The EHS Report This report has been prepared to inform readers about avoiding, and recovering from, unfair or deceptive trade practices that often result in exposure to hidden, excessive, and/or unnecessary costs and liabilities. The EHS Report is for information purposes only. Nothing contained in this report is intended to be, or should be construed as, legal advice. No warranty, express or implied, is made regarding the usefulness of any information contained in this report for any reason by any person. The user of this information hereby indemnifies EHS and its agents or affiliates against any such claim for liability whatsoever. Copyright © 2005 by Edward H. Smith (EHS) All rights reserved. Introduction The words "caveat emptor" (let the buyer beware) have acquired a special significance to American consumers with respect to an alarming trend that is spreading across the country. That trend, simply put, is the increased use of unfair and deceptive trade practices in the marketplace and the increased tolerance and acceptance of those practices by the government and legal establishment. This report explains the realities about the use of deception as a means to make money from unsuspecting consumers by extracting hidden, undisclosed, excessive, and/or unnecessary costs. This report specifically addresses and emphasizes the crucial need for consumers to become educated and perceptive about how their money is disappearing to subsidize what might be characterized as the "institutionalization" of unfair and deceptive trade practices related to mortgage financing, legal proceedings, collections, credit cards and accounts, warranties and service contracts, checking accounts, and much more. The main objectives of this report, however, are to (a) provide you with some eye-opening information that exposes the ever-increasingly cut-throat nature of the marketplace with the apparent cooperation of the government, legal system, and big business, (b) provide you with an insight to think more in terms of self-protection and self-reliance in the marketplace, and (c) provides you with information about avoiding, or recovering from, unfair and deceptive practices in the marketplace. This report can save you thousands of dollars. What are unfair, unreasonable or deceptive trade practices? Unfair, unreasonable, or deceptive trade practices are those acts and conduct which serve to deceive a person acting reasonably under the existing circumstances; especially in sales transactions. A key consideration in determining that deception exists is whether or not a person has acted to his detriment because of the deception involved. A major reason for the publishing of this report is the fact that many consumers simply do not realize the extent to which practices have become industry standards. Worse yet, some government agencies and courts are engaging in more and more deceptive trade practices in the administration of government and justice. This, obviously, puts consumers who are depending on the government and courts for consumer protection in a very difficult position; since this leaves them with no other recourse than to fend for themselves as best they can. One note that should be emphasized here is that not all deceptive trade practices are necessarily illegal because a given set of circumstances might not produce facts which can be construed in violation of a specific law. What are hidden or undisclosed, excessive, and/or unnecessary costs? Generally speaking, when a cost or expense is not anticipated and there is no disclosure in advance regarding the likelihood of incurring the cost; it may be considered to be hidden or undisclosed. An example of this would be a consumer agreeing to pay a slightly higher interest rate for a mortgage thinking that the mortgage might not be approved when, in reality, the higher rate is being charged to finance extra costs which are built into the higher payments. It is also important to realize that hidden costs are often the result of very complex and complicated schemes of deception that are often not even detected until it’s way too late. Such was the case with many of the recent financial scandals by several big corporations which have plagued thousands of employees and investors. As you might have noticed, these scandals had all the right ingredients: political influence, greed, financial pressure, deception, non-disclosure, excessive fees, and unsuspecting consumers. Excessive costs can be incurred by a consumer when he or she simply isn’t knowledgeable about the industry standards regarding reasonable pricing and/or the consumer is under some type of duress when agreeing to pay. Examples of this are (a) letting some costs go unchallenged at a mortgage closing because the proceeds are desperately needed to pay an overdue bill to IRS, and (b) paying an attorney an inflated fee for representation in an urgent matter with an approaching deadline to appear in court. Unnecessary costs can include those which are simply the product of deception and never had to be paid or incurred in the first place. Most often, they are the result of buying products or services that were not needed. Prime examples are (a) a consumer paying a mortgage broker points in a transaction thinking that the broker was really a lender and then finding out the real lender was also charging additional points, and (b) a consumer being sold a new alternator for his car that won’t start when all he needed was a new battery. American consumers are absolutely plagued with fees, and they are constantly being blind-sided with new fees they weren’t previously aware of. Government agencies and departments generate money through taxes, assessments, fines, penalties, registrations fees, late fees, license fees, lotteries, inspection fees, impact fees, compliance fees, and much more. The legal system orders and/or collects a host of filing and court fees as well as protecting the exorbitant fees charged by attorneys. Big business has invented a host of fees and charges such as early-termination fees, over-limit fees, late fees, re-instatement fees, re-connection fees, surcharge fees, cancellation fees, re-stocking fees, return fees, financing fees, processing fees, document preparation fees, administrative fees, and many more. Just recently, some banks have started a "courtesy over-draft protection program" whereby an overdraft of your checking account automatically turns into a high interest loan! Consumers who are not paying close attention can easily become the victim of more and higher fees. A mortgage transaction can quickly turn into a wind-fall of extra fees and profits. The cost of an extended auto warranty can be all but pure profit due to its limited terms and conditions. A credit card can turn into a nightmare of charges and fees. A consumer’s own attorney can churn fees unmercifully. Debt collectors can harass and threaten with little accountability or recourse on the part of a consumer. Exactly how do you protect yourself from getting ripped off? This section is the essence of this report. The six suggestions here are derived from extensive research, review, and actual experience with countless numbers of transactions where consumers have been defrauded. As you will readily note as you read them, these suggestions are not a reiteration of the standard rhetoric you have, perhaps, heard in the past about being a careful consumer. Rather, these suggestions get to the heart of why so many legislated consumer protection efforts have gone amuck. If you follow these suggestions, you can save yourself thousands of dollars and a bucket-full of headaches. Do not rely on the government to protect you from unfair trade practices. To the extent that deceptive or unfair practices are used to generate revenues through hidden or undisclosed, excessive, or unreasonable costs; it simply doesn’t make sense to believe that local, state, and federal government entities will protect you from, or are themselves immune, from using such practices. Government entities have broad and sweeping powers to levy taxes and charge fees to sustain their operations; regardless of how fair or unfair the taxes and fees may be. In that government entities have "written the book" on extracting money from consumers, it also doesn’t make sense that government entities are going to protect your money before protecting the money of their large political and financial supporters. Therefore, don’t put too much faith in the idea that government regulation will provide adequate consumer protection since, in many instances, government offices and operations serving the public at large are the biggest culprits when it comes to using deception and unfair practices to extract money from consumers. Also, in this 21st century environment of political unrest, terrorism and related safety and security issues: our government leaders have much more serious things to worry about than whether or not some company has treated you unfairly and/or you are at odds with the way a particular government agency or department has treated you. Therefore, think more in terms of making consumer protection your own responsibility as an individual. Do not rely on the courts for recourse. In a vast majority of cases, once you lose money in the marketplace, it is too late to recover damages through the court system. It is simply not practical or economically feasible unless you’ve been taken for many thousands of dollars - and even then you might have to spend several more thousand dollars to successfully litigate your case. Realize that only a very small percentage of civil cases (less than 3% according to most available statistics) ever make it to a trial. Many cases are simply defeated or abandoned for lack of money to proceed. If you represent yourself in court (even in a small claims action), you will find yourself at a severe disadvantage when the adversary party has the resources to be represented by counsel. Therefore, there might be far less recourse than you think, if any, available through the legal system to recover from an illegal transaction. If you do get your case into court, never forget that attorneys are in business to make money. Also, don’t forget that the legal profession can be as deceptive and unfair as any business in the country. In fact, a recent report by HALT (a well-recognized national legal reform organization) entitled "Lawyer Accountability Under State Consumer Fraud Statutes" stated that the number of legal malpractice suits nationwide has exploded. Therefore, don’t be lured into a bad transaction under the false rationale that the court system will bail you out if the transaction turns out to be illegal in nature. Your court case may cost you more than the problem you’re trying to get fixed! Do not enter into a transaction without reviewing the agreement(s) in advance. This sounds like common sense, but this basic rule is violated by nearly all consumers. As you read this, ask yourself the following questions: Did you have the closing documents for your last mortgage transaction (i.e. a home purchase or re-financing) to review a day or so ahead of the closing? Did you read the loan or lease papers over when you got your last car? Have you ever even seen the agreement you have with your electric or phone company? Did you read over the agreement you have for your life, auto, or home insurance coverage before you bought it? How about the agreement you signed when you opened up a checking or savings account? Have you read the fine print regarding the limiting conditions of any warranty or service contract you have purchased? What about the agreement for your retirement benefits? Your credit cards? You are probably thinking of many more agreements! The number of times that we have all been lured into unattractive agreements because we believed they "must be OK" or "standard" simply underscores the extent to which we are all prone to wide-spread deception. By the way, if you answered "yes" to most of the questions above, you are a rare consumer! If you answered "no" to any of them, you might start rounding up copies of those agreements. However, don’t be surprised to find your request for many of these agreements to be met with a fundamental reluctance to cooperate. In the final analysis, being rushed into a transaction without adequate information is a common tactic which is all but universally used to take advantage of consumers who are simply too trusting in nature. Whenever you are encouraged to proceed with a significant expenditure without adequate information to review (including any applicable agreements), and/or adequate time to review and verify information; chances are you will become a victim of some degree of deception which will end up costing you. Do not enter into a transaction through unnecessary brokers. This is an extremely difficult area for consumers. In many consumer transactions, brokers and other middlemen can be both necessary and advantageous to deal with because they add significant value and service to a transaction in consideration for the cost of their participation. However, in many instances, brokers are entirely unnecessary and serve only to add hefty fees and costs to a transaction; many times in a fashion that is deceptive, unfair, undisclosed, disguised, and/or hidden. Two categories of transactions which are particularly susceptible to abusive broker arrangements are (a) real estate - especially where a broker gets an exclusive listing from you and then simply sits back and waits for a "co-broker", someone else, or even yourself to sell your property in order to make a hefty commission; and (b) mortgage financing - especially where a broker is one of a chain of middlemen who end up splitting up thousands of extra dollars for doing little or nothing. This sort of thing happens in many types of transactions simply because consumers are very often not aware that a given transaction doesn’t really warrant paying a substantial percentage to a broker or other middleman. To protect yourself from unnecessary brokers and fees in any transaction where you have a concern, make it a point to ask these questions if/as necessary: Exactly who is the principal in this transaction? Exactly what are you going to do for me in this transaction and what will it cost? Then of course, it is always best to get things in writing - so you don’t wind up getting a bill from someone, or end up paying a fee to someone, that you’ve never heard of. Also, keep in mind that the participation of a broker in a transaction might be disguised as that of only a "salesperson" in order to, perhaps, create the impression that no outside fees are being added to the cost of a given transaction. Finally, if there is a charge for an item which you don’t understand in a transaction (examples might be a "yield spread premium" or "discount fee" in a mortgage transaction which could be broker fees); find out exactly what it is before you agree to pay it. Do not fall prey to disguised intimidation tactics. Consumers under any type of duress or financial pressure can easily become victims of abusive intimidation tactics. Many such tactics are extremely unethical at best and blatantly illegal at worst; serving to take advantage of you when you are in a state of vulnerability. One common example occurs all too often when consumers are faced with a legal problem and quickly sign an agreement with an attorney for representation. Unfortunately, this creates a very ironic situation because the agreement being signed with the attorney (who is theoretically going to protect the consumer’s best interests) may require fees and costs which are well-known to the attorney, but completely unknown to the consumer. Because legal problems create a sense of urgency, a consumer is very rarely focused on the many implications of a representation agreement and, all too often, an attorney takes advantage of the consumer’s vulnerable state of mind to extract hidden or undisclosed, excessive, and/or unreasonable fees. Also, you must keep in mind that there is a conflict of interests (i.e. the lawyer wants to make more money while the client wants a quick and inexpensive resolution of a case) that always exists in a lawyer-client relationship. You must come to grips with the fact that your attorney’s financial motives may out-weigh a fast and economical solution. One particularly egregious tactic is an attorney making veiled references to the exaggerated seriousness (or criminal exposure that doesn’t really exist) in a civil case in order to extract a large retainer for representation. Another common intimidation tactic is a debt collector making veiled references to legal actions or increased costs which are not remotely likely to occur; again in order to coerce or extract the payment of money that, absent the threatening information, you would not be inclined to pay. The bottom line here is to be extremely careful about what you agree to pay when you are under duress. Take some time to step back from the situation at hand to make sure you aren’t jumping from the frying pan into the fire. Do not give out private information when you don’t have to. As you are well aware, privacy is now a huge issue due to the current state of world affairs. There is a major conflict brewing between those who recognize the need to create databases of information foe national security purposes and those who recognize that such databases can be used for the unmerciful exploitation of consumers in the marketplace. Although the Federal Trade Commission has made privacy a central part of its consumer protection mission, there is increased and widespread use of "pretexting" (the use of false pretenses to obtain personal financial information) in order to defraud consumers. Stop for a moment and think about the large number of unauthorized individuals who, during the past year, could have had access to a database which includes your personal information or the collection of information to be put in such a database: retail clerks, office personnel (private businesses and government agencies), insurance salespeople, mortgage brokers, bank employees, etc. The list is huge. It takes only one crooked person to steal your identity and turn your life upside down. With the use of the Internet by computer hackers and scammers, the opportunity for a database to be corrupted, or your information to be collected for illegitimate purposes, is multiplied many times over. For the purposes of this report, you should simply realize that big corporations and/or the government simply cannot protect your personal information. It’s that simple. All you can do is take some basic steps to minimize the odds that the wrong person will get your information and use it to harm you. The basic precaution that you must take is to never disclose personal information in a situation where the person or party receiving the information can not be held reasonably responsible for its protection. It is only your prudent judgment about disclosure that is likely to provide the best protection available. For example, you are probably making a good judgment when you submit a mortgage application, which could be disastrous if it gets into the wrong hands, directly to your local bank. However, it might be very bad judgment to give your completed mortgage application to a mortgage brokerage firm with your authorization to "shop it around". In this instance, you might be just asking for trouble since your application (with all your account numbers and dollar amounts together with your complete identification information) could wind up in the hands of another broker who also shops it around. Obviously, this greatly increases the odds of your personal information making its way into the hands of someone looking to steal your identity to make a theft from you or otherwise take advantage of you. The bottom line is to realize that, in the final analysis, it is the constant and relentless precautions with respect to the disclosure of your personal information that will most protect you from loss.   How can you recover money that you’ve lost, or prevent future liability that you’ve incurred, because of an unfair or deceptive transaction? As mentioned above, in many instances recovery is simply not economically practical. Organizations that use unfair or deceptive practices as a standard way to conduct business often do so because they know that, in a vast majority of cases, victims just can’t do much about it. One strategy that often works, however, is to dramatically distinguish yourself from the normal consumer by seeking recourse in a manner which would be conceptually sound in a court proceeding; despite the fact that you might have little or no intention in taking your case into court because of the time and costs involved. The process can be very fast and straightforward: Identify and set forth the relevant facts in writing; Identify and set forth the violations of applicable law(s) in writing; and Demand that the transaction be appropriately corrected or canceled - and that any appropriate refund or cancellation of future charges be made immediately.   Below are the recaps of four actual examples where a consumer recovered a thousand dollars or more using the above approach: Example One The consumer purchased a used car for more than $18,000. The transaction included the purchase of an extended warranty for the vehicle for $1300 because the consumer was told that the extended warranty was required for financing. Almost a year later, the consumer found out that (a) the so called "warranty-requirement" was a misrepresentation, and (b) the company providing the warranty could not be contacted. The consumer then - in a demand letter to the auto dealer - outlined the dates and facts (supported by the vehicle invoice), stated that the dealer had violated the state’s Unfair and Deceptive Trade Practices Act, and demanded a refund. Twelve days later, after just one phone conversation with the consumer, the dealer issued a refund check for settlement amount of $1000. Example Two The consumer refinanced a home and, after the closing, discovered that the pay-off amount for the previous mortgage was not correct. The title company that handled the closing initially refused to correct the situation. The home-owner then contacted the previous mortgagee and prepared written documentation which showed, irrefutably, that the title company has not credited an interim mortgage payment the consumer had made to the mortgagee while the refinancing was in process. It took several days of aggressive persistence to recover the money paid for the $1000-plus error. It is worth noting here that, absent the consumer’s actions, this is money that would have been "left on the table" since the error would have fallen through the cracks if the consumer didn’t notice that the pay-off figure for the mortgage being paid off seemed too high on the HUD Settlement Statement. Example Three The consumer purchased a "merchant account including Internet processing system, shopping cart, website, and web-design software" via her credit card which was to be used to make monthly payments of approximately $100 each toward a $3500 installment sales contract. After 3 months into the deal, the consumer realized that the proposition was a total misrepresentation. After a first demand letter, the company refused to budge and asked the consumer for a fee to be released from the contract. The consumer then replied more aggressively to the company with a copy to the company’s bank (where the company sold its financing contracts and which bank the company alleged to represent in some official capacity). Shortly thereafter, the consumer received a full refund for all payments made together with a cancellation of the contract and any future liability. It was also ultimately discovered that, apparently, the company did not even provide the services it advertised. It merely sub-contracted the services to another firm and served only as a broker. Example Four The consumer hired a law firm for representation due to the expertise of one particular lawyer who was a member of the firm. The lawyer left the firm and, afterward, the firm continued representation but eventually withdrew from the case. The matter was eventually settled amicably for $4000 out of original charges of $12,700 ( a savings of $8,700) as a result of the client’s compelling presentation showing that he had, in essence, hired a particular attorney’s resume and did not receive what he had bargained for. An interesting side-note here is that there was no written agreement. If the consumer had taken the time to make it clear, in writing, that he intended to hire only the services of a particular attorney; the consumer might have been able to settle the matter for even less.   The common denominator in these examples is that the consumer used a thought process which parallels the legal process, but saved the time and expense of a formal legal proceeding in court. Perhaps the key here is the extent to which a company believes a consumer has a valid legal argument as opposed to an emotional argument. It may be that a company that sees itself as likely to lose in an actual court proceeding is much more likely to settle out of court. Some final thoughts . . . Hopefully, this report has (a) provided you with some useful information and insight about avoiding and recovering unnecessary costs that you might incur as a result of unfair or deceptive practices in the marketplace, and (b) convinced you to think more in terms of protecting yourself in the marketplace as opposed to being over-reliant on the government, court system or business community to protect you. Please don’t hesitate to pass this on to a friend or associate - or simply have them visit www.ehsreports.com to get their own copy of this information. Also, please don’t hesitate to email us if you have a particular situation that you need some help with or would like to comment on. Good luck and thanks for your interest! EHS Reports Email: edsmith@ehsreports.com URL: www.ehsreports.com