Consumer Action INSIDER - December 2016

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Out and About: Earthquake insurance for CA residents

In October, Consumer Action’s Audrey Perrott attended leading global reinsurer Swiss Re’s California Earthquake Symposium along with stakeholders representing government; reinsurers and insurers; behavioral economists; representatives of the science and engineering fields; academics and consumers. (Re-insurers are companies that provide financial protection to insurance companies in the event that covered insurers face excessive claims due to large disasters.) The symposium featured presentations from many of the aforementioned industry players, who addressed the challenges in educating California consumers on the importance and affordability of earthquake insurance.

Standard homeowners and renters insurance does not cover earthquake damage. Earthquake coverage is available in the form of a separate policy or an endorsement from most private insurers and, in California, the California Earthquake Authority (CEA).

Audrey Perrott represented the consumer perspective in a roundtable discussion with other advocates.

Although earthquakes are extremely common in California, most Californians do not have earthquake insurance. According to the California Earthquake Authority, most Californians live within 30 miles of an active fault capable of producing a damaging earthquake. What’s more, the Uniform California Earthquake Rupture Forecast (UCERF3) predicts that within the next 30 years there is a:

  • 99.7 percent chance that a 6.7 magnitude (M) quake or larger will strike California
  • 46 percent chance a 7.5M or greater earthquake will strike, likely in Southern California
  • 68 percent chance a 7.0M quake will happen in Northern California

Glen Pomeroy, CEO of CEA, said that despite this fact, 90 percent of homes in California are uninsured for earthquakes. There are a number of reasons that Californians do not have high “take-up rates” (industry jargon for the percentage of eligible people who have earthquake insurance). Some of those reasons include: a lack of awareness of the risks; the misconception that the standard homeowners or renters policy will cover earthquake damage; a belief that the government will provide assistance; a belief that one’s landlord will cover personal property damage (for renters or condominium owners) and/or a belief that the high insurance premiums and deductibles are not worth the investment.

“California consumers should rethink the decision not to have earthquake insurance, because a significant number of consumers cannot afford to pay out of pocket for property losses or relocation costs after a disaster,” Perrott said. “There is this huge misconception that the government will cover the tab for any natural disaster; however, funding is limited, if available at all. In most instances, government grants cover basic emergency needs and not the cost to rebuild the home to its original condition.”

Renters and Millennials are two of the largest populations without earthquake coverage, likely due to a lack of awareness. Unfortunately, they could pay dearly if their apartment building is deemed uninhabitable post-earthquake, as uninsured renters are expected to cover their own relocation costs.

So what about the premiums and deductibles? Are they really that expensive? While premiums and deductibles may seem intimidating or cost-prohibitive, consumers do have options. As of January 2016, the CEA and its member insurance companies have rolled out new policy options and deductible choices. Consumers have the option to cover personal belongings or omit that from their earthquake coverage. They also have the option of selecting higher deductible options, all of which can help them cut costs. (Consumers often believe that they have to pay the deductible out of pocket, but they don’t because the deductible is subtracted from the claim payment.)

According to Perrott, there were many eye-opening takeaways from the symposium. First, attendees acknowledged that increasing take-up rates would require complex public education and outreach efforts. Stakeholders also recognized the need for uniform training of agents that serve limited English proficient communities, as well as the creation of educational and insurance policy materials in languages other than English to reflect the changing demographics in California. Many stakeholders agreed that, in order to encourage homebuyers and renters to purchase earthquake insurance, coverage options should be provided to them unless they specifically “opt out.” It was suggested that the government also consider offering incentives in the form of rebates or tax breaks for those who have earthquake policies. Finally, some see a dire need for new insurance products to encourage more people to buy coverage.

If you are wondering what next steps you can take as an individual consumer, download Consumer Action’s insurance checkup publication. Consumer Action encourages consumers to stay adequately insured and to reassess their insurance needs annually based on life changes. Finally, if you want to gauge your specific earthquake risk, you can do so through an app called Temblor, available online and through the Android and iTunes app stores.

Debt collection resources empower those who owe

Every year, millions of people must deal with the consequences of delinquent debt. To help these consumers understand their rights during the debt collection process—from initial contact by a collector through potential lawsuit and judgment—several years ago Consumer Action published the first editions of “Debtors’ Rights: Protecting yourself from debt collection lawsuits” and “The Fair Debt Collection Practices Act: How it restricts collectors and protects consumers.” Recently, we updated both guides and created a PowerPoint presentation and companion lesson plan with class exercises to be used by consumer groups conducting education in their communities. This Debt Collection module and related train-the-trainer events are being funded by Consumer Action’s Managing Money Project, which is supported by court awards.

The San Francisco Bay Area, home to Consumer Action's headquarters, was the setting for the first train-the-trainer session, during which Consumer Action staff and allies instructed participants from community-based organizations on how to best educate their clients on the issues surrounding debt collection. Training participants were treated to a day at the park—more precisely, Preservation Park, a neighborhood of restored and transformed Victorian homes in a park-like setting in Oakland, California.

The free event "sold out" quickly. One of the big draws, besides the high incidence of debt collection problems around the country, was the participation of guest speaker Joseph Jaramillo, a senior attorney with the California non-profit Housing and Economic Rights Advocates (HERA). HERA’s mission is to help vulnerable Californians build a safe and sound financial future, free of discrimination and economic abuses.

Jaramillo discussed California’s strong laws surrounding debt collection—created through the Rosenthal Fair Debt Collection Practices Act (RFDCPA) and the state’s Fair Debt Buying Practices Act (FDBPA), landmark legislation that became effective in 2014. (Debt buyers are companies that purchase charged-off debts from other firms, often for pennies on the dollar, and attempt to collect them from consumers.) The California FDBPA goes beyond the federal Fair Debt Collection Practices Act, which prohibits abusive, unfair or deceptive practices. The state law prevents debt buyers from collecting if they can’t document their right to collect the debt. Debt buyers must be able to provide to consumers the original balance owed, a breakout of fees and interest and the names of other entities that previously owned or purchased the debt. Also, if a debt is “time barred”—past the statute of limitations—debt buyers must provide notification to the consumer that they cannot be sued on such debts, and if the debt is too old to report to credit bureaus—in most cases seven to ten years old—the debt buyer also must inform the consumer of that.

Consumer Action's Linda Williams and Nelson Santiago presented the Debt Collection module, educating consumers about their rights when a debt collector contacts them. Williams' portion of the training covered consumer rights under the FDCPA, including dos and don'ts for debt collectors. Williams also highlighted some of the signs that indicate that a debt collection call is a scam, including calls from “collectors” who are unable to provide a consumer's name, address or last four digits of their Social Security number; who request sensitive personal information; who refuse to provide information about the collection agency or debt in question; or who claim to be from a government agency, such as the IRS (before demanding money over the phone). Williams also discussed the ways in which consumers can dispute debts (due to identity theft, incorrect or inflated debt amounts, etc.).

Santiago’s portion of the Debt Collection module presentation covered the many ways to avoid being sued by a debt collector, with a particular emphasis on how to negotiate with creditors. One key online resource Santiago recommended participants bookmark was the legal website Nolo's page on debt settlement and negotiating with creditors, which links to several articles that help prepare consumers to discuss their repayment options with creditors and debt collectors. Santiago also gave participants an overview of consumer bankruptcy, mandatory arbitration and other legal matters as they related to debt collection. He rounded out his session by having participants compete for prizes by completing poster-sized print-outs of the "Know your rights" learning activity included in the module's lesson plan.

The complete training module is available as a free download at the Consumer Action website. While the PowerPoint and lesson plan are available only as English downloads, the two guides are published in Chinese, Korean, Spanish and Vietnamese and in print for bulk orders by community educators. The Fair Debt Collection Practices Act guide is already available in these languages, while the Debtors’ Rights guide will be available in all languages by the end of the year. (Please check our website for availability.)

A third publication (not part of the module), “When a Collector Calls: An insider’s guide to responding to debt collectors,” funded via a partnership with the Consumer Relations Consortium, is available for download (in English) on the same webpage. This concise guide to responding to a debt collection call or letter, written with input from an association of collectors, provides tips for communicating effectively with a collector, exercising and protecting your rights and avoiding debt collection scams. (In early 2017, this publication will be available in Spanish as well.)

Hotline Chronicles: Restocking fees can hurt your wallet

Javier* of Fremont, CA contacted Consumer Action’s hotline to ask if he had any rights to avoid a large restocking fee after he changed his mind about a new car stereo. The stereo had not been installed in his vehicle, but the shop was demanding Javier pay 35 percent of the original $3,000 cost in order to cancel the sale. This would equate to $1,000+, which is a ridiculous price to pay for buyer’s remorse!

Restocking fees, often a percentage of the item's price, may apply to all of a retailer’s goods when they are returned, or just to items that have been opened or aren’t in the original packaging. The best time to ask about restocking fees is before you purchase an item, since sellers do not have to accept returns unless the goods are defective or they are unable to deliver what you purchased.

Many states have disclosure laws regarding consumer refunds. These laws typically just require that sellers prominently display refund policies, including any restocking fees, at the store. The laws, where they exist, provide a warning that you might leave part of your purchase price on the table if you return items in a store that has a restocking fee. (Learn about your state’s refund laws, if any.)

States may or may not explicitly apply their laws to online sales. Most states that have refund rules are silent on “online sales” in their refund rules. Many online stores post their shipping, return and other policies in their “terms and conditions.”

Even retailers who promise complete refunds for customers who are not satisfied may insist on restocking fees. So while a “no-questions-asked” refund policy is an attractive selling point, it pays to investigate further.

Javier wondered if any laws outright prohibit restocking fees. Unfortunately, the answer is “no.” In California, where Javier lives, retailers are required to clearly post their refund policies (including any restocking fees) unless they offer a full cash refund, exchange or store credit within seven days of the purchase date. The policy must be displayed either at each entrance to the store, at each cash register and sales counter, on tags attached to each item, or on the company's order forms, if any. A return policy printed only on a receipt, for example, is not sufficient. If a store violates this law, the purchaser can return an item for a full refund within 30 days of purchase.

We advised Javier to check to see if the retailer posted the required notices in the store or described the policy on the order form. If not, Javier would have a stronger case to argue for avoiding the restocking fee.

Consumers who believe a retailer has violated the law can file a complaint with their state attorney general's office. (Find yours here.)

*Not this consumer’s real name

Consumer champions reign supreme at 45th anniversary

Consumer Action recently marked its 45th anniversary to the theme “Celebrating Consumer Champions” at a cocktail hour and awards reception at Verizon’s headquarters in downtown Washington, DC. The event brought much-deserved attention to the efforts of several dedicated and committed advocates who, through their leadership, have forged significant improvement for millions of consumers by enforcing laws, informing people of changes in the marketplace and fighting for improved consumer protections.

Consumer Excellence awardees included Consumer Financial Protection Bureau (CFPB) Director Richard Cordray, who has led the Bureau’s educational, supervisory and enforcement efforts since 2012; Kenneth Harney, author of “The Nation’s Housing” column, syndicated by The Washington Post Writers Group and focused on issues of importance to struggling renters and homeowners across the U.S.; and the National Fair Housing Alliance—the only national organization dedicated solely to ending housing discrimination.

After the cocktail hour, during which more than 75 attendees from various consumer advocacy, civil rights and other social justice groups enjoyed the opportunity to network and unwind, award honorees were announced one by one and given a chance to speak about their work, to the applause of those in attendance.

Consumer Action Deputy Director of National Priorities Ruth Susswein gave a particularly stirring speech before introducing CFPB Director Cordray, whose tireless efforts to make sure that banks, lenders and other financial companies treat consumers fairly through federal regulation and enforcement earned him Consumer Action’s award.

Susswein commended the CFPB, which has returned approximately $12 billion in financial relief to some 27 million wronged consumers, for its “open door policy” under Cordray and its commitment “to really listen to all parties’ perspectives on the best way forward to improve a financial practice for consumers.” She went on to acknowledge the “meaningful change” Cordray was making “in debt collection, prepaid card and payday loan markets, in mandatory arbitration and class actions, in student lending, credit reporting, language access to financial services, fair lending in financial transactions and much, much more.”

“When President Obama nominated Richard Cordray some five years ago,” Susswein continued, “he pointed out that American consumers and their families didn’t have a team of lawyers or lobbyists looking out for their interests, but they ought to be free to make informed financial decisions without fear of mistreatment or abuse regardless. Well, it’s safe to say that, despite the ongoing challenges from some detractors in Congress and in the courts, Director Corday has achieved the president’s objectives and far more.”

Harney was presented his award by close Consumer Action ally Steven Brobeck, executive director of the Consumer Federation of America.

D. Scott Chang of Relman, Dane & Colfax presented the award to the National Fair Housing Alliance. It was accepted by Cathy Cloud, chief operating officer, and Shanna L. Smith, president and CEO.

Consumer Action’s executive director, Ken McEldowney, summed up the event, declaring the anniversary to be “a huge hit and a great opportunity to catch up with staff and allies from across the country to celebrate our successes and honor each of the amazing consumer champions selected for their dedication and hard work.”

Consumer questions? Chat with us on Facebook Live

Consumer Action recently joined news channel ABC15 in Phoenix, AZ to participate in one of its popular, recurring Facebook Live sessions, which allow consumers and experts to discuss timely consumer issues in an interactive format. The sessions are broadcast Thursdays at 12:30PM MST and are hosted by award-winning consumer journalist Joe Ducey and producer Courtney Holmes. On November 3, Consumer Action’s Joe Ridout participated in the event, which focused on the pros and con of home warranties.

Ridout explained how these sometimes confusing warranties can trip up even the most careful consumer. For example, although realtors and home sellers often include a free year of home warranty (usually valued at around $300-$500), the “free-ness” of the product is an illusion, since homes sold without a home warranty often sell for thousands less. Ultimately, this means that not only do buyers overpay for a product that’s not worth its sticker price, the product can also inflate their property tax bill for years into the future.

Consumer Action generally cautions against buying home warranties, in deference to the feedback we receive from consumers about frustrating (and expensive) experiences with companies that fail to repair or replace items, citing technical or specious reasons. In one instance, a consumer told us that their home warranty company would not fix a broken dishwasher motor because other parts in the dishwasher were supposedly still under the manufacturer’s warranty. Home warranty companies also fall under one of the worst-graded categories on Angie’s List. And although some consumers find that home warranties work in their favor, this is the exception, not the rule.

The California Department of Insurance recently posted the “loss ratio” of home warranty companies (this metric reveals how much the companies collect in premiums versus now much they pay out in claims). The ratio is approximately 48 percent, which means that for every $2 the average person spends on a home warranty service contract, they get back less than $1 in paid claims.

Viewers of Facebook Live sessions can submit their comments or questions during the events. Ducey, Ridout and Holmes will typically respond to dozens of questions from consumers during each future session. Consumer Action is eagerly anticipating our next Facebook Live session with ABC15, and consumers can follow our Facebook page for information on the date and time.

Coalition Efforts: Support for students, scrutiny for new industry

Stand up for students by protecting Pell Grant funds. Consumer Action joined a group of 33 higher education groups and civil rights organizations in calling on Congress to restore year-round Pell Grants (subsidies that the U.S. federal government provides for students who need them to pay for college). The coalition also asked Congress to increase the maximum Pell award amount and extend inflation adjustments. Currently, millions of low-income students are qualified to receive up to $5,815 annually in Pell funding. Advocates argue that the money is vital in making higher education affordable and preventing students from being forced to take out pricey loans to pay for their degrees. In 2011, the Obama administration reached a bipartisan agreement to cut year-round Pell grants in response to funding shortfalls, which eventually led to a surplus in funds that advocates argue provides a unique opportunity to reinvest in the program. Learn more and read the letter. Learn more and read the letter.

Strengthen the Education Department’s student complaint database. President Obama’s Student Aid Bill of Rights directed the U.S. Education Department to implement an efficient and responsive complaint system to increase both accountability and transparency in higher education. Opened to the public last summer, the database serves as a useful tool for students and whistleblowers to hold colleges, loan servicers and collectors accountable while also helping to prevent waste, fraud and abuse of taxpayer dollars. However, advocates are pushing for system improvements before the end of the year, including making the complaints public; achieving better coordination between the government agencies that manage complaint databases; and building in the ability to hold contractors accountable when the complainant is not satisfied with the resolution. Learn more and read the letter.

Keeping FinTech payment platforms in line. Financial technology businesses, also known as FinTech, offer software-based financial services such as digital wallets and mobile-phone based payments. In recent years, FinTech startups have expanded their presence and products in the financial system and increased financing offerings to consumers and small businesses. A number of new companies offer a wide range of products and services, such as alternative payment options (like Apple Pay, PayPal, Venmo and Square), peer-to-peer loans, small business or consumer loans and cash advances. Consumer and small business advocates have urged regulators to pay close attention to possible systemic risks that could emerge from the rapidly growing, largely unregulated FinTech sector. Learn more and read the letter. Learn more and read the letter.

Class Action Database: Lawsuit lights up solar panels

Class action settlements involving decking and railing company TimberTech and Follett Higher Education Group, Inc. were among 14 new cases added to the Consumer Action Class Action Database during November.

This month we highlight a major class action suit against BP and Home Depot. Plaintiffs in the suit (Michael Allagas, et al. v. BP Solar International, Inc., et al.) allege that BP solar panels with S-type junction boxes (manufactured between 1999 and 2007) contain defects that have caused the boxes to fail, creating fire and safety hazards. The companies denied the allegations but agreed to a settlement to close the lawsuit.

The settlement covers two types of BP solar panels (manufactured between 1999 and 2007) with S-type junction boxes:

  • Category 1 FDK+ panels
  • Category 2 non-FDK+ panels

You are part of the class if you purchased the BP solar panels for installation on your property or you purchased property that already had the BP solar panels installed.

The settlement provides $45.33 million to remove, replace and dispose of the category 1 FDK+ panels. The settlement administrator will hire licensed contractors to do so. Removal and disposal of the panels must be done by a contractor that the administrator chooses. However, class members are allowed to use their own contractors to replace the solar panels after first obtaining the administrator’s approval of the chosen contractor. Additional costs such as construction permits or requirements under the class member’s local building codes are not covered by the settlement fund.

Class members with category 2 non-FDK+ panels are covered under a separate $20 million settlement fund. These class members will receive a free visual inspection of their solar panels and, if the panel failure rate is over 20 percent, they can receive a full replacement. If the inspection finds that a full replacement is not required, then the class member will receive free installation of a new inverter with arc-fault detection.

The final approval hearing is set for December 22, 2016.

CFPB Watch: Faulty industries and FinTech innovation

Much has already been written about the incoming administration’s threats to destroy or diminish the Consumer Financial Protection Bureau (CFPB). Despite the disturbing predictions, the CFPB continues to focus on the consumer protection issues at hand. Here are some of the problems they’ve tackled in recent days.

Refunds for unfair repayment denials

Nearly a quarter of a million consumers will receive $11 million back from auto and student loans servicers, mortgage lenders and debt collectors who have violated the law or conducted business in a manner the CFPB describes as “sloppily.”

A number of student loan servicers have unfairly denied students the right to participate in reduced loan repayment plans. Borrowers who qualify for these plans are entitled to repay their federal student loans based on a portion of their monthly income. However, CFPB examiners found many student borrowers had been wrongfully denied income-driven repayment plans.

Additionally, the CFPB told auto loan servicers that it is illegal and unfair to refuse to return borrowers’ personal items from cars that were repossessed. Servicers were forcing borrowers to first pay a storage fee to retrieve their belongings.

Finally, CFPB examiners put a stop to debt collectors who were charging illegal payment processing fees and making false claims about consumers’ credit reports.

Collecting on student loan and other debt

Student loan repayment and debt collection practices were two of the issues raised at the CFPB’s most recent Consumer Advisory Board (CAB) meeting in Washington, DC in October.

“Both [student loan servicing and debt collection] markets are where consumers cannot vote with their feet and where practices and incentives are not always aligned with consumer interests,” CFPB Director Richard Cordray cautioned.

Unfortunately, student loan and other borrowers do not choose their loan servicer and cannot switch if the service is poor. One in four student loan borrowers are currently behind on payments or in default, according to the Bureau’s student loan ombudsman.

The CFPB is planning to propose new rules for third-party debt collectors. The rules are expected to require collectors to:

  • provide more accurate information prior to collecting on debts;
  • limit how many times a collector can contact a consumer about a debt; and
  • resolve disputes before collecting.

CAB members also recommended adding strong requirements for collectors to substantiate debts, creating a system to track debts and requiring detailed account information to travel with a debt when it is resold.

Consumer-friendly innovation

The CFPB recently said it wants to foster experimental financial pilot projects under its “Project Catalyst” program, which was launched four years ago. The program encourages innovative financial technology (FinTech) projects that automate and motivate savings, address income volatility and reduce reliance on high-cost short-term loans.

When a FinTech pilot project has limits on risk built into it, the CFPB offers companies a “no action letter” that states it has no intention of regulating that product or service during the test period, to help stimulate innovation.

FinTech developments in payments, lending, underwriting and data use are expected to help companies better understand the financial patterns of underserved consumers in order to offer better access to financial products for “credit invisibles”—consumers with limited or no credit history.

About Consumer Action

Consumer Action is a non-profit 501(c)(3) organization that has championed the rights of underrepresented consumers nationwide since 1971. Throughout its history, the organization has dedicated its resources to promoting financial and consumer literacy and advocating for consumer rights in both the media and before lawmakers to promote economic justice for all. With the resources and infrastructure to reach millions of consumers, Consumer Action is one of the most recognized, effective and trusted consumer organizations in the nation.

Consumer education. To empower consumers to assert their rights in the marketplace, Consumer Action provides a range of educational resources. The organization’s extensive library of free publications offers in-depth information on many topics related to personal money management, housing, insurance and privacy, while its hotline provides non-legal advice and referrals. At Consumer-Action.org, visitors have instant access to important consumer news, downloadable materials, an online “help desk,” the Take Action advocacy database and nine topic-specific subsites. Consumer Action also publishes unbiased surveys of financial and consumer services that expose excessive prices and anti-consumer practices to help consumers make informed buying choices and elicit change from big business.

Community outreach. With a special focus on serving low- and moderate-income and limited-English-speaking consumers, Consumer Action maintains strong ties to a national network of nearly 7,000 community-based organizations. Outreach services include training and free mailings of financial and consumer education materials in many languages, including English, Spanish, Chinese, Korean and Vietnamese. Consumer Action’s network is the largest and most diverse of its kind.

Advocacy. Consumer Action is deeply committed to ensuring that underrepresented consumers are represented in the national media and in front of lawmakers. The organization promotes pro-consumer policy, regulation and legislation by taking positions on dozens of bills at the state and national levels and submitting comments and testimony on a host of consumer protection issues. Additionally, its diverse staff provides the media with expert commentary on key consumer issues supported by solid data and victim testimony.

 
 

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