Consumer Inq

Ever use your debit card for a latte at Starbucks or a burger at McDonalds? Chances are, you're much more likely to do so today than you were even a couple years ago.

Guess what's also more likely: If you screw up and forget you're short of funds, your bank is much more likely to profit, big-time, from your mistake.

A new study by the Center for Responsible Lending says that U.S. banks and credit charged $17.5 billion in overdraft fees last year, up 70 percent from $10.3 billion just two years earlier.

Why the dramatic climb? The center, which made its name targeting predatory mortgage lending, blames bank practices designed to generate more fees under the guise of helping bank customers.

Eric Halperin, who directs the center's Washington office, says that as recently as three years ago, "the vast majority of banks didn't allow you to overdraft on a debit card" or at an ATM. But paying such overdrafts is increasingly common practice — the center says they now account for nearly half of all overdraft fees. Only about 1 in 4 come from the traditional source of overdrafts: writing a check for more money than you have in your account.

If you think something is wrong with this picture, you're not alone. Financial advisers, many of them employed by banks, have long touted debit cards as better for money management than credit cards because you can't spend money you don't have. But now you can — you can essentially "borrow" the $3 for the latte, and pay an average of $34 in overdraft fees for the privilege.

You can even overdraft at the bank machine without being warned. Some banks will allow you turn this feature off, but it's important to know that you could be at risk: Otherwise, if you withdraw $200 when your balance is just $190, the ATM may well fork over all the dough you requested, only to trigger a $30 or $35 overdraft fee for the privilege of getting what you asked.

And that may not be the worst of it. Depending on how your bank prioritizes checks and debit withdrawals as it clears each day's transactions, some consumers complain of being hit with multiple overdraft charges when a single one would have sufficed. Banks have always insisted that they clear the highest-dollar-value check first, because that's typically the most important one to a customer, most likely the rent or mortgage payment. But as Halperin points out, that logic fails in a world where the bank plans to pay every overdraft, and charge you for each one. If that's the plan, why not clear them in an order more favorable to your customer?

Is it a good thing to pay overdrafts? Absolutely — this is one place I agree with bankers' traditional spin. If I write a check to my mortgage company, or for that matter to anyone else, I want my bank to cover it, either as a courtesy or through some established mechanism. I wouldn't have written it unless I believed I had the funds available — which, by the way, is the legal standard for writing a legitimate check versus committing a crime.

That's why I've had overdraft protection nearly all my adult life, though from banks and credit unions that offer more reasonably designed programs. My favorite versions trigger transfers from a separate savings account. But I'm happy with the one I now have from my credit union, which is essentially a small line of credit that charges me for the time value of my money at an agreed-upon interest rate. But even paying a $5 or $10 transfer fee, as some banks charge, beats paying a full-fledged overdraft charge.

Those programs offer a valuable service: insurance, at a reasonable price, if I'm not paying close enough attention to my check register or bank balance. The new-fangled versions, whether they're called "overdraft protection," "bounce protection" or "overdraft loans," seem more aimed at milking the unwitting customer.

In a larger study released in January, Debit Card Danger, the Center for Responsible Lending found that the median cost of an "overdraft loan" triggered by point-of-sale use of a debit card was $2.17 per dollar borrowed.

What's the answer to this problem? The Center for Responsible Lending supports a proposal by U.S. Rep. Carolyn Maloney (D., N.Y.), which she says would lend "fairness and transparency" to the overdraft-loan process. You'd have to consent in writing to accept overdraft loans. You'd see how costly they can be when the flat fee is rendered in traditional "annual percentage rate" terms — for the median point-of-sale loan, a shocking 20,000 percent, the center says. And you'd receive a warning before an overdraft is processed electronically.

That last protection is most important of all, as far as I'm concerned. My bank's computer system knows exactly how much money I have available when I hit the "Withdraw" button or swipe my debit card at Wawa or CVS.

Maybe I want to borrow the extra money and pay the bank's fee. But it should at least have the decency to ask.

(*Or, "On the Internet, nobody knows you're a CEO")

As a sometime customer at Whole Paycheck Markets — whoops, I mean Whole Foods — I have to say that I welcome anything that draws extra scrutiny to the pricey high end of the natural and organic grocery business, or that at least makes me laugh about it. Usually, I just get to laugh at myself for shopping there. (How much did I pay for those organic cherries?)

Today's news fits the bill on both counts: Turns out that John Mackey, Whole Foods' colorful CEO, has been secretly trash-talking the competitor he's trying to buy, Wild Oats Markets, on Internet message boards.

Using an alias, "Rahodeb," he would post things like, "The writing is on the wall. The end game is now underway for OATS. ... Whole Foods is systematically destroying their viability as a business — market by market, city by city."

How do we know this? Because the Federal Trade Commission, guardian of the marketplace, is trying to block Whole Foods' $670 million acquisition of Wild Oats, its chief rival for the amazingly lucrative grandchild of the old organics-and-granola bars of my youth.

Mackey's "the Empire strikes back" warnings, and a footnote explaining his unusual MO, are part of a memorandum that the FTC recently filed in support of its case. (Read a redacted "Public Version" of the memo here.)

The funniest part of this story? There's lots of competition for that honor.

Maybe it's the e-mail statement, quoted by Bloomberg News, in which Whole Foods said Mackey had posted “under an alias to avoid having his comments associated with the company and to avoid others placing too much emphasis on his remarks.”

Or maybe it's the Rahodeb quote, reported in the Wall Street Journal, in which Mackey stepped forward to defend a picture of — who else? — Mackey that appeared in a Whole Foods annual report: "I like Mackey's haircut," Rahodeb wrote. "I think he looks cute!"

But the competition that matters isn't for funniest line from Rahodeb — apparently chosen as an anagram for his wife's name, Deborah. It's the competition that the FTC says Mackey hoped to shut down.

It's hard to prove that any maneuver poses antitrust problems in such a fiercely competitive sector as food retailing. But the FTC is apparently willing to take Mackey at his word, and it says Mackey has argued persuasively that the Whole Foods/Wild Oats niche is essentially a separate market.

For instance, the FTC quotes Mackey as saying: "Safeway and other conventional retailers will keep doing their thing — trying to be all things to all people. ... They really can't effectively focus on Whole Foods Core Customers without abandoning 90% of their own customers."

In his alter-ego commentary, Mackey spent a lot of time addressing the "shorts" — investors who bet on the likelihood that a stock will decline. At times, he seemed mostly to be trying to argue up his stock's price:

"As you know I'm not a 'trader,' he told one fellow poster in June 2005. "The day-in-day-out movement of the stock doesn't concern me. The fundamentals are fantastic and are only getting stronger. Whole Foods will continue to grow very rapidly for at least another 10 to 15 years. With that growth, we will also see growth in the stock price. If the stock trades down then it only becomes a more compelling value for long-term investors."

Other times, as in this February 2005 post on the Wild Oats message board, he seems to be pre-arguing against the FTC's case: "For those of you on this Board who believe that there is always room for a #2 chain in the natural foods industry to compete with Whole Foods — you are right — there is. It's called Trader Joe's. TJs is #2 and OATS is a distant third place and falling further behind with each passing day."

Mackey may eventually have trouble with regulators over Rahodeb's postings, if they're seen as attempts to manipulate the stock market. Nearly a year ago, Rahodeb posted his last message, titled "Congratulations to hubris and goodbye," in which he said he'd lost a bet about stock prices with hubris — not with the fatal flaw, but with a poster named "hubris12000" — and been correctly identified by two other posters. (Want to read his voluminous postings? Click here.)

But right now, his battle is with the FTC, which says that “if Whole Foods is allowed to devour Wild Oats, it will mean higher prices, reduced quality, and fewer choices for consumers.”

I live in a city graced with independent natural grocers (Essene Market on Fourth Street is still going strong) and with institutions such as Mount Airy's Weavers Way coop, which offer many of the same kinds of products as Whole Foods and Wild Oats. I don't live near a Trader Joe's, but I have friends and relatives who swear by it.

So I don't see the problem in my little corner of the world. But that doesn't mean competition isn't threatened — or that John Mackey's Internet wildings aren't a fascinating tale, whatever the competition.

Every time I hear a radio ad for a bogus "free credit report," I get angry. If you listen to commercial radio much, you'll know that means I get angry a lot.

I've warned Inquirer readers about this problem before. It became especially galling in September 2005, when Pennsylvanians and many other East Coast residents finally became eligible for a genuinely free annual report from each of the three national credit reporting agencies. But the problem plainly isn't going away – not when there's so much money to made from the unsuspecting, and regulators are too deferential to crack down.

The commercials you hear aren't for a genuinely free credit report, at least as I'd define it. Yes, you won't be billed directly for the report – just for add-ons such as credit-monitoring services that are always part of the deal. In my book, paying $100 to $150 a year doesn't add up to "free." If you disagree, please do speak up.

How big is this problem? Recently, a University of Utah researcher, backed by Consumer Reports WebWatch, decided to take a close look. (Read his study here.)

Robert N. Mayer looked at 24 sites that touted "free" reports – many with the word free conspicuously embedded in their sound-alike Web addresses. Typically, they offered that "free" report in return for monitoring or other pricey add-ons, such as a credit score from each of the three national credit bureaus. (Here's a tip: Generally, one credit score will tell you all you need to know. If your credit is clean, you may not even need that.)

One of Mayer's key findings: While there may seem to be lots of competition in the market, with so many different sites, there's much less than meets the eye. Instead, Mayer found the market largely dominated by two of the three national credit reporting agencies – the same folks that are required by law to provide consumers with a genuinely free annual report. He said either TransUnion or Experian owned or was closely associated with 17 of the 24 sites.

This won't surprise anyone who's gone to one of the credit bureaus' own sites to find a genuinely free report. The general rule is: They don't make it easy.

On the TransUnion site, for instance, there are several come-ons luring you to pay for a package deal that includes your "free" credit report, and one modest link that refers vaguely to the "FACT ACT and other free credit report disclosures." (The FACT Act is the 2003 law that mandates the genuinely free annual reports.)

Follow that TransUnion link, to be sure, and you'll learn about your rights, including the right to get a free report more than annually if you fit other criteria, such as believing you're the victim of fraud. But if you just want your genuinely free report, it's less confusing to go directly to the "central source" the bureaus were required to establish by the 2003 law.

You can request your free reports from the central source in three different ways:

1) On the Internet, at www.annualcreditreport.com

2) By phone, at 1-877-322-8228

3) By letter, mailing your request to:

Annual Credit Report Request Service
P.O. Box 105281
Atlanta, GA 30348-5281

By any method, you'll have to provide sensitive, personal information, of course. If you want to do it by mail, you can get a printable form by clicking here. Otherwise, be sure to include your full name, including your middle initial and generational designations such as "Jr.," as well as your current mailing address, your Social Security number, and your date of birth.

Remember, too, to specify whether you want all three reports or something less. You're entitled to a free report every 12 months from each of the three agencies: Experian, TransUnion and Equifax. If you have any special reason for concern, such as plans to apply soon for a mortgage or real worries about identity theft, you'll want all three. If not, you might want to space out your requests.

Isn't it funny how the Web address for the genuinely free credit report doesn't include the word free at all? It's enough to make me angry even with the radio off.

(For instructions for invoking a security freeze, a cheaper and more-reliable alternative to credit monitoring, click here.)

When something goes wrong with a long-term-care policy, who are you going to call? Usually, it's the folks at your state insurance department.

Sadly, at that point they may not be able to do much to help. Just ask the 11,000 Pennsylvanians who got socked with premium increases of 30 to 50 percent several years ago for policies on which they had dutifully paid premiums since the 1980s or '90s – top-quality policies, too, from CNA, one of the nation's leading insurance groups.

In some states, regulators stepped in to limit CNA's rate hikes. Pennsylvania officials said they were powerless. In essence, policyholders had to pay for CNA's mistaken projections of how many people would let their policies lapse after years of paying premiums and of the magnitude of claims from those who stuck with their coverage.

Sometimes, regulators can help avert problems before they happen, by helping consumers choose insurers and policies judiciously at the outset. There may be no kind of insurance where this matters more, because policyholders signing up today may not need care until the 2030s or 2040s.

Sandy Praeger, Kansas insurance commissioner and president-elect of the National Association of Insurance Commissioners (NAIC), says the question of whether to buy a long-term-care policy is "a highly individualized decision that requires people to look closely at multiple factors including their family health history, dependent relationships and personal financial situation.” She says the policies make most sense for people trying to protect their assets, minimize dependence on family members, and control up-front how they will receive nursing or home care.

Here are 10 tips from the NAIC regarding long-term care policies:

1. Investigate long-term care coverage if you don’t want to rely on others to support you, and you want flexibility in choosing the type of long-term care services.

2. Long-term care insurance isn’t for everyone. If you are currently receiving Social Security or expect to have minimal or no retirement savings, you will likely qualify for state aid and should not purchase long-term care insurance.

3. Research individual insurance companies to see whether they have a history of raising rates for long-term care coverage. Check with your state insurance department to learn how your state regulates rate increases.

4. Check with your financial advisor or accountant for guidance on whether long-term care insurance is appropriate for your specific financial situation. If long-term care insurance is for you, shop around for the most appropriate coverage at the best price.

5. Make sure you understand what a long-term care insurance policy covers and just as importantly, what it doesn’t. Ask questions and make sure the company is reputable and licensed to sell insurance in your state. If you have concerns about a company, contact your state insurance department.

6. Pre-existing conditions, conditions that you have before you apply for the insurance coverage, may be excluded from coverage. In addition, for some policies, age 60 is a trigger for a rate increase. Thus, it may be beneficial to purchase your policy before your late 50’s.

7. Don’t rely on Medicare or Medicaid to cover your long-term care needs. Medicare will usually pay for a small percentage of nursing home costs. Medicaid pays for long-term care services, but only if you meet federal poverty guidelines, and the choice of care facilities can be very limited.

8. Keep in mind that tax breaks are available for qualified long-term care insurance policy premiums. The benefit payments received under such policies are tax-free.

9. Do not divulge personal financial or medical information over the phone, such as your social security number, your health status, your Medicare status or your private insurance coverage. Don’t be fooled by mailings about long-term care insurance that appear to be from an official government source. If you are concerned that someone is trying to trick you, contact your state insurance department.

10. Be wary of advertising that suggests Medicare is associated with a long-term care policy. Medicare does not endorse nor sell long-term care insurance.

That NAIC has a free consumer guide, “A Shopper’s Guide to Long-Term Care Insurance." To order, click here.

For information on long-term care policies in Pennsylvania, click here. For information from the New Jersey Department of Banking and Insurance, click here.

The Federal Trade Commission's case against Whole Foods Market's plan to acquire a key competitor, Wild Oats Markets, has focused attention on the bizarre Internet postings of Whole Foods CEO John Mackey. It seems that for years, Mackey was trash-talking Wild Oats and talking up Whole Foods on Yahoo message boards, using the alias Rahodeb.

Want to read more? The FTC is obliging. Today, it posted a whole slew of documents in the case. To read more of Rahodeb's gems, click 1, 2 or 3. To peruse the list of exhibits, click here.

The headline on the letter from Time magazine seemed clear: "Our sweepstakes results are now final: Mr. Jean-Marc Richard has won a cash prize of $833,337.00!"

OK, I know what you're thinking. You're too savvy to fall for that, right? I am, too. Those of us inured to marketers' lies – let's call them what they are – know to look for the fine print, especially when something sounds too good to be true.

And, of course, the catch was there for Richard to find. In tiny type, the promise of riches was preceded by a contingency: "If you have and return the Grand Prize winning entry in time and correctly answer a skill-testing question, we will officially announce that...."

But last week, according to Canada's Globe and Mail, a Quebec judge awarded $100,000 (about $95,500 in U.S. dollars) in damages to Richard for having been unjustly snookered.

The Globe and Mail story said Justice Carol Cohen of Quebec Superior Court based the size of her award in part on Quebec's French Language Charter, saying the wrong was compounded by mailing the English-language pitch to French-speaking Canadians. (Not that language alone explains the problem. Richard uses English at work, and recalls showing the document to an anglophone colleague – who congratulated him on winning.)

An additional problem for Time was that the signature on the letter, "Elizabeth Matthews," was apparently for a nonexistent person – something Richard discovered when he called to complain that his magazine subscription had arrived but his sweepstakes award hadn't.

"It is patently obvious to any reader that the mailing from Time was not only false and incomplete, it was specifically designed to be misleading ... especially to a reader who is not reading in his or her mother tongue," Cohen said, according to the newspaper.

The paper said Time was expected to appeal. If the case were in the United States, I'd expect the magazine to win. Here, we think it's paternalistic to protect consumers from Wild West marketing tactics – even though we know that many people, particularly the elderly, fall for them.

But for the moment, our neighbors to the north have struck a small blow for the more trusting among us. Maybe even for good faith itself.

More fuel for the fire over the growing use of credit scoring to price auto insurance: The Federal Trade Commission said today that, as a result, African Americans and Hispanics will pay more for coverage.

The FTC report (read it here) also supports an insurance industry claim: that credit scores are accurate predictors of the claims consumers will file. But in a release accompanying the report, it put an official imprimatur on a common allegation by consumer advocates: that African Americans and Hispanics tend to have lower credit scores, and will suffer financially if scores are used to set insurance premiums.

Advocates were quick to respond.

“It’s not fair that consumers with spotless driving records can be penalized with higher premiums just because of their credit score,” Norma Garcia, a senior staff attorney at Consumers Union, said in an e-mailed statement. “Insurance premiums should be based on the risk of an accident, not a consumer’s bill paying record for other goods and services.