1987 Consumer Gripes Center on Disclosure

Let me sum up 1987 from the consumer’s viewpoint, as gleaned from a year of calls, cards and letters. Consumers seemed most irritated by airlines, banks (including savings and loans, which many believe are the same thing) and direct marketers of one sort or another. Secondarily, they were provoked by many businesses dealing with cars (insurance, rental agencies and dealerships), suspicious of mysterious new phone charges and desperate about almost all their dealings with the IRS.

Airlines advertised fares that were rarely available, banks promoted the “enhancements” on their credit cards but hid the basic terms and direct mail companies and “telemarketers” were everywhere with special offers, sweepstakes and investment opportunities, which could rarely be checked out before purchase. All could be said to present disclosure problems--a matter of emphasis or misrepresentation that used to be known crudely as tricky business.

Item: In November, Pan Am advertised in Los Angeles its one-week vacations abroad, featuring, in huge typeface, a trip called “London Center Stage $769” (with similar packages to Wonderful Paris $749, Festive Rome $859, Magnificent Moscow $972 and Daylight London $429.)

There was also some medium-sized print summing up what was included, and restating the price as “$769-$1,080 per person based on double occupancy.” At the bottom of the ad, in small print, were the usual non-specific warnings about limited seats and length of stay and purchase requirements.

There was no print at all revealing that the London package, for one, was only for Tuesday or Saturday departures, and the only $769 flight was for Tuesdays in January and February. Tuesdays in March would cost $869; Saturdays would cost $819 in January and February and $919 in March.

What’s more, those trips involved what a Pan Am agent calls a “superior tourist” hotel. A “nicer” hotel would make the trip $937 for Tuesday departures in January, $964 in February and $937 in March. Saturday departures would run $987 in January, $1,014 in February and $1,080 in March.

Such ads, hardly uncommon, raise to a fine art the gaps between the said and the unsaid, the big print and the small codicils. Granted that the ad suggests calling “for information and reservations,” but at what point does the ad become bait and the phone information the switch?

Item: When a Newport Beach company she’d never heard of called and offered her a 6.7-carat tourmaline, sight unseen, a West Palm Beach, Fla., woman sent them a check for $3,070, and then called me when she didn’t immediately receive the gemstone. Both principals in this incredible transaction remain unnamed because of the obvious question about one’s sense and the other’s honesty--and because it’s (incredibly) not uncommon.

According to the sales pitch she got, the IRS had supposedly seized this investment-quality gem from the estate of a physician who died owing back taxes, and the IRS sold or consigned it to the company. The salesman also said (speaking of the IRS) that “the government doesn’t have to know you own it or when you sell it.”

The stone came the next week, accompanied by two gemological reports. One simply confirmed that it was a 6.7-carat tourmaline but gave no appraised value; the other estimated the replacement value at $3,643. Gemologists we consulted said that anything over $150 to $200 a carat would be an extraordinary price for the very best of green tourmalines, and one said that 6.7 carats was not enormous for a colored stone.

Oral and unwitnessed, such transactions are difficult to label fraudulent, particularly if goods are actually sent. Such telephone “boiler rooms” are even on the increase because buyers exist for their wares, even in today’s age of consumer awareness. One wonders how otherwise inquiring people, even wealthy and sophisticated people, who might squeeze fruit and minutely inspect a contract, could buy something they never saw from someone they didn’t know--someone who likely has only one reason for selling goods sight unseen.

One wonders also what protection such people can be given, or whether they should be given protection at all. Does it really take much judgment, knowledge or experience to realize that such transactions are fraught with danger?

Item: One of Congress’ longest-running debates promises to continue over what consumers should be told before they get a credit card. The House proposed that all ads and solicitations, including applications, reveal the finance charge, annual fee and whether there is a grace period before payment is due. The Senate additionally proposed that card issuers tell how they calculate the balance to which any finance charge is applied. By year-end, both had approved their own versions, leaving until next session the ironing out of their considerable differences.

This seems an odd debate. The terms of a loan, it would seem, are the product, and people have to know what they’re buying. The industry response: It’s too complicated, and all that disclosure in ads, solicitations, even applications would turn people off.

Consumers, of course, have always had trouble understanding credit cards, starting with the fact that finance charges are not late fees on an unpaid balance but “loans” on money borrowed for every day the money is outstanding. What’s more, competing cards have rarely competed on the basic terms: Until the recent introduction of “tiered” interest rates (more impenetrable formulas), they marketed something else--high credit limits, immediate cash advances, accompanying insurance offers, some small sum given to charity out of every annual fee.

The idea of better or even minimum disclosure has kicked around for some time. For several years, it was linked to a proposed and very controversial interest rate cap. Even on its own, it’s been a haggle: What legislator wants to offend or inconvenience industry?

Why worry? The California Legislature passed a similar disclosure bill in the fall of 1986, and a month after it went into effect last October, many card issuers were simply ignoring it. Indeed, according to a survey conducted by the sponsoring assemblyman, Rusty Areias (D-Salinas), and San Francisco’s Consumer Action, fewer than half the financial institutions surveyed were disclosing all or any of the required terms (interest rate, annual fee and grace period).

Happy New Year!