Failed Better Business Bureau Branch Agrees to Merger

Nearly three months after closing its doors to the public, the financially troubled Better Business Bureau of Los Angeles/Orange Counties has agreed to merge with the Inland Cities BBB to form a new four-county bureau based in San Bernardino County.

The proposed new operation would assume $160,000 in bank loans and other liabilities incurred by the Los Angeles/Orange Counties BBB, according to Galen Perrett, chairman of the failed bureau.

The four-county bureau would be headquartered in Colton, with a second office planned for Cypress to serve Los Angeles and Orange counties, Perrett said. The Inland Cities BBB represents both San Bernardino and Riverside counties.

The Los Angeles/Orange Counties bureau closed Oct. 30 after exhausting its $700,000 annual budget and laying off all of its staff. The bureau’s failure was attributed in large part to problems associated with an ill-fated BBB consumer guide.

The boards of the Los Angeles/Orange Counties and Inland Cities bureaus approved the proposed merger last week over the objections of the Council of Better Business Bureaus, an umbrella organization that oversees BBBs across the country.

Council President Jim McIlhenny said the national organization would prefer to establish an independent Los Angeles-area bureau with new management “to clean up the BBB’s local image.”

The merger plan, which has been endorsed by the Los Angeles Area Chamber of Commerce, is subject to approval by members of both bureaus, who have been sent ballots and asked to return them by Feb. 15.

Although the two bureaus can merge without the council’s blessing, McIlhenny said the national organization has the right to prevent the proposed new bureau from using the Better Business Bureau name. He said the council might consider exercising that option.

With no local bureau, consumers in Los Angeles and Orange counties with inquiries or complaints about specific businesses have either gone unassisted or taken their inquiries elsewhere.

Bill Mitchell, executive vice president of the Inland Cities BBB, said that since November, 50% of the calls handled by his office have come from Los Angeles and Orange County.

And Shirley Goldinger, director of the Los Angeles County Department of Consumer Affairs, said consumer requests for assistance have nearly tripled since the local bureau closed. “The phone hasn’t stopped ringing,” she said.

Council officials in Arlington, Va., and BBB leaders in Southern California have disagreed over proposals for resuming service since the closing of the Los Angeles/Orange Counties bureau. It was the first BBB failure since 1937, when a flood forced a bureau in Louisville, Ky., to shut down for 10 years.

According to William Fritz, president of the Los Angeles/Orange Counties bureau, the local failure was caused in large part by the defection of member businesses bitter as a result of their experiences with an ill-fated BBB Consumer Resource Book & Membership Roster.

Fritz’s bureau, along with others across the state, sponsored publication of the consumer guides each year from 1983 through 1986. The Inland Cities BBB was not involved with the consumer guide.

Last year, however, the publisher, Better Books of San Francisco, sought protection from creditors in federal bankruptcy court. As a result, few 1986 consumer guides were delivered, and the Los Angeles/Orange Counties bureau was forced to borrow $50,000 in an unsuccessful effort to get the books into the hands of the indicated number of consumers.

The consumer guide has caused problems for other bureaus. In 1984, the Kern County district attorney’s consumer fraud division reached a $12,500 consent agreement with Better Books after charging the publisher with failing to deliver the promised number of consumer guides published for the Bakersfield bureau that year.

And, Albert Shelden, a supervising deputy attorney general, said his office is investigating Better Books amid complaints that advertising representatives verbally promised broader book delivery than actually occurred.

McIlhenny said that because members lost confidence in the Los Angeles/Orange Counties bureau, a new operation should be established to rebuild confidence and raise money.

After the bureau closed, a council newsletter distributed to 178 bureaus across the country advertised opportunities in Southern California for experienced BBB personnel.

McIlhenny has proposed “winding down” the current bureau. But he acknowledged that the bureau’s limited assets and significant liabilities might require it to seek federal bankruptcy protection.