• Consumer watchdog unveils list of top lending gripes

    By Bob Sullivan, Columnist, NBC News

    The Consumer Financial Protection Bureau (CFPB) made its database of complaints against mortgage issuers, student loan firms, credit bureaus and other kinds of lenders available to the public for the first time on Thursday. 

    The database covers 90,000 complaints with more than 1 million data points covering 450 companies.

    The CFPB spreadsheet allows consumers to find the most complained-about banks in highly specific categories. For example, Capital One received the most complaints about credit cards, and Bank of America received the most complaints about traditional adjustable-rate mortgages.

    It's important to note that the data isn't normalized and that banks with more customers receive more complaints.

    Data can be sorted at the bureau's website by state or company. It can also be downloaded for free and used in privately developed applications. 

    The agency's complaint database was released on a limited scale last year, and included only 19,000 credit card-related complaints. Thursday's announcement represents a large expansion of publicly available data. 

    The bureau hopes consumers can use the information to make more informed choices about banks they do business with. "By sharing these complaints with the public, we are creating greater transparency in consumer financial products and services,” said CFPB Director Richard Cordray. “The database is good for consumers and it is also good for honest businesses."

    Complaints are listed in the CFPB database only after the company responds to the complaint or after they have had the complaint for 15 days. Records include the type of complaint, the consumer's ZIP code, the company, and the resolution. Consumers' names and other personal information are not shared.

    Among student loans and mortgages, about two-thirds of the complaints involve consumers who are having trouble repaying their loans, according to an analysis provided by the CFPB of complaints filed through February. Many of the mortgage complaints reflect consumers' paperwork-related frustrations when attempting loan modifications. 

    Nearly three-quarters of the 6,700 complaints filed against credit bureaus involve inaccurate information. Credit card complaints are more scattered, with billing disputes making up 15 percent. A common gripe, the bureau says: Consumers don't realize they have to dispute a suspicious item on their credit card bills within 60 days.

    In a blog post that accompanied the release of the data, CFPB official Scott Pluta said he hoped consumers would be creative and find new ways to examine and use the data.

    "From infographics to iPhone apps, we’ve seen people do amazing things with the credit card complaint data that was available before today," Pluta said. "We encourage the public, including consumers, analysts, data scientists, civic hackers and companies that serve consumers, to analyze, augment, and build on the information in the database to develop ways for consumers to use the complaint data or mash it up with other public data sets to reveal potential trends."

    The bureau plans to expand the data to other complaint categories in the future, he added.

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  • Smartphone hacking comes of age, hitting US victims

    Security researchers at Symantec warn that the next target for hackers will be your mobile device. NBC News' Bob Sullivan gets a demonstration of just how easy it is to hack a phone.

    By Bob Sullivan, Columnist, NBC News

    Devastating cellphone hacks that hijack your most personal gadget and rob you of privacy and money have long been forecast. But even as smartphone users in Asia are beginning to suffer exploding bills and emptied bank accounts at the hands of hackers, U.S. users largely remain safe and blissfully unaware of the gathering threat.

    Not for long. 

    Criminals have been probing the systems that protect U.S. smartphone users for years, searching for the right combination of programming tricks and social engineering that would allow them to sneak onto users' phones. Recently, one hacker group hit the jackpot.

    They took a year-old mobile virus named NotCompatible, which allows hackers to take complete control of a phone, and posted the malicious code on websites. Then they sent out enticing spam emails with links to the booby-trapped sites. The emails were all the more tempting because they appeared to come from friends or others on the recipients’ contact list.  Victims who clicked on the link from their phones and downloaded the file surrendered control of their Android phones to the criminals. Security firm Lookout says 10,000 customers per day are still being tricked to click on the bogus link and landing on the booby-trapped pages, and virtually all of them are in the U.S.

    Tim Strazzere, Lookout’s lead research and response engineer, said the sudden "staggering increase" in detection of the of the NotCompatible, which initially appeared one year ago, shows that the marriage of spam and mobile malware might be a recipe for real trouble.

    "This Android malware is unique," he said. "It's exactly the same scheme and end game as before, but it's just being circulated through different means. And it's working."

    U.S. smartphone users have been spared much grief from mobile malware so far for a variety of reasons. Chief among them: Most users get their apps from a centralized and safe source. Apple keeps tight controls on its App Store, so malware writers are largely ignoring that platform. And while Google's Play Store for Android is not as tightly controlled, criminals haven't had much luck sneaking infected software onto that platform, either.  That leaves hackers with time-consuming, clumsy methods, such as tricking users to visit a rogue website and electing to install an app.

    Android attackers in other parts of the world have an easier time. In China, for example, it's hard to access Google's Play store, so consumers often get their apps from websites. That means rogue apps on random websites raise less suspicion.

    But Strazzere warns that the criminals behind NotCompatible have found a way to make U.S. users almost as vulnerable as those in Asia – a direct email invitation from a friend to install what turns out to be a bogus app.

    Those who might dismiss this scenario should beware: Last month, when a report by Mandiant Corp. alleged that hundreds of U.S. companies had been hacked by an arm of the Chinese military, the initial method of attack was almost the same -- a "spear-phishing" email that appears to come from a co-worker or friend, sent to entice the recipient into clicking on a virus-laden link.

    Smartphone users might fear that a criminal with access to their devices might destroy all their data, "brick" the phone or prank call all their contacts. But the real nightmare from a hacked phone is much more subtle, and can be much more expensive, than having to replace a phone.

    While the threat from foreign hackers is grabbing headlines, some security experts look ahead to networked devices and wonder whether your refigerator might be more vulnerable than your PC.

    Vikram Thakur, a researcher at Symantec Corp., studied one mobile phone hacker who turned compromised devices into an estimated $1 million annually.

    “We found a mobile phone botnet, which had … maybe 200,000 cellphones which were compromised and in control of just this one person," he said. "(He) was able to send text messages, make these phones view videos, which were in turn giving him money; and he was doing so about 25,000 times a day."

    Cellphone hackers don't do anything to call attention to themselves. Instead, their programs are designed to run in complete silence, in the background.  And they cover their tracks. There's no log of calls placed to dicey overseas numbers, no evidence of text messages sent that can run up a monthly bill.

    “Your phone bill might have extra data usage toward the end of the month,” Strazzere said.  "That might be the only way you'd know."

    Hackers around the world have clearly trained their attention on the fertile ground of phone hacking. Kaspersky Labs, another security firm, says there has been "explosive growth," and offers numbers to back that up. In January 2011, it counted only eight new malicious mobile malware programs. At the end of 2012, it counted 6,300 such programs monthly.

    Nearly all of that activity has until now targeted overseas users, sometimes with devastating results. A program aptly named "BillShocker" by researchers infected 620,000 users earlier this year, mostly in China, and ran up hefty bills through premium text message services.

    Mobile malware writers are also developing hybrid threats designed to counterattack online banking security systems.  In one sophisticated attack, criminals hacked both a victim's computer and cellphone, then lurked until an online banking transaction was initiated on the PC. When the bank sent a so-called "out of band" text message as a security confirmation, the criminals intercepted them and approved the transactions. A malicious program named Eurograbber is blamed for stealing $47 million from 30,000 bank accounts this way, according to a report by security firm F-Secure.

    Those victims were in Europe, but now there are other indications that mobile hackers are circling the waters, aggressively looking for more ways into the U.S. market.  

    Computer security expert Brian Krebs reported earlier this month on his blog that criminals are selling authorized Google Play developer accounts on underground bulletin boards.  A developer account would theoretically give a criminal the ability to post rogue software onto the Google Play store.

    NotCompatible is a little less ambitious. Its main goal is to control a smartphone and turn it into a "proxy" device for overseas criminals, so they could pretend they were ordering expensive merchandise from within the U.S.  Because many online sellers use geographic location to filter out fraud, and many trust cellphone location information, a hacked phone can be a perfect tool for foiling fraud-fighting software.

    "Companies block transactions when someone in Romania is trying to buy concert tickets in the U.S., for example," said Strazzere.  "NotCompatible allows them to hide where they are coming from ... gives them a little more mobility based on where they want to come from. With a hacked cell phone, they will look like they are where the endpoint is."

    Strazzere sees the blended threat – part virus, part spam – as ushering a new style of cellphone attacks, just as such blended threats gave hackers the upper hand in the personal computer world during the last decade.

    “This shows the progression of malware authors and what they are doing to experiment,” he said.  It also shows impressive coordination in attacks. “It’s still a new space for them. But they are figuring things out.”

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  • Think you have three credit scores? You may have 50 or more

    Paul Sakuma / AP, file

    Signs advertising bad credit auto loans, in this 2008 file photo.

    By Bob Sullivan, Columnist, NBC News

    You probably know you have a credit score, and that score dictates much of your financial future. You might know you have three credit scores, thanks to aggressive advertising from companies that sell access to them.

    However, those hardly scratch the surface of the collection of credit scores lenders might use to judge you.  There are, most likely, dozens of scores that might control your ability to get a mortgage, buy a car or obtain insurance.  

    Banks often use their own scores, tweaked versions of the FICO score that began the credit score craze. Auto lenders also have their own scores. So do car insurers. And old scores, based on old formulas, are still in use by many lenders.  U.S. consumers may have 50 different credit scores -- or more -- that could impact their ability to borrow money, and that number is rising, experts say.

    "The idea of there being a one true credit score, well that's just not accurate," said Michael Schreiber, editor in chief at Credit.Com, a consumer advice website.

    John Ulzheimer, a credit score expert who formerly worked for FICO score inventor Fair Isaac Corp., produced a detailed infographic for CreditSesame.com in September which detailed 49 different scores based on the FICO. He has found another five or six since them. And that number doesn't include competitors like Vantage Score, invented by the credit bureaus in an attempt to cut out Fair Isaac, or other proprietary kinds of credit scores. 

    "Getting your actual credit score is a like game of roulette at this point," said Ulzheimer, now president of consumer education at SmartCredit.com. "Getting the wrong number can be overwhelming to a consumer. The lender is using one score but you don't know which score."

    There are also exotic credit-based scores, such as a "revenue score," which predicts how much interest revenue a credit card holder will generate; a bankruptcy score indicating the likelihood someone will file for legal relief of debts; and a collection score that helps debt collectors prioritize their efforts.

    Credit scores were once held completely in secret by the credit industry, but are more available to the public today. Credit monitoring services include them with monthly subscriptions. Fair Isaac, the inventor of the credit score, sells FICO scores at MyFico.com. Wells Fargo gives them away to consumers who walk in and ask about new accounts. Credit.com gives away a free score to site visitors. But with more scores being invented all the time, it's hard to say what consumers are looking at when they receive a credit score.

    "It does irk people when they find out there's a very different number they get from one scoring model to another," said Gerri Detweiler, scoring expert at Credit.com. "People wonder, 'What good is it to check my score if the score banks see is different?'"

    If any credit score provider implies consumers are getting a comprehensive view of their creditworthiness by ordering three credit scores -- based on their three credit reports at Equifax, Trans Union, and Experian -- that's misleading, Detweiler said. It's also misleading for any firm to suggest their score is the one used by most lenders.

    Ulzheimer think so, too.

    "If you go to MyFico and you get a score, that is the same brand of score that lenders are using predominantly," said Ulzheimer. "Going past that is an embellishment. … MyFico does sell you a FICO score, but it may not be the same FICO score that lenders use."

    In fact, many banks have their own scores, which sprinkle their own criteria into the complex algorithm.  Car loan issuers, for example, often choose to weigh previous car loan payment history higher than other lenders, Detweiler said.

    The proliferation of scores is partly the result of continuous updates to scoring formulas that are expensive for financial institutions to adopt, Ulzheimer said. 

    "Scores are really nothing more than generations of software," he said. "Think of how many generations of Microsoft software are out there, for example.  Every year, there's something new that's a little better but kind of does the same thing.  Scoring systems are like that."

    For example: Last week, the group behind the Vantage scoring system announced VantageScore 3.0. It has some consumer-friendly features, such as ignoring collections accounts that have been paid off (such accounts generally lower a consumer's FICO score), and providing exceptions for consumers who don't pay bills because of natural disasters like Hurricane Sandy. But firms may continue to use VantageScore 2.0 for a long time.

    "A large bank that didn't want to update its systems could force providers to keep old scoring systems going for years," Ulzheimer said.

    Given the proliferation of scores, should consumers even bother trying to see one of their credit scores?  Absolutely, says Detweiler. She says any score will offer a helpful reference point.

    "Don't focus so much on the number as much as what direction you are moving," she says. "The number will give you some information about what areas of your financial life you need to work on.  But if there is a drop, you will know something significant has happened."

    The number itself doesn't matter as much as how a consumer compares to the general population, she said. Armed with this information, consumers should be able to ensure they are getting a fair interest rate when borrowing money for a home or a car or applying for a credit card.  Consumers who rank near the top of a scoring scale should get a bank's best rate.

    Because she thinks consumers should track their score over time, Detweiler says it's important to stick with the same score than trying to compare a free score doled out by a bank with another score purchased from a website.

    Ulzheimer said it's fruitless and frustrating for consumers to obsessively follow their credit scores as they pop up and down, given that lenders see different scores anyway. He recommends "managing" to your credit report instead of your credit score, since the report is at the heart of all score formulas.

    "What's constant across all scores is that doing the right thing will lead to a better score across the board,” he said. “If you pay your bills on time, your scores will go up. So worry about that. Managing to three credit reports is easier than trying to manage all those credit scores. ...Consumers have to let go of that, because the number of scores will continue to get larger, not smaller."

    That's not to suggest variations among credit scores aren't important. In September, the Consumer Financial Protection Bureau published a study of credit scores revealing that variations among different scoring models could impact as consumer's borrowing costs about 20 percent of the time.

    The study recommended that firms that sell credit scores "should make consumers aware that the scores consumers purchase could vary, sometimes substantially, from the scores used by creditors."

    The best way to avoid paying too much for credit because of a credit score variation is to shop around. Never take the auto dealer's word for it that they've gotten you the best deal on your car loan.  The variations matter less with mortgages, where banks usually get three credit scores and throw out the lowest and higher score.

    Detweiler said for personal sanity, consumers should avoid treating credit scores the way they treated SAT scores in high school, or grade point averages in college.

    "Don't get too hung up on a number," she said.  "You know the serenity prayer? There are some things you have control over, and some you don't. Take care of the things you can control, like paying your bills, and the score will take care of itself." 

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  • Big Brother meets Big Data: Governments start scrutinizing credit card records

    By Bob Sullivan, Columnist, NBC News

    The economy is so bad in Argentina that the government recently said it would start taxing overseas credit card purchases. It also demanded that banks report all credit card transactions -- foreign or domestic -- saying the data would be used to find tax cheats.

    Even George Orwell couldn't have imagined this meeting of Big Brother and Big Data: a handy database of every single purchase made by citizens, ready to be categorized and analyzed by the government.  Let your mind wander for a moment and you can imagine the disturbing possibilities of a government so invasive that it knows when and where you buy milk and bread. 

    The obvious question: Could it happen here?  There are grand cultural and economic differences between Argentina and the United States, but if the history of privacy tells us anything, it is this: Governments and corporations can rarely resist the temptation of using technology to gain the upper hand.

    "This gives me chills," said Gartner banking consultant Avivah Litan, who was in Argentina recently consulting with that nation's government banking officials. "I think it is a reminder that our data can be looked at by anyone and probably is being looked at."

    Argentina is not the first government to examine credit card receipts. In 2011, Brazil began taxing overseas credit card transactions. And Spain recently outlawed cash transactions over $2,500, a tactic that forces consumers to use traceable, electronic purchasing tools for big-ticket items. 

    Big Brother is not behind these drastic measures. In Argentina, where only about 50 percent of the population buys with plastic, a currency crisis and high inflation have led to a dramatic rise in overseas purchasing. Taxing foreign purchases is an attempt to stem this tide, and encourage domestic spending. Brazil's motivation is similar. 

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    But once the pipeline for data is established and the database is built, what's to stop mission creep? Argentina has said it will examine domestic transactions for evidence of undeclared purchases or other signs of tax evasion. What else could a government find in a database of transactions?

    "When I first saw the story it kind of took my breath away," said Bill Hardekopf, who operates the credit card information website LowCards.com "I thought, 'Oh my, a government can track the purchases of every one of their citizens?' " 

    There is a way to avoid becoming a line item in a government credit card transaction spreadsheet: pay with cash, something one in two Argentinians still does. But in the U.S., cash has become passé. Last year, only 27 percent of point-of-sale purchases were made with cash, compared to 66 percent for credit and debit cards, according to Javelin Strategy and Research, which expects that number to dip to 23 percent by 2017.  

    Meanwhile, a host of new payment tools -- still rough around the edges -- are about to find their way into consumers' pockets and purses. Mobile cellphone payments are coming of age, with a quarter-trillion in annual transactions expected by 2016, according to IE Market Research.  And even the simplest of cash transactions -- "Buddy, can I borrow $5?” -- might not be long for this world.  Starbucks recently partnered with Square, a simple tool that allows cellphone users to accept casual payments from friends or small business clients. The convenience of such tools is undeniable; so is their traceability.  

    "As we become more and more of a cashless society, the likelihood of purchases being tracked increases. Whether that is used for negative purposes, or will cause personal privacy issues, I don't know, but I can see the possibilities," Hardekopf said. 

    But could it happen in the U.S.? Hardekopf said he had trouble imagining Washington could get away with the Argentinian tactic. He believes privacy interest groups would scream, other safeguards would kick in and the U.S. population just wouldn't swallow it.

    But there are no laws preventing this kind of information sharing between banks and government agencies, Litan points out. Law enforcement officials routinely obtain personal information, such as cellphone locations and credit card receipts, during the course of criminal investigations.

    "The (U.S.) government does have access to this information now because it regulates the banks," she said. "There's no secrecy laws like there are in Switzerland. There's no privacy laws that would prevent this."

    Dan Mitchell, an economist at the libertarian Cato Institute, said there have already been attempts by both state and local governments to more broadly obtain detailed consumer financial data. The health care reform bill included a provision that required merchants to report credit card processing volume data to the IRS, for example.  And recent efforts by states to enforce sales tax on online purchases will necessitate detailed reporting on credit card transactions by merchants, he warned.

    “So it's just a question of expanding the existing set of Orwellian laws,” Mitchell said.

    Probably the strongest firewall against such an intrusion would be banks themselves, which would no doubt fight massive data requests.  But transaction data sharing from banks to government officials has risen sharply since the Sept. 11, 2001, terrorist attacks. The number of Suspicious Activity Reports filed by banks with their federal regulators has soared from 281,000 in 2002 to 1.5 million in 2011 (.pdf), according to the Financial Crimes Enforcement Network. Much of that increase can be attributed to a rise in mortgage fraud, but it demonstrates a dramatic increase in cooperation between banks and government officials. There also is a long history of federal authorities buying access to large troves of consumer data – such as the one once operated by commercial data broker ChoicePoint, now owned by the same firm which operates Lexis-Nexis.

    That's why privacy expert Rob Douglas says that Argentina's data sharing is not an isolated incident.

    "Given the explosion in the collection and retention of personal data by governments around the world under the guise of national and economic security, I fear the Argentine model is where all countries - including the U.S. - will end up under one scenario or another," he said. "After all, government by its very nature constantly seeks to know more about the governed. With the ever-expanding ability to store and sift vast amounts of personal data, it's inevitable that governments will do so unless reined in by the governed."

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  • Angry consumer, 'United Breaks Guitars' viral hero, launches Gripevine.com

    YouTube / http://www.UnitedBreaksGuitars.com

    "I should have flown with someone else or gone by car/’Cause United breaks guitars."  

    Dave Carroll created perhaps the most successful gripe against a misbehaving company in the history of gripes, doling out Web-style justice with a remarkably viral -- and sarcastic -- music video. Now, he's trying to share his formula for success with other consumers on a website named Gripevine.com.

    The site, which is free for consumers, is the latest in a crowded field of Web services that aim to act as a megaphone for aggrieved consumers who otherwise feel ignored when companies do them wrong.

    Carroll suffered every traveling musician's nightmare in 2008. When he arrived at a gig after a flight, he found his guitar had snapped in two. The Canadian musician’s nightmare became United Airlines' nightmare after he posted the video.

    Carroll's catchy and hysterical music video spread like wildfire in early 2009. As views crept upward toward 10 million, it was obvious that his song had become the gold standard in Web-based consumer revenge.

    Carroll’s guitar catastrophe occurred six months earlier, when he tried to safely transport himself and his $3,500 Taylor acoustic from his home in Halifax, Canada, to Omaha, Neb. During a stop in Chicago, he says he and other passengers witnessed baggage handlers recklessly tossing bags on and off the flight. When he arrived in Nebraska, his instrument was critically damaged.

    As recounted by Carroll, six months of haggling ensued. Carroll said he tried to make United fork over $1,200 to cover costs of repair. The airline refused. He said he'd accept the money in travel credits; United still wouldn't budge. As an act of desperation, he wrote the song and enlisted friends in the video production.

    Within a few days, the song was viewed half a million times. Apparently spooked, United called offering Carroll $2,400 in cash and credits, which he said he declined, instead encouraging the airline to donate the money to a music school.  The song rocketed up the iTunes music chart, and Carroll received two Taylor guitars from the factory to use as props in a follow-up video.

    And with the experience offering a nice lift to his band, Sons of Maxwell, it also opened him up to an entirely new world.

    "When it went viral, I was caught off guard by the reaction,” he said this week. “I received about 10,000 emails in first three weeks. It was a conversation starter. People were telling me they liked the video, but they really wanted to share their own story. And they asked me for help. Obviously, I couldn't write a song for everybody. But I had a passion to help somehow."

    After a couple of false starts, Carroll settled on Gripevine, which offers a simple-enough platform. Annoyed consumers post their gripes on the site.  An automated system informs the targeted company that a gripe exists and offers them a chance to solve the problem. If that doesn't work, Gripevine offers consumers a tool that "amplifies" the gripe, making it easy for social network friends to "support" the grievance by sharing it with their friends, who can then share it and their friends, and so on. 

    "The more times your gripe is viewed and the more people you share it with, the more the company will be motivated to work with you to resolve your issue," says Gripevine on its instruction page.

    Gripevine users will also earn "credibility points," which will help companies learn if the griper is just a serial complainer or a genuinely aggrieved customer with a beef.

    Carroll is not providing the service out of the goodness of his heart -- companies will have to pay a fee to get access to a "dashboard" that makes dealing with gripes easy. Carroll is hoping that companies view the fee as a small price to pay to stem a looming social media train wreck.

    Although Carroll lives in Nova Scotia and his business partners are in Toronto, Gripevine handles consumer complaints across the U.S. and Canada. The site launched earlier this month; so far, 4,000 consumers have signed up and a dozen companies have claimed their Gripevine pages, which Carroll said will be free for the first six months. The website is also in talks with several Fortune 1000 firms, he said.

    "Every customer is a potential ‘United Breaks Guitars’ customer," he said.  "The right answer for them is solve each problem before it gets out of hand. ... United could have solved my problem with $1,200 in credits."

    While there's an obvious pro-consumer tilt to such a service, and many companies have been initially skeptical when approached, Carroll says he genuinely wants to help both sides of the transaction. 

    "We call ourselves the Switzerland of customer service,” he said. “Users can't use profanity. We encourage them to be solution-based. It looks like the small guy taking on big companies, and they are worried about brand bashing. But if you are a good company, you really do want to treat people right. ... Gripevine is one way you can turn these things around quickly."

    Gripevine is not alone, though it is more sophisticated than most. A smartphone app called "ComplainApp" makes it easy for users to post their complaints simultaneously on various social networks. A website named GetSatisfaction.com provides tools for companies to set up their own online customer service communities, encouraging quick problem resolution. Straightforward Twitter and Facebook posts often get results, as many companies actively monitor social network for potentially damaging viral moments. And various complaint websites like ConsumerAffairs.com and RipoffReport.com (not to mention the Red Tape Chronicles) offer consumers a chance to simply post their frustrations and hope someone sees them and offers help.

    The key for companies, Carroll says, is not waiting passively for the next clever trick that makes an angry consumer a Web sensation.

    "When I had this problem, at the beginning, I had no social media clout," he said.  "If companies are solving people's problems based on how many Twitter followers they have, well, that's really short-sighted."

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  • That'll be $2,000 extra for your aisle seat, Mr. Nader

    Outraged over a spike in airfare for pre-booking an aisle seat, Consumer Advocate Ralph Nader talks with Msnbc.com's Dara Brown about his ordeal and what consumers can do to protect their pockets.

    By Bob Sullivan, Columnist, NBC News

    How much would you pay to be sure you wouldn’t get stuck in a middle seat on a 3-hour flight? Would you pay $2,000? You know airline fees have been a little crazy lately, but this sounds pretty extreme.

    Famed consumer advocate Ralph Nader says American Airlines tried to charge him nearly $2,000 extra recently to get an aisle seat for an upcoming flight.

    American Airlines says there is no such thing as $2,000 aisle seat fee.  But Nader was informed , repeatedly, that the only way he could be sure he’d be able to get an aisle seat to accommodate his large 6-foot, 4-inch frame on an upcoming Hartford, Conn., to Dallas-Ft. Worth flight was to buy a different ticket than the $750 ticket he already had -- one that would cost him $2,680, or almost $2,000 more.

    "I knew that it might be $50 more for aisle seats. But they said, 'Oh no.  The only choice is pay $2,680 or be an elite traveler,’" Nader said. "It's extortion. They are charging you for knee lengths."

    To be clear, American Airlines hasn't upped its aisle seat fee to $2,000.  Instead, when Nader's travel agent Bill Magner asked for an aisle seat, he was told there were no aisle seats left. When Magner looked at the seating chart of the plane and saw a dozen empty aisle seats, the American Airlines agent clarified by saying that all aisle seats available for seat assignments to non “Preferred” economy class ticket holders were gone.  But if Nader were willing to buy pay a full-fare, refundable ticket –  for $2,680.40 --  he could get a guaranteed aisle seat .

    Got it?

    "Astonishing," said Magner, who has booked airline seats for Nader for 30 years.  "When I called American Airlines, after I finally got them on the phone, they were absolutely no help."

    But the airline said it's got a perfectly sensible explanation, and it's merely doing what nearly every airline does.

    "The seats that were eligible to book ahead of time (by non-preferred customers) were already chosen," said Tim Smith, an American Airlines spokesman.  In other words, all the other aisle and window empty seats were being reserved for last-minute business frequent fliers, “preferred” customers or those who are willing to pay higher fares.  "The point of this exercise is to make sure our most loyal customers have first run at those seats."

    This "the flight's not full, but it's full for you," confusion should feel familiar to folks who've ever tried to book a free trip with airline miles on a popular route.  Even if a flight is relatively empty, an airline can say that there are no seats left for non-paying miles travelers.  Now that seat assignments have become a source of revenue, airlines are beginning to apply the same logic elsewhere, with some awkward results.

    Smith assured us that the airline isn't trying to sell consumers $2,000 seat upgrades -- but in fact, as Nader sat trying to book his Feb. 11th flight on Feb. 1, that was the only option available to him.

    Airlines get away with creating artificial seat scarcity when they have a monopoly on certain routes. American is the only airline offering a non-stop from Hartford to Dallas-Ft. Worth, and Nader doesn't have a flexibility in his travels.  So he, like so many other travelers, was stuck.

    "They are mopping up when they have control of the routes. It's really amazing," Nader said. ""These are rampaging, crazed corporations. The computer tells them there is no competition and they pull back all the aisle seats looking for money."

    It's unclear how many seats are put on hold for last-minute preferred travelers -- Smith said the number varies with every flight based on a complex calculation, though "it's safe to say that the first 5, 6, or 7 rows are saved for preferred."  And that means it’s unclear how many aisle or window seats are available for reserve by economy-class travelers on the lowest rung an airline’s frequent flier ladder.

    But don't blame Nader for thinking that a conspiracy is in the works: that the number of aisle seats available to economy travelers is precisely one fewer than they might want at the time of booking.

    "They are setting a condition and then backing off and pulling back the seats whenever they want," he said.

    Nader did have the option to wait until the day of his flight, when those held-back seats would be released, and hope there would be an empty aisle seat.  But of course, even when paying $750, there would be no guarantee.

    RED TAPE WRESTLING TIPS

    Exceptions do happen.  And on Saturday, after calls to the airline's executive offices and to msnbc.com, Nader was able to persuade the airline to place him in an aisle seat for his original $750 fare.

    You, on the other hand, have only limited  options to make sure you don't get stuck in a middle seat between passengers named "Rock" and "Hard Place." Gaining preferred status on an airline and sticking to it is really the "best" of your bad options. Booking early, before those "available" non-preferred seats fill up, can help.  Only choosing destinations where there's healthy competition will help, but megamergers like the recently completed Continental-United marriage are making those harder to find.

    But really, the only way to avoid such Draconian airline fees is to take the train.

     

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  • Hear telemarketer browbeat consumer

    A caller who says he works for Third Tier Financial tries to persuade Jerry Trowbridge, a retired journalist and blogger, to enter his personal information on a website so he can collect $1,500 that he claims is being offered to taxpayers. During three calls lasting a total of 30 minutes, four different Third Tier representatives become increasingly insistent, with one telling Trowbridge at one point, "Don't ask unnecessary questions. We won't beg you to receive this money." Click to listen to one exchange between the caller and Trowbridge.

     

    "You are a regular taxpayer," the caller says, "that's why you are qualified to receive this $1,500. Are you interested in receiving $1,500?"

  • Obit for new consumer agency premature

    By Bob Sullivan, Columnist, NBC News

    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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  • Obama should restore consumer czar office

    In the 1960s and early 1970s, U.S. consumers who found themselves in a maddening battle with corporate America had a friend in the White House. That friend was Esther Peterson.

    As White House special assistant for consumer affairs, Peterson worked under both the Johnson and Carter administrations for consumer protections that still have an impact on every trip consumers make to the grocery store. For example, she was largely responsible for a series of food labeling improvements that led to unit pricing, which allows apples-to-apples comparison shopping. She also worked to establish new requirements for nutritional information that we take for granted today. Peterson lived to be 91, and before her long career was over she was granted the Presidential Medal of Freedom.

    Sadly, when Peterson died in 1997, the concept of consumer advocacy in the federal government largely died with her. At about the same time, during the Clinton administration, Peterson's old job -- White House special assistant for consumer affairs -- was unceremoniously eliminated.

    That hasn't panned out very well.

    We can't bring back Peterson, but we can restore her spirit. The time has come to put a consumer advocate back in the White House.

    A coalition of consumer groups has petitioned President-elect Barack Obama, asking him to restore Peterson's old office. Doing so would be a respectable down payment from the new president on campaign promises he made about restoring fairness to America's marketplace.

    My colleagues in the business section often remind me, correctly, that it's impossible to pin today's economic disaster on one single cause. But poor consumer choices -- stemming from both bad judgment and fraudulent advice -- would be the first suspect I'd bring in for questioning if I were prosecuting the case.

    The inability of federal agencies to protect consumers in recent years is obvious. It hasn't helped that budgets for many of these agencies have been continually slashed -- the Federal Trade Commission has about half the employees it had during the late 1970s. Still, consumers really have nowhere to go when locked in an entrenched battle with a company, save the few who have the time and money to pay for their day in a civil court. Consumer rights in America today have been reduced to millions of David vs. Goliath battles, and unfortunately, David can't always win.

    Instead, bankers, credit card companies, cable TV firms and other large corporations have been given a clear signal: bullying is good business. Punitive fees, sneaky charges and anti-competitive practices are fine, as long as they don't go too far. Selling mortgages that all involved know won't possibly be repaid? Well, that was just good business, too.

    Once in a while, a company that misbehaves egregiously, like the credit bureau Experian with its FreeCreditReport.com site, is forced to return its ill-gotten gains. But even then no other punishment is levied. So there is really no risk for bad behavior.

    'A megaphone'
    A "consumer czar," as some have called it, couldn't change this environment overnight. The job, as it's been described by the Public Interest Research Group, Consumers Union and other interest groups making the request, wouldn't have any direct regulatory oversight. The office couldn't fine anyone or make law. Legally, it would be simply be a voice in the White House. But symbolically, it would be a lot more.

    "The person would have a megaphone to go on television about consumer protection issues, and say I will tell the president 'That's unfair,'" said Edmund Mierzwinski, consumer program director at the Public Interest Research Group. "We don't want just be somebody in a little cubby hole in the White House."

    Mierzwinski said the office should have a single hot line that consumers with problems could call and be directed to the appropriate federal agency for help.

    During his campaign, Obama promised that the Consumer Product Safety Commission and the Food and Drug Administration, agencies with budgets that have long been neglected [or reduced?], would be reinvigorated. More food and toy safety inspectors are obviously necessary – remember, at the height of the lead toy scare last year, the New York Times reported that the CPSC had only one inspector for all imported toys.

    But the problem of consumer protection is so vital to the economy that it needs more than just a tune-up. It needs a new home.

    Ultimately, Mierzwinski favors the creation of a full-fledged federal consumer protection agency. An effort to create such an agency during the 1970s, spearheaded by Ralph Nader, fell short.

    "We have an Environmental Protection Agency. ... With the financial meltdown and the health care mess, the lives of American consumers are just as much at risk as environment," Mierzwinski said.

    Protecting consumers is good business
    Restoration of a White House consumer affairs advisor would be a baby step toward that rather ambitious end. With perhaps a few dozen employees, it would necessarily be more a policy office than an advocacy office. It would hardly be in a position to fix individual consumers' problems. But it would put companies on notice that the environment for taking advantage of consumers is changing.

    It's important to understand that basic fairness in the marketplace isn't a liberal or conservative goal, and neither is the notion of protecting consumers. The influence of Esther Peterson's old office had wilted under Republican presidents, but it was then scuttled by a Democrat. Instead, protecting consumers is simply good business.

    No one would benefit from relaxed rules allowing automakers to produce cars without trustworthy brakes; even if you are an incredibly careful driver, you'd end up paying for the increased number of car accidents. Ditto for food safety rules in restaurants; maybe you wouldn't mind eating at places that never have to face a health inspection, but you'd end up paying for all the illnesses that resulted. And today, we all are paying the bill -- an enormous bill - for the hazardous mortgage marketplace that was allowed to fester.

    For years, many have been seduced by the notion that consumer protection was a merely a pesky impediment to the forward march of profitable companies and the Dow Jones Industrial Average. Now, we should know better. Obama has many, many interest groups lining up to make their cases about what his priorities should be. But restoring faith and trust in the American marketplace deserves one of these top slots, and a respected public advocate deserves a seat at his table in the White House.

  • Nader: Obama might not protect consumers

    Not since the 1960s, when seat belts became standard equipment in cars, has the atmosphere been so favorable for consumer-friendly reform. After decades of hands-off capitalism and shrinking consumer protection agencies, the Wall Street meltdown has unmistakably changed the nation's attitude toward regulation. And Americans have just elected a president who has promised to reform the credit card industry, bankruptcy law, and toy safety, to name a few.

    So you'd think that Ralph Nader, the father of the modern consumer movement in America, would be happy.
    You'd be wrong.

    Nader is worried that fundamental reforms of Wall Street, banking and workers' rights issues will remain elusive.

    "The Democrats are more corporate than ever," he said in an Election Day interview with msnbc.com. "You know about K Street. (Lobbyists) are just shifting their money to Democrats and they are happy to get it."
    Many Democrats in Congress receive sizable campaign donations from Wall Street and other financial firms, the very industries Democrats will now be asked to re-regulate.

    For example, he said, Sen. Christopher Dodd, D-Conn., who runs the powerful Committee on Banking, Housing, and Urban Affairs, received more than half the funding for his aborted presidential campaign from banking and insurance companies. Dodd will be a key figure in any proposed banking reforms.

    Nader also noted that Vice President-elect Joe Biden has received more campaign donations for his Senate campaigns from credit card issuers than any other industry. True regulatory reform is impossible when Congress members have built-in conflicts of interest from campaign donations, he said.

    President-elect Barack Obama, meanwhile, raised and spent more money than any candidate in American history.

    "And now he's going to propose campaign finance reform after opting out of the public financing system during the election? He has no credibility now," Nader said.

    Nader described his own campaign as a success, citing the fact that he managed to get his name on 45 of 50 state ballots. As of Thursday, however, he had garnered only about 655,000 votes, far less than 1 percent of those cast and well below his high-water mark of 2.9 million votes in 2000. On the plus side, however, it was the second-highest total of his four presidential runs and places him first among this year's third-party candidates (Libertarian candidate Bob Barr received just shy of 500,000 votes).

    No excuses
    While he's not expecting any fundamental reforms on consumer issues, Nader said he's glad that Obama won so easily and that Democrats added to their majority in Congress. "They have no excuses now, no blaming the Republicans," he said.

    To support his pessimistic view, he points to the recent $700 billion bailout bill passed by Congress.
    "For once, Washington had Wall Street over a barrel," he said. "Wall Street wanted that money fast. But what happened? Congressional Democrats got 'stuffed' on the bailout. They gave up $700 billion and got nothing in return." By not tying Wall Street reforms to the bailout, Nader said, Democrats surrendered all their potential negotiating leverage.

    Nader said he would have paid for the bailout by instituting "speculation taxes" on Wall Street transactions such as the buying and selling of derivatives like oil futures. He claims a one-tenth of one percent tax would generate about $500 billion each year.

    "Right now you go out to buy essentials like furniture and pay 5, 6 even 7 percent sales tax. But you can buy $1 million in oil futures and pay nothing," he said. "We had a stock transaction tax during the Civil War and the Spanish American War." (For more, click here)

    He also called for expanded shareholders' rights laws, which he said would rein in abuse of power by CEOs.

    "It's more important than ever to give shareholders real power," he said.

    Reforms already begun
    Some other reforms Nader advocates are already under way. The Federal Reserve has proposed a series of reforms on credit card issuers that would bar many practices that penalize consumers, such as retroactive interest charges. A "Credit Card Users Bill of Rights" has already passed the House of Representatives. Food and toy safety were a popular topic of both Sen. Hillary Clinton and Obama early in the campaign. But with such a long legislative agenda, such reforms could easily get lost in the shuffle, Nader warned.

    "New regulation will require some kind of legislative deadline to make sure it happens, like we did with seat belts," Nader said.

    Obama has offered a series of proposals to protect consumers; most are laid out in a white paper that was published a year ago.

    Among them: A rating system for credit card offers managed by the Federal Trade Commission. Cards with risky terms would get low ratings. He also proposed simplified mortgage application forms, which would help consumers understand the real cost of their loans.

    So far, there has been no public speculation about who Obama might name to run consumer-oriented agencies, like the Federal Trade Commission.

    But Nader is not persuaded that Obama will get far with such rules. While voters have a strong appetitive for new banking regulation, financial firms will argue that new restrictions will only slow the economic recovery and back the new president into a corner, he said.

    "Obama will be overwhelmed by the economic crisis," Nader predicted. "There is a real need to shift the power away from corporations and to the people. Perhaps (Obama) will rise to the occasion … but he does not have a challenging personality, that's why he always talks about unity and so on. And these corporations need to be challenged."

  • Where the candidates stand on consumer issues

    By Bob Sullivan, Columnist, NBC News

    The stock market's spasms and the housing meltdown have dominated the presidential campaign for the past several weeks. The distraction of the "Down Jones" industrial average, however, means we might be forgetting how we got into this mess in the first place: through the abysmal state of consumer protection and the general unfairness of our marketplaces.

    Presidential candidates John McCain and Barack Obama have risen to the occasion -- if you want to call it that -- by trading barbs about old scandals and offering up partially baked plans to restore the economy. That's sad, because both have made some serious proposals aimed at restoring fairness and integrity to U.S. markets. One can only assume consumer protection is no longer among their top priorities.

    It should be. Not only is rampant unfairness bad for the consumers it cheats, it's bad for the economy as a whole. As we've seen, ill-gotten gains earned by deceptive companies create an economic house of cards – one that eventually must collapse. The only way to prevent the next boom and bust is to ensure a fair marketplace.

    The stock market is supposed to act like a canary in a coal mine, with super-smart traders signaling economic trouble in advance by bidding down shares. In this case, however, Wall Street seemed to be the last to know that things were headed south.

    Cracks in the U.S. regulatory system began to show early this year. There was poisoned imported food, sudden dog deaths from tainted pet food and lead-laden toys from China. (The New York Times found that The Consumer Product Safety last year had only one person inspecting foreign-made toys. How many of your child's toys are made in the U.S.?)

    Is it any wonder, then, that as recently as last year mortgage brokers continued to flood the airwaves with advertisements for "1 percent" mortgages, even after the housing collapse had begun? There was no one in Washington, D.C., or New York listening to the screams of "iceberg, dead ahead." The collapse of the stock market indicates that the ship is going down and we're all scampering for the limited lifeboats. But women and children aren't getting them: Guess who is?

    There is hope. Digging through two years of speeches and policy papers from the candidates, an enterprising voter can find references to this general unfairness, and plans for restoring the various malfunctioning marketplaces.

    Sen. Obama's proposals are more fully formed than Sen. McCain's, but the McCain camp says that's by design. In an interview several months ago, McCain economic adviser Dough Holtz-Eakin said that McCain would do whatever it took to restore fairness to the mortgage market and other consumer hot-spots, but would need flexibility to deal with current market conditions as they exist in January 2009.

    "The basic instinct of the senator is it's not enough to go in after the fact and trumpet a lot of regulations," said Holtz-Eakin. Despite the Republican Party's longstanding hands-off economic stance and anti-regulation bias, he said McCain was persuaded that there is a place for government intervention to ensure "fair and open competition."

    Housing proposals
    Holtz-Eakin wasn't kidding. McCain surprised nearly everyone during the second presidential debate when he proposed perhaps the most active government intervention since The Great Depression, saying that if elected he would direct the Treasury Department to buy up $300 billion worth of ill-conceived consumer mortgages.

    The plan, while very late in coming, is at least a good start. The notion of direct government purchases has been around for a while, proposed by Hillary Clinton's campaign much earlier this year and championed by a variety of economists. It is the first sweeping plan that would deal with the fundamental problem of the housing meltdown and the current recession: the growing glut of empty homes for sale.

    The original bailout plan -- buying up $700 billion of nearly worthless mortgage backed-securities and other loan paper on Wall Street -- is an indirect solution that simply might not work. In fact, it has already been partly abandoned, with Treasury now using much of that money to buy direct stakes in banks instead. So a massive direct home purchase and refinance plan is an idea worth developing.

    I wish McCain's economists had developed it, however. It has at least one massive flaw: The government would buy the mortgages at their full "hold-to-maturity" value, rewrite them to reflect their lower market value and eat the loss. That means the plan would be a bonanza for the banks that made all those crazy loans, and force taxpayers to eat the bill. That's a terrible policy that wouldn't survive a single congressional hearing.

    Structured other ways, however, direct housing repurchase has a place in the economic recovery plan. For one model, look to the Illinois attorney general's office, which recently settled a lawsuit with the former Countrywide Mortgage for predatory lending. Under the deal, Countrywide's new owner, Bank of America, must restructure some 400,000 loans and eat the loss.

    There are other holes in McCain's plan. The biggest: Who gets the help? Wouldn't some homeowners be incentivized to stop paying their mortgages so they could qualify for the great new rate, offered by Uncle Sam? You don't have to be a naysayer to imagine the chaos of implementing such a plan.

    Still, it's worth exploring. And it's certainly no more complex than figuring out how to buy up credit default swaps. Unfortunately, right now, you get the sense that in Washington, direct home purchase is the absolute last bullet that will be fired in the rescue plans, the last boat lowered from the deck of the Titanic. History will view that as a great strategic error.

    Unfortunately, Sen. Obama has rejected McCain's home repurchase plan, at least for now. Instead, he unveiled a measured economic plan last week with stop-gap measures such as a 90-day moratorium on foreclosures and extended unemployment benefits. Keenly aware of his lead in the polls, it appears Obama sees no need to risk bold proposals now.

    That's too bad, because Obama has made bold proposals in the past, offering far more specific plans on many consumer issues than McCain. An Obama policy paper on new consumer protections can be read here.

    McCain's economic plan can be viewed here.

    Credit cards
    In the realm of credit cards, Obama has long supported a new consumer "Credit Card Bill of Rights," which would prohibit credit card companies from raising rates and retroactively applying the new rate to old balances. It also would bar issuers from charging interest on penalty fees, and it would make banks apply payments to highest-rate balances first, rather than low-rate balances – a policy aimed at sticking it to consumers who take advantage of cut-rate balance transfer offers.

    Obama may yet get to put his vote where his promises are. Last month, the House passed a Credit Card Bill of Rights. The Senate could take up a companion measure, but it will likely be postponed until the new Congress convenes next year.

    Obama has said he would go further, and create a five-star rating program for credit card offers. The Federal Trade Commission would be instructed to rank credit cards and banks according to a series of consumer-friendly practices and publish these ratings. Critics have said the plan is unlikely to work and would create an enormous new responsibility for the Federal Trade Commission.

    McCain's office has not issued a policy position on the Credit Card Bill of Rights.

    Mortgage safety
    Even if the federal government figures out a way to solve the empty house problem, there still is the important matter of making sure this kind of mortgage mess never happens again. Ensuring fairness in the mortgage marketplace is a big part of that. To that end, Obama has called for creation of a simple indicator to tell consumers how expensive their mortgage could become -- called a HOME (Home Obligation Made Explicit) score. This score would call attention to possible unexpected costs of adjustable rate mortgages and other potential booby-traps in home loans. Obama would also change the tax code to make it easier for low- and middle-income tax filers to get home mortgage tax deductions.

    McCain hasn't issued specific policies on mortgage clarity.

    Neither camp has said enough about direct culpability for those who take advantage of consumers. The best way to stop predatory lending is to aggressively enforce existing laws that make unfair and deceptive practices illegal. The home mortgage market is too important to self-regulate. A special task force from the Department of Justice, the Federal Trade Commission and banking regulators should be given wide latitude to enforce Truth in Lending laws and other regulations.

    Earlier in the campaign, Sen. Clinton proposed creation of a Financial Product Safety Commission, modeled after the Consumer Product Safety Commission. That's an idea worth exploring.

    College costs
    Obama has made some bold proposals about college borrowing. He would return to President Bill Clinton's model of shifting student loans to the federal government, replacing the current public-private lending program known as FFELP (Federal Family Education Loan Program) with loans issued directly by the federal government in an effort to cut costs. Obama would also add tax credits for college students, and has said he would support income-based repayment plans for students that would tie monthly payments to job income.

    McCain has called for the Department of Education and state agencies to step in if the credit crunch limits college students' abilities to obtain loans.

    Toy and food safety
    Earlier this year, during the primary season, Obama would frequently punctuate stump speeches with sweeping statements about the dangers of lead paint and the need to ensure toy safety. He has said he would double the size of the Consumer Product Safety Commission. In 2005 and 2007, he introduced the Lead-Free Toys Act, which would ban toys with more than trace amounts of lead. Last year, he suggested he'd be willing to ban toys from China, but later toned down the position after harsh reaction from the Chinese government.

    John McCain hasn't said much about toy safety, but according to press reports, he mentioned the issue in an April speech, saying ""If I were president of the United States, the next toy that came into this country from China that endangered the lives of our children … would be the last toy that came into the United States." He appears to have said nothing else on the topic.

    On the issue of food safety, both campaigns have offered general statements. Obama has said he would hire additional food inspectors and instruct the Department of Agriculture to consider new food safety laws. McCain's Web site, he says only that "Americans should be able to trust in the safety and reliability of their food, regardless of its origin."

    More from Briefing Book: Issues '08

    Science goes under the political microscope

    McCain, Obama in sharp contrast on abortion

    Shooting for the sweet spot on guns

  • JetBlue, welcome to the Gotcha Hall of Shame

    Vlg_gotchafleece

    Feeling fleeced by hidden fees, surcharges, fine print and other "Gotchas"? That's because you are getting fleeced. Sneaky pricing has become the American way of doing business in the past decade. But don't look now -- things are going to get much worse before they get better. Tough times and shrinking profits will spur on cash grabs the likes of which we've never seen. Like a wounded animal, I expect many a desperate corporate boardroom to authorize unconscionably tricky tactics, aiming to stave off a bad report to shareholders for one more quarter by sucking more quarters out of your wallet.

    In this spirit, today we open up a new institution to memorialize all this chicanery: The Gotcha Hall of Shame. The first inductee is so deserving that it actually inspired creation of the award: JetBlue Airlines and its $7 pillow.

    I know, I know, it's not just a pillow, it's a blanket, too. And both, apparently, have super-powers that block micro-toxins, whatever those are. But if the blanket works so well, why hasn't my doctor given me one?

    Even with reduced visibility and a low cloud ceiling, we can all see through JetBlue's pillow ploy. On a plane, you're a captive consumer. There is no shopping around for good pillow prices. You're sleepy, and you will you fork over $7 for a chance to take a nap.

    Of course, you could bring your pillow on board, but that would take up your precious carry-on baggage allotment, which could push you to check more baggage. And JetBlue now charges extra for that, too.

    You should know that JetBlue had stiff competition for the inaugural Gotcha award -- from within its own industry. US Airways, [changed from US Air] which is said to be considering its own pay-to-sleep fee, gets honorable mention for deciding to charge passengers $2 each time they ask for water. Curiously, coffee is only $1 per cup. C'mon US Air! That's going to hurt pillow sales.

    As for circumnavigating the water fee, don't bother. The Transportation Security Administration is in on this, too. Bring water to the airport and you'll lose that at the security checkpoints.

    Meanwhile, it feels like all the airlines have involved been in a perverse kind of auction to see who can squeeze consumers the most for checked bags ($15 for a second bag. Do I hear $25? Ok, $25 to Delta Airlines. Do I hear $50? OK, $50 to Delta Airlines!)

    The death of pricing
    What's going on here? Analysts are politely calling this a move to a la carte pricing. I have another name for it (I'll bet you have a few too). I call it the death of pricing.

    These "after charges" make it nearly impossible for consumers to buy airline tickets intelligently. The normal method of searching for flights and sorting by price has been murdered by $10 meals and $50 baggage fees. A $245 flight can be cheaper -- much cheaper -- than a $189 flight. A Delta $100 baggage fee (remember, checked bag fees are one way) can turn a good deal into a bad deal very quickly.

    Now, the critical question: How are consumers supposed to do the math when shopping for airline tickets? Can you predict how many bags you'll pack when you're buying a ticket?

    This isn't just annoying. It's an assault on capitalism. Companies with the best prices and the best products are supposed to win in our Darwinian economic system. Instead, sneaky charges and tack-on fees prop up poorly performing companies. Instead of rewarding the best performers, we are rewarding the members of the Gotcha Hall of Shame.

    Already last year, flying became a textbook example of what economist Caroline Baum calls inflation by degradation. When people pay the same for a product, but get less from it, that's a form of inflation, Baum says. For example, when people pay to get from New York to Chicago in two hours, but the actual travel time is four hours, they've been hit with a hidden form of inflation.

    Last year, airline schedules turned into fiction novels, with some planes on some routes arriving on time as infrequently as 10 percent of the time. Yet prices didn't fall, they rose. And now, they are rising again, through the layering of fees so fantastic you'd think Franz Kafka owned an airline.

    Come to think of it, even Kafka wouldn't make one of his characters pay for a pillow. No one would buy it.
    Congrats, JetBlue Airlines, for earning the first spot in the Gotcha Hall of Shame.

    Red Tape readers, feel free to file nominations for the next inductee below.

    (While I'm at it, here's a pretty good reference on baggage fees)

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