contract requirement is often renewed without their knowledge for another two years.
• Consumers report being signed up for a $5.99 monthly service maintenance plan they didn't want. When they cancel, they can be charged a $10 early termination fee.
• Consumers who are given "Free HBO" stations for a trial period are often rolled into a paid subscription without their express consent.  
• Consumers who buy a DirecTV unit at an electronics store like Best Buy have been unknowingly enrolled in a lease agreement.  Even thought the units are purchased like any other electronic equipment — often for around $100 — the consumers don’t own them. If they fail to activate DirecTV service, they can face a $150 "activation failure" fee.  If they turn off the service early, they can face a $480 early-termination fee and must return the unit to DirecTV.

DirecTV's contract with consumers is "so one-sided as to grossly favor the defendants," McKenna said. That's assuming someone can find the contract terms.

But McKenna's office says all these conditions on DirecTV agreements never appear in a single place. Instead, using an approach called "layering," the terms and conditions can appear in various places: on store receipts, on order forms and on the company Web site. 

"There's no single form with all the rules," he said.  "That's unfair to consumers."

DirecTV is already facing legal action from consumers on similar issues. A class action lawsuit filed in California earlier this year alleges that the company raids customer bank accounts to collect early termination fees without consumers' consent.  One of the plaintiffs, Mary Cox of Fontana, said a DirecTV customer service agent would only identify himself as "Ding-A-Ling" when she phoned to dispute an unauthorized $430 withdrawal from her account.

DirecTV faces challenges in the marketplace because its customer start-up costs are considerably higher than cable firms.  New satellite users must obtain a set-top box, a dish and expert installation. Without offering free installation, the firm would have trouble matching similar sign-up deals from competitors.  So the firm heavily subsidizes start-up equipment costs, and has adopted tactics similar to those used by cell phone carriers to ensure that its setup subsidies aren't wasted.

Despite such tactics, the firm is facing stiff competition for its 17 million subscribers. In its most recently reported quarter, DirecTV told investors that its losing customers at a "monthly churn rate of 1.72 percent."  The firm blamed aggressive competitor promotions and "stricter" retention policies that "tighten up our offers to existing customers."

Red Tape Wrestling Tips

If you feel you've been treated unfairly by DirecTV, contact your state attorney general immediately. If a case is filed in your state, those with complaints on file will be the first in line to receive restitution should the states prevail.

If you are considering DirecTV — or any pay TV service — read this complaint carefully. (PDF) All the pay TV services have conjured up complicated trial offers, tricky rebates and so on.  The DirecTV lawsuit is an excellent summation of the kinds of things to watch for. 

Discount trial offers — say, $29.99 service for 12 months — are excellent, but know when you sign up that you are playing a game. It critical to remember when you signed up, so you can switch services or ask for another discount before the higher rate kicks in. One idea: Put a small sticky note on your cable or satellite box with your discount end date, so you don't forget. And of course, always ask about early termination fees.

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