Should frequent-flier programs be regulated?

New York Senator Chuck Schumer’s latest campaign is a bit more lightweight than health care reform: airline frequent flier programs. On Sunday he urged the Department of Transportation to regulate the programs, saying that consumers often face quickly expiring miles, confusing terms, and little notification from airlines before miles vanish.
  
We've written about this trend of expiring frequent flier miles in the past. Just a few years ago you had three years to redeem miles. Now 12-24 months is the norm (Virgin Atlantic is still three years). Miles used to expire after Dec. 31 each year; now they may expire any time and you're unlikely to get a call from your airline warning you. (Tthere are some sites that will track your miles expiration dates and alert you 30 to 60 days before they expire. We haven't looked at them, but the Los Angeles Times has.) There's even an iPhone app, Mileblaster, that keeps track of your miles and sends alerts. 

Some airlines give you fewer miles depending on the type of ticket you buy. British Airways, for instance, now gives only 25 percent of the miles you'd receive with a standard ticket if you book a discounted, or non-changeable ticket.
  
This all may not seem like a big deal since miles programs are free. But if you stay loyal to an airline in hopes of cashing in rewards, you may miss out on cheaper airfares from competing airlines. And according to the Associated Press, Schumer believes that consumers actually pay for frequent flier programs through higher ticket prices and fees.
  
Randy Petersen, founder of flyertalk.com and editor of insideflyer.com, says miles expiration policies fall into three scenarios:
 
•  Passive expiration. Points expire after two years, but you can easily reset the two years through almost any activity: filling out an online survey, making small redemptions (like buying a magazine subscription) or making purchases through an airlines "mileage mall." In such "malls," purchasing a single, 99-cent song on iTunes might be enough to keep your miles current. Delta, United and American Airlines fall into this group.  You can even go to http://www.e-miles.com and watch a quick commercial to earn points and reset your points clock. AirTran, Continental, Delta, Frontier, and US Airways all participate in e-miles. Some airlines will even reinstate miles for a fee. This may be a bad deal, however Delta will reinstate all of your miles, no matter how old, for $50.  

Shoppers say: Don't ask for phone # and e-mail at checkout!

Facebook and its ilk may have changed attitudes toward broadcasting personal facts and feelings, but there's one venue where a majority of Americans do not want to share: The checkout counter. 

Fifty-eight percent of consumers bristle when checkout clerks ask for e-mail addresses and phone numbers, according to a recent, nationally representative poll conducted by Consumer Reports, and assisted by our sister Web site, The Consumerist. That's in addition to our annoyance with checkout-counter solicitations to open store credit-card accounts, disdain for stores' obsession with extended warranties, and frustration with too few open registers.

Retailers, hear us, please. It's challenge enough during the holiday season to get a parking spot, navigate through malls and store aisles, spend within our budgets, and get to the front of checkout line in one piece. We don't want to have to share our personal information, which retailers use to hone their marketing programs or, if you will, pester us more.

There's nothing wrong with politely refusing to tell the checkout person that information. The store doesn't need it to complete the sale, and isn't going to turn you away if you say no. And there's good reason to resist: The more information floating around about you, the more likely your name will land on mailing, phone and e-mail lists used you more stuff you may not want or need. Consumer Reports Money Adviser recently reported on many of the ways retailers and service–providers use your personal information, as well as tactics to reduce your vulnerability. Do yourself and your family a favor and just say no.

Holiday shoppers say some retailers are out of line

Bell ringers, perfume sprayers and the steady drumbeat of holiday music may be annoying to some shoppers. But what really brings out their grinchier instincts are stores that fail to open all the checkout lanes and then use pushy retail tactics when shoppers finally make it to the cash register. Customers don't like being pressured to open store credit cards or being asked for personal information. And they really object to being hounded to buy extended warranties, according to a nationally representative survey by the Consumer Reports National Research Center.

The survey was conducted as part of Consumer Reports' annual "Dear Shopper" campaign that highlights holiday gotchas and shopping traps. This year Consumer Reports had an assist from its sister Web site, Consumerist, which collected a list of annoyances from its readers. When the list was taken to the public at large, those surveyed were in agreement. Here are the top gripes about retail practices:

• 72% Stores that don't open all the checkout lanes;
• 68% Fake "sales". If something is always 20% off, it's not on sale;
• 67% Coupons that exclude almost everything in the store;
• 62% Being hounded with the extended warranty sales pitch;
• 58% Cashiers that ask for your phone number or other personal information;
• 56% In-store prices that do not match the same company's on-line prices;
• 53% Employees required to up-sell you at the register;
• 52% Pushing store credit cards at the register;
• 50% Mail in rebates;
• 48% Stores that require loyalty cards to get discounts;
• 43% Stores that have a minimum purchase requirement for credit cards;
• 26% Receipt checkers.

 “Consumers have told us that they just want a hassle-free and convenient shopping experience," said Jim Guest, president and CEO of Consumers Union. "We really hope this list of holiday annoyances is a wake-up call for the retail industry.”

Tomorrow's USA Today will feature the latest "Dear Shopper" ad about "pushy holiday-season practices." In previous years we've tried to educate consumers about gifts cards (too many go unused), consumer debt (13.5 million consumers are still carrying debt from last year's holiday) and extended warranties (usually not needed—or recommended).

When we asked shoppers about the number one non-retail practice that made them grumpy almost a third said the crowds (29%) followed by difficulty parking (28%), sales people spraying perfume (16%) and bell ringers outside stores (13%). Surprisingly, few folks are annoyed by that holiday music—only three percent said that was their top pet peeve. Fa-la-la-la-la indeed.

What you can do

• Don't get snagged by those gift card gotchas
• Resist sales counter store-card pitches
• Just say no to giving personal information at the checkout
• Why you don't need an extended warranty

At the sales counter, resist the store-card pitch

After waiting in an interminable line to buy holiday gifts, one thing you might not want to hear when you reach the checkout counter is a pitch for a retailer's credit card. In our nationally representative survey of the top holiday-shopping annoyances, 52 percent of respondents said they don't care for cashiers pushing store credit cards.
 
Of course, the 10 percent to 20 percent discounts that come with the store card on the goods you're buying can be tempting, especially this year when many people are trying to stretch their holiday shopping dollars. But if you don't typically pay your credit cards in full each month, you should decline the cashier's offer. And of course, before you sign up for any credit offer, you should read and understand all the terms and conditions of the account—something you might not be inclined to do with a long line of shoppers waiting impatiently behind you.
 
Here's the good and bad of store cards:
 
The Bad:
Interest rates can be wickedly high. For example, Macy's store card (which gives you 20 percent off your purchases for two days when you sign up) comes with an interest rate of 24.5 percent compared with a national average for credit cards of 12.81 percent as of Nov. 12, according to LowCards.com. If you miss a payment, any savings you get for opening a store card could quickly evaporate at such high interest rates.

• Opening a card will temporarily ding your credit score by only a few points, but opening a bunch of cards at once could have a real effect on your credit score.
 
• If you start using the card quite a bit it can lower the amount of rewards or cash you earn on your primary credit card.
 
• You might spend more than you'd planned, just to take advantage of the discount. And having a retailer credit card with rewards may entice you to spend more at that particular retailer, instead of shopping around for the best price.
 
• Store cards may not have the same consumer protections as credit cards. However many retailers offer both a store card and a Visa- or Mastercard-branded card that may give you some of those protections.
 
The Good:
• You can get a discounts of 10 percent to 20 percent on your initial purchases.
 
• If you frequently shop in the store—and you always pay your bills on time—you may be able to build points towards future purchases, get advanced notice of sales, or gain access to insider sales. But some retailers offer rewards or loyalty programs that don't require you to sign up for credit cards. 

• Store cards are easier to qualify for than general-purpose credit cards. So if you have limited credit, opening an account with a retailer is a decent way to build a credit history. But don't cancel the card immediately. You want to establish a long credit history, so if you're worried about overusing the card, cut it up, hide it at the back of your wallet, or leave it at home.—Chris Fichera  

How to avoid debit-card overdraft fees ahead of Fed's new rules

Under new rules announced Thursday by the Federal Reserve, banks will no longer be allowed to automatically enroll their customers in expensive overdraft loan programs. Banks will be required to get their customers’ permission first before they can charge expensive fees when debit and ATM card transactions trigger an overdraft.
 
The rules don’t kick in for new cards until July 1 and for existing accounts, Aug. 15.  And, the rules don’t cover checks or recurring debit transactions—like those for utility, phone, or rent payments.
 
Most large banks automatically enroll their customers in overdraft programs, which are really high-cost loans that generate billions of dollars in excessive fees every year. Banks are expected to collect more than $38 billion in fees from overdrafts this year.
 
Debit card overdrafts could be prevented with a warning that there are not enough funds in the account, or by declining the transaction. Instead, most banks let these transactions go through and charge consumers a fee for each overdraft; the average fee is $35, according to Consumer Federation of America.  If you don’t pay back the overdraft within a few days—or sometimes a single day—you’ll be hit with additional overdraft charges.
 
Here’s an example: According to Consumer Federation of America, a Bank of America customer who overdraws on four transactions that total more than $10 would be charged $35 each for a total of $140. If the overdraft isn’t repaid in five days, the customer would get hit for another $35 sustained overdraft for each unpaid overdraft. Total: $280 in fees in under a week.
 
Until the new rules kick in there are a few things you can do:
 
• Link your checking account to a savings account and set up overdraft transfer protection. With this method, the cost for overdrawing the checking account is generally lower, say $10 each time.
• Opt out. Bank of America already allows customers to opt out of its overdraft program by calling 888-717-3999. Chase and Wells Fargo have announced that they will soon implement an opt-out provision, and like B of A are limiting when and how many overdrafts they charge.
• Budget better. Balance your check book and sign up for e-mail or text message alerts from your bank or from a personal finance Web site to tell you when you’re account has fallen to a certain level.  
• See the Consumer Federation of America's study of the major banks, so you can choose a bank that works for you. Don’t forget to check out your local bank, which might have more consumer-friendly terms.—Chris Fichera 

Holiday poll: Shoppers are tightening belts, not buying them

Trim the tree? Deck the halls? Trim the budget is more like it this holiday season, according to the new Consumer Reports Holiday Shopping Poll. Consumers are cutting back their holiday spending and using creative ways to fill the gift gap by re-gifting presents they've been given, cutting back on spending and culling folks from the gift list. The family pet stands a better chance of getting the goods than a co-worker or the mail carrier.

Times are tough, as respondents reminded us, and a few fessed up to having debt left over from last holiday season. Surprisingly, the belt-tightening has not dampened enthusiasm for the holidays -- 87 percent of consumers remain hopeful that the upcoming season will be as happy or happier than last year.

Even though many stores have been featuring Christmas items since well before Halloween, most shoppers are not taking the bait. Only 31 percent reported that they had started their holiday shopping. And one-quarter of those asked said that they expect to be making purchases in the days leading up to Christmas and beyond. That follows a pattern we've seen for the previous two years in good times (2007) and bad (2008).

As in 2008, consumers anticipate spending less this holiday season. This year 65 percent of Americans plan to cut back on overall holiday expenses. The anticipated decrease in spending comes on top of already dramatic cutbacks that occurred last year when 76 percent of those surveyed said they planned to cut back their spending. The result is that shoppers are shrinking their gift lists and narrowing the types of products they shop for.

The first person to fall off the gift list is likely the person making it. More than three-quarters (78 percent) of adults who are cutting back on gifts will be buying less for themselves. Half are also cutting back on gifts for others -- friends and some family members are the next to go. Grandchildren and grandparents stand the best chance of getting something this season and only 16 percent plan to skimp on gifts to pets and teachers.

Gift lists
We took a peek at some of those shortened gift lists and -- spoiler alert -- the top items that adults are planning to give this year are clothing (52 percent) and electronics (51 percent). In the electronics category, video games or accessories topped the lists followed by game systems and MP3 players or iPods.

Clothing was both the favorite and least favorite gift received last year: 37 percent of respondents were disappointed and 20 percent were pleased with their apparel. If you're planning to give clothing, stay away from socks and slippers, which were a bummer for recipients. Boots, on the other hand, make that foot, were a newcomer on the list of favorite clothing, joined by purses and pajamas.

Overall, shoppers said they are planning to shop for fewer types of products so expect to see less jewelry and fewer small appliances under the tree. There are exceptions, of course, including laptops, netbooks and desktop computers, GPS navigators, and smart phones and cell phones.

Most wanted
Gift cards tied with electronics for the most wanted gift this year, a departure from last year when electronics trumped gift cards by nine percentage points. Meanwhile, fewer folks (46 percent) are planning to give plastic. Perhaps they've been paying attention to our cautions about gift cards, which often saddle recipients with fees, expiration dates, and other gotchas.

Of those who were given gift cards last season, 65 percent say they typically spend more than the value of the card. Then there are those who didn't redeem them at all (another reason we think they're a bad idea). One quarter of those given gift cards last holiday season still have at least one they haven't used and 11 percent of recipients have four or more.

Maybe they can re-gift them this year -- that's another trend we're seeing. Over a third of respondents (36 percent) admitted to re-gifting something they had been given  -- a big jump over the 24 percent who said so in 2007. Socks anyone?

Now about that debt. As of early October, when the survey was conducted, six percent of adults -- or about 13.5 million Americans -- were still carrying debt from last year's holiday season. In households with children under 12 years old, 10 percent were carrying debt.

From now until the end if the year we'll be offering holiday help including advice from our resident shopping expert Tod Marks, featured in the video above, who will be posting on this blog frequently.

Methodology: The Consumer Reports National Research Center conducted a telephone survey of a nationally representative probability sample of telephone households.  1,000 interviews were completed among adults aged 18+.  Interviewing took place over October 15-18, 2009.  The margin of error is +/- 3% points at a 95% confidence level.

CFPA: Much consumer financial regulation under 1 roof

Here's a potent illustration, provided by the Consumer Federation of America, of one benefit of the proposed Consumer Financial Protection Agency, which was approved by a House panel today by a vote of 39-29. What's that benefit? Simplicity.

The CFPA would consolidate much of the regulation of consumer financial products and services under one agency, rather continuing with the convoluted system that exists today. One regulator handling many functions could better ensure a more efficient, less redundant regulatory system.

As proponents such as Harvard Law Professor Elizabeth Warren have noted, today's rat's nest of regulators has allowed many financial companies to cherry-pick for the least restrictive overseer. Other financial companies have escaped any meaningful regulation at all. Those situations helped contribute to the unbridled marketing of dicey consumer financial products that led many families astray in the last couple of years. 

The Great Recession: Where's the consumer's voice?

A report recently published by the not-for-profit Pew Research Center's Project for Excellence in Journalism reveals some interesting biases in the media when covering the Great Recession. For one, the report says that TV, print, radio, Internet and other news media focused an awful lot on players at the top–President Obama and his staffers, federal agencies, and business leaders–as opposed to folks at the bottom of the ladder, often suffering the most. The stimulus package, the banking bailout, and efforts to help the struggling auto industry were the dominant topics. Most coverage took place in New York and Washington, the capitals of finance and government, respectively. And when the stock market started to rise, coverage started to peter out. 

For that reason, I'd like to brag a bit about the monthly Consumer Reports Index, which asks consumers for their sentiment on the state of their own financial well-being. That includes not only what they spent and did over the prior month, but their spending plans for the next month. The index results are based on answers by a nationally representative sample. Stay tuned for the next index, about halfway through the month, for a unique gauge of what's going on close to the ground, not up in the vaulted realms of power.–Tobie Stanger

$30+ billion saved? Fed to set rules on costly overdraft programs

The Federal Reserve announced it will issue a rule within a month that would require banks to obtain consumers’ consent before signing them up for overdraft programs under which banks charge exorbitant finance charges when they process check or debit-card transactions that exceed a customer’s balance. 

As we’ve reported, banks are expected to collect more than $30 billion in such fees this year. Public outcry over these overdraft programs has grown, as has Congressional pressure to curb what National Consumer Law Center Staff Attorney Chi Chi Wu labels “one of the most expensive and exploitative credit products on the market.”  

While several of the nation’s largest banks have recently announced changes in their overdraft programs that make them slightly more consumer-friendly, the changes are unlikely to significantly reduce costs to customers, according to a recent report from the Consumer Federation of America.

The report provides details of overdraft programs at 16 banks throughout the U.S. and calculates what a $100 overdraft would cost if it remains unpaid for seven days, computing the finance charges as an annual percentage rate, akin to a payday loan. The APR for such an overdraft actually exceeds 3,000 percent at six banks: Bank of America, BB&T, Citizens, Fifth Third, Sun Trust and U.S. Bank.

To truly address the problem, Congressional action is needed, argues Travis Plunkett, legislative director at the Consumer Federation of America. “The Consumer Financial Protection Agency, under consideration this month by the House Financial Services Committee, is needed to restore consumer protections to bank overdraft lending,” says Plunkett. 

Not surprisingly, the banking industry is lobbying against creating this agency that would be dedicated to putting consumers’ interests first.–Andrea Rock 

             

 

 

Consumer Reports Index: Consumers' mood low, troubles rise

Consumer sentiment remains low for many Americans, and consumers are reporting more financial troubles, according to the latest Consumer Reports Index, published today. Lower-income people—those making less than $50,000 a year—are shouldering more financial pain than the rest of the population. And consumers living in the Western part of the U.S report a worse financial outlook than do those in other regions. 

The Consumer Reports Index, a composite of several measures, shows consumer sentiment nationwide at 40.3, rising only slightly from a low, 38.1 last month. When the index is greater than 50, more consumers are feeling positive about their financial situation. 

At the same time, this month's Consumer Reports Trouble Tracker Index, which measures negative household financial events, rose to 66.7, its highest ever. The percentage of consumers who reported negative events dropped slightly, but the total number of negative events was up, from 1.6 to 1.9 per household, the greatest increase in 6 months.

Some details:

• Job losses mounted. The Consumer Reports Employment Index declined markedly in October. The proportion of respondents reporting job losses was 7.7 percent, compared with 5.6 percent last month.

• Lower-income households had more troubles than average. The Consumer Reports Trouble Tracker revealed that more than a quarter (26 percent) were unable to afford afford medical bills or medications in the past 30 days, versus 15.1 percent for all Americans. Twelve percent of this group lost a job or was laid off, compared with 7.7 percent of the general population. Another 12 percent lost medical care or experienced reduced coverage, compared with 7.2 percent of total respondents.   

• Spending stayed the same. The Consumer Reports Past 30-Day Retail Index shows purchases in the past 30 days about the same as in the prior month. The index was up for major appliances, but down for major home electronics and personal electronics. 

• Consumers plan to spend more for electronics, but not for other items. Planned purchases of personal and major electronics were up for October versus the prior month. In general, however, plans for future purchases remained about the same as our measure in September. 

• Sentiment was worst in the West. Consumer sentiment took a dive in the West, down to 32.8. In the North/Central region and the South, sentiment remained even, at 41.9 and 43.2. Residents in the Northeast reported a modest uptick in consumer sentiment, to 42.3.

"The economy is in a precarious position balanced between recovery and further decline," concludes the report, published by the Consumer Reports National Research Center. Without substantial improvements as measured by the Trouble Tracker, Employment and Retail indices, it adds, "it is doubtful that a meaningful consumer recovery will be mounted in this calendar year."

The Consumer Reports Index reflects results of a nationwide, representative survey of Americans conducted last week by the Consumer Reports National Research Center. To read more about the Consumer Reports Index, including how it was conducted, click here.