The Warybuyer Speaks! Thoughts on Credit Card Defense, Debt Collection, Credit Reporting and Auto Fraud

Yesterday Laura Ceretti, corporate counsel for TALX Corporation, favored me with a letter about my blog post Does that Debt Collector Know What Was On Your Last Paycheck. She believes that the post was inaccurate and demanded that I both delete portions of the post and post a retraction.

She may be correct about at least part of my post. She complained about my statement that “TALX will sell your salary information to any debt collector who asks.” That may well not be true. At the time of my post, TALX may have had criteria for determining who was eligible to purchase salary information that would have excluded some debt collectors. I really don’t know one way or the other and Ms. Ceretti’s letter does not shed any light on the subject.

I based my post on information that I found on TALX’s website. TALX has either deleted that information or moved it so that the links in my post are now broken. Fortunately, I downloaded copies of the information and have uploaded them so that you can review them for yourself and make your own conclusion about what TALX was selling to debt collectors. The page that I linked to on the TALX site led me to 3 pdf files, a white paper entitled Improving Collections Recovery Rates with Employment Data Integration, a flyer entitled The Work Number Filtered, and a flyer entitled The Work Number Alert.

The general gist of these documents was that TALX was actively marketing its employee information to debt collectors in order to help them increase their collections. The third document, The Work Number Alert states that “users are provided with online access to this information that is used individually, for identifying a customer’s employment, or matched, for evaluating pools of credit customers.” The same document also says that employment and income verification includes, among other things: “pay rate” and “annual income for most recent 2 years.”

In her letter Ms. Ceretti says that third-party debt collectors are only able to access income information with a consumer-provided salary key. None of these TALX documents say that and Ms. Ceretti doesn’t explain how the process works, so I have nothing more to pass along to you than her bald statement that my post was incorrect.

If you have more information about how this product is sold or used, I’d be interested in hearing from you. If you are Ms. Ceretti, please accept my apologies for not emailing you to advise you of this new post, but you didn’t include your email address in your letter.

NOTICE. TALX, the corporation that operates theworknumber.com has advised me that this post is inaccurate. Please read my post TALX Speaks! to see what TALX believes is inaccurate and to review the documents on which this post was based.

If your employer uses theworknumber.com for employment verifications, then the debt collector on the phone with you might very well know how much you are paid.

Talx, a subsidiary of Equifax, operates theworknumber.com website. It claims that over half of the Fortune 500 uses its services. Overall, it claims that almost a third of U.S. employees are in its database. When a prospective new employer, a government agency, a lender, or someone else wants to verify a person’s employment, Talx handles the request through its website, relieving the employer of having to handle the inquiry. Employees are given a special verification key. According to Talx’s website, a person requesting employment verification must have the verification key in order to have access to salary information.

This sounds perfectly fine, but it’s not the whole truth. In fact, Talx will sell your salary information to any debt collector who asks, whether they have your verification key or not. This page on their website promotes this service.

If you are an employee or an employer that is signed up for this Talx service and you weren’t told that salary information was going to be sold to third parties without the need for a verification key, we’d like to hear from you.

Very few people know that there is a big hidden benefit to allowing your car dealer arrange the financing of your car purchase. The Federal Trade Commission requires most dealer arranged finance contracts to contain the following paragraph:

ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CLAIMS AND DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS OR SERVICES OBTAINED WITH THE PROCEEDS HEREOF. RECOVERY HEREUNDER BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR HEREUNDER.

This paragraph means you can sue the finance company for any claim that you have against the dealer. Particularly in these times, when dealers are dropping out of business daily, this is an important protection. If you’ve been ripped off by a car dealer who shuts down, you can still be made whole by the finance company.

For example, if a dealer sells you a vehicle that was wrecked or fails to pay off the loan on your trade-in before going out of business, you can simply sue the finance company to recoup your loss.

Not every finance contract is required to have this language. The requirement only applies to consumer transactions, not business transactions, so if you buy a truck for your business, it does not apply. It also only applies to transactions in which the amount financed is $25,000 or less, so your Bentley purchase is unlikely to be covered. The amount you can recover is also limited to the amount you have paid under the contract, although there are some ways to minimize the effect of this last limitation.

Naturally, there is an exception to the exceptions. If the language is in the contract (and not limited by other language in the contract), it is binding, even if it was not required. So a car dealer who uses the same sales contract for all deals whether for more or less than $25,000 is going to extend this benefit to you even if your purchase would not normally be eligible for it.

Or course there may be good reasons to get your own financing. You may be able to get a better rate, but when considering those benefits, also consider the possibility that your dealer may go out of business and leave you holding the bag for a big problem.

Tsunamis are dangerous because people don’t see the wave building until just before it crashes on the shore and wipes everything out. You may not realize it, but your credit card debt is just like that.

Over and over again, our clients tell us that they had everything under control until they lost a job or someone got sick or they had some other unexpected event. In fact, they didn’t have things under control. They just didn’t understand that their credit card debt was designed to rise up and wash them away at just such crisis points in their lives.

To credit card companies, the most profitable customers are the slow pays, the ones who regularly incur late fees and penalty rates but continue to pay. These folks are also the balance surfers. When they can’t afford a payment on one card because of a penalty rate, they’ll transfer the balance to another card that has a lower rate. The trick for the credit card companies wanting to maximize their profit is to turn as many of their cardholders as possible into these slow paying, balance surfing customers.

The credit card companies start the tsunami by playing a game of musical chairs. When a good paying customer slips a little, they ratchet up the game by imposing penalty rates and extra fees. They hope the consumer will continue to pay or if he can’t, surf to other cards so their competitors take the losses. When they’ve pushed too hard and the consumer is in danger of defaulting, they pull their chairs out by jacking up interest rates and/or minimum payments to such a level that the consumer has no choice but to surf. At some point however, the balance transfer offers dry up and the music stops. The last cards in the game are the ones that don’t get paid. When the credit card companies see this happening, they race to get their chairs out of the game. The consumer is washed out before he even knows what happened.

What does this mean for you? As long as you are charging your cards and making the minimum payments, everything seems fine, but when you hit a crisis, even just a short term one, the tsunami starts to build. Your interest rates go up, you get hit with fee after fee, and your minimum monthly payments start to climb. If you’re lucky, you can get out of the water before it gets dangerous, but for lots of people, the game moves too fast for them to do anything about it and they’re flooded with multiple credit cards that they just can’t pay back.

This game may be legal, but it is immoral and disgraceful. Do not be ashamed if you find yourself in this position. Be indignant. Recognize that the credit card companies knew this would happen to you when they started the game. They used your hard work and your belief that you should always pay your debts to drive you to your financial breaking point.

The new credit card law is not going to stop this game. It will slow it down a bit for the consumers who may stumble every once in a while, but for the consumers who have serious crises, the chairs will keep getting pulled out from under them. They’ll just receive a little extra paper to document the fact that they’re getting screwed.

If you are over 65 you can defer your property taxes until your house is sold. All you have to do is fill out some paperwork at the county tax assessor’s office. Not only will this defer all future taxes, but if you are currently behind on your taxes, it will stop all collection efforts, even if you’ve been sued or given notice that your house will be sold.

However, this is not for everyone. The county charges 8% interest on the unpaid taxes and they are secured by a lien on your home. If you were planning on using the equity in your home to buy a new home or to fund an inheritance for your heirs, the deferral will slowly eat away your equity, perhaps completely, depending on how long you let the deferral run.

If you have a mortgage, you should not do this unless your mortgage company approves. Most mortgages contain a provision that says you will not allow anyone to place a lien on your house that would interfere with the mortgage company’s lien. The deferral can put you in violation of this provision and your mortgage company may foreclose on the property or pay the taxes itself and bill you for them. If they pay your taxes, you will be in for a nasty shock, as they will bill you not only for the taxes they paid, but force you to make escrow deposits for next year’s taxes. Your mortgage payment could go up by hundreds or even thousands of dollars, depending on the size of your tax bill. Be sure to get written approval from your mortgage company before you sign any papers for the county.

A district court in Montana recently held that a collection attorney violated the FDCPA by asking a pro se consumer to admit he had no defenses when the attorney knew the consumer had raised a statute of limitations defense:

The inescapable conclusion is that Mr. Dendy asked a pro se defendant to admit false information. He either did so knowingly, or neglected to review his minimal file before signing the requests. He served the requests with no ostensible reason to believe that the defendant would understand their import. The requests for admission appear to be designed to conclusively establish each element of JRL’s case against McCollough and to use the power of the judicial process against a pro se defendant to collect a time-barred debt. This conduct is abusive, unfair and unconscionable. The Court’s conclusion in this regard is strengthened when one considers that JRL’s behavior is measured by the objective “least sophisticated debtor” standard. McCollough v. Johnson, Rodenberg & Lauinger, 2009 U.S. Dist. LEXIS 1372, at *19–20 (D. Mont. Jan. 8, 2009).

The abuse of pro se litigants by collection lawyers is a massive problem. Collection lawyers take advantage of pro se litigants’ lack of understanding of the rules to get judgments without having to disclose that they lack the evidence they would need to prove their cases if they were put to trial by another lawyer. At least in Montana, they got pushed back a little.

Both the federal and Texas debt collection statutes protect consumers from debt collection harassment, but they don’t cover all kinds of debts, only consumer debts. This means debt collectors collecting non-consumer debts are not subject to the restrictions in those statutes. I see this most commonly in 3 situations: business debt, criminal and quasi-criminal debts, and personal injury or property damage claims.

Small businesses frequently use credit cards and other consumer finance sources to run their businesses. The courts look at the actual use of the money borrowed to determine whether a debt is a business or consumer debt. A person who uses a Target Visa card to purchase office supplies for his home business has created a business debt. The protections in the debt collection statutes will not apply. This works in reverse as well. A person who uses a card issued to his business for personal purchases has created a consumer debt and is protected by the debt collection statutes even though the card issuer never intended that to be the case. When use of a card is mixed, the courts look to the primary use, so if the card was used to purchase $5000 worth of goods and $2501 of that was consumer goods, then the debt is covered by the debt collection statutes.

Criminal fines and civil claims arising out of crimes are not covered either. Most commonly this becomes an issue in shoplifting cases. Texas has a statute that allows merchants who are victims of a theft to sue the thief for damages. The statute is quite onerous and there are debt collectors who specialize in threatening to sue people under the statute unless they pay exorbitant sums of money to settle the claim. Because the claim arose out of a theft instead of a consumer transaction, the debt collection statutes don’t apply. Note: the debt collection statutes do apply to bad check collectors, even though writing a bad check can be a crime in certain circumstances. As long as the check was written for a consumer transaction, the collection agency is bound by the debt collection statutes. The difference is that a check is considered to be part of a “transaction”, the word used in the statutes, while a theft is not.

Tort claims are the third area where this gap in coverage can leave a person vulnerable to debt collection abuse. “Tort” is the word the law uses to describe claims that people have when they are injured or their property is damaged or lost as a result of an accident or other wrongful conduct. Because these claims don’t involve a transaction, they are not covered. This commonly arises under the Texas statute that allows suspension of the drivers license of a person who fails to pay a damages claim arising out of a traffic accident. Some debt collectors specialize in buying unpaid claims from insurance companies and threatening driver’s license suspension if the debtor doesn’t pay. These collectors also aren’t covered by the debt collection statutes.

There is still limited protection from debt collectors who engage in outrageous collection tactics. Texas has a common law claim for unreasonable debt collection practices, but it is little-used and not well-defined. As a practical matter, it is only helpful in cases of extreme abuse or harassment.

Do you know what your credit card costs you? Let’s look at the math. Take a Citibank card with a $5000.00 balance and a 14.99% interest rate. Calculated according to one of their recent card agreements, if you pay the minimum payment each month, it will take you 19 years and 10 months to pay the card off. Your payments will total $10,551.68 over that time period, or just over 2 times the amount you borrowed.

Now, let’s look at what happens if you are not always on time with your payments. If you are late twice a year, Citibank will impose their default rate, which under the same agreement we used above, was 28.99%. This is actually fairly low for a default rate, in excess of 30% is fairly common. If you make the minimum payment each month, it won’t take you much longer to pay the card off, just! 22 years and 8 months, but you will pay $17,755.83, or an extra $7000 or so for the privilege of paying late twice a year.

Think that’s a crock? Think you’ll just stop paying, save your money and settle with them for 50% on the dollar in a couple of years? Ok, let’s look at that math. After 2 missed payments, your interest rate goes to the default rate. You’ll incur late fees for at least 6 months, although it appears that Citibank’s policy is to stop imposing fees after 6 months. After 2 years, if you haven’t been sued, your balance will be $9,060.89, so your 50% on the dollar settlement will cost you $4,580.45, or about what you owe now. If you wait 3 years to try to settle, your balance will be $12,066.35 and your 50% on the dollar settlement will cost you $1,033.17 more than you owe now.

What is the lesson here? You can’t win. That’s it. Nothing else. (Well, you can win, but only if you don’t play).

If you live in Texas, debt collectors have 4 years to sue you for not paying your credit card. If one waits longer than that to file, the lawsuit will be dismissed because of the statute of limitations.

If you are lucky enough to get through the 4 year period without being sued, I advise a 2 step process for dealing with each new debt collector that contacts you about the account.

First, send a letter to advise the debt collector that you believe that the account is beyond the limitations period and ask it to check its records to verify that the account went into default more than 4 years ago. It may simply stop contacting you after receiving that letter. If the collector responds and verifies that the default is more than 4 years old, keep the response as it will come in handy if the account gets sold or referred to another debt collector. You can use it as exhibit 1 in your letter notifying the new collector that the account is barred by limitations.

Once you get the response, or if the collector tries to contact you again without responding to your verification request, step 2 is a cease communication letter, in which you ask for no more contact about the debt.

These are very simple letters:

Letter 1: Notice of Limitations and Verification Request

Dear Mr. Debt Collector:

According to my records, it has been more than 4 years since this account went into default, which means that it is too late under Texas law to file suit on the account. Please provide me with verification of the default date and the date of my last payment on the account.

Sincerely,

Lucky Debtor

Letter 2: Cease Contact

Dear Mr. Debt Collector:

Thank you for verifying that my account went into default more than 4 years ago. Please do not contact me about this debt again.

Sincerely,

Really Lucky Debtor

These letters can be used in other states, but the limitations period varies from state to state, so you need to check your own state law about that.

The default date I discuss above is the date you first breached your credit card contract. That generally means the date you failed to make the minimum payment due by the due date. If you cure the default by getting the account current, the clock resets.

In Texas, you cannot extend the limitations period by talking to a debt collector. In order to extend the limitations period, you have to acknowledge the debt in a signed writing. You also can’t extend the limitations period by making a partial payment. Only a payment that completely cures the default will reset the limitations clock.

Who is most likely not to complain about high interest rates and to incur lots of fees for late payments? Who is legally unable to use bankruptcy to wipe out their debts? Who are the best credit card slaves ever? Andrew Leonard reveals all…

I’ve written about the evils of mandatory binding arbitration before. My opinion has not changed. If anything, my ongoing experience representing clients in arbitration has further convinced me that no consumer claim should ever be brought in arbitration.

Senator Feingold has introduced a bill in Congress, the Arbitration Fairness Act of 2007, that will address this problem by making arbitration voluntary in employment, consumer, franchise, or civil rights disputes. I strongly encourage everyone to visit the National Association of Consumer Advocates website to learn more about arbitration and to use their form for telling your elected representatives in Congress that you want your right to a fair trial in front of a jury of your peers returned to you.

The LA Times has more…

According to the WSJ (no link ’cause I’m too cheap to subscribe) as noted by Andrew Leonard in Salon, Bank of America is offering credit cards to people without social security numbers. Welcome to the Slave Ship! Just kidding. As bad as I think our credit card industry is, this is a major improvement for folks who have been plagued by our underground credit system of payday lenders, pawn shops, and neighborhood loan sharks.

I’ve recently been contacted by a few clients who believe that a debt collector has failed to properly respond to a letter either disputing a debt or requesting verification of the debt. They’ve told me about how much they’ve learned on the internet about their rights under the Fair Debt Collection Practices Act. When I talk to them, they do have a surprising amount of knowledge, certainly more than most non-specialist attorneys, about what the statute requires. Unfortunately, for all their research, the letters that they’ve sent me are so over the top that there is little prospect of them prevailing in a lawsuit against the debt collector.

The letters read like a giant game of gotcha; as if the letter-writer is trying to send the debt collector on an impossible scavenger hunt for every last piece of paper relating to the debt, hoping that the debt collector will fail or give up. My advise to these folks has been uniform: “Stop doing that.”

By attempting to game the system this way, these letter-writers have done the near impossible. They have set up a trial dynamic in which the debt collector will be more sympathetic than the debtor. Typically, there has been no harassment or anything close to wrong-doing by the debt collector. He has usually done nothing more than mail a form letter notifying the debtor that he will be collecting the debt, providing basic information about the debt that was provided to him by his client or predecessor, and giving the statutorily required notices. In response, he receives an accusatory missive, threatening him with a lawsuit for violating the law if he doesn’t fulfill a set of byzantine verification requests to the letter. I have even seen debtors who have sent the debt collector a form, informing him that his claim “will not be considered” unless the form is filled out in full.

When you are disputing a debt, you have to remember that you are not just writing to the debt collector. You are writing to a jury.

This jury will largely be made up of people who take the responsibilities seriously, otherwise, they wouldn’t have shown up for jury duty. For the most part, they will have worked hard in their lives to pay their debts, sometimes making personal sacrifices in order to make sure they keep their commitments. They are not going to be moved to help someone they perceive is twisting the law to slip free of a legitimate request to pay a debt. In fact, jury bias against people who haven’t paid their debts is a real problem in cases where the debt collector has really done something wrong.

The same is true of judges, who are the gate-keepers to the jury. While a disciplined judge will follow the law even when his personal feelings weigh against the party for whom he is ruling, that’s still an uphill sell, and not all judges are disciplined in their application of the law. There are plenty of judges out there who decide who should win and then figure out a legal way to justify that result.

What does this mean for verification letter writers? It means you have to write from the point of view of someone who has a legitimate concern and who wants information to satisfy that concern. Your letter should present your concern and suggest the easiest, most direct way of dealing with it. Here is an example of what I consider to be a good, initial verification request for a debt that you don’t have any reason to dispute:

Dear Mr. Debt Collector:

I received your notice that you will be collecting this credit card account from me. I need some information from you:

I need to know that you are really the person I should be dealing with on this debt. I don’t want to make a payment to you and then find out that I should have paid someone else. Please provide me with documentation that you either own this debt or have authority to collect it, so that I will know that if I make a payment to you, the payment will be going to the proper person.

I also need to know how you calculated the balance you say is due. When I last heard from someone about this debt, the balance was substantially lower. If you have added interest or fees to the debt, please provide me with an itemized breadown of what you’ve added and documentation showing that you are following the terms of my contract. I don’t want to have to pay more than I really owe.

Thank you for your help with this matter.

Sincerely,

David Debtor

This letter accomplishes the basic goals of a verification request. If the debt collector responds, you will have additional useful information about the debt that may come in handy in negotiating the amount of the debt or disputing it if it is incorrect. If the debt collector doesn’t respond but continues to attempt to collect the debt, he will have violated the FDCPA and you will have a sympathetic case to make to the jury that the debt collector was illegally refusing to comply with a request so reasonable that anyone would understand it.

This letter is not a one-size fits all letter. If the debt is not correct, the dispute letter needs to specifically point that out. There is an example of how to do that in my guide to disputing a debt. Depending on the circumstances, there may be other types of information that are reasonable to request, for example, if the debt is old and the debt collector has threatened to refer you for legal action, it would be reasonable to request documentation showing how long it has been since you defaulted on the debt, so you can determine whether the debt is beyond the statute of limitations.

Whatever the situation, and whatever kind of letter you write to a debt collector, or to a creditor or credit bureau for that matter, remember that you are also writing to a jury. If it helps, imagine that you are writing to your mother. Your letter should make her want to help you, not toss you out on your ear.

Wow! Canon completely blew me away today. Back in November 2003 I bought a Canon S400 camera. It’s been whitewater rafting in Colorado, to the frosty top of Pike’s Peak, zip-lining in Costa Rica and to every family gathering for the last 3 years. Just before Christmas this year, it failed. It just stopped reading the memory card. A couple of minutes with google and I found that Canon has a program to repair this problem, even for cameras like mine that are out of warranty. I sent my camera in.

I’ve been fuming lately because I got a message from them shortly after it went in saying it would be returned in 10 days and it was well over 10 days. Well, fume no more. Today I received via Fedex a PowerShot SD630 to replace my S400!

I’ve only had a few minutes to play, but it is smaller, captures 6 megapixels instead of 4, and has a 3 inch display instead of 1.5 inches. The operating software also appears much improved, easier to use and with more features.

Way to go Canon!

Zombie debt is a slang term for long written off debt that has been revived by a debt buyer for a new round of collection activity. The debt buyer may do nothing more than list it on your credit report in the hope that you’ll pay it off to raise your score, or undertake full blown collection activity. Liz Pulliam Weston writes in this MSN Article Zombie Debt is Hard to Kill about the prices that debt buyers pay for old credit card debts.

According to 2005 SEC documents, Asset Acceptance bought $4.2 billion dollars worth of debt for an average price of 2.4 cents on the dollar, Encore Capital Group bought $5.9 billion dollars worth of debt for an average price of 3.3 cents on the dollar, and Portfolio Recovery Associates bought $5.3 billion worth of debt for an average price of 2.8 cents on the dollar.

If you ever wondered how good a deal you were getting when a debt collector offered to settle your debt for 60 cents on the dollar, now you know.

Mickey Kaus discusses the threat of irredentism as one of the reasons that we should all be threatened by protesters waving Mexican flags. Of course, I had to look the word up to know what the heck he was talking about. Once I did, I was amazed. Does anyone seriously believe that someone who travelled hundreds if not thousands of miles to sneak across a largely desolate and dangerous desert border in order to work 12 hour days at hard labor on a farm, in a restaurant, or on a construction site because the opportunities here are so much greater than they are in Mexico, wants to undo all that by stealing California, Arizona, New Mexico and Texas back? Does anyone think that person’s children or grandchildren who were born and raised her feel that way? Puleeze. If they wanted to work and live in Mexico they could have just stayed put. No need for them go to all of that trouble.

There are some good reasons to regulate immigration, but there is a dark heart of racism that is driving much of this debate for a large number of people. I grew up in West Texas where hispanics were routinely referred to as spics and wetbacks in what passed for polite conversation amongst anglos. The times have changed and that kind of talk is no longer considered polite, but the underlying attitudes are still strong in many people. When I read this kind of over the top rhetoric, it sounds to me like anglos trying to find a new polite language for the same old racism.

Jim Sollisch wrote an excellent piece in the Washington Post about credit card sharks. It brought to mind something I’ve been thinking about publishing for a while, a Credit Card Holder’s Bill of Rights. The purpose of this Bill of Rights is to restore meaningful consumer choice to the credit card business.

Credit Card Holder’s Bill of Rights

1. No credit card company shall hold a card holder in default for any reason other than failure to make timely payments on the account being declared in default.

2. No credit card company shall change the interest rate payable on the existing balance of an account except pursuant to a previously agreed variable rate agreement in which the interest rate is tied to a published market rate.

3. No credit card company shall change the interest rate payable on future transactions unless the card holder has a meaningful opportunity to reject the change and pay off the account at the existing interest rate.

4. No credit card company shall make any change to the terms of its agreement with a card holder unless that change applies only to future transactions and the card holder has a meaningful opportunity to reject the change and pay off the account pursuant to the existing terms.

5. No credit card company shall charge any fee in excess of the reasonable average cost to the company of the event or circumstance which gives rise to the fee. Before charging any fee, a credit card company shall include in the card holder agreement an explanation of how the amount of the fee was determined and what relationship it bears to the cost of the event or circumstance giving rise to the fee.

6. No credit card company shall require a minimum payment that does not reduce the balance due on the account by less than 2%.

7. No credit card company shall mail a monthly statement to a card holder less than 21 days before the due date of the cardholder’s next payment.

8. No credit card company shall fail to credit an account with payment on the date that payment is received and no credit card company shall require payments to be received prior to 5:00 p.m. local time at the place of receipt in order to be deemed received on that date.

9. No credit card company shall require a customer to submit any claim or grievance to mandatory binding arbitration.

10. No credit card company shall sell or refer a charged off account to a debt collector without providing the debt collector with the date upon which the account was last current before it was charged off and all other information necessary for the debt collector to comply with the requirements of state and federal laws relating to debt collection and credit reporting.

11. No credit card company shall fail to provide a copy of the account application, agreement, or history to a card holder upon request or charge any fee for doing so.

Linens ‘n’ Things ran a loss leader in their Sunday newspaper insert here in the Dallas area that appears to be a case of bait and switch. They advertised a Thermos 40,000 BTU Stainless Steel BBQ Grill for $249.99. In the same flyer, they printed a 20% off coupon good for “any single item.” The coupon contained a number of limitations, none of which appear to apply to the BBQ. The warygirlfriend pointed out that this would be an excellent christmas present as well as an excellent value. As detailed below, I tried to purchase the grill for 20% off, but was rebuffed. My rebuffedness continues despite a nice letter of complaint and an email correspondence with their customer service representative, which I have posted below. I’ll post any updates as well. I’ve asked to speak to someone with authority to make a different decision, but I don’t expect to hear back.

I’m posting about it here because 1) I’m kinda mad, and 2) there are good consumer law issues to discuss, directly applicable to the holiday shopping season.

Bait and switch is one of the most commonly recognized terms in consumer law, certainly more common than say, ECOA adverse action notice. Bait and switch can take a number of forms. Linens ‘n’ Things’ ad covers two of them.

The Texas Deceptive Trade Practices Act (”DTPA”) prohibits “advertising goods or services with intent not to supply a reasonable expectable public demand, unless the advertisements disclosed a limitation of quantity.” Tex. Bus. & Com. Code § 17.46(b)(10). In this case, the first Linens ‘n’ Things store I went to was out of stock on this loss leader item within just a few hours of the publication of the insert, despite the fact that the prices advertised were in effect from December 4-11. As the first Linens ‘n’ Things employee was helping me locate a store with a grill in stock, her computer display showed most stores in the Texas market were reporting single digit quantities. The Galleria store she referred me to listed 12 units in stock, but she told me that the computer numbers often lag actual inventory. While a prosecuting attorney would have to investigate the circumstances to determine whether the failure to have an adequate inventory was intentional, the circumstances here are suspicious.

The DTPA also prohibits “making false or misleading statements of fact concerning the reasons for, existence of, or amount of price reductions.” Tex. Bus. & Com. Code § 17.46(b)(11). In this case, the Linens ‘n’ Things coupon is misleading because it clearly states that 20% can be taken off the sale price of “any single item” and none of the limitations contained on the face of the coupon apply to the grill. When evaluating whether an advertisement is deceptive, the general rule is that only clarifying information presented in the advertisement is considered. Additional limitations or disclosures published in the store are generally not considered. This is particularly true when the allegation is bait and switch advertising, as the reason such advertising is prohibited is that it lures consumers into stores under false pretenses. Accordingly, the in store signs indicating no further discounts could be taken on the grill are inadequate to save Linens ‘n’ Things from violation of this anti-bait and switch provision of the DTPA.

Rain Checks

The first Linens ‘n’ Things employee told me there were no rain checks available on the grill. Nothing in the DTPA requires a retailer to give a rain check when out of stock on an advertised item. Moreover, the offering of a rain check on an advertised item is not a defense to a charge of bait and switch advertising under either of the above-listed DTPA provisions. However, as a practical matter, it is a good way to preserve customer good will, and it will bolster a retailer’s argument that it did not intend to go out of stock on the advertised item, an element of the prosecutor’s case under the first bait and switch provision of the DTPA. For an individual consumer, as long as the rain check can be fulfilled reasonably promptly, the rain check goes a long way towards eliminating any harm caused by the failure to have adequate stock. It would be very difficult for such a consumer to prove any damages in any lawsuit that might be filed over the ad.

The bottom line: the law is very much in harmony with common sense. If you are a retailer and you advertise something for sale, you need to have it on hand and sell it as advertised. Anything less, and you are potentially in legal jeopardy. If you are a consumer, you have the right to walk into a store knowing that the advertised item will be there and that you can purchase it for the price advertised.

Enjoy your holiday shopping!

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Note: While I was writing this post, Mr. Cesano called me on the phone. He affirmed his last email message, but did offer to put me through to the voicemail of Tony Vardiman, who he said might have authority to make a different decision. While I’m not happy with Linens ‘n’ Things’ handling of this matter, I certainly can’t fault the speed with which they have responded to my complaint. Thank you Mr. Cesano for your prompt correspondence, even if the result was not to my liking.

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My email correspondence with Linens ‘n’ Things:

I am very disappointed with the experience I had trying to purchase an item advertised in your December 2005 newspaper insert.

The front page of the insert features a Thermos 4000 BTU BBQ Grill for $249.99. The last page of the insert features a “20% off any single item” coupon. My girlfriend saw the flyer and told me the BBQ would make an excellent Christmas gift for her. She pointed out the coupon as well. I looked at the coupon carefully (I am a consumer lawyer after all) and noted that none of the restrictions on the coupon applied to the advertised BBQ.

I drove to your North Central store in Dallas. A helpful employee told me that the BBQ was sold out and that you have no raincheck policy. While the consumer lawyer in me was disturbed that you were sold out of a featured item in an insert within just a few hours after the insert was published and that you have a no raincheck policy, your employee offered to see if she could find one in another store for me. After a few minutes, she located one in your Dallas Galleria store and had it put on hold for me. I wish I could remember her name because she went out of her way to be helpful.

I drove to the Galleria store where another helpful employee found a dolly and fetched the BBQ to the front of the store while I waited. When I tried to check out, I presented the coupon, only to be told that I couldn’t use it with the BBQ because it was already discounted. I asked the cashier to double check. She spoke with another employee, Kevin, who appeared to be a supervisor or manager. Kevin also told me that the coupon could not be used. I pointed out that the coupon said it could be used with “any item” and that none of the restrictions on the coupon matched what he was telling me in the store. He would not change his position. I decided not to buy the BBQ.

I regret not buying the BBQ. I was angry and didn’t want to give in to what I thought was an unfair situation. If possible, I would still like to buy this BBQ, but I feel it is only fair that you sell it to me as advertised, for 20% off of the $249.99 price, or $199.99. Having already driven to two different stores amid holiday shopping traffic, it would be ideal if you would have the BBQ delivered to my girlfriend’s house at no charge, but I would be satisfied if you simply give me the address of a North Dallas store where I can go to purchase the item at the proper price.

Please call me at (214) 855-9355 or email me to let me know what you are willing to do about this situation.

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Thank you for contacting us regarding the Thermos Stainless Grill advertised in our recent flyer. Please be advised that due to the enormous discount that we are offering on this item, we cannot accept any coupons or discounts. This was prominently marked both in the store and on the product. The price on this grill was sold to you, our valued guest, at cost pricing. If you can find this item at a better price, we will gladly match it. Thank you for bringing this to our attention.

Guest Services Linens n’ Things

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Paul-

Thank you for your prompt response.

Kevin, your employee at the Galleria store, also informed me that the item was marked in the store as not subject to further discounts. Of course, I never walked far enough into the store to actually see the signs he referred to because I found out about the BBQ from your ad and another employee had called and put the BBQ on hold for me. Even if I had seen the signs, that would not address my concern.

I went to your store, actually to 2 of your stores, because of the advertising. I’m sure that if you consult with whoever reviews your advertising for legal compliance they will tell you that in-store disclosures cannot be used to contradict advertised offers.

I still would like to purchase this BBQ as advertised.

Craig

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Not sure what you are looking for me to do at this point?

Thank you, Paul Cesano

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I’d like you to locate one of these units in the North Dallas area, have it put on hold for me, and let me pay $199.99 for it.

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This item is currently selling for $249.99 and we would not accept a coupon on this item as we are selling this item at below cost. Please contact your local Linens N Things on the availability of this item.

Thank you, Paul Cesano

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