More On Negative Option Billing and Preaquired Account Marketing

By: Jason Steele

02/26/2010

Yesterday, I wrote about how Budget Rent A Car is giving your credit card information to scammers. I have been looking into this subject and found some interesting information. By far, the most comprehensive analysis I could find was from the Harvard Journal on Legislation titled, “The Invisible Hand of Preacquired Account Marketing,” by Prentiss Cox.

It is a 45 page report, which is to be expected from a scholarly publication, but here are some of the highlights:

What Is Preaquired Account Marketing?

Preacquired account marketing is a sales practice that allows companies to charge consumers for services they do not know they ordered and do not use. The practice depends on a seller’s ability to access a consumer’s financial account without the consumer providing the account number to that seller. This is possible because the seller has paid a financial institution, or another seller who retains consumer account numbers, for the right to charge those accounts.

Who Do They Prey On?

Almost all of the consumers paying for the services sold through preacquired account marketing are unaware their accounts have been charged and unaware they have “purchased” the service. Many of these consumers are charged because they have diminished mental capacity or struggle with the English language. Preacquired account marketing works only because it singles out consumers who do not understand the solicitation or who do not notice the account charge….

What Products Are “Sold”?

…The product most commonly sold through preacquired marketing is a membership club. For example, preacquired sellers market home decorating clubs that provide discounts on furniture and programs sold as helping to prevent identity theft. Preacquired sellers also frequently sell insurance policies and magazine subscriptions.

Conclusion

Preacquired marketing works like an invisible hand. Not the sort that magically aligns ers and sellers in equilibrium to promote maximum wealth. Rather, an invisible hand that selectively reaches into the pockets of consumers. These are not petty acts. Preacquired sellers are sizable companies who charge tens of millions of consumer accounts for billions of dollars in concert with some of the nation’s largest financial institutions and sellers of goods or services.

Preacquired account marketing should be banned. That it has not yet been prohibited in any form is consistent with a pervasive aversion in the last few decades to government rules that prohibit the use of sales practices or the sale of products. It is time to revisit, or at least qualify, the basis for that aversion in the context of this peculiarly deceptive form of marketing.

My Thoughts

If this sounds a lot like like the Budget Trilegiant scam, it is no coincidence. In fact, this document refers repeatedly to Budget and Trilegiant. Essentially, they are combining negative option billing with preaquired account marketing and a little phony check action thrown in to the equation to reach new heights of deceptive practices.

What Am I Doing?

As a consumer advocate, I am currently pressing my credit card company to find out why they have been permitting Budget to use my credit card information in this way. I thought such “sharing” of my account information would be against their terms of service, and if not, it should be. I will let you know their response as soon as I receive one.

What Can You Do?

1. Always scrutinize your credit card statements. If you are like me, you charge everything to your card in order to maximize reward points. The downside is that it is easy to receive a statement that is several pages long, filled mostly with smaller transactions.

2. If you notice something unusual, investigate. Don’t assume everything you don’t recognize is fraudulent. Sometimes a legitimate charge shows up with a merchant name that you don’t recognize, especially when you make purchases over the Internet. Google the merchant name and see if you remember the charge. If you are still coming up blank, try calling them and asking about your purchase. They should be able to tell you what you bought and when.

3. If the story doesn’t check out, make one attempt to get a refund. Don’t spend all day on hold, don’t put up with the run around, and don’t jump through hoops. If the company is not a scammer, they should pick up the phone in a reasonable amount of time, say less than 15 minutes. Then, they should quickly reverse all of the charges. Many scammers are “soft scammers” that are hoping you don’t call, but will quickly reverse the charge when you do to stay off of the credit card processor’s radar.

4. Contact your bank and ask for a chargeback. Unfortunately, not all scammers are “soft scammers”. Some are “hard scammers” and will make life difficult for anyone who tries to get a refund. Don’t play their game, just go straight to your trump card, a credit card chargeback. The burdenf is on the merchant to prove that you authorized the charge. Tell your credit company that you did not authorize the charge, and they should remove all charges from that merchant quickly.

5. Make sure all charges are reversed It is likely that you may have been charged many times by the same merchant. Remember to ask you bank to tell you of any instances of this merchant charging your credit card. Any action you take should be against all charges the scammer issued.

And whatever you do, don’t cash that “check”!

Go To Part Three of the series: Budget Has No Clue Which Credit Card They Are Giving Out To Scammers

The series continues with Part 4, The Sad Truth About The Budget Trilegiant Scam.

Creditreporting.com Review

By: Mr Credit Card

02/25/2010

This is going to be a very short review of CreditReporting.com. Most “credit monitoring service” requires you to pay a monthly fee to be able to see your credit reports all the time and perhaps throw in a credit score from just one bureau. Or a couple of services offer credit monitoring services and give you “all three credit scores”, but only that they are Vantage score and not your FICO score! Many folks simply want their credit scores before they apply for a mortgage or a car loan, but do not want to pay for these “credit monitoring services” since you are entitled to a free credit report every year anyway. They simple want to know their credit scores.

Well, creditreporting.com offers such a service. For a price of $34.90, you get a copy of your credit report. This alone really is not attractive since you can get it for free. But for an additional $9.95, you get your three credit scores. So what you are really paying for is your three scores, which is what most folks want to know.

So for a grand total of $44.85, you get

Your three credit reports from TransUnion, Experian and Equifax

Your three credit scores

And that’s it. No monthly fees or any of those recurring bills.

But is the credit score the FICO score? – Turns out the answer is NO. I called their toll-free number and the customer rep explained to me that they could not get hold of FICO’s proprietary score and they score that is get is developed by them and it approximates the FICO score.

Verdict and Opinion – The problem with most credit monitoring service is that they charge you a monthly fee and provide with just a couple of credit scores from either one or two of the credit bureaus. But not many folks want to pay for these monthly recurring bills. CreditReporting.com is one of the few that offers you “credit scores that should approximate your FICO score” from all three credit bureaus. They are not exactly the FICO score. But for those who just wish to know approximately where they stand without paying monthly recurring fees, this may not be such a bad choice.

If you insist on getting an actually FICO score, then the FICO Standard is a better choice as you can purchase a credit report with the actual FICO score from either TransUnion or Equifax.

Budget Rent A Car Gives Out Your Credit Card Number To Scammers

By: Jason Steele

02/24/2010

Note: This Is Part One in a Series. You can read Part Two here, and Part Three here. The series continues with Part 4, The Sad Truth About The Budget Trilegiant Scam.

I recently received a letter in the mail with a return address of “Processing Center” at a PO Box in Nashville, Tennessee, yet the postage was paid from Hartford, Connecticut. On the outside of the letter, I was informed of a “CHECK ENCLOSED”. Those two oddities raised enough flags that many savvy consumers would have thrown the letter away. Why would anyone write on the outside of the envelope that it contains a check? Curiosity got the better of me when I received this letter last week, so I opened it up to find a what appeared to be a check for $8.25.

Wait For It….

Beneath the amount was a statement saying “By cashing or depositing this check you are purchasing membership in Just for Me.” This is the point where any sensible person would throw this away, yet as your trusted consumer advocate, I decided to dig a little further. I inferred from the term “membership” that someone would be billing me for something monthly for the rest of my life on the hope that I would never notice it. In the industry, this is called “negative option” billing. The question I had was how were they going to charge me? I’ll get to that later.

What Is “Just For Me”?

“Just For Me” is a “membership club” owned by Trilegiant Corporation, part of the Affinion Group. Trilegiant was part of Cendant Corporation, which then changed their name to the “Avis Budget” group. Later, Cendant/Avis Budget was separated into four different companies. This is just a brief summary of what is a far more complicated story than what I am able to describe in this space. It should come as no surprise that the “Just for Me” club is of dubious value to say the least. According to their web site, for your $12.99 a month, you get 10% off Restaurant.com certificates. I happen to like Restaurant.com, and by signing up for their promotions by email, I regularly receive offers for 60-90% off their certificates. Even at %10 off, one would have to over a dozen certificates a month, which normally cost $10, to break even on this “club”.

The offer on the back of the “check” I received in the mail also described getting “2% cash back on credit card purchases”. Of course it is only on the 1st $5,000 spent in a year, so we are talking about $100 a year for your $167.88 in monthly fees during your first year. I could go on, but all of their offers are of similar value.

Budget Rent A Car Is The Culprit

Printed on the back of the “check” is the following:

“I understand that the $13.99 monthly fee will be automatically charged to the credit card I have on file with Budget [emphasis mine] unless I cancel my membership by calling 1-877-658-9097 before the end off the trial period. I understand that after my first year I will be charged $14.99 a month for the next twelve months an d I will also be charged every month thereafter at the then current monthly fee, unless I call to cancel and owe nothing further. “

This is a textbook “negative option” scam, that is being abetted by Budget rent a car. The last time I had used Budget was on a trip to Milwaukee last July. At no time did I authorize them to keep my credit card on file so that they could solicit me with scams like this. I do not belong to Budget’s frequent renter program, and I am not a member of any corporate account.

I contacted Budget Rent A Car multiple times, via their media inquiries telephone number and an email in which I asked them:

1. At what point did I authorize Budget to use my credit card for this purpose?

2. Are you aware of the many, many, legal problems that Trilegiant has experienced. Here are a small fraction of the examples that can be easily found:

Chase Bank, Triligent, Settle Negative Option Fraud Charges
Deceptive Marketing Victimized Tens of Thousands of Californians
Class Action Lawsuit Against Trilegiant Corporation

3. What is the relationship between Budget and Trilegiant?

4. How does this relationship meet your company’s stated values:

A deep pride in who we are and how we work:

* We always keep the highest personal standards of integrity and honesty.

Budget had no comment, other than to refer me to Trilegiant.

So How Is This Legal?

If it were perfectly legal, I doubt Triligent would have such a checkered past, as you can see by the links I included in my email to Budget. A simple Google search turns up no shortage of negative opinions about Trilegiant. I have reported that Visa has cracked down on these types of scams. The UpgradeTravelBetter blog also had an article about this particular scam.

The fact is that this scam is going on because neither the government , or the credit card companies, have stepped in, yet. In the mean time, the blame falls on both Budget as well as my credit card company for allowing them to operate in such an unscrupulous manner. I rented a car from Budget over six months ago and my credit card information should have been erased shortly after I returned it.

I think I have a few questions for my credit card company at this point as to whether this practice violates their terms of service with Budget.

Go To Part Two Of The Series: More on Negative Option Billing and Pre-Acquired Account Marketing

tp://ag.ca.gov/newsalerts/release.php?id=1192&year=2005&month=7&PHPSESSID=c9b9f862bab5e75c7aa8b99b322b6587

FICO Standard Review

By: Mr Credit Card

FICO Standard is a service by myFICO that allows you to get your credit report and score from either TransUnion or Equifax. Unlike credit monitoring services, you pay a one time fee and you can choose to get a credit report and score from either of these two bureaus. You can access the reports and scores for 30 days online. Aside from simply giving you the reports and scores, myFICO has decided to provide a little value add in the form of :

FICO Score Simulator – This is a tool that provides you with a what if scenario if there are any changes in the following:

Pay your bills on time for many months

Miss a payment

Pay down your debt balances right away or every month

“Max out” your credit cards

Get a new mortgage

Get a new auto loan

Get a new credit card

Get instant credit at a department store

Apply for a new credit card and transfer balances to it

Declare bankruptcy

Cost – The cost of getting a report and score from either one of the bureaus is $15.95.

Verdict – The FICO® Standard is a service that is perfect for those who simply want to know their credit scores from either TransUnion or Equifax. Unlike credit monitoring service, you do not have to pay a monthly recurring fee just to access your report and scores. For those who have a need to either apply for an auto loan or a mortgage in a couple of years but do not want to pay for a credit monitoring service, then this product provides the option for a one time fee.

More On The Effects Of CARD

By: Jason Steele

02/23/2010

The media has been speculating for some time about what changes to the industry the CARD act will bring. Since the law has now been in effect for 24 hours, we can now pass judgment on it for all time.

Surprise Surprise, Reward Cards Are Going Strong

In the run up to CARD, there were no shortage of misinformed “experts” who seemed sure that the banks would stop issuing credit cards to “deadbeats” who always pay their balance in full and never accrue interest. At best, we deadbeats would get to keep our credit cards, but our rewards would disappear. I didn’t believe them then or now. Here is a report from American Public Media’s Marketplace program, which airs on NPR stations. The reporters conclude, surprise!, that right now the people who pay their bills on time and in full are the bank’s best customers. They even interview a deadbeat customer who is raking in the cash back by using American Express’s Blue card. I can sympathize with the feeling that you are literally wearing your card out. Let’s just say that my Starwood Amex has seen better days.

But They Will Hit Us With Fees….

There is a popular meme in the press that goes something like this; “With the new regulations, consumers can expect a slew of new fees from their bank to make up for their losses from practices outlawed by CARD”. The next thing they do is point to a handful of anecdotal examples. Take this article for instance.

…the industry reacted so aggressively to the legislation. Among the moves it made:

_ Resurrected annual fees.

Annual fees, common until about 10 years ago, have made a comeback. During the final three months of last year, 43 percent of new offers for credit cards contained annual fees, versus 25 percent in the same period a year earlier, according to Mintel International, which tracks marketing data. Several banks also added these fees to existing accounts. One example: Many Citigroup customers will star

Places That Don't Accept American Express

By: Mr Credit Card

I have decided to start a post on places that do not accept American Express Credit Cards. Don’t get me wrong, I love my American Express Platinum and Blue Cash Card. But there are just some places that do not accept them and I end up using my Chase Freedom. I hope this thread will serve as a sounding board for places that do not accept American Express. Please contribute if you have found such places either in the comments below or you can send me an email here with pictures and I will add them to the post as they come in.

But to start, I just came back from Breckenridge in Colorado for my ski vacation and it turns out that North Face there does not carry Amex!

Carnival of Debt Reduction – Can the Federal Government Cut Its Debt?

By: Mr Credit Card

02/22/2010

The problem with our federal debt is that when shit hits the fan, debt prevents us from doing the right thing and starting the healing process to become healthy again. If we had savings rather than debt, then we could have spent that emergency fund without incurring debt. Because the government has so much debt, having extra stimulus packages results in having more debt! It’s like saying geez, we already have $50,000 in credit card debt, but we really need to tap out the extra $20,000 in lines that we have! And “hope” that our financial situation improves. I am deeply concerned about the level of Federal Debt and budget deficits we are running. Why on earth can’t we run a budget surplus!!!

This carnival of debt reduction is designed to highlight the plight we as a nation are in and hopefully make us aware that we cannot continue in our ways. I’ve decide to apply steps that we pf bloggers have always advocated to reduce debt and apply that to our nations debt situation.

1. Step 1 : Let’s figure out how much debt we have? – Well, I guess that is the first step we take, which is to figure out exactly how much debt we have. At present, the Federal Government has about $12 trillion in debt. And that excludes future obligations like social security and medicare. Furthermore, we are starting with a one trillion dollar budget deficit this year.

2. Step 2: Calculate our debt statistics – I guess we could use a Debt To Income Ratio Calculator to calculate this number. But all we need is to pull out simple statistics and we have the figure. And here it is : ($12.4 trillion / $2.1 trillion) = 590% of income. Our debt is almost 6 times income tax receipts!. Financial advisors (or rather the common wisdom) is that one takes out a mortgage whereby the mortgage payment every month not exceed 30% of your gross income. Projected interested by (according to the CBO) is about $207 billion, which is about 10% of income tax receipts (still relatively manageable).

3. Figure out where to cut expenses – The biggest projected expense in the Federal Budget are defence, medicare and social security. But cutting the biggest expense of all appears to be so politically difficult. These are the biggest areas where any significant cuts have the biggest impact on our budget and projected debt going forward. But politicians cannot get elected if they ran on a platform of cutting social security and medicare. Hence, all the debt reduction programs in the world cannot help good old uncle Sam. There simply isn’t the political will to tell the citizens of the necessary cutbacks we have to face.

What can we do to force the federal government to face the music? – Recently, President Obama announced he will be cutting the budget by a couple of hundred billion on discretionary spending. It was symbolism really as it really amounted to nothing. Yet, he said he will not touch social security and medicare. When is he or any politician going to confront the truth? Perhaps one way is to actually look at how much interest you are paying daily!.

Or perhaps we need a US dollar crisis, where the world loses faith in our currency and dumps them for other assets, to wake us up. By then, interest rates would have soared, the housing market would have collapsed again and yet, oil and other imported goods will soar. Perhaps, there will even be hyperinflation if we do not stop printing money.

Is defaulting on our debt an option? – Consumers like us can default on our debt. So can countries. Russia and other South American countries have been defaulting and structured their debt. It is hard to imagine Uncle Sam doing this as most countries reserves is held in dollars. For individuals, if you cannot pay your interest payments or evenyour taxes, there are negative consequences. And the same goes for countries. Credit ratings will be slashed and access to capital markets will be hampered. Interest rates will rise and cost of credit will increase. But defaulting on our debt will almost mean the end to the US dollar as the world’s reserve currency. It will almost spell the end of our military reach, which is only possible because foreign creditors are lending us money despite us having negative savings and a budget deficit.

Will we be able to endure sacrifices? – At the end of the day, it really boils down to the sacrifices we as citizens are willing to make. Are we willing to tolerate a substantial period of tighter credit conditions? If you are federal government employee, are you willing to forgo wage cuts and perhaps a cut in your “pension plan” (which is all underfunded by the way). If you are a senior citizen, would you be willing to sacrifice and living with cuts in your social security benefits and medicare benefits? We probably would have to go through sacrifices not just in the near term, but also also for a substantial period because the key to reducing our federal debt is to be consistent in paying them off and not incurring any more expenses.

A couple of other scary thoughts – Failure to rein in federal spending will simply have the consequence of having interest payment as a large portion of our budget. Unlike a mortgage where there is an amortization schedule, all of our federal debt is issued as a plain vanilla bond. Also, because of the positive yield curve, the treasury has a temptation to borrow more short term debt rather than locking in long term debt at a fixed low rate. When the treasury pays interest payments, they have to pay interest on every single bond that they issue no matter what the interest rate. This is unlike the new C.A.R.D Act where interest payments are allocated to higher interest first

Fruits of taking the bitter medicine – Despite the scary prospect of cutting spending, having more recessions and not so great growth for a few years, by taking care of our budget deficit, reducing our debt load, we will come off better at the end. We may suffer deflation in asset prices, perhaps even our wages. Our standard of living may decline. But when we have much more manageable debt load, with less long term unfunded liabilities, a low cost structure, we will be able to better compete in the world markets, have an economy is that is less reliant on credit and consumer spending. We could become a much more viable economy is as little as perhaps five to seven years. The Asian countries suffered for about three years but turned their economy around after that. That is why the bank bailouts, stimulus packages pisses me off because we are simply delaying the day of reckoning!

I want to end off by urging everyone to read this piece by Charlie Munger (partner of Warren Buffet about this wonderful land called Basicland.

How You Know The CARD Act Was Necessary

By: Jason Steele

02/19/2010

By now, everyone should have received notifications from their credit card companies explaining how their rules were changing to comply with the CARD act, which becomes effective on Monday, February 22d. Some of those notifications went out of their way to spin the new protections as being wonderful new features, that your credit card company is proud to offer.

Don’t Buy It

Let’s face it, the banks lobbied HARD against the CARD act, and only failed to defeat it because of their unprecidented political weakness in the immediate aftermath of the global financial crisis. Furthermore, if they really were proud to offer you these protections, they would have done so some time before they were legally required to. The C0nsumerist has posted a chart, via BillShrink on which banks have enacted which protections ahead of their legal requirement. While some banks have enacted some of the provisions already, none have complied with the fair allocatoin of payments, the education on the dangers of minimum payments, or the protection of younger cardholders. For example, as of January 14th, American Express is still employing due date gimmicks up to the time they are legally required to give them up.

Keep This In Mind As More Financial Regulations Are Debated

The credit card industry is one of the most competitive markets out there, yet the banks clearly move in lock step with each other. Changes that benefit consumers are only made after being legally required to. Anyone who argues that the market will sort it out, or that further regulation will ultimately harm consumers is really only speaking for the banks.

6 Days Until CARD

By: Jason Steele

02/16/2010

The CARD act becomes effective next Monday! When I started writing for AskMrCreditCard a year and a half ago, George W. Bush was the President, and it was unknown if newcomer Barack Obama would be able to hold off the established candidate John McCain in the upcoming election. Increased credit card regulations had been proposed, but had gotten nowhere. Now, the new regulations are less than a week away and I am getting giddy with anticipation. Ok, not really, but it is exciting for a credit card guru like your’s truly.

Notifications Are Coming

Some of what I find interesting is all of the notifications that I have been receiving. Some are written as technically as possible, just like any other notice that your rates are going up or that they are imposing new fees. Only be actually reading the content of the notification do you find out that all of the changes are in your favor. Other notices that I am seeing are spinning the regulations as a great new feature that the bank is thrilled to be offering you, its valuable customer. Unsaid is how much it spent in lobbying to fight the bill. Also unmentioned is why they are waiting until the last possible moment before required by law to offer these features.

In the end, I suppose I like the sterile, if honest, technical explanation over the highly spun sugar coated notice.

There Actually Are Capitol One Branches

Just after writing that there is no such thing as a Capitol One branch bank to which one could post their inane grievances in the form of graffiti , I happen to visit Austin, Texas for a weekend of food and fun, only to notice several Capitol One branches around town. Nevertheless, I was able to restrain myself from taping a piece of paper to the ATM expressing my outrage that they didn’t print the APR on my Capitol One Visa card.

While in the Austin area, we stopped into the famous Salt Lick restaurant in nearby Driftwood Texas. My wife speculated that no one would visit a barbecue restaurant on Valentine’s day, while I had a hunch that she had misjudged the dating and eating habits of Texans. We knew that we found something special when we saw hundreds of cars parked behind the restaurant, foretelling the hour and a half wait to be seated. Let’s just say that the wait was worth it, as we eventually enjoyed some of the best barbecue we had ever tasted. We even took some to go, vacuum sealed it, and brought it home with us to Denver.

What does any of this have to do with credit cards? It just so happens that the Salt Lick does not take credit cards. No matter, when your product is that good, people will bring cash. Just remember, merchants are not required to have credit cards, they choose to. Other chose to be cash only. To each their own.

FICO Quarterly Monitoring Review

By: Mr Credit Card

myFICO.com, the folks who originally came up with the FICO credit scoring model also has it’s own “credit monitoring service”. How does this compare with other folks who have similar offerings? Let’s find out.

Credit Reports and Scores from TransUnion – FICO actually made an arrangement with TransUnion to provide customers with their credit reports and an updated credit score quarterly (there’s no point getting updates everyday because your reports and scores simply do not change everyday).

Along with the quarterly reports also comes with charts and analysis to help you improve your credit score.

Database Monitoring – Aside from just monitoring your TransUnion report, public databases will also be monitored for potential ID theft situations.

ID Theft Insurance – myFICO also provides up to $25,000 in ID theft insurance and provides you with a kit that will tell you what to do should your ID ever be stolen. You are provided with a customer service number to call and you will be provided with tools like dispute letters, worksheets etc.

Cost – The best feature about this offering is its cost, at on $4.95 a month. If you decided to pay on a yearly basis, it will be at a better price of $49.95.

Verdict and Opinion – For those who are looking for a credit monitoring service or credit score monitoring service, the FICO® Quarterly Monitoring offers a very cost effective solution. Sure, it only monitors your TransUnion score and report. Having said that, at worst, your other credit scores will differ only by about 40 points or so. You can also get your annual free copy of your Experian and Equifax reports.

The disadvantage of this offering is that you do not get all three credit reports and scores. Hence, I think this will appeal to those who are price conscious because at $4.95 a month versus $14.95 a month for most other offerings, it represents quite a substantial savings versus other “full service” offerings.