GE Money rips off the elderly

Since January I have spent hours helping a neighbor whose attempts to pay his creditor, GE Money (doing business as CareCredit), were all being headed off. Whether he used the website or the telephone, he was unable to complete the transaction, and was in danger of expensive penalties. Reaching a customer service rep required unusual persistence, and once he did so, the employees were consistently unhelpful, besides being alternately hostile and contemptuous.

After research, I formed the following hypothesis:

GE Money Bank formed CareCredit, and tricked it out to look like a nonprofit, in order to mislead elderly, inexperienced, or otherwise vulnerable customers into signing up for a credit card that is easy to acquire but difficult to make timely payments on. This results in crippling penalties and interest on what is touted as an “interest-free” credit option. Instead of helping customers pay their health-care bills, CareCredit is more likely to punish customers with extra expenses.

As the president and congressional leaders meet today on financial regulation, I offer this story as evidence of which direction we need to be going now. It is not in our national interest to allow banks to take customers for everything they can get, while “denying any wrongdoing.” We need an independent financial consumer protection agency with the power to intervene in the interest of consumers.

Don’t call it PACT if it isn’t one

The State of Alabama is in trouble with parents of college-bound students. Like seventeen other states, Alabama created a tuition savings program designed to cover the cost of tuition to a state college or university. The Alabama program, called PACT (Prepaid Affordable College Tuition), bears the state’s implicit guarantee that participants will save enough to pay for college.

But with the crisis on Wall Street we find that PACT managers, hired by the trustees, were counting on the stock market to generate growth in the fund; in fact, 72 percent of assets were in stocks a year ago. As a result, PACT’s losses are the largest of any state tuition savings plan. Suddenly the fund is in no position to cover its obligations, and its trustees are saying they never really promised that it would in the first place.

It’s true that contracts executed between 1990 and 1994 state that the program “guarantees payment of undergraduate tuition,” while later contracts state more ambiguously that the program “will” pay tuition. But according to the Birmingham News, state attorneys now argue that the state “always lacked the legal authority to guarantee payment.”

In other words, if you took that PACT name literally, you’re a sucker.

Just as an aside, an accounting error overstated the fund’s assets by more than $22.6 million until an independent audit reported the error in February 2008. It doesn’t give the impression that PACT trustees have been on the ball.

Unless the state takes extraordinary steps, parents who participated in PACT and whose children are not yet enrolled in college are likely to have to take a loss by withdrawing from the program. This means they recover only their initial investment, less fees.

The board of trustees has held a public meeting about the problem, but has been slow to release financial statements and audits. The 2008 statement is scheduled for release after the board meets again on March 24.

The state’s credibility is taking a huge hit because of the PACT debacle. Extraordinary measures to replace the program’s losses are justified, not least because failure to do so will place a large number of families in a position where they cannot afford to send a child to college.

• Birmingham News: Q&A about PACT, indifferently formatted but useful.
• Birmingham News blog: Auditor’s report on 2006 accounting error
• Doc’s Political Parlor discusses the effect of the PACT crisis on the next round of elections.

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Revised to clarify that “PACT” is the name of the Alabama program, not of all prepaid tuition programs.

Collecting debts from the dead

I have an elderly neighbor who is certain to die in crushing credit card debt. So this NYT article on a “new frontier” in debt collection grabbed my attention. (Edge of the West linked to it here.) It’s a profile of DCM Services, specialists in getting the bereaved to assume responsibility for the unsecured debts of the dear departed.

“Dead people are the newest frontier in debt collecting, and one of the healthiest parts of the industry. … New hires at DCM train for three weeks in what the company calls ‘empathic active listening,’ which mixes the comforting air of a funeral director with the nonjudgmental tones of a friend.” This “empathic” approach, it turns out, is the most effective way to persuade grieving relatives to assume responsibility for debts they are not liable for. Not that the company goes out of its way to clarify the absence of liability.

The approving business reporter glides smoothly over the implications of all this. Never mind the fact that these debts may consist entirely of compounded interest on fees and penalties assessed arbitrarily by the credit card issuer, after the original principal has been paid off and then some. The job of DCM employees is to steer grieving survivors into looking upon the payment of these debts, no matter how they came about, as a kind of tribute to the dead.

“Not everyone has the temperament to make such calls,” the report continues. “About half of DCM’s hires do not make it past the first 90 days. For those who survive, many tools help them deal with stress: yoga classes and foosball tables, a rotating assortment of free snacks as well as full-scale lunches twice a month. A masseuse comes in regularly to work on their heads and necks.”

The meek and self-denying are the company’s easiest prey: “One widow wrote that a collector ‘was so nice to me, even when I could only pay $5 a month a few times.’ Saying that money was ‘so tight’ after her husband died, she added: ‘It was very hard for me, and to get a job at my age. Thank you.’”

“We will never sell death,” an industry flack announces, with a marked air of protesting too much. Well, yes, they have launched a website called mywayforward.com, with “information, tools, and, someday, products.” The website has a prominent link to the NYT article. Helps build credibility.

This is wrong in so many ways. It also suggests an intention on the part of the debt manufacturing industry to one day make survivors liable for every last dollar of debt that could be foisted upon a dead relative during their lifetime. Right now, quite a few people hang up on the empathic active listeners of DCM Services. But given time and a tractable Congress, those people too can be made to pay.

Imagine: A revenue stream that flows from generation to generation, widening and deepening with the population itself. Money for nothing. Everyone shall be made to pay. That’s the dream.

Shopping in a global economy

So I need to replace the lenses in my glasses to match a new prescription from the eye doctor. Thanks to the globalization of lens grinding, I am having to fill the prescription twice.

That’s because in all of metro Birmingham (pop. 975,000), there is not a single optician who makes lenses on the premises. Even the ubiquitous Dr. Schaeffer, with his fashion commercials, his civic prominence (the Crawfish Boil, etc.), and his TV tours of his high-tech facilities and eager-to-please staff — even he sends the lens orders off to parts unknown.

What this means for the customer is that it takes seven to ten business days to fill a prescription. Hope you weren’t in a hurry to see clearly.

If, like me, you want to put new lenses in your old, still serviceable frames, you need a backup pair to wear for a week or more. If you were so abandoned as to donate your old glasses to the Lions Club, then you will now have to order a cheap pair of glasses to wear while you wait for your real glasses to get new lenses. And it will take, of course, a week to ten days for the cheap pair to arrive.

In the meantime I’ll amuse myself wondering what exotic parts of the world my glasses will have seen by the time they reach me. Are lenses being made by robots in some vast underground plant in Nevada? Or are opticians being hired in India, like computer programmers, to grind through the night so results can be shipped to the States the next morning? Too bad lenses can’t be sent over the Internet.

So in this case, the globalized economy is costing me both time — two weeks or longer, for an item that used to be ready within a day — and money, namely the cost of an extra pair of glasses. If the lenses have a flaw, or are incorrectly made, I’ll have yet another wait on my hands. The anonymity of the transaction between me and the lens maker tends to reduce the latter’s accountability to me.

Someone remind me again of the benefits of globalization. I keep forgetting.

False promises to the jobless

Looking over Barbara Ehrenreich’s Bait and Switch, a 2005 exposé on the decline of the middle class, I found descriptions of the following three alternatives for the downsized corporate manager.

• Franchising, also known as “buying yourself a job,” is the purchase of the right to operate a local franchise of a major corporation. Most of these businesses fail, apparently at an even higher rate than other small businesses. A 2002 study found that franchisees had a success rate of about 25 percent and an annual income averaging less than $30,000. Those “be your own boss” sales pitches don’t tell the whole story.
• Commission-only sales employs many millions in what are often pyamid marketing schemes — so rewards depend on recruiting new people to fill in the lower reaches of the pyramid. Commercials and promotional literature for these schemes typically imply that you can make $30,000 a month or more without lifting a finger. In fact these jobs offer few or no benefits, with high start-up costs (e.g., purchasing a supply of the product, attending mandatory meetings, or paying fees to an organization). Usually there is no guarantee that your “employer” will not insert competing sales reps into your territory. Five years ago, about half of these direct-sales jobs made less than $10,000 a year, and only 8 percent — the tip of the pyramid — earned $50,000 or more.
• Real estate, the traditional fall-back career, looks less promising than ever with the collapse of the housing market. But even in its salad days, when we all believed home values would rise forever, only about 14 percent of those who obtained a real estate license actually stuck with the profession for more than one year. Of those, only 30 percent made more than $30,000 a year.

What all these jobs have in common is that the employer has successfully shifted the risk of taking on a new hire, along with the expense of health care, insurance, and retirement benefits, to the employee.

Ehrenreich also found that a sizable proportion of unemployed managers and professionals end up in “survival jobs” — temp jobs or entry-level positions at places like Wal-Mart, Best Buy, and Home Depot. These people are not officially classed as “underemployed” as long as they are able to work full time. As far as the Bureau of Labor Statistics is concerned, a move from a corner office to unemployment, and from there to a job grooming dogs at PetSmart, is a successfully concluded job search.

Source: Barbara Ehrenreich, Bait and Switch: The (Futile) Pursuit of the American Dream, New York: Henry Holt & Co., 2005 (ISBN 978-0-8050-8124-4), pp. 181-186, 189-190, 205-210.