The Corporate Observer : Washington D.C. Class Action Lawyer & Attorney : Steven Berk Law Firm : Consumer Protection, Corporate Abuse : The Corporate Observer Blog

The banks are at it again!

Consumers’ deadline -- this summer -- for opting-in to overdraft programs on their debit accounts is rapidly approaching. Not surprisingly, banks are doing all they can to maintain this important revenue stream – and by whatever means necessary.

In an article published Monday February 22^nd, The New York Times reported that banks are focusing on “FEAR” as the key motivating factor for convincing consumers to retain overdraft protection. The advertisements and notices using fear are slick at best, but more often they are just downright deceitful.

According to the Federal Reserve rule changes passed last November, Banks are required to inform customers exactly what “overdraft protection” means and obtain written consent in order to legitimize these charges. The new rules take effect July 1, 2010. Needless to say, these rules do not continence scaring consumers into overdraft protection.

The banking industry made $24 billion from overdraft fees in 2008 and about $27 billion in 2009. What’s more? The banks aren’t the only ones on the hunt. The same Times article reported that a cottage industry of consulting firms like Raddon Financial Group and Strunk and Associates are moving fast to sell banks multiple solutions for retaining overdraft protection customers and its important revenue stream. Cynical examples of those solutions target users who frequently fall below their checking account threshold and pay overdraft fees 5 times or more per year. (See the Raddon Report). 

To be fair, we should not be surprised that the banks are fighting to keep every dollar possible, but is it too much to ask for honesty instead of trickery, and information instead of fear tactics? It is simply unacceptable that, in response to federal action to protect consumers, banks are running campaigns to push consumers into blindly agreeing to overdraft protection rather than publishing honest, non-biased, information and allowing them to make their own decisions.

Transparency is a critical starting point. Consumers need information to make the right decision for their own financial needs. There is not enough time before July 1 to change bank practices and it would be unwise to expect these scare tactics to cease. Instead, consumers are on their own. Wall Street has made its intentions clear. It is now up to the informed public to ignore fear tactics and use all available resources to make the best possible decision about overdraft fees.

Assisted by Zach Kady

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                The people of Massachusetts have spoken.  Change.  It’s not happening fast enough.   That sentiment was strong enough to elect an obscure, and a little known State Senator whose only claim to fame is a mostly nude centerfold in Cosmopolitan magazine. Oh poor Ted Kennedy must be rolling in his grave. 

 Well … these change seekers are not going to be particularly happy with Barney Frank and his steerage of H.R. 4173, which includes the Investor Protection Act of 2009. Is this really the best he can do?  It’s the classic inside the beltway compromise.  The lobbyists for the financial services industry sure had their say. At best, any protection for main street investors is subtle and at worst pyrrhic.

 This is a horrible conclusion to a story that should have turned out much better. One glaring example of this weak compromise is a provision seeking to curtail the lock that brokerage and securities firms have over any customer dispute:

Home field advantage

We all know its potential importance.  What football team wants to travel to hostile stadium for a crucial game? Well its worse for investors trying to recover for valid claims against their brokerage firms.  Not only must they play on the enemy’s turf but the enemy also gets to select the referee.

 As it currently stands, brokerage firms require customers by standard agreements to arbitrate their disputes over broker misconduct (like putting grandma in a deferred annuity that has limited liquidity and no tax benefits while reaping an excessive commission). 

The forum is the Financial Industry Regulatory Authority (FIRNA). The arbitrators are too often sympathetic to the industry and their attorneys.  So, in this season of change what does the great champion of the common man push for?  A ban on these one sided arbitrations?  Well no not exactly.  The reform we’re seeing in this area is a “punt” at best.  The legislation grants new powers to the SEC to control, limit and even prohibit the use of mandatory arbitration agreements in brokerage contracts.  The SEC?  The same SEC that missed Madoff even when he was delivered on a silver platter by the insights of Mr. Markopoulos? The same SEC that dawdled and debated as the financial sector headed toward the abyss?

            Take it from me – from someone who spent some time at the SEC and saw how slowly it works – nothing will change for years; and by the time it does, the result will be more of the same. 

             More is needed faster. 

 Private Pursuit of Accomplices:

              On the Senate side there is more room to be optimistic. In nearly all of the Ponzi schemes and widespread frauds of the last several years, the bad guys could not do it alone.  They were all helped by the blind-eyed or negligent banker and accountant who, recklessly or with actual knowledge, placed investors in harm’s way and too many times was integral in creating or hiding a fraud. Arlen Specter to the rescue. The Pennsylvania Senator has introduced a bill which states that those individuals who knowingly or recklessly provide assistance to fraudsters whose actions are in violation of securities regulations will be held responsible as if they were committing fraud themselves.

Lawyers and accountants who may unwittingly enable fraud will still be exempt from legal pursuit, but banks, traders, and other individuals whose actions have led to the loss of billions of investors’ dollars in the past may soon be held responsible.

Significant and fervent legal action against accomplices of securities fraud will lead to reform of industry practices. The expected provisions in the Senate bill will enable trial lawyers to protect consumers by forcing the industry to regulate itself for fear of prosecution by a vigorous private bar.

The Future

After a long healthcare battle, recent struggles with terrorism, and a battle with a still fledgling economy, we hope that Congress does not lose its steam in pursuing fairness and justice for American investors. We at The Corporate Observer know that the best reform is increased involvement of investors in the financial system. If the Senate passes the reforms that we are seeking, the investors of America can look to the future of investing with increased confidence in their own ability to pursue fraud and protect themselves from unjust practices.

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WAMU’s complicity in the scheme resulted in the defrauding of millions of dollars from thousands of investors.

Berk Law, the Law Offices of Keith L. Miller, in tandem with Cotchett Pitre & McCarthy filed an action in the United States District Court for the Northern District of California on behalf of victims of a $150 million Ponzi scheme involving thousands of defrauded investors and the promise of safe, high yield CDs. The scheme, centered in Napa, California, was the brainchild of William Wise, who has a long a record of securities violations. The defendant in the case is Washington Mutual Bank, which Wise used to facilitate the operation of his scheme[1].

Specifically, Wise used two branches of WAMU located in Napa California to deposit, transfer and wire throughout the world the money earned from his illicit activities. Eventually, as Wise’s account grew, WAMU’s branch manager in Napa suggested he obtain a remote deposit facility (often referred to as a reverse ATM). Before that device was provided, WAMU was required to audit Wise. WAMU also suggested Wise obtain software offered to the bank’s larger clients to direct and manage a high volume of wire transfers. This tool again required a WAMU audit. This second audit was run from WAMU’s treasury department in Seattle, Washington. By providing these special services, WAMU knowingly provided Wise with his own private “bank within a bank”.

As the complaint alleges, WAMU learned of Wise’s illicit scheme thorough two audits by two different managing departments, but nevertheless allowed Wise’s activities to remain unchecked. WAMU’s complicity in the scheme resulted in the defrauding of millions of dollars from thousands of investors.

During this time period, WAMU had been operating under a Consent Decree issued by the US Office of Thrift Supervision in 2007. The decree was in direct response to WAMU’s previous failures to comply with numerous federal anti-money laundering statutes including the International Money Laundering Abatement and financial Anti-Terrorism Act of 2001, the Money Laundering Control Act of 1986, and the Bank Secrecy Act of 1970. The Consent Decree, among other things, ordered strict compliance with bank secrecy and money laundering requirements, and called for new and improved policies for maintaining compliance with federal banks secrecy and money laundering laws.

Steven N. Berk, Counsel for the plaintiffs remarked, “WAMU’s history of putting profits above compliance to capitalize on the mortgage bubble is well documented, but only now are we seeing that same corporate culture spilling over into taking risks in other areas such as the support of illegal and shady investment schemes.”

Assisted by Zach Kady

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The New York Times reported yesterday that the Federal Reserve will move to restrict banks’ abilities to charge overdraft fees.

The Fed’s new rules will have multiple impacts on consumers’ relationships with banks:

1.      Most importantly, all consumers will be notified of debit card policies and fees in clear, easily comprehendible language.

2.      Starting July 1, 2010, banks will no longer have the ability to charge exorbitant overdraft fees on most common purchases.

3.      Customers will have to opt-in to overdraft protection policies in order to be subject to them.

4.      If a consumer does not opt-in to overdraft protection, he or she will simply be denied at the register for purchases over their available balance.

Overdraft fees will still be charged for purchases made by check and on recurring debit card payments (i.e. auto-pay monthly bills). However, purchases at retail stores will not be subject to overdraft and withdrawals at ATMs will trigger a warning that a customer is about to overdraft. Only if the customer chooses to continue with their withdrawal will they be charged an overdraft fee at an ATM. According to the NY Times, the distinction between types of payments was made in response to consumer satisfaction surveys. These surveys concluded that consumers are less aggravated by fees on checks and recurring payments than by fees on retail purchases and ATM withdrawals.

Currently, consumers can be charged overdraft fees upwards of $30 for purchases far less than the fee. Under these current conditions, a $3 cup of coffee that pushes an account below zero could cost a customer 10 times that amount in fees. As we described in earlier blogs, overdraft fees are essentially high interest loans made without the consent of the consumer. The Fed’s realization of this injustice and action to remedy it, however dilatory, is highly praised.

This recent move is a step in the right direction, and one The Corporate Observer has advocated for in the past (see: “Big Banks Strike Again: High Interest Loans Disguised as Protection”). Consumers’ rights to full disclosure in the banking world are of paramount importance and the Fed deserves congratulations for its responsible action.

Assisted by Zach Kady

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Is an extra profit really worth jeopardizing the health of thousands of American consumers?

Generally, this blog focuses on the greed of the financial sector, but today I would like to shed light on the misconduct of a major pharmaceutical company. Companies like Pfizer have been putting profits over compliance to the detriment of society for years.

Pfizer was recently fined $1.19 billion in criminal penalties for the off-label marketing of Bextra. After rigorous testing, the FDA approved this drug for the sole purpose of easing arthritis pain and menstrual cramps. However, Pfizer employees, hungry for an extra profit, illegally marketed Bextra to doctors as a cure for all types of pain. This is referred to as “off-label marketing” and is illegal in most countries. In the United States, Federal Law prohibits pharmaceutical companies to market a drug to doctors or consumers for purposes other than those approved by the FDA and delineated on the drug’s label. According to Bloomberg, Pfizer also paid $1 billion in civil penalties relating to Bextra and two other drugs on the same day.

OVER $2 BILLION IN ONE DAY!   WHY SO MUCH?

Simply: Marketing off-label uses of drugs is almost always illegal.

I’m sure many of you are thinking, “I’ve had my doctor prescribe a drug meant for one illness in order to cure the symptoms of another.” Don’t worry; this is a common and legal practice under the Food, Drug, and Cosmetic Act. It can be a tricky legal matter, but the law permits doctors to prescribe a drug for any purpose that they deem safe and reasonable. Off-label prescription is particularly common in pediatric medicine. In fact, in an October 22^nd interview on NPR, Dr. Sydney Spiesel claimed that between 50% and 70% of all medications used by pediatricians are off-label but useful. Doctors learn about the off-label uses of drugs through medical journals and independent lab testing. Most drugs that are prescribed off-label are older and have been proven for other uses through extensive research and use.

So, why $2 billion in one day? Pfizer’s crime was marketing  Bextra and other drugs to physicians without solicitation and for uses other than those approved by the FDA. In short, off-label prescription by doctors is fine, but off-label marketing by pharmaceutical companies is expressly forbidden.  Prohibition of off-label marketing was upheld by the Supreme Court in USA v. Z Cosmetica U.S.C. 21 §§301-97. Any reasonable reader can see that overzealous marketing of off-label uses of pharmaceuticals would lead to a country flooded with “wonder drugs” – not a safe place if you ask me.

In its “Who We Are” portion of its website, Pfizer claims that it “believes that patients benefit from information about diseases and medical treatment options” and that “In order for patients to make good decisions about their health, they need access to health information.” This is an excellent policy, but while it recognizes the importance of access to information, Pfizer has shamefully ignored FDA regulations in attempts to supply its own version of the pertinent facts to doctors and consumers.

Pfizer and other companies need profits as incentives to work quickly and efficiently, but putting profits over compliance and ethics should be strongly discouraged.  Compliance in the world of pharmaceuticals translates to public health and safety. Is an extra profit really worth jeopardizing the health of thousands of American consumers? Hopefully the pain of the most recent fines will steer Pfizer’s shareholders and board members toward the right answer.

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If you receive a gift card, USE IT as soon as possible.

As the holidays approach, with it comes the consternation and head scratching about what to get for your family and friends. For many, the answer to that question will be a gift card, but before putting down your money for a piece of plastic, consider whether your good intentions will actually result in something that the receiver can use. For those receiving a gift card, take heed of these dangers and use your gift card right away.

There are three main concerns that every consumer should have when purchasing a gift card:

1.      The gift card merchant may go out of business or declare bankruptcy

2.      A chain retailer may close the branches near to you

3.      Fine print: i.e. expiration dates and monthly fees.

1) If the gift card merchant goes out of business or files for bankruptcy, your gift card is probably worthless. That's right, even if the merchant doesn't actually shutter its doors and manages to restructure its debt through bankruptcy to continue operating, gift cards may still not be honored. In bankruptcy proceedings, unused gift cards are treated as a form of debt, and holders of gift cards are unsecured creditors. Even if a store wants to continue to honor gift cards, if they have filed for bankruptcy, it's up to the bankruptcy judge as to whether or not the store will accept them. If the judge says no, gift card holders are out of luck unless they file a claim with the bankruptcy court, and even then, there are no guarantees of success.

(Important note: Store credit, say, for items returned with a receipt and the like, are the same as gift cards. The credit is considered a debt and you are an unsecured creditor. If the merchant declares bankruptcy, you are, once again, out of luck.)

2) Merchants may close the store or stores near the gift card recipient. Gift cards are a heck of a lot less useful when the nearest store is 50 or 500 miles away instead of 5. In an age of overexpansion and some big companies cutting back their number of stores, this is a real danger.

3) Some gift cards may have fine print, such as an expiration date, a monthly fee for every month after X months, etc. Several states have outlawed these practices, but if your state allows it, the value of a gift card can be quickly eaten up in fees. Check the terms and don't let this happen to you.

The bottom line is that while gift cards are convenient, they carry a danger that the recipient won't be able to get the full value out of them. If you receive a gift card, USE IT as soon as possible. If you hold on to it until a later date, you run the risk that you will be unable to use the card.

Assisted by Jed Sorokin-Altmann

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Con artists love money transfers because they enable them to receive their marks' money before their victims even know that they have been swindled.

On October 20, 2009, the Federal Trade Commission ("FTC") announced that MoneyGram will pay $18 million to settle FTC charges that MoneyGram knew or intentionally looked the other way as some of its agents participated in fraud. The FTC alleged that between 2004 and 2008, MoneyGram agents aided con artists who tricked US consumers into wiring more than $84 million within the US and to Canada, and because the $84 million is based on consumer complaints to MoneyGram, the actual consumer losses is likely much higher.

According to the FTC, MoneyGram knew, or should have known, that 131 agents out of MoneyGram's more than 1,200 agents, were responsible for over 95% fraud complaints MoneyGram received in 2008 regarding money transfers to Canada. A similar small percent was responsible for over 96% of overall fraud complaints in 2006.

Be wary of money transfers–they are essentially the same as sending cash. Con artists love money transfers because they enable them to receive their marks' money before their victims even know that they have been swindled. Usually, you cannot reverse a money transfer or trace a money transfer. The con artist can pickup the money from multiple locations making them hard to track, and it gets even harder to track the con artists if they have accomplices within the money transfer company.

The FTC's consumer alert "Money Transfers Can Be Risky Business," available online at: http://www.ftc.gov/bcp/edu/pubs/consumer/alerts/alt034.shtm , lists several types of common scams involving money transfers. Here are some of the common schemes.

The Counterfeit Check Scheme: You receive a check with instructions to deposit it and wire some or all of the money back. Banks make the money available within days, before the check clears. Uncovering a fake check can take weeks. When it is discovered that a fake check turns out to be fraudulent, you still owe the bank for the money you withdrew.

Variations of the counterfeit check scheme includes: phony lotteries and sweepstakes where you receive a check in the mail for winning some sort of lottery or sweepstake. You just need to deposit the cashier's check and wire back money to pay for taxes and fees. The scammers like this one because by calling it a foreign lottery or sweepstake, they can convince people to wire money to people they don't know. Of course, when the cashier's check eventually bounces, you are responsible for the money you withdrew. Another variant is the overpayment scam, especially common on online classified ads like Craigslist: someone responds to your post and offers to use a cashier's, corporate, or personal check to pay for the item. Somehow, they write a check for more than the item price and ask you to wire back the difference. Once again, when the check is eventually found to be fake, you owe the bank for the amount you wired. One last variant of the counterfeit check scheme is the mystery shopper scam, where you are hired to be a mystery shopper and evaluate the services of a wire transfer company. You're given a check to deposit in your personal bank account, withdraw cash, and wire the money using a certain money transfer service. Once again, the check is eventually determined to be fake and you're on the hook for the amount you wired.

Online Purchase Scams: When online shopping, a seller insisting on a money transfer as the only payment method should be a red flag. If this is the only option you're given for paying, odds are good it's a scam.

Advance Fee Loans: Some scammers advertise for loans or credit cards regardless of your credit, and then require you pay a fee via a money order to apply. Once again, if you have to wire money for applying to receive a loan or credit card, odds are good it's a scam.

Family Emergency Scam: Some scammers call and pretend to be a relative in an emergency and say they need you to wire them money. Check with your actual family before wiring anyone money under these circumstances!

If you have already fallen for a money transfer scheme, here is what the FTC says to do: "call the money transfer company immediately to report the fraud and file a complaint. You can reach the complaint department of MoneyGram at 1-800-MONEYGRAM (1-800-666-3947) or Western Union at 1-800-448-1492. Ask for the money transfer to be reversed. It’s unlikely to happen, but it’s important to ask. Then, file a complaint with the FTC. Visit ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261."

Assisted by: Jed Sorokin-Altmann

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Generally, you are NOT responsible for the debts of the deceased

Jed Sorokin-Altmann is an Associate at Berklaw who specializes in consumer protection. He provides insightful and helpful tips to vulnerable consumers who are too often preyed upon by professional con artists and even reputable corporations. Jed's message is thoughtful and concrete. We welcome his new voice.

Assisted by: Jed Sorokin-Altmann

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All consumers, not just those who bank at the largest banks, deserve protection from irresponsible practices of banks. Yesterday, the House Financial Services Committee took a giant step away from that critical goal when it passed an amendment excluding over 97% of banks from the statutory reporting requirements to be performed by the soon-to-be-created Consumer Financial Protection Agency (“CFPA”).

The excluded banks are small banks and most credit unions. Small banks are classified as those with assets less than $10 billion or credit unions with assets less than $1.5 billion. To be sure, there are some valid arguments for imposing additional regulation on only the larger banks and financial institutions. Notably, they control about 80% of the assets.

But every financial institution must take some portion of the blame for the runaway greed, exotic financial instruments, and poor practices rampant in the financial sector over the past decade. Congress must not allow high-priced lobbyists to cabin this issue on the doorsteps of a few money centered banks. While the near collapse of the financial world’s banking industry may have been the result of the extreme conduct of a few large banks, excusing smaller banks and labeling their investment practices “less risky”, runs a foul of Congress’ duty to protect all consumers.

The Miller-Moore amendment and those who support it cite small banks’ inabilities to cope with costs related to annual examinations as reason for exemption. Isn’t this the same argument that big banks have been making for decades? The banking industry has always claimed that oversight will hurt business and decrease profits. Look where that argument got us!

Forgoing examination of 97% of our banks is not the answer, but rather the seeds of a new problem. Instead of giving these smaller institutions a free pass, the new regulator should tailor exams to each specific type of bank. For example, Citigroup and Bank of America should be subject to a very rigorous exam. Local community banks or credit unions should not get a pass, but simply be subject to a less onerous testing. Has Congress forgotten that all banks need tougher regulations in order for all consumers to be protected?

Assisted by: Zach Kady

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It is not acceptable for public law to remain in the private domain. Access to public law should always be a public right for all…

Transparency, the mantra of this decade, must extend to the judicial system. Some of the most important decisions affecting all Americans, rich and poor alike, come from the courts. But for the most part, these decisions remain in the exclusive domain of lawyers and law firms, rather than the American people. It shouldn’t have to be that way—particularly in the age of the Internet.

What happens when average citizens want to stay up-to-date with court decisions? For the most part, they have to pay expensive fees to access the legal documents. Popular services like LexisNexis and Westlaw—though excellent and effective resources—are out of reach for the average American.

An informed citizenry is critical. Access to legal decisions can educate and ennoble all Americans. Citizens should also simply have access as taxpayers. After all, it is taxpayers’ money that helps fund the public court system. It seems ironic—and problematic—to limit access to case decisions that truly do belong to all.

Although the Internet has made strides toward democratizing public access, it has not created equal access for everyone. The Free Access to Law Movement, an umbrella group of institutions that are working to provide free online access to legal information, has taken up this cause. Still, more needs to be done to ensure that every American can access legal documents, regardless of their financial stature.

Public law should not remain in the private domain. Access to public law should always be a public right for all, rather than a private privilege reserved to the few who can afford it. The latter is a system based on elitism and law as a private entity—certainly not principles our government should strive for.

Main Street says hats off to the institutions that are already working to provide free public access to legal documents—and encourages those who aren’t to follow suit.

Assisted by Jess Begen

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What happens when a consumer needs to pay bills, but doesn’t have a credit or debit card? A new and increasingly popular answer is prepaid debit cards. This new business is booming. The New York Times reported on October 5^th that over $8.7 billion was loaded onto prepaid cards in 2008 alone. These cards offer the convenience of a debit/credit card without the credit check or bank account fees. Unfortunately, this is not the whole story. There is, quite often, a long list of fees including:

·      Activation fees

·      Convenience fees

·      ATM withdrawal fees

·      Balance Inquiry Fees

·      Purchasing Fees

Keep in mind; this is by no means an exhaustive list of fees connected with most prepaid cards.  I am not the first to raise the issue that some large companies may be taking advantage of their target markets: college students, and the uncreditworthy.

Of course the companies issuing the cards (small upstarts like Green Dot, Net Spend, and Account Now) have the right to a reasonable profit. We should also remember that without charging interest, fees will certainly be included in any of their schemes. My problem with the current system is that consumers are generally unaware of these fees which often end up considerably devaluing the money put on a card. This is a growing problem in the financial world and I think it’s time we found a solution.

Let’s look at an example:

This is a short sample of the fees that a consumer would incur with normal use of the MiCash prepaid MasterCard.

A deposit of $500

- $9.95 activation fee

- $17.50 (10 ATM withdrawals)

- $5 (5 ATM balance inquiries)

- $10 (20 purchases)

-$8 ($4 per month for “monthly maintenance”)

_________________________________________

Net Value: $449.50

A consumer using this card would have lost 10% of his or her initial payment just in fees by using this card normally for a two month period. Is this fair? Well, there certainly is precedent in the check cashing and pay-day loan industries for charging outrageous fees just for people to access their own money. However, even these questionable industries seem more willing to disclose fees than prepaid credit card companies.

Though prepaid cards may still be a better option than high interest credit cards or certain bank fees, many consumers rightfully feel that they are being charged fees without being made explicitly aware of them. The MiCash program in particular discloses the fees in the “terms and conditions” which are not directly posted on the application page – rather a user would have to follow a small link at the bottom of the application. This method of disclosing fees is perfectly legal, but is still deceiving. Nowhere on the application page does MasterCard mention any fees. In fact the only mention of fees is in reference to a lack of outrageous overdraft fees. However, it is clear in the fine print of the “terms and conditions” that overdraft or “negative balance” fees do indeed exist with the MiCash program.

We are not seeking an end to prepaid debit cards, nor are we seeking an end to all fees. All the common person is seeking is a fair representation of products, a clear warning that fees will be deducted from a prepaid card. Federal oversight should be the next step towards ensuring full and fair disclosure of fees. The industry is relatively new and has not been subject to a substantial amount of governmental review. Perhaps legislation will be the best way to guarantee disclosure. The card should warn customers that any initial deposit will actually have a lower net value. Hopefully, this clear warning will help assure that consumers are not tricked into allowing big banks and credit card companies to take their hard-earned money.  

Assisted by: Zach Kady 

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We’ve all heard about overdraft protection, but most people probably don’t understand exactly what it is and how it works... As several recent news articles have highlighted, this service:

1)    Offers No Protection. Standard interpretations of protection would lead a consumer to believe that he or she is protected from over drafting their account – i.e. a consumer will not be able to spend more than they have.

2)    Is instead an automated loan with a high fixed interest rate.

According to Moebs Services, most Wall Street banks charge $35 dollars per check or debit paid without sufficient funds. In essence, that $1.50 Snickers bar you bought at the convenience store will end up costing $36.50. This may seem like an exaggeration or oversimplification of the process, but it is not. The Center for Responsible Lending reports that most point-of-sale overdrafts (like buying that Snickers bar) are for an amount less than half of the $35 dollar fee charged by big banks. That’s right; Main Street is paying an average of at least 50% interest on these small loans. Normally, when an individual takes out a loan from a bank, he or she consults with a loan advisor and is made aware of interest rates ahead of time. In the case of overdrafts, the system is marketed as a protective measure and most consumers are completely unaware of impending charges that cardholders will incur if they spend more than they have. In this regard, overdraft protection acts like a loan forced upon the consumer with no express consent.

The trouble does not end here. The banks have been fighting Congress and public sentiment for years on the issue of allowing customers to opt out of overdraft protection. Until recently, this has not been an option and still only a few large banks have made the switch to allowing customers to opt-out.

The worst is still yet to come: Bank of America has recently been shown to reorganize payments at the end of each business day so that larger payments are paid first. According to the bank, this is done with the intention of paying more important bills first. However, the actual effect is that larger payments deplete a cardholder’s funds so that numerous small charges can rack up the maximum amount in fees. Any reasonable person can realize that thanks to overdraft protection all bills will be paid regardless of their order of entry and that this scheme of reorganization serves only to create more fees and more gains for the big banks.

In addition, this is by no means a minor practice in the banking industry. The Center for Responsible Lending reported that banks made over $24 billion in overdraft fees in 2008 alone. Moebs Services reported that about half of all banks make more money from these fees than from actual profits. The same firm estimates that banks will make another $27 billion from overdraft fees in 2009. Banks appear to not only be content to profit off of Main Street’s money when times were good; it is now their prerogative to profit off of the lack of money in people’s checking accounts during this recession.

News of outrageous gains from loans disguised as “over draft protection” is both disturbing and upsetting, but it is not surprising. As we have discussed previously, big banks have been practicing risky, deceptive and even illegal deceptive practices for years. The irony, even after Main Street has given hundreds of billions of dollars in bail out money to the banks with the goal of “saving the economy,” they continue to swindle those hit hardest by the recession. It is time Congress stands up to the big banks and that the average person demand oversight on all lending practices, even those disguised as aid to consumers.

Proposed solutions forthcoming…

Assisted by Zach Kady

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Fluoride is accepted as a significant dental public health achievement of the past century. It has been sold to the American public decade after decade as an essential tool in fighting tooth decay and cavities. While historically, the efficacy of fluoride in preventing tooth decay and cavities is well documented, recent scholarship is showing that there may be more to this chemical than we’ve been taught to believe.

More and more credible claims are suggesting that fluoride is a dangerous chemical in our water supply. In fact, the fluoride we use to fluoridate our water systems is a hazardous by-product of the phosphate fertilizer industry which consistently supports water fluoridation. These factories are earning a profit from their waste by feeding the American population a chemical that would otherwise be a pollutant. In addition, fluorosis – a condition caused by ingesting too much fluoride – is beginning to be seen as more serious condition than previously thought. The time is right for honest, open debate among all stockholders.

To begin the debate, I’ve found numerous reports on fluoride’s toxicity and shocking reports that the EPA and other government agencies have turned a blind eye to studies from the National Toxicology Program and the National Research Council. These studies have determined that fluoride could be cancerous. Other research, specifically from the University of Michigan’s School of Dentistry has found that fluoride ingestion is significantly higher among African Americans than among other ethnic groups.

Now I find myself asking, “Is this true, is Fluoride, the supposed dental miracle, contaminating our water supply and causing noticeable fluorosis and possibly cancer? Could the pressure of the phosphate fertilizer industry push policy makers to ignore the warnings? And what’s more, is fluoride causing these problems more commonly in the African American community than in other communities?"

What are your opinions on fluoride? How serious is this issue, and does the orthodoxy of water fluoridation need to be reexamined? If there are negative effects to water fluoridation, what can we do to mitigate them in the near future?

Assisted by Zachary Kady

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The SEC is getting aggressive on Ponzi and Prime Bank schemes.

Here we go again.  The SEC has shut down another Ponzi scheme.  When will it end?  It will only end when big banks stop sponsoring, assisting, and ignoring schemes that are operating within their banks.

From October 2006 until the summer of 2009, William Graulich IV of Henryville, PA was operating a fraudulent “Prime Bank” scheme under the nose of the SEC and through JP Morgan Chase bank accounts.  Graulich and his firm, iVest Inc., allegedly convinced at least 5 investors to deposit more than 13 million dollars into his accounts, mostly with JP Morgan Chase.  Graulich promised weekly returns from 22%-140%.  Graulich never made any of the investments that he had claimed, and was brazen enough to use a substantial portion of the funds for personal expenses, payment of back taxes, repayment of creditors, and other miscellaneous expenses.

Schemes like Graulich’s, which promise exorbitant returns with little or no risk to the investor, are exactly what we need to be watching for in today’s financial market.  The SEC refers to these schemes as “Prime Bank” schemes, or “High Yield Investment Schemes”.  The SEC warns that these programs often promise high returns with no risk, purport trading in sound financial instruments such as standby letters of credit and medium term bank notes, and murky language to disguise the source of financial gain.

It is nice to see that the SEC is getting aggressive and proactive in fulfilling its duties.  We hope this aggressive behavior continues, but for now ask a lot of questions.  To read the full SEC complaint, click here.

Assisted by: Zach Kady

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Finally, a Federal regulatory commission out front (not after the fact) protecting main street from predatory, unsound fiscal practices.

Yesterday I responded to Gretchen Morgenson’s New York Times piece, which calls for scrutiny of soaring banking stocks; because the banks’ actual performance (lackluster) hardly match the robust share value manufactured on Wall Street.  Differing a bit from Ms. Morgenson, I am not ready to panic ; I believe heightened enforcement and regulation will hold greed and rampant speculation to a minimum.  In the 8/22 Wall Street Journal, Brian Baskin calls attention to such an instance.

Mr. Baskin describes the effort by the Commodity Futures Trading Commission (CFTC) to curb a new $50 - $100 billion dollar market for paper: derivatives again, this time on commodities.  These securities are called exchange-traded funds (ETFs) and they are all the rage.  The promoters of this newfangled investment vehicle (read Wall Street fees, broker fees, and no actual product being produced) claim these funds are the only way for small investors to access commodities futures markets.  Please.  The market is for professional speculators, who don’t need to hedge the price of a commodity like natural gas, but rather see an opportunity to make some serious money taking positions contrary to the market. 

Not so fast, says the CFTC’s enforcement staff.  They have been placing new and formidable regulatory curbs on ETFs – enough so that operators of ETFs are getting in trouble with their own investors.  Lawsuits have been filed alleging the ETF operators are failing to abide by the disclosures they made to their investors.  (But that’s a subject for another day). 

As Mr. Baskin details, the CFTC is concerned that rampant speculation causes price inflation.  That means higher prices for end consumers.  The CFTC’s goal is not to eliminate ETFs.  Its goal is to protect main street consumers, and for that reason it is to be applauded.  Finally, a Federal regulatory commission out front (not after the fact) protecting main street from predatory, unsound fiscal practices and another bubble that when it bursts—and it will burst—main street pays the freight.

About time.

(Post was prepared with the assistance of David Martin, University of North Carolina 2010)

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With subpoena power and the threat of jail time (how many hundreds of years did Madoff get?), stepped up enforcement can moderate the rampant speculation and greed to function efficiently as a lubricant to the markets like oil in a car and not sparks in a dry forest.

Well… judges?  The envelope please… (imagine whispers and hushed speaking voices) it’s of course Gretchen Morgenson herself; brilliant, insightful New York Times Columnist and all around contributor to humanity.  She is always honest, informed and on-target (she would have won last year but she was too busy scaling K2 in Nepal).  Ms. Morgenson, who likes to be called Ms. Morgenson, said she was “thrilled” to even be considered and would put this award right up there with her Pulitzer Prize (not).

Why all this *ahem* praise for Ms. Morgenson?  This Sunday she reported on the next impending financial crash, this time involving overinflated bank stocks.  Gosh.  Didn’t we just get off that ledge, abyss?  Or was it a precipice?

(Fill in your word – this blog is interactive).  

Ms. Morgenson’s piece succinctly reports that despite unpromising data coming from the banks, the numbers are just not there: bank stocks are soaring – soaring on air and not cash and profits.  The analysis Ms. Morgenson highlights in her column of smaller, non-money-center banks (which excludes Citigroup, Bank of America, etcetera) illustrates that “the number of financially sound banks is declining.”  Coupling these two facts together, Ms. Morgenson concludes that it is time to

“determine whether fundamentals in the industry support this rocket-fueled surge in bank shares.”

Thanks Gretchen, good column as always – but I sense an undertone of panic and fear; a siren signaling a second crisis in the financial sector.  With all due respect to Ms. Morgenson, it’s not time to panic just yet.  To be sure, it is difficult not to doubt everything financial, from soaring bank stocks to the dollar bill with which I buy my Snickers (yes a Snickers).  But we’re seeing plenty of signs of stability and the markets (all of them) seem to be better patrolled by the Feds.  Greed and profit taking will always be there it just needs to be maintained at a moderate level – and not get silly.  To ensure that doesn’t happen, we have the regulators and enforcers.  With subpoena power and the threat of jail time (how many hundreds of years did Madoff get?), stepped up enforcement can moderate the rampant speculation and greed to function efficiently as a lubricant to the markets like oil in a car and not sparks in a dry forest.  So let those bank stocks soar for awhile on greed and speculation.  They will come back down to earth.  In the meantime, a little speculation is good for the sector.

(Post was prepared with the assistance of David Martin, University of North Carolina 2010)

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“My role is not to tell you what the risk is.  My role is to give you the other side of the story about the benefits of UV exposure.”

-        Dan Humiston, President of the ITA

The above quote from a recent Time article is the Indoor Tanning Association’s response to new research that once and for all condemns indoor tanning as perilously carcinogenic.  Just as Joe the Camel’s role is to depict the “cool” side of cigarettes, Mr. Humiston and his Association have but one goal—defending the practice of indoor tanning.  Refuting sound science and willfully deceiving and endangering consumers, especially teen girls—these present no obstacle to the ITA.

However, this quotation represents an uncharacteristically candid thought from the Association.  In essence, the quote reads: “the ITA has a stated agenda of advocating under any circumstances for the indoor tanning industry.”  They stand to gain nothing by telling the truth about the risks of UV radiation.  Instead they focus on the relatively insignificant benefits, such as curing Vitamin D deficiency.  Although Vitamin D deficiency is not a trivial health risk, it is eminently curable.  Is it worth subjecting one’s skin to unnatural, intensified and carcinogenic UV radiation when there are numerous safer ways to avoid the problem?

With this logic, if the Association represented surgeons, they would have us amputating arms to fix broken fingers.  The ITA “give[s] you the other side of the story” all right. Rather than merely spending more time outside in mild sunlight or taking Vitamin D supplements, the ITA would have you risk melanoma, the deadliest form of skin cancer.  If that’s the other side of the story, I think I’ll stick to this side.

(Post was prepared with the assistance of David Martin, University of North Carolina 2010)

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The risk of cutaneous melanoma is increased by 75% when use of tanning devices starts before 30 years of age [emphasis added].

For months, we have been warning parents and teens about the risks of indoor tanning and the shameless conduct of the Indoor Tanning Association.  Contrary to mounting evidence, the Association has consistently turned the truth on its head making unabashed claims that indoor tanning is not only safe but has health benefits.

If evidence already available to the public was not enough, the online release today of The Lancet Oncology should end any debate.

INDOOR TANNING CAUSES CANCER

The report stems from a conference of 20 leading scientists from nine different countries, who met at the International Agency for Research on Cancer.  The report, based on recent research, raises the classification of UV-emitting tanning devices into Group 1 – “carcinogenic to humans” – the most severe level of risk.  This should come as no surprise. The report cites a 75% increase in melanoma risk for those who use tanning beds before the age of 30. The scientists also reference the correlation between use of tanning beds and ocular melanoma, or melanoma of the eye.

It is time to put an end to the lies of the Indoor Tanning Association and the conduct of an industry that blithely ignores the health and safety of teens, particularly young women.  If the state and federal government attorneys are too busy, or do not have the resources, private attorneys must once again fill the breach.  Litigation can:

- Seek an end to indoor tanning for teens;
- Force better disclosure of risk for all, particularly those under 30;
- Pursue damages for those directly harmed; and
- Open up salons and their supporters to the public glare of scrutiny.

All of these outcomes are necessary in order to protect the American public from the money-over-morals attitude of the Association and the tanning industry.

(Post was prepared with the assistance of David Martin, University of North Carolina 2010)

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Let’s hope this effort will embolden groups across the country with similar ambitions—namely limiting future victims of the ruthless tanning business.

Kudos to the Melanoma Foundation of New England: a dedicated, thoughtful organization advocating for the innocent (mostly teen) victims of the indoor tanning industry.  The Foundation hosts an informative and supportive website.  I recommend the informational summary of a recent study on melanoma awareness and indoor tanning.

On the legislative front: the Foundation has paired with the Massachussetts Academy of Dermatology in support of Senate Bill 903.  The Bill would strengthen permit requirements, oversight and most importantly, age restrictions on tanning bed usage in Massachussetts.  The Committee on Public Health heard testimony on the legislation on Tuesday, July 21^st.  A vote is expected soon.  Let’s hope this effort will embolden groups across the country with similar ambitions—namely limiting future victims of the ruthless tanning business.  Heightened disclosure is critical in that battle.

(Post was prepared with the assistance of David Martin, University of North Carolina 2010)

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By all means let’s rethink our attitude towards UV radiation, but not by succumbing to the out of context, manipulated half-truths promulgated by [the ITA].

The Indoor Tanning Association (ITA) once again finds itself reaching into its shameful bag of tricks to defend the indefensible, the safety of indoor tanning.  This time, the ITA twists and spins the findings of a recent research paper published in the British Journal of Dermatology to conclude… big surprise… indoor tanning is safer than ever.  To convince minors and unsuspecting consumers that UV radiation isn’t so dangerous after all, the ITA takes hold of and distorts a recent British study of melanoma patients from 1991 to 2004.

To be fair, the study does conclude that reports of escalating rates of melanoma may be overstated, but it hardly endorses indoor tanning, particularly for minors.  The researchers find a stark contrast between: (1) a 48% increase in melanoma diagnosis and (2) a 17.5% increase in mortality rate due to melanoma.  Instead of focusing on the significant rise in mortality, the researchers’ main conclusion is that much of the purported increase in melanomas is actually due to overcautious misdiagnosis of benign lesions.

What catches my eye – and is ignored by the ITA – is the rise in mortality.  The study finds a 17.5% increase in mortality rate over a mere fourteen years.  A frightening result to be sure.  How can that be when the research indicates doctors and patients are becoming far more cautious with regard to melanoma treatment and diagnosis?  Common sense tells us this dual vigilance ought to lower melanoma mortality rate, right?  And yet it has still risen 17.5% (through 2004), not to mention the five years of growth since 2004?!  But does the ITA share this concern?  Hardly, because it wouldn’t make business sense; the ITA has nothing to gain by providing consumers honest information about the danger of UV rays.  Its consistent goal for decades consists of persuading mostly women and teens, through any means necessary, to expose themselves to dangerous – cancer causing – UV rays.

Taking the study’s conclusions out of context, the Executive Director of the ITA John Overstreet shamelessly declares:

This information should make people rethink their fear of UV light.

John, you’re right for once, but not in the ‘forget everything dermatologists say and sacrifice health for a tan’ way you intend.  People should rethink their fear of UV light.  They should question whether we consider the risks enough.  Alarm bells should ring when overall melanoma mortality rate increases significantly despite enhanced doctor and patient diligence.  By all means let’s rethink our attitude towards UV radiation, but not by succumbing to the out of context, manipulated half-truths promulgated by your association.

(Post was prepared with the assistance of David Martin, University of North Carolina 2010)

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"We must do better to protect our teenagers from Cancer"

In a culture that worships everything beautiful, from pencil thin models to starlets strolling down the red carpet, it is no surprise that many teenage girls across the country are drawn to indoor tanning.

This $5 billion dollar a year industry draws them in with sophisticated and targeted advertising. Once in the door, they are barraged by insidious package deals (incentivizing them to bake everyday). Are they warned of the risk of skin cancer, including its deadliest form: melanoma?

Not a chance.

“The Indoor Tanning Association (ITA) has turned the truth on its head”.

They accuse the American Academy of Dermatologists (AAD) and its members of being liars and grossly overstating the risk of cancer to scare patients to their offices. The ITA prepares and distributes literature directed at teens extolling the health benefits of indoor tanning. (Why care about cancer when you can get a little Vitamin D). That position is completely contrary to decades of peer reviewed and respected medical studies linking indoor tanning to skin cancer. Indeed, the World Health Organization has called for a complete prohibition against minors engaging in indoor tanning.

Diana Schafer, 24 was one of those targeted teens. She started indoor tanning at age 14. She was told it was safe as long as she wore protective glasses and waited 24 hours between visits. She soon began going everyday, despite warnings from her mother to stop. “I always thought I was not tan enough”. After eight years of using tanning beds Diana was diagnosed with melanoma.

Where is the government? Who is going to protect the hundreds of thousands, perhaps millions of Dianas across the country? The United States Food and Drug Administration (FDA), the Federal Trade Commission (FTC) and state attorneys general have been silenced and outmaneuvered by the powerful and politically savvy ITA.

Enough is enough. We are talking about the health of our teens. Protection requires that victims and potential victims come forward and with experienced counsel file lawsuits to put an end to the shameless practices of this industry.

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