Status Report on the Perennial Rip-Offs
No longer is the lamb being led to slaughter. No longer is the corporate octopus reaching out with its tentacles to crush the unwary buyer.
Today’s “lamb,” the consumer, and the “corporate octopus,” the supplier of consumer goods and services, are both far different from the way they were in the tumultuous ‘60s, when consumer activists first picked up their cudgels and attacked the theretofore unassailable corporations safely entrenched behind their battlements.
Frustrations on both sides of the fence still exist, Richard A. Elbrecht, supervising attorney for the California Department of Consumer Affairs, conceded in a recent interview in observance of National Consumers Week, which is this week.
Holding degrees in both economics (Yale) and law (Michigan), Elbrecht has been active on both sides of the consumer fence--in private practice and also on the staff of the Legal Aid Society in San Jose and as deputy director for the National Consumer Law Center in Boston. There he authored that organization’s truth-in-lending manual for the center’s attorneys. He joined the California Department of Consumer Affairs in 1976.
Less Commonplace
The flagrant rip-off is far less commonplace, and the willingness of corporations to admit their mistakes and rectify them is far more prevalent than it was 20 years ago--back in the days marked by stormy Congressional hearings on automotive safety and by housewives taking to the streets to protest soaring grocery prices.
“The idea of looking after the interests of the consumer has become widely accepted by organizations and corporations,” Elbrecht said, “and they’re far more willing to sit down and talk with consumers--to negotiate. Many large corporations today have established consumer-affairs offices within the company--advocates on the payroll who meet with top management, criticize company practices and who have real clout in rectifying things.”
And, at the state level in California, he added, legislation continues to be enacted in those touchy areas where misunderstandings continue to be a source of friction. These are primarily in landlord-tenant relations, the automotive “lemon law” and in the control of health spas.
“Between landlords and tenants,” Elbrecht continued, “the security deposit continues to be a problem; either the landlord flatly refuses to refund it, or he makes a claim against the deposit that the tenant feels is unfair. Landlords continue to try to assess normal wear and tear against the security deposit--and cumulative wear and tear as well. You can’t charge this year’s tenant for the replacement of drapes, for instance, that have been hanging there for 10 years through maybe four different sets of tenants.”
Currently in the legislative hopper in Sacramento, he said, is legislation that would impose a penalty on the landlord--an interest rate of 2% a month--if he is required to return a security deposit and fails to do so.
‘Lemon Law’ Updating
Also in the works, Elbrecht said, is legislation that would improve and update the ’83 “lemon law” covering new cars that are simply irreparable.
“As it was written,” he added, “there were a number of deficiencies in it--it was our first cut at the problem, and like most new legislation it had some bugs.”
Another issue is the high mortality in California of health spas that collect tens of thousands of dollars in prepaid memberships and then go belly up--in many cases before they’ve even opened their doors. Though is is a minor irritant to most consumers, it is a matter of grave concern to those who fall into the trap.
“There’s probably no law on the books that would fully protect those prepayments,” Elbrecht admitted, “but there’s no logical reason in the world why health spas shouldn’t charge on a month-to-month basis--you sure don’t prepay your barber for half a year of haircuts. We’ve got legislation in the works now,” he said, “that would require those prepaid monies to be put into a trust account, and, if the spa hasn’t opened, the money will sit there until it does.”
The theme of this year’s National Consumers Week, Elbrecht said, is a deceptively simple truth: “Consumers Should Know.”
Market Forces in Control
“By and large, we have a market economy,” he added, “and while we’ve got a lot of laws and regulations designed to protect the consumer, market forces still largely dictate what is produced and who gets it. And the market can function efficiently only if consumers play an intelligent role in wisely allocating their disposable income. In the case of the health spas, for instance, the consumers should know that if they’re going to be paying a lot of money in advance, they’re also running a substantial risk of losing it.
“Consumers should know too that they experienced an actual decline of 9% in their disposable income between 1976 and 1982, and they haven’t caught up yet,” he added, despite the lower inflation prevailing since ‘82, the last year for which full figures are available.
“That means that they’re still running behind because wage increases simply don’t rise enough to match higher prices, and so they’ve got less to spend today in real terms, and the need for caution in their spending is all the more important.”
In fact, Elbrecht feels that the backwash of the inflation of the late ‘70s and early ‘80s makes simple money management “the consumer issue of highest priority today--greater than landlord-tenant disputes, the ‘lemon law,’ health spas or anything else.”
Far more complex banking regulations and the proliferation of adjustable-rate mortgages are both products, directly or indirectly, of the soaring interest rates of a few years ago; they touch almost everyone’s lives, Elbrecht added.
Living Above Means
“We’ve got tens of thousands of families today living in homes that they can’t really afford. Appreciation in values has leveled off, and, in many cases, declined, but the homes were bought in anticipation of increases in market values that simply haven’t materialized.”
And, in today’s economy, Elbrecht fears that the credo “Consumers Should Know” runs headlong into things like adjustable-rate mortgages, where even the most knowledgeable consumer is having to cope with strange new financing instruments that are almost impossible to understand--to “know.”
“You really have to worry if the home buyer, signing a mortgage providing for negative amortization, really understands that the house on which he owes $100,000 today may, a year or two down the road, be the same house on which he then owes $110,000. I wouldn’t be at all surprised,” he continued, “to see the courts in the near future rule that many of these current mortgage instruments--particularly those calling for negative amortization--are invalid by virtue of being unfair or unconscionable, an unfair trade practice.”
And the basis for this, he added, is any number of court decisions on other consumer matters in which the issue of “reasonable expectations” became the focal point. These are cases in which a contract or other legal instrument was declared invalid--even though the consumer read it, signed it and was presumed to understand it--simply because the terms it spelled out defied the average person’s reasonable expectations of what such a document should include (or exclude).
“The consumer should know,” Elbrecht added, “that they’re not always bound by the fine print in a contract.”
Insurance Dispute
A now-classic case of “reasonable expectations,” he said, came about a few years ago when an airline passenger bought flight insurance from an airport vending machine. Subsequently his flight was canceled, and he was put aboard a special flight that crashed and resulted in his death.
The insurance company rejected the heirs’ claim to the insurance because the special flight was not a “scheduled” flight, as spelled out in the fine print on the contract.
A state Supreme Court ruled in favor of the heirs, however, on the grounds that no rational person would reasonably expect to find such an exclusion in his contract--and, particularly, in a contract that he had no opportunity to read until after he had paid his money.
By the same token, Elbrecht added, a court might also rule invalid a laundry establishment’s limit on its liability. Some such firms limit their liability to reimbursement equal to “ten times the cost of laundering the item” that has been lost or damaged. A customer would have a reasonable expectation that any reimbursement would be based on the value of the item, not the cost of laundering it.
Despite his personal worries about the consumer, abroad in a jungle of increasingly complex banking and mortgage considerations, Elbrecht said today’s consumer is vastly more sophisticated than he was as recently as 10 years ago.
“The media are largely responsible, of course. There’s practically no major newspaper or television outlet in business today that doesn’t give extensive coverage to consumer affairs,” he said.
“But you’ve also got elementary schools teaching money management and more and more parents talking seriously to their children about handling money matters.
“The economy keeps changing almost daily, and the consumer simply must keep up with those changes,” Elbrecht said determinedly.
Don G. Campbell cannot answer mail personally but will respond in this column to consumer questions of general interest. Write to Consumer VIEWS, You section, The Times, Times Mirror Square, Los Angeles 90053.
