Recently after converting my Internet service to a new carrier, I received as part of my phone bill, a $50 charge for a new modem that was installed. But when I signed up for the service, I was told that there were no start-up charges. What gives? So I called the customer service department to find out why I was being charged for the modem. The response was that there was a $50 rebate as part of the deal. All I had to do was fill out the rebate form and mail it in. But where was the rebate form? I was told that it was included as part of the packet of paperwork inside the box that the modem came in. In this case, since it was less than the 45 day deadline for submitting it, I was able to fill it out and mail it that day before I forgot to do it. In addition, I was given a phone number to call “after 10 weeks” if I didn’t get my rebate check by then. But what was so annoying about all of this was if I wasn’t alert enough to question my bill, I would have likely lost out on the $50. Which I’m sure was alright for the folks issuing the rebates.
But while we all like bargains, many of us are getting fed up with all of the games and hoop jumping we have to go through on rebate deals to get what is essentially our own money back.
Why do manufacturers and merchants do this? There are a number of reasons but the most obvious one is that the manufacturer or merchant gets the free use of our money until we finally recover the rebate amount. But the real reason for offering rebates is the knowledge that most people will either forget to or not bother to go through the trouble of filling out and mailing the rebate request within the specified deadline (or neglect to cash the rebate check before it expires). And those offering the rebates know that the more onerous the requirements are for getting the rebate money back, the more likely the rebate will go unclaimed. While the percentage of unclaimed rebates is unclear, there is no doubt that it is significant. And with the value of rebates sometimes being hundreds of dollars for some items, the temptation to cheat can be significant. For example, what keeps a rebate processing center from saying that they never received your rebate form? I’m sure the great majority of them are honest, but for those who aren’t, what recourse does the consumer have?
Tactics like these that aren’t necessarily illegal but are sneaky ways to screw people out of money are sometimes referred to as sharp practices. Probably the most well known of these is the use of fine print in contracts that consumers may have to sign or simply agree to in using a product or service. While the contract may say that everything is legal, when companies use the fine print to spring something unexpectedly unfavorable on a consumer, it is clearly unethical.
While it may be hard for some to get worked up over rebates, these practices are being used to really hurt people sometimes to the point of getting their homes repossessed.
For example, home equity lines of credit have been actively sold to those who were heavily in credit card debt. This is not bad in itself for people who can afford the debt. Home equity loans offer a lower rate of interest than most credit cards and the interest payments can be tax deductible. But for people in bad financial shape, defaulting on a home equity loan (as opposed to credit cards) can mean the loss of ones home.
Another source of terrible problems has been the active selling of adjustable rate mortgages (ARMs). For the savvy consumer, adjustable rate mortgages may be advantageous when interest rates are at historic highs — although simply refinancing when interest rates drop is safer. But in recent times of historic low interest rates, there’s nowhere for interest rates to go but up. And when this happens, again people can lose their homes if they are unable to refinance.
ARMs are part of a larger problem surrounding subprime lending where borrowers have access to loans at a higher than market interest rate. This in itself is not bad. Lenders are compensated for their higher risk and borrowers have access to badly needed loans they couldn’t have gotten otherwise. For example, I had personal circumstances that required me to purchase a home while I was out of work and this allowed me to do that. But when this goes too far, we have what is referred to as predatory lending. This can be the offering of a loan to someone who clearly does not have the resources to pay back the loan. Or it can be an industry like payday loans that take advantage of financially struggling people to charge them interest rates that would make a loan shark blush.
A crucial question surrounding all of this is whether we should do something about practices that may well be legal but also unethical. One view is that if people are ignorant enough to get themselves in dire financial situations, they deserve what they get. But while some of these people should know better, many of the people getting hurt the most are the less educated and poor. And even in cases where these people are not ignorant of the financial risks they get involved in, they often have no other choice. Is taking advantage of others, especially those who are down and out on their luck something from which we should just look away?
And for those who have been pushed to the edge of bankruptcy, there is the final insult to injury in the so-called Bankruptcy Abuse Prevention and Consumer Protection Act passed in 2005 in response to those who have abusively used bankruptcy to walk away from debts that they could otherwise afford to repay. But the many criticisms include views that the law was written around the interests of the lenders at the expense of consumers who may really need bankruptcy as the only way out of problems caused by circumstances such as the number one cause of bankruptcy, health care expenses and/or a loss of a job that was beyond their control.
I feel a lot of the problem has been due to a conservative political climate that in recent years has been far more pro-business than pro-consumer. While this likely may not affect anti-consumer practices that are clearly illegal, what is labeled an unethical practice can be more subjective. For example, did the lenders hurt by the subprime lending practices simply get what they deserved or were they screwed by unscrupulous lenders? While there is some truth to both sides, I believe that an examination of the issue would reveal that the latter is much more prevalent. This is especially when one considers instances where mortgage brokers are rewarded with significantly higher commissions for selling complex ARMs to people who can least understand or afford them.
Some would argue that more laws to protect people from unethical business practices reduces us to being a ‘nanny state’. I disagree. Protecting the interests of consumers from getting screwed by unscrupulous business practices, especially those consumers who are struggling to stay afloat, is simply showing compassion for those who stand to get hurt the most. And indeed, can any society consider itself to be a moral one if it is lacking in compassion for those who need it?
But while we all like bargains, many of us are getting fed up with all of the games and hoop jumping we have to go through on rebate deals to get what is essentially our own money back.
Why do manufacturers and merchants do this? There are a number of reasons but the most obvious one is that the manufacturer or merchant gets the free use of our money until we finally recover the rebate amount. But the real reason for offering rebates is the knowledge that most people will either forget to or not bother to go through the trouble of filling out and mailing the rebate request within the specified deadline (or neglect to cash the rebate check before it expires). And those offering the rebates know that the more onerous the requirements are for getting the rebate money back, the more likely the rebate will go unclaimed. While the percentage of unclaimed rebates is unclear, there is no doubt that it is significant. And with the value of rebates sometimes being hundreds of dollars for some items, the temptation to cheat can be significant. For example, what keeps a rebate processing center from saying that they never received your rebate form? I’m sure the great majority of them are honest, but for those who aren’t, what recourse does the consumer have?
Tactics like these that aren’t necessarily illegal but are sneaky ways to screw people out of money are sometimes referred to as sharp practices. Probably the most well known of these is the use of fine print in contracts that consumers may have to sign or simply agree to in using a product or service. While the contract may say that everything is legal, when companies use the fine print to spring something unexpectedly unfavorable on a consumer, it is clearly unethical.
While it may be hard for some to get worked up over rebates, these practices are being used to really hurt people sometimes to the point of getting their homes repossessed.
For example, home equity lines of credit have been actively sold to those who were heavily in credit card debt. This is not bad in itself for people who can afford the debt. Home equity loans offer a lower rate of interest than most credit cards and the interest payments can be tax deductible. But for people in bad financial shape, defaulting on a home equity loan (as opposed to credit cards) can mean the loss of ones home.
Another source of terrible problems has been the active selling of adjustable rate mortgages (ARMs). For the savvy consumer, adjustable rate mortgages may be advantageous when interest rates are at historic highs — although simply refinancing when interest rates drop is safer. But in recent times of historic low interest rates, there’s nowhere for interest rates to go but up. And when this happens, again people can lose their homes if they are unable to refinance.
ARMs are part of a larger problem surrounding subprime lending where borrowers have access to loans at a higher than market interest rate. This in itself is not bad. Lenders are compensated for their higher risk and borrowers have access to badly needed loans they couldn’t have gotten otherwise. For example, I had personal circumstances that required me to purchase a home while I was out of work and this allowed me to do that. But when this goes too far, we have what is referred to as predatory lending. This can be the offering of a loan to someone who clearly does not have the resources to pay back the loan. Or it can be an industry like payday loans that take advantage of financially struggling people to charge them interest rates that would make a loan shark blush.
A crucial question surrounding all of this is whether we should do something about practices that may well be legal but also unethical. One view is that if people are ignorant enough to get themselves in dire financial situations, they deserve what they get. But while some of these people should know better, many of the people getting hurt the most are the less educated and poor. And even in cases where these people are not ignorant of the financial risks they get involved in, they often have no other choice. Is taking advantage of others, especially those who are down and out on their luck something from which we should just look away?
And for those who have been pushed to the edge of bankruptcy, there is the final insult to injury in the so-called Bankruptcy Abuse Prevention and Consumer Protection Act passed in 2005 in response to those who have abusively used bankruptcy to walk away from debts that they could otherwise afford to repay. But the many criticisms include views that the law was written around the interests of the lenders at the expense of consumers who may really need bankruptcy as the only way out of problems caused by circumstances such as the number one cause of bankruptcy, health care expenses and/or a loss of a job that was beyond their control.
I feel a lot of the problem has been due to a conservative political climate that in recent years has been far more pro-business than pro-consumer. While this likely may not affect anti-consumer practices that are clearly illegal, what is labeled an unethical practice can be more subjective. For example, did the lenders hurt by the subprime lending practices simply get what they deserved or were they screwed by unscrupulous lenders? While there is some truth to both sides, I believe that an examination of the issue would reveal that the latter is much more prevalent. This is especially when one considers instances where mortgage brokers are rewarded with significantly higher commissions for selling complex ARMs to people who can least understand or afford them.
Some would argue that more laws to protect people from unethical business practices reduces us to being a ‘nanny state’. I disagree. Protecting the interests of consumers from getting screwed by unscrupulous business practices, especially those consumers who are struggling to stay afloat, is simply showing compassion for those who stand to get hurt the most. And indeed, can any society consider itself to be a moral one if it is lacking in compassion for those who need it?
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