Seeing is Not Believing - Part 14

Seeing is Not Believing - Part 14:
The No-Price Policy

A friend recently responded to an advertisement for a bathtub refitting company. The product was just what she needed to solve several issues, loss of mobility and an aging bathroom. The advertisement did not list a price, and she invited a salesman into her house to demonstrate, with sample material, without asking how much the product cost. She never made the purchase as, with free installation and a $500 discount, the new bathtub was more than four times what she was willing to pay, over $20,000.

This is an old sales technique. Get the person to want the product badly enough and they may not argue about the price. Automobile ads make cars look sexy for that reason. Door-to-door encyclopedia salesmen (I was one, briefly, in the 1960s) hooked the parents on why their kids needed the product before mentioning the $1000+ price. Many products are now advertised in magazines and newspapers using this technique.

As an example, we can examine a magazine many people trust: the October, 2008 AARP Bulletin. AARP sells space for these ads, they do not profit from the advertising techniques. The information below was garnered during the week of October 12. (Slightly Creaky often links to AARP articles as we find them to be well researched and worded so any one can understand.)

Page 2 – full page. Sleep Number Bed. The Select Comfort web site offers both a 4-day delivery and a $500 discount, but to find the actual price you have to actually order the product, including inputting a credit card (we did not). The small print includes: “$500 cash off only for Queen and King Sleep Number® 9000 and Sleep Number Memory Foam T bed sets, and is not stackable on extended financing plan,” as well as, “As of September 1, 2008, variable APR is 22.98% and on all accounts in default, 28.99%.”

There were two additional ads for Sleep Comfort beds in this issue

Page 15 – full page. Nutrisystem. The advertisement says “Eat FREE for 3 weeks.” (Capitalization and color as in original ad.) It states that Tony Orlando lost 103 pounds and Marie Osmond dropped 40. The small print states, “Results not typical.” The only price listed is “All for about $10 a day.”

Their web site did not list the price and made additional promises. Their disclaimer is, “Offer good on Auto-Delivery order only. One additional free week of food will be included with your first and second deliveries. With Auto-Delivery, you are automatically charged and shipped your 28-Day program once every 4 weeks unless you cancel…. However for this offer you must stay on Auto-Delivery for at least two consecutive 28-Day program deliveries to receive the second free week of food,” Three pages down you find that each 28-day program costs a minimum of $329.95. If we are to believe that this is for 28 days, which comes to $11.78 a day, which is “about $10 a day.”

You need to be careful, though, as hidden in a scroll-down box is, “Substituted food items may contain different ingredients and allergens than those in items originally ordered.”

Page 34 – quarter-page ad. Premier Walk-In Tub. “As seen on TV.” The web advertisement promises, “Low entry, built in seat and temperature control are some of the benefits our tubs offer.” Some models offer optional hydrotherapy jets.

To view their products, you pop a virtual soap bubble and are taken to a different page. Thus it is nearly impossible to compare the products. Nowhere on the web site are prices listed – you need to call, mail, or e-mail a request. There were dozens of companies, in addition to the manufacturer’s home page, advertising for this product. None listed a price.

Back Cover – full page. BOSE Acoustic Wave music system. As with the others, there is no hint as to how much it costs, but you can make “12 easy payments.” The small print stated, “on orders of $299-$1500,” does give you an amazingly wide range. The BOSE web site lists the price right on the top right: $1,378.00.

Seeing is Not Believing - Part 15

Seeing is Not Believing - Part 15:
Others Charge More – Do It Yourself

Have we gotten so lazy that we no longer attempt to do the simple things ourselves? Americans have become the slaves of advertisements so much that even in this time of recession, when many of us are cutting back on purchases, we still hire expensive companies to change a dripping faucet, to mow our lawns, and to do the things our parents and grandparents would simply do themselves.

Three years ago, we were frustrated with our inability to grow grass in one part of our lawn. Falling for the advertisements, we responded to a national advertisement stating that the company will turn our lawn green, get rid of weeds, and all we had to do was sit back and enjoy. Their price was about twice what I would have paid for the “organic” fertilizer that I had been using, but they would do the work and guarantee it.

The franchise owner visited us and walked the yard. Their price (based on a minimum square footage) would cover the front and side lawns only. To do the back yard would be an extra $90 for the year. Not bad, we agreed. Two days later one of their employees pulled up, took out a spray tank, and walked the yard spraying. Twenty minutes later he was done, put up warning signs, and left. According to those signs, they did not use the non-toxic chemicals they had advertised. It was a warning to keep children and pets off the lawn for three days.

I complained. The contract I signed was for the chemical they used. They never offered the option of the non-toxic product, but should I desire, I could now switch to it. They cost would be almost five times what was originally agreed on.

The next time they came, the worker was using headphones and singing while working. He sprayed the side of the house, some of my flowerbeds, and a few shrubs. Within a day the flowers were wilted, the shrubs turning brown, and the side of the house stained. I complained. The owner came back and looked. He said he would fire the worker for being so careless (I saw him at another house, still working for the company, two months later), but there was nothing he could do about the dead flowers and shrubs.

I told him to cancel the contract; I’d take the loss. Even this summer there was one area where they sprayed that, with the original soil removed and new dirt and flowers put in, nothing grows properly.

As soon as I fired the company, I did what I should have done originally: Googled them. There were web pages filled with similar complaints, people who had negative experiences not only with this company but also with other “lawn experts.”

Using the Internet to research lawn care, and taking a few books from the library, I discovered that by trimming some branches that were shading part of the lawn, using a few bags of lime, and removing the thatch in the spring, my lawn should improve. It did.

Today, with plumbers and electricians charging almost or over $100 just to come to the house to give an estimate, with service contracts costing $400 and up, and with $40 oil changes, we need to stop depending on others, to take the time and the pride and learn to do many things ourselves.

Many school districts, colleges, libraries, and community organizations offer low cost or free adult education courses. If you no longer have the maintenance manuals that came with your lawn mower, leaf blower, or similar product, try the Internet. Companies offer free or inexpensive replacements. These manuals will show you how to change the oil, sharpen the blade, and replace fluids. If you cannot get a replacement from the company, try a bookstore. Ask the hardware store owner or worker. Lowes and Home Depot have done a good job training their employees. They also have many low cost do-it-yourself books.

Use the Internet. There are many online forums where people share their knowledge of small repairs and product reliability. Hare are some of the best.

Slightly Creaky’s Leaky Pipes

Michigan State University: Home Maintenance & Repair

DoItYourself.com

How Stuff Works

How Things Work

This Old House

AutoZone

Lowes How-To Library

Home Depot Know-How Center

Monkey See

DIY Network

Seeing is Not Believing - Part 16

Seeing is Not Believing - Part 16:
Hidden Fees

Have you taken a good look at your telephone or cable bill recently? The details may be shocking. While many companies advertise “low” rates for such services, by the time they add on extra fees for things you have never heard of, your bill can be twice or even three times the advertised rate.

One television advertisement for multi-line cell phones has a large $49.95 in their ad and you might think that’s the cost. Actually that is what they charge for each extra line. The monthly rate is around $100; add two lines and you are paying double. Include the service fees, subscriber charges, recovery costs, and other usually unexplained add-ons and you’re up to $240 before state, Federal, and local taxes. Plan on it going around $300 a month.

Add to that the cost of the telephone. Oh, they are giving the phone away for free? Wow. It now costs less than $10 to make a cell phone, even with all the extras. They make up for it with an “activation fee,” whatever that is, of only $49.95. Per line.

Now telephone companies are charging for each text message sent and received. There was a recent story of a California teen who did not realize there was a surcharge for texting from Canada while on vacation and the next month’s bill exceeded $20,000.

Frequently when a new service is provided, such as text messaging, walkie-talkie calling, or e-mail delivery to your cell phone, initially it is offered for no extra cost. A year later, once you are hooked, the fees kick in. In many cases there is no advanced warning that what was once free is now costing you a hefty sum. Or, if there is notice, it is in small print mixed in with five pages of similar small print that you read the first time you got the bill, but have since ignored.

Television used to be free. You put an antenna on the roof, or, if you live in a city, rabbit-ears on top of the set. Then came cable offering better reception to rural areas. Cable also offers more than 12 channels. With some cable companies you had to pay extra for local stations until Congress stepped in to end that extra hidden cost.

Now you can get cable, as part of a package, for $29.99 a month. You also needed to add telephone for a similar price, and Internet service. Actually that is not a bad combination if you need all three. Although if you want more than the “basic” package of 80 channels (74 of which you’d never watch), your cost doubles, triples, or exceeds $200 a month.

Get a free home alarm. Sounds great until you look at the hidden fees. The “free” package may only cover four windows and one door. Not many of us have four windows and one door. We had five of these “free” alarm companies visit us and the actual cost for our house (9 windows and three doors) came to just over $1,200 from a local independent company (which did not insist that we sign a long term monitoring contract) to more than $3,000. The four national companies, all of which advertise ”free” alarms, also wanted two year or longer monitoring fees of $33 or more a month. For 24 months that comes to $800, which is not so free.

After 40 years of listening to infomercials, I recently saw a product on television that I thought of purchasing. It may not have been worth $19.95, but it was something I could use and had never seen in the store. But wait… if I ordered now they would triple the order and I’d get three for the same price. Plus a shipping and handling charge of only $8.99 (why can’t they say $9?). Each. Yes, you had to purchase three, and the cost was $20, plus three $9 fees for $47.

The newest gimmicks are shipping surcharges. Some companies add on a “cost of shipping surcharge” due to the high gasoline prices. The company may not be able to tell you in advance what this surcharge is, as it is based on many factors including the cost of gas, the shipping company they use, the time of delivery, the shipping distance, and the number of box seats the boss needs for next week’s football game.

Seeing is Not Believing - Part 17

Seeing is Not Believing - Part 17:
Call in the Next Five Minutes

Who can resist a special deal? When people are offered things for a deep discount or possibly free, they rush to buy. Perhaps it is human nature, perhaps greed.

We knew a person who used to look for such sales and went far out of her way to get them. If a place offered something with a rebate that saved a dollar or two, she would buy it, even if it meant spending an extra $5 on gas and tolls and take an hour round trip. A few years ago, when she was visiting and saw we had something that was not working properly, she offered to give us one from her stock of more than a dozen that she had gotten for free.

During a visit to her house we noticed a bag among her garbage containing quite a few food items in closed packages. Thinking she had placed them there by mistake, we asked whether they were food pantry donations. She stated they were all items she had bought at a discount but were now out of date. She may have saved half price on them, but threw half out.

Companies take advantage of this trait to get us to buy things that we really don’t need, and may not even want. In print ads they are called “loss-leaders,” an item the company sells at cost or even at a small loss, to get you into the store. Milk used to be a common item that headlined advertisements. Buy your milk for half what it sells for elsewhere and while you’re in the store you may get cigarettes, snacks, and other high profit items. Now you see movie DVDs used the same way.

Restaurants use soda as a loss-leader. You may think you are getting a great deal when you get a free fountain soda, or even a 12-ounce can, but the cost to the store is negligible. Consider that supermarkets make a profit when they sell 12-packs of soda for $2. Thus a can of soda can not cost them much more than eight cents each (and possibly a 5-cent deposit). If they can get you to buy a $5 sandwich (which is $4.50 profit) and throw in a can of soda for free, who wins?

Television advertisements give away “free” items frequently. Purchase the acne cure (cure?) for $20 and get six items that other companies could not sell because no one really wanted them. Remember the extra shipping and handling charges we mentioned in last week’s blog?

Cruise ships use the same technique. Most of them over-inflate the prices so they can offer $200 off each room (not each person) and $100 room credits that must be spent on their amazingly high prices. Free water, coffee, tea, and ice tea, but soda, which costs them less than coffee, is $2.00 a glass or all-you-can-drink for $40 a week. Consider that – you need to drink 20 glasses of soda in seven days to break even. Twenty 12-ounce cans at the supermarket would cost you under $4.

Taking a cruise means more than being on a ship. At each port you get a chance to visit significant destinations such as historic sites, scenic locations, wineries, or other highly publicized must-see tourist traps. If you take the cruise ship’s planned tour you are guaranteed to get back before the ship leaves port, and you will also pay twice or more than if you take a similar tour purchased locally.

We’ve taken six cruises in the last dozen years and have only taken two tours: a penguin rookery and a swim tour in the South Pacific. They were wonderful, and well worth the cost. But we balk at spending $300 a person for a one hour hard seat no-shocks bus ride to some obscure location, ten minutes touring the place, a free 3 ounce glass of grape juice, and another hour back.

In one of our previous blogs we discussed high-pressure sales (Part 7, September 13, 2008). This is where you are told you can get a substantial discount if you purchase NOW. The offer will never be available again. Radio and television ads use the same technique, but with a twist. Purchase within five minutes and you get a discount, or a free item, or free shipping…. The implication is that if you wait six minutes you will not get the special offer. Twenty minutes later you hear the same ad, possibly on a different channel, again giving you just five minutes to call in. And tomorrow it’s on again, and next week, and next month…

Thieves All Around Us

The start of a new series: Consumer Safety & Awareness Part 1

Thieves All Around Us

My wife and I love penguins. We once traveled a few hundred miles, during a vacation, to visit a rookery. One of the most interesting facts about these creatures is that Adélie penguins, which use rocks for nests, have no hesitation stealing the rocks of other penguins. This behavior is not limited to penguins. Grosbeak, Sparrows, and Starlings have been known to steal the entire nest of other birds, occasionally taking parts and at other times just laying their eggs in nests made by others and moving right on in.

Anyone who has a flower or vegetable garden is quite familiar with animals that steal what we work hard to produce. Deer, raccoons, chipmunks all like to eat our favorite flowers. Animals also take from each other. Monkeys do not hesitate taking whatever they want, no matter who or what it belongs to. Squirrels and crows love to carry away things that would surprise you.

Although this may come as a shock, humans also steal. Yes, they do. In fact theft predates human history, that is, before we learned to write our ideas down. It is simply a human trait. When it is easier to take from someone else than to get something ourselves, our ancestors did not hesitate doing so. Morality and social attitudes towards stealing is a relatively recent addition to human behavior.

Today, throughout the world, human societies have taboos on thievery, especially from one’s own group. It has long been believed that Gypsies had no qualms about taking from others, yet there is no actual proof this is a trait of these Romanian people. Due to the need to stay alive, all creatures will steal when their survival or those of their families depend on it.

Yet some humans make an art of stealing from others, whether they need it or not. People do this to obtain things they simply want, or to deny others from having material goods. People steal works of art and other treasures simply for the pleasure of having such objects. Rich people have been known to steal simply to become richer. Many people take what is not theirs because they know they can get away with it. More than 70% of shoplifters can afford the objects they take.

In this new series, we will be looking at organized planned thievery. Although theft of opportunity probably accounts for a large portion of stolen goods and money, theft by design probably accounts for over 90% of the value of property stolen. It take only a moment, and little thought, to take a candy bar, a pair of socks, or a bottle of perfume from a store or to lift a valuable from a house you are visiting or living in. But a lot of planning must go into art heists, bank robberies, and embezzlement.

It is doubtful if anyone reading this has a Monet or a Ming vase. If you do, you probably have all sorts of alarms and insurance policies. Most thieves are not sophisticated enough to get away with super-heists. But by taking $100 or $2,000, or $15,000, organized groups and knowledgeable individuals can do just as much harm to us as those people who get millions in museum robberies. Most of these small thefts are the result of scams.

A scam is theft by design. It is planned, practiced, perfected. It uses trickery, the skill of a magician, and deception. It works because the scammers study human nature, can predict how people will react in certain situations, and they take advantage of people’s trust. They target older people who are usually in need of someone to believe in. They target religious people who have an interest in sharing

There are many types of scams. The most common, which we will be writing about in this blog, include, but are not limited to:

> Bait & Switch
> Pyramid Scams
> Advanced Fee
> Theft of Services
> Robbery
> Counterfeiting
> Theft by Design
> Blackmail
> Deceitful Advertising

By knowing how the scammers operate, and examining the types of people and situations that make their work easy, you can learn to protect yourself, your family, and your valuables.

The Honesty Factor.

Consumer Safety & Awareness Part 2

The Honesty Factor

Most people would be dishonest if they knew they could get away with it. According to an AP release on November 30, 64% of students have cheated on tests. That is dishonesty. Add to that 30% of high school students have admitted shoplifting. Most likely there are others who will not admit it.

Is it only society’s morality checks that keep more people from being crooks? If not for the fear of being caught, of the social stigma associated with it, the consequences both through the criminal justice system and through the loss of “face,” would more people act dishonestly? In many social circles, dishonesty is admired. Many teenagers look up to those who beat the system, even when they do so in ways that are contrary to their upbringing and their religion

Are these people reacting to the examples they see around them – sports figures and popular singers carrying guns around, abusing drugs, ignoring sexual morality, and generally flaunting their ability to do improper things and get away with insignificant punishments? Does our society now look up to the CEOs who make millions while driving their companies into bankruptcy? Then, after their business tanks, they are hired to run another company.

Honesty seems to have several meanings. People want others to be honest in their dealings, but they do not always seem to think that they need to be honest with others. We see people, public figures, accused of crimes, refusing to accept any blame, decrying any thought that they may have done something wrong, only to plead guilty a few weeks later.

Perhaps it is this jaded attitude that has opened the door to so many scammers, thieves, white-collar criminals, and other crooks. From President Clinton’s denial of sexual wrongdoing, to Vice President Gore’s supposed invention of the Internet, to president Bush’s many twists of truth in order to convince Congress and the American people that we needed to go to war in Iraq, from the top down honesty is no longer policy.

Alaska’s recently convicted Senator, Ted Stevens, totally denied any wrong-doing. He was convicted of seven counts of failing to disclose more than $250,000 in gifts and home renovations. Yet he refuses to believe he did anything wrong. He admits to having all these things done for him, yet states that since he did not formally accept the gifts, that he was just keeping them temporarily, he was not guilty of any impropriety.

Humans have been raised for thousands of years to accept the honesty of our religious leaders. In fact, since faith is the cornerstone of religion, and those who set church policy also set morality standards, how can our society maintain an appreciation of honesty when so many religious leaders have lied, stolen, ignored their vows, and committed horrendous crimes?

We also accept society’s ills as an excuse when a crime is committed. The accused did commit the crime, but it was not her fault because she was pregnant, or had just given birth, or because he had a poor childhood, or because he saw the same thing done on television. We scoff at some of the trials that result in huge settlements for seemingly little things, yet “we” are the people who are on those juries who determine the outcome. We wonder why a minor violation can result in a huge jail sentence when major criminals get off with probation or less.

All this opens the door to scammers. These people, who have purposefully set out to rob, whether through overt act or deception, rarely see any harm in their acts. It is their job. The marks or pigeons are simply there as aspects of their work.

Next week we will examine why scams work. Just how is it that such people can stay in business, in fact rack up billions each year?

Who Scammers Target

Consumer Safety & Awareness Part 3

Who Scammers Target

All types of people are subject to being scammed. They attack the rich and poor, men and women, young and old. Scammers do not discriminate – they do not care about your race, religion, or nationality. It makes no difference where you live. They even try to con other scammers.

There are, though, specific groups of people that are more susceptible to scammers simply because of their background, culture, age, or knowledge. There used to be a commercial that stated, “A well informed consumer is our best customer.” A knowledgeable consumer is less susceptible to a scam. This has nothing to do with education or intelligence.

The more you know about any aspect of life, the better you do at it. I am a teacher by trade, and was fairly successful. But do not ask me to build a bookshelf, work with plumbing, or drive a truck. Since the 1980s I have been researching scams. During that time I have been exposed, through reading and actual active participation as a supposedly unsuspecting mark . I may still fall for one of these cons, but it’s very unlikely.

So, to protect yourself, you need to be aware of the main scams, those you are most likely to come across. This includes knowing who the scammers go after, what they are seeking, how they study their intended targets, and generally how they operate. In each case you should look at a variety of examples of actually successful scams. Just reading about a few in the newspaper and wondering how anyone can be taken in, is not going to do it.

The absolutely perfect victim for a scam is an elderly religious person, living alone with few outside contacts. This takes into account several factors. Scammers use psychology, sociology, human traits, reactions, and tendencies. Like a gambler, they play the odds. Older people were brought up in a more trusting environment. Their childhood and younger lives were protected from fraudulent activities. In many cases they cannot conceive of anyone wanting to take advantage of them.

A person who lives alone, even by choice, is subject to feelings of loneliness. People have a desire to belong, to be needed and liked. Thus an elderly person who does not have constant human companionship, is more likely to believe in someone who demonstrates a concern. Elder abuse is almost always caused by a relative, a friend, a caretaker, or someone the person has put trust in, such as a lawyer or financial advisor.

Religions teach people to trust others, especially those who have nearly the same beliefs. Add this factor to living alone and being elderly, and you have a perfect mark.

Other human traits scammers count on include the desire to have the best possessions and the willingness to take risks to obtain them. Some call it the greed factor. Others blame advertising companies who bombard us with the latest and greatest, displayed in perfectly clean homes with wonderful furnishings. Everyone in ads is healthy, beautiful, young, and can afford anything they want.

It makes no difference if you are already wealthy, or are just making it from day to day. There are scams created to appeal to the greed in all of us. Although poorer people have less available money, they can be conned over and over simply because they have a greater desire for the wealth they see around them. Those who already have plenty are conned less frequently, but for bigger prizes.

Each of the scams, frauds, and other illegal practices we will be looking at has been tailored to meet the susceptibility in all of us. No one is immune. You may never see it coming, or it may be staring you in the face so blatantly that you can’t recognize it for what it is. On the other hand, you may be so absolutely certain that it’s a scam that you feel you can beat it. Yet again, you’re falling for their deceptions.

Scammers are not smarter than you, but they have more experience. They know when a scam is worth pursuing and when it’s time to run. And they run so fast, and hide so well, that they are almost never caught.

Why Scams Work

Consumer Safety & Awareness Part 4

Why Scams Work

There are several types of scammers, each with their own specialty. Some work on the road, hitting and running away so rapidly that you see them only for a few moments. Some specialize in mail, telephone, or e-mail fraud. Generally what works in one of these media does well in others, although some variations are easier in a particular mode. Others work in offices, and they rob you with their pens, computers, calculators, and contracts. They include lawyers, financial advisors, tax consultants, government workers, and all sorts of white-collar workers.

Every occupation provides opportunity for people to work scams, from within and without. They can rob you with a gun, through trickery, or with a piece of paper. They can assist you in fooling yourself. Scammers provide the opportunity for you to fall into their traps.

No one knows how many CEOs sit in their offices, perhaps playing computer games, raking in their millions. It is impossible to estimate how many hackers transfer money from one account to another or use other people’s computers to make their fortunes. Large corporations have so many layers of security, that it’s impossible for them to see the individual twigs in their vast forests.

Who steals from others? Principals and school superintendents misdirect funds or lie on their expense vouchers. Little league managers and supervisors obscure their income totals and fib about what they spend money on. Community and school tax collectors pocket cash given by homeowners. Politicians, contractors, and people who make purchases for all sorts of companies and institutions accept kickbacks or look the other way when poor quality material is used.

Insurance companies, cable and telephone services, lawn care and pest control franchises all create contracts so obscure that they can easily add on fees for what you thought was covered by contract. Auto repair shops use sub-standard inexpensive parts, or replace good ones with used. Gas stations and deli counters rig their weights and measures. Homeowners hide defects when they sell their houses. Building inspectors accept bribes.

Think back on episodes of Law & Order, Monk, NCIS, or any television show or movie involving people, money, and possessions. They are not outlandish. Well, “Men in Black” was a bit extreme. Situational dramas are based on real life happenings.

Every day, from morning to night, you give scammers the opportunity to rob you. Every time your telephone rings, it could be someone testing to see if you are home. When the doorbell chimes there could be someone waiting to sneak into your house. In the streets and stores there are teams of pickpockets, people who stage accidents, and others looking to provide you with the opportunity to purchase things at highly inflated costs. In your work place there are those who know just what you need to cure your sniffles, or to provide the best health care, or to give you a chance to improve yourself.

There are frauds dealing with education, daycare, and repairs of all sorts. There are con artists waiting to explain why you need a new roof or fresh blacktop. There are gas stations and home heating fuel companies that purchase the dregs from the bottom of those huge storage tanks, and their products are more likely to contain water or sediment that will ruin your engine or furnace.

There are “honest” businesses with good reliable names that sell substandard material, put impurities in their product, and sell medications that have no value or may even be harmful. Trusted advisors will bill you for work not performed or will sell your personal information for a profit. Judges take bribes, cops take bribes, teachers take bribes, and contractors take bribes.

Have I insulted your profession yet? Sorry I missed it. You probably know someone who does exactly what you do who is a bit shady. People cut corners, they get even with their bosses, they feel they are not paid enough or not appreciated. Human nature.

Enough paranoia. Yes, there are people out to get you, and if you let them they’ll jump at the opportunity. Let’s see what we can do to put you in bulletproof armor; a scam-resistant vest of knowledge that will prevent, deflect, reduce opportunities and make it less likely you’ll be chosen as a mark.

In the next article (August 30), we will start looking at specific con situations.

The Four Steps to a Successful Scam

Consumer Safety & Awareness Part 5

The Four Steps to a Successful Scam

One of the most common scams, one that is totally illegal in every state, is called Bait and Switch. A simple definition of this is when a merchant advertises for a product at an attractive price knowing that no one will purchase it. There are two general reasons – either it will not be available or it will be of poor quality. The advertisement is the bait, to attract you to the store, so that the merchant can then switch you to a more expensive and more profitable item.

Former New York Attorney General, Elliot Spitzer, in a decision involving a Newburgh, NY (where Slightly Creaky is produced) mattress company, provided the reasons why this technique is illegal. “My office is fighting to protect the integrity of the marketplace, to level the playing field for competitors and to ensure that consumers have clear, non-misleading information from which to make purchasing decisions.”

In order to sell a product, there are four steps any merchant, honest or not, needs to go through. The first is to get the potential consumers aware of the product. So many new items are introduced every week that it is generally impossible for people to know about even a fraction of them. This is why advertising is used. Ads are issued specifically to people who may use the product: a consumer buying in a supermarket, a merchant who might increase sales or efficiency by using it, a teacher who may find it easier to teach a concept through use of the item, or the United States Air Force which might employ the new product to more easily spot an enemy or to make it easier to shoot a target.

Once the consumers are aware that the product exists, the second step is to make them aware of the value of the product. We are faced with a huge selection of things that can satisfy our needs and wants. Why, then, should we switch from what we currently use, or from our traditional methods, to this new item? The merchant must give us a desire to try the product. Again, this step uses advertising.

You see it daily on television and print media ads. This new or improved, or larger item will make you more lovely, stronger, happier, healthier, better able to do your tasks, or more popular. These ads may appeal to vanity more than to logic. Consider automotive ads that use sex appeal to sell a hunk of metal. People will look up to you if you own this particular brand, your life will be easier, your ride smoother, you’ll have more leg room, or the vehicle will get better mileage.

You are now aware of the product and you recognize that it might provide some sort of benefit or advantage to you. All that does no good if the product is not available. One of the weaknesses of new technology, such as a cell phone, computer game console, or similar device, is that manufacturers need to sell it to the public before sufficient quantities of the product are on the market. Manufacturers can use that to their advantage, though, creating tension, the need to possess, and to be among the first. It really does not matter if the item is not yet fully tested, if there are known bugs, or if the initial selling price far exceeds the true value.

The last step in selling an item is making it available at an attractive price. Only the manufacturer, and other companies that make similar products, has any idea what it costs to make and where their sales tipping point is. This phrase has several meanings. It is commonly used to indicate the point where a product is considered mainstream, where the majority of the population sees a need for it. It can also indicate the zero profit point of an item, where all the costs added up come together and anything above that is profit.

Consider a teeter-totter, the children’s playground see-saw, or a balance scale. The tipping point is when the fulcrum is totally balanced. Move it a bit more and the balance swings to one side. To the left there is a financial loss, to the right a profit. Obviously the company does best when it makes the greatest possible profit.

Since the general public can only compare a new product to similar ones that already exist, they depend on the manufacturer, the advertisements, and the merchants to set a value on new or improved items. In general, the initial price, often called the “list price,“ is set considerably higher than it needs to be. The primary reasons given for this is that the company has put a lot of their own financial resources into development, paying for experimentation, testing, salaries, prototypes, and related expenses. To do so they have either borrowed money, and are paying interest, or have taken money from other areas of their business to pay for research and development. They need to recoup their investment and pay off their loans as quickly as possible.

As the product becomes more popular, and they can sell it in greater quantity, several things happen that help reduce the cost, lowering the tipping point. Mass production is less expensive than making fewer items. Shipping larger quantities to the same destination is less expensive. Fewer people are needed in the R&D aspect, so cost for salaries and benefits decline. As bugs are fixed, less money is spent on customer services. Inexpensive ways to produce the product are found. Parts, bought in larger quantity, also result in lower costs.

It is nearly impossible for anyone, including the manufacturer, to point to a time when they can lower the price they must charge and still maintain the profit level they need. It is just as hard to determine when the volume has increased so much that the company has what outsiders may consider excessive profit. A manufacturer will not lower a price until it is forced to, as indicated by a reduction in sales or a pending competitive product that may reduce its market share.

We now have the four steps needed to sell a product: awareness, desire to possess, availability, and acceptable cost.

Like honest merchants, scammers use these to get their marks to buy a product. In bait and switch, they offer something you are aware of, that you have a desire to own, that they make available to you at an attractive price. The problem is, they set out from the beginning to deceive you. There is either no product or the one offered is of substandard quality. The scammer has a solution: for a little bit more we can move you up to a product that is of better quality and is available. Their definition of “a little bit more,” though, may not be the same as yours.

Let’s get back to Attorney General, Elliot Spitzer’s mattress rip-off. Here is the actual decision from November 13, 2000:

Spitzer found that Resnick's Mattress Outlet, Inc., repeatedly ran advertisements offering specifically displayed mattresses for $29.95 to $59.95. When customers sought to purchase the advertised mattresses, Resnick's would discourage them by disparaging the quality of the mattress or by not stocking enough to meet demand. Resnick's sales people would then steer those customers to more expensive mattresses.

"Bait and switch advertising involves the advertising of an item at a very low price to lure consumers into the store and then switching the customer to a far more expensive model by stating that the advertised product is unfit or unavailable. It's an age-old sales tactic that gives an unfair competitive advantage to a business over its competitors by using false promises in its advertising to entice customers into its stores," Spitzer said.

The Attorney General found that Resnick’s advertising was misleading because it left the impression with consumers that all mattress purchases qualified for its advertised free frame, free delivery and free removal policy, when in fact, the offer did not apply to the advertised mattresses, but was limited to only certain specifically prepackaged mattress sets. Spitzer's office also found that Resnick's deceptively claimed that it would double someone's money back if a consumer could buy a mattress for less from a competitor within 100 miles. Resnick's stores are primarily stocked with mattresses manufactured by and exclusively for Resnick's stores. The few remaining non-Resnick manufactured mattresses carried in Resnick's stores are only rarely available at competitor stores within a 100-mile radius.

Most mattress company commercials use a similar ploy – they state they will give you a free mattress or additional cash, or something special if you can find the same mattress at a lower price anywhere else. For them it’s a safe bet. You see, all mattress companies put a different identification number on mattresses sold to different stores. They may sell the exact same product to Sleepeze, 1-800-Mattress, Macy’s, Penny’s, or whatever store you are dealing with, but each company receives its mattresses with a different code. Therefore it is impossible for a consumer to prove that the exact same mattress is being sold for less elsewhere.

Household Bait & Switch

Consumer Safety & Awareness Part 6

Household Bait & Switch

Bait and Switch has many variations. Some service franchise companies use this technique to get you to sign an annual contract, then they inform you that what you have is bare minimum and will not satisfy your needs. Since they already have you under contract, their new sales pitch is worded so you think you are getting something special.

Lawn care companies promise to do monthly fertilization, using chemicals specifically formulated for your needs. Each month they alter what they use to attack early spring weeds, long-term problems, and even provide special pre-winter care. What they do not offer, and charge extra for includes grub control, shrub and tree fertilization, and dethatching. They push you to have these services. Their service is usually only for limited lawn space. To do your entire yard may double the advertised cost.

I have a personal problem with these services. My yard consists of half lawn and half flower and shrub areas. I once tried a lawn care service that promised that their technique would do no harm to my plants, yet the serviceman destroyed an area of pachysandra, a mugu pine, and some hosta. When I complained they said there was nothing they could do.

Pest control companies also offer annual contracts, but they rarely cover everything. There are many established and documented scams involved in insect control, such as finding evidence of infestation without finding any insects (because the insects are under your foundation or inside the wood), using improper or short-lasting chemicals, or even dropping insect pests from bottles and then showing you that you need extra service.

The South Carolina Consumer Affairs Bureau handles a large number of complaints against pest control companies. Their web site has this warning, “Pest control fraud is prevalent in areas where you are more likely to have problems with insects. This con game usually takes the form of a termite inspector who appears and informs you that termites have infested your home and if you contract for his services today, you will receive a discount. Always avoid such pressures. It is extremely doubtful that your house will start tumbling down around your ears that very day. Besides not applying pesticides properly, the pest control con artist may not use a recognized or effective pesticide. As a matter-of-fact, they may apply nothing but some chemically smelling liquid. Don't deal with door-to-door pest control operators. If you need their services check the yellow pages, call them and ask for an estimate based on your needs.”

You can have problems with companies that service inside the house as well. National carpet installation services offer low prices and quick installation. They, though, may attempt to get you to purchase better quality, explaining that the one on sale is not good for your situation, and charge extra for the under pads. The same can apply to companies that install or refurbish cabinets, wallpaper, or do household cleaning.

Bathroom refinishing companies have been cited many times for bait and switch, poor material, and refusal to stand by warrantees. Here is one example from the Internet consumer organization, CTV: “On May 31, 2006 {company} reglazed my bathtub, at a cost of $175.00, giving me a 5 year guarantee. It is now September 29, 2007, and the bathtub finish is peeling. I called the company, speaking to Will and was told to call him the next week and he would make an appointment to come and repair it. I phoned 4 times in the past two weeks and he has an answering machine, so I left a message. He is never in to take my call and he never returns my call.”

By the way, several companies offer spray-on bathroom refinishing kits for old and worn baths and showers. Attorney generals in several states have filed suits against a few stating that the products are short lasting and nearly useless. It is often less expensive to have a contractor install a new bathtub than to refinish an old one.

One thing to watch for in bathroom remodeling, especially for seniors and those with medical problems, are the advertisements for improved units where no price is listed. Once the salesperson is in your home, you are subject to both bait and switch and high pressure sales pitches for products that cost many times their value.

Window remodeling also attracts bait and switch tactics. The low advertised prices might be for poor quality windows that do not meet the building code in your area. The sizes offered may be irregular, and to fit your windows there is an additional fee. The salesperson may talk you into including features that you do not need.

Home alarm companies so overuse bait and switch that they need an entire section to themselves. (Coming on September 30.

Bait & Switch: Household Alarms

Consumer Safety & Awareness Part 7

Bait & Switch: Household Alarms

Home alarm companies so overuse bait and switch that they need an entire section to themselves. The large national companies’ advertisements appear to offer a free or inexpensive home alarm system, but once you get to the sales pitch, with a salesman in your living room or kitchen, you discover it only covers a few doors and perhaps no windows (substituting an interior motion sensor that supposedly covers all windows). Then they offer small add-ons at “low cost,” which, once added up, comes to a substantial selling price. Your house, no matter who you are or where you live, is always more complex than the initial basic system. But if you do not purchase it today you will not be able to get all of the great side products they are offering at the same price tomorrow.

ADT is a national alarm company that has ads in magazines, mailers, on television, and on the Internet. A typical ad states that their “state-of-the-art system includes”

a) Front and back door protection. If you have any additional exterior doors they are extra.

b) Infrared motion detector. Singular. One is included in the package. These are line of site detectors only, so if an intruder bypasses the area covered by the motion detector they will not set off the alarm.

c) Lots of add-ons such as a way of turning the alarm on and off, window and lawn signs, emergency buttons, and a siren.

There are no window alarms included. No glass breakage. Their initial system is free, except for a $99 installation fee and a 36-month monitoring contract that costs $35.99 monthly, or $1,295.64. How good is this system? So good that as soon as they come to your house (we actually invited them in) they prepare a list of things you need to add on. In our case they ignored the basement window, our glass-enclosed sunroom, and the garage. Strange, as the salesman was working on commission.

Consider your house. Calculate the number of entry doors you need to alarm, and the number of windows that an intruder can enter. Do not forget to include basement and second story windows that can be accessed, no matter how difficult it may seem to you, from a garage or add-on roof. Does their two-door and a motion sensor system cover your house?

Their online site does supply one price. Their top-rated alarm panel costs an extra $349. Every other product has this statement “Click Here To Schedule Your FREE Risk Assessment. “ The salesman will count every window on your first floor and basement as well as potential points of entry elsewhere. For each window he will recommend, at an additional price, a window alarm and glass breakage alarm (because a thief can break your window and disconnect the alarm). How much more will this add to your cost?

Because California has strict liability laws, there is, hidden in their web site, the required “Contract for our California Customers.” Most likely these apply to every state. Here are a few things you need to know copied directly from their site. This is lengthy, but, as with all fine print contracts, please read it through completely. As you go through these statements, ask yourself why they feel they have to include them.

a) You agree that: if you terminate this contract during the first year, you will pay us $450.00, if you terminate this contract during the second year, you will pay us $200.00. These amounts are agreed upon damages and are not a penalty.

b) We have the right to increase the annual service charge at any time after the first year.

c) You agree to pay all directly or indirectly imposed false alarm assessments, taxes, fees or other charges of any police or fire department, or any other governmental body. You agree to pay all telephone or signal transmission company charges for area code, telephone numbering or other changes. You agree to pay us to reprogram the system if necessary to comply with any area code, telephone numbering or other changes. You agree to pay to us any increases in our cost for facilities used for transmitting alarm signals under this Contract. You agree to pay a service charge if our representative responds to a service call or alarm at your premises because you improperly followed operating instructions, failed to properly lock or close a window, door or other protected point or improperly adjusted CCTV cameras, monitors or accessories.

d) It will be extremely difficult to determine the actual damages that may result from our failure to perform our duties under this contract. You agree that we and our agents, employees, subsidiaries, affiliates and parent companies are exempt from liability for any loss, damage, injury or other consequence arising directly or indirectly from the services we perform or the systems we provide under this contract. If it is determined that we or any of our agents, are directly or indirectly responsible for any such loss, damage, injury or other consequence, you agree that damages shall be limited to the greater of $500 or 10% of the annual service charge you pay under this contract.

[Editor’s note: The annual service charge under this contract would be $360.] These agreed upon damages are not a penalty. They are your sole remedy no matter how the loss, damage, injury or other consequence is caused, even if caused by our negligence, gross negligence, failure to perform duties under this contract, strict liability, failure to comply with any applicable law, or other fault. At your request, we may assume additional liability by attaching an amendment to this contract stating the extent of our additional liability and the additional cost to you. You agree that we are not an insurer even if we enter into any such an amendment.

e) In the event any lawsuit or other claim is filed by any other party against us arising out of the services we perform or the systems we provide under this contract, you agree to be solely responsible for, and to indemnify and hold us completely harmless from, such lawsuit or other claim including your payment of all damages, expenses, costs and attorneys' fees. These obligations will survive the expiration or earlier termination of this contract. These obligations will apply even if such lawsuit or other claim arises out of our negligence, gross negligence, failure to perform duties under this contract, strict liability, failure to comply with any applicable law, or other fault.

f) If the system is ADT Owned, we have the right upon termination of this Contract, to remove, disable or abandon all or any portion of the ADT Owned system. You are required to provide us access to the system for removal and we have no obligation to repair or redecorate your premises after any such removal. We do not waive our right to collect any unpaid charges by such removal, disablement or abandonment of the ADT Owned system. If the "Customer-Owned" box is checked, the equipment will become the property of the Customer upon payment of the Total Installation Charge including Sales Tax in full. ADT yard signs and window stickers shall remain the property of and may be removed by ADT, even if the "Customer -Owned" box is checked. Your right to display them on your property during the term of this Contract is not transferable.

g) However, there may be areas where we determine, in our sole discretion, it is impractical to conceal the wiring. In such areas, wiring will be exposed. Upon completion of the installation of the alarm system, we shall thoroughly instruct you in the proper use of the alarm system. We shall not be liable for loss due to water intrusion, mold, fungi, wet or dry rot or bacteria.

h) During the first three (3) months after installation, we will repair or, at our option, replace any defective part of the System, including wiring, and will make any needed mechanical adjustments, all at no charge to you. We will use new or functionally operative parts for replacements. At your request we will repair or replace the equipment we provided at our then-prevailing prices.

Most likely all national home alarm companies have similar policies. From what we can tell, all similar alarm companies use the same lack of pricing formula and also provide only a very basic system.

We do recommend home alarm systems, but believe it is far better to deal with a local alarm company. They usually know what is happening in the area and can recommend a system that is best for your neighborhood rather than a generic anywhere-in-the-country setup. If possible get at least three estimates. While they are looking over you house, ask questions about your current home situation – alarm experts love to point out weaknesses in your security. They will spot where you need to add a lock, an outside light, or other simple and inexpensive solutions to problems you might not even realize you have.

You have all heard of the medical alert alarms offered by various companies, especially useful when an elderly or sick person is living alone. Many of the home alarm companies can provide such remote pendants that do the same thing for a considerably lower cost. They work anywhere in your house. Now you can also get such systems in the form of a brooch or a wristwatch. Most of them are waterproof so can even be taken into the shower, but ask before you do so. They are tied into the home monitoring system and while they have an initial reasonable cost, there should be no extra monthly monitoring fee. When the alarm buttons are pressed, it sends a signal through your home system to alert the monitors. They can be used in case of injury, fire, home invasion, or any other emergency. They are far more reasonably priced than the nationally advertised security products for which you have to pay additional monthly fees. For what those national medic alert companies charge for monthly service, you can have your entire house monitored for break-in, fire, and medical assistance. So if you are planning on getting a home alarm, it is wise to pay the extra for fire monitoring and purchase one or two of the remote personal pendants.

Bait & Switch: Retail Stores and Services

Consumer Safety & Awareness Part 8

Bait & Switch: Retail Stores and Services

We previously discussed how a mattress company was cited for bait and switch. All types of stores do it, and many get away with it. There are a number of variations used. Food stores like to advertise for their lower quality meats, and when you see how much fat, bone, and gristle there is, they hope you upgrade. Stores frequently display poorer items on the same shelf with the more profitable one.

Shelf placement is a trick all stores use. Products they want you to purchase are placed between waist and head level, with lower profit items on the bottom. Companies actually pay stores for ideal placement. Rather than doing this in cash, which may be illegal in some jurisdictions, they give the store discounts and extra products.

Electronic products are used in borderline bait and switch ploys. Stores may advertise for last year’s product and place it next to this year’s. Lower quality components are featured with the hopes that after you listen to the poor sound, you’ll switch up.

Digital camera scams abound. Many of them follow the same pattern and we have discovered eleven complaints against nine different companies using the same formula. Computer magazine Maximum PC explains a typical example: You order a specific camera by telephone, mail or Internet. Months later, you still haven't received it. You call the vendor, and you're given a song and dance about it being back-ordered because of X excuse, (but) would you like to buy the camera bundle with some accessories for $1,700? If you fall for the up-sell ... you'll notice that your package bundle includes (only) the battery and charger (which are normally included with the camera for MSRP). If you give up and cancel the order, you've wasted a ton of time, you don't have a camera, and the company has had your $600 for three months.

In November, 2008, the following action was taken:
Texas Attorney General Greg Abbott today charged two online digital camera and electronics retailers with conducting an unlawful bait-and-switch sales scheme. Today’s enforcement action seeks restitution for Texans who suffered financially because of the defendants’ unlawful conduct.

According to state investigators, Broadway Photo, L.L.C. and Starlight Camera & Video Inc., both of Brooklyn, N.Y., attempted to attract customers by offering the lowest retail prices on price-comparison Web sites. Once customers selected merchandise and made credit card purchases via the defendants’ Web sites, customers were notified that their orders had been processed. Despite the order-processing notice, customers were subsequently asked to call a specified telephone number to confirm their orders.

However, rather than use the calls to confirm customers orders, the defendants instead initiated aggressive, high-pressure sales pitches promoting over-priced accessories, including memory cards and batteries. The defendants’ telemarketers insisted these upgraded accessories were needed in order for the customers’ confirmed merchandise to function normally.

When customers refused these offers, the defendants told the customers the confirmed merchandise was substandard and lacked warranties. The defendants’ telemarketers encouraged customers to purchase different, more expensive products. If customers refused, the defendants canceled the orders, claiming the products were indefinitely back-ordered. When the defendants actually did ship orders, customers who intended to purchase new merchandise often received used or refurbished products.

In 2002, a federal court in Nevada issued an order against a BTV Industries e-mail scam that offered free video-game consoles but instead routed people to a pornography Web site charging $3.99 per minute. “According to the FTC, in the "bait-and-switch" scheme consumers received unsolicited spam e-mail messages claiming that the recipients had won a free Sony PlayStation 2 or other prize through a promotion supposedly sponsored by Yahoo. In fact, the e-mail messages directed consumers to an adult Internet site through a 900-number modem connection that charged them up to $3.99 per minute of use. Apparently, when consumers responded to the e-mail informing them that they had won the game system, they then were routed to a Web page that imitated an authentic Yahoo page. That page then instructed consumers to download a program that would purportedly permit them to connect to a "toll-free" Web site where they could enter their name and address to request a PlayStation. Yet, when consumers adhered to these instructions, they were connected to a pornographic site by way of a 900-number, where they then incurred per-minute charges.

In October 2008, a Hess Express gas station in West Roxbury, Massachusetts was “fined for displaying gas prices that weren’t what they were selling. The bait-and-switch occurred for a 15- to 25-minute period on Sept. 18 around 2 p.m. It is a clear violation of consumer rights, according to the city’s Inspectional Services Department. When prices go up, they must change the signs first and then the pumps, according to ISD. When a price change was done, the station had neglected to change the price on pumps.”

A newly discovered, but not too infrequent trick of automotive dealers, is to entice people in stating that they offer the top price on trade-ins. The salesperson refuses to give the trade-in price until a car is selected. Once that is done, a very low trade-in is offered, often raised slightly upon complaint. If the buyer backs down, the salesperson insists that he has to pay for the new car anyway since the paperwork was completed while they were negotiating. In some cases the used car had been brought to the service center for “evaluation,” and the dealership refused to give the car back, again saying the deal was completed.

This October, in Tallahassee, Florida, a Central Florida internet pharmacy company was sued by the attorney general, because “the company engaged in a “bait and switch” scheme, luring consumers into providing their credit card information by advertising prescription diet pills for significantly reduced prices. The company would then bill consumers for the prescription diet pills but would send herbal supplements instead of the purchased pills.

Professional Wrestler Magazine claims that a bait and switch was used to attract people to a wrestling event. “TNA really pumped up the audience with word of a "big announcement that will change the wrestling world." They even ran advertisements of the "big announcement" bearing Mick Foley's image on some of the biggest wrestling websites. And they saved the "big announcement" for its over-hyped "historic" show at the Hard Rock in Las Vegas.” The announcement was simply that he had brought stock in a company related to the wrestling industry.

Television news shows use the same ploy to get you to stay tuned for a major announcement after the commercial, assuming that you will watch the ad while waiting for the totally unimportant item. They build up the tension by having the news announcers state that it was coming up three or four times, and then not giving the information until the end of the show.

The Atlanta Journal Constitution reports complaints about carpet cleaning companies who put advertising coupons in your mailbox or in the glossy inserts in the newspaper with "specials" like $5.95 per room or whole house for $49.95. Once they arrive, they offer a more expensive service giving a variety of reasons. If you turn them down, they use inexpensive inert chemicals that can sometimes harm rugs, do a rapid job, take your money and leave.

Bait & Switch: Hospitality Industry

Consumer Safety & Awareness Part 9

Bait & Switch: Hospitality Industry

Be careful whom you give your business card to. Several business people have reported this situation: You go out to eat at a fine restaurant, probably not too far from your place of business. Someone enters soon after you and takes a seat He orders a meal and, upon leaving, stops off to say something to you like, “Nice to see you,” or “That looks good, I think I’ll order it next time.” He smiles and waves, then disappears from your life. When you go to pay your bill, his charges have been added to yours. He presented your business card and told the cashier that you said you’d pay.

All hospitality businesses are subject to this scam. You order tickets, get a hotel room, have a meal, or book a flight. When you get your credit card bill the charge is twice or more than what you expected. The company you dealt with quoted you one price and charged you another. Be sure to see the price in writing before agreeing to any offer, and keep the written receipt.

Travel Industry wire reports that online booking companies use this ploy frequently. “I called Expedia and a very polite, helpful agent apologized for the problem and found my $400 fare,” says Daniel, a microchip designer from Palo Alto, California. “She tried to book it for me - and then informed me that the fare had changed to $900 because fares can change in seconds as tickets are purchased.''

MSNBC followed through on this, speaking to an Expedia spokesperson. “While uncommon, the the two-system format we use will rarely return disparate fares,” says Expedia spokeswoman Katie Deines. “It speaks to the highly dynamic nature of pricing and availability. Expedia works throughout the booking process to verify pricing and availability so we are showing customers the latest information.” But travelers don’t care about the highly dynamic nature of pricing and availability. When they see a low fare one minute and a higher price the next, they call it a bait-and-switch. The price you’re quoted should be the price you pay. Every time.”

Global Travel News remarks, “The sad news is, travelers have to contend with this practice. Airlines and online travel agencies protect their claim by using words such as “for as low as” or “travel with rates as low as…” These are gray phrases wherein they only claim that they MIGHT give you the fare they advertise but they can’t really guarantee them.”

Hotels often offer low prices, but hide the bait-and-switch in the fine print. You may arrive at your destination to find that you have been placed in a small or poorly situated room (such as next to a busy restaurant or near the elevator), or one with a single bed. Services promised are often not applicable to your room, such as free breakfast or Internet service. The hotel has a room available that provides all you want, but it will be considerably more expensive.

MSNBC also reports this scam, “The California Department of Justice recently announced the arrest of Orange County travel agent Ralph Rendon. “The suspect allegedly ripped off dozens of senior citizens who wanted to travel to Cuba for religious and cultural purposes,” says the California Attorney General. The scam targeted Jewish and Greek Orthodox seniors trying to congregate with people of their own faith on the Caribbean island. After the 34 victims forked out five-figure deposits, Rendon announced their trips were being blocked by the Treasury Department and refused to refund their money. According to state investigators, he used the money to lease a brand new Mercedes, pay his rent and hire a divorce attorney.”

When you go to a fine hotel, you would think that the stores in its lobby offered only the finest merchandise. Experienced travelers have been finding knock-off items, such as watches, jewelry, handbags, luggage, electronics, and pirated CDs and DVDs, in many hotels in Europe and Asia. They are advertised as the real thing and offered at “discount” prices that are far more than the counterfeits usually sell for.

Hotels.com has been advertising that they will find exactly what you are looking for, exactly where you want it. There’s a good reason they include that in the ads. Many Caribbean Island hotels have been advertising that they are “on the beach,” or “in the center of the action,” when they are actually quite far away. Joe Yogerst of Forbes Traveler Magazine reports, “Unsuspecting travelers can get scammed into rooms only a few notches above a pig sty, places like the Hotel Carter in New York, which recently topped TripAdvisor’s list of the Top 10 Dirtiest Hotels in America. A manager at the Hotel Carter — who requested anonymity — said, “We know about the list. We’re doing OK. We’re still busy.” Then there’s the centrally located Park Hotel in London, which one TripAdvisor reviewer dubbed a “typhoid cubicle.””

Christopher Elliott another travel columnist, collects experiences reported by frequent travelers. The most common is charging for items that were not used. Many hotel rooms come with a self-service refrigerator and snack items, with outlandish prices, such as $5 for a Snicker’s Bar. If you simply accept the room as is, you may find that you are billed for items not used, although they truly are now missing from your room. Most likely they were never stocked to begin with. The bill for these items probably will not appear on your hotel charges but be placed directly onto your credit card. Your “use” of the hospitality items was not discovered until after you checked out. By the time you get the bill it’s too late to disprove it.

Bait & Switch: Financial and Service Scams

Consumer Safety & Awareness Part 10

Bait & Switch: Financial and Service Scams

How would you react if a store keeper took your five-dollar bill and gave you a single in exchange? Some financial institutions use bait and switch to increase their profits, and, based on their reactions and refusal to admit there is anything wrong with their practices, they simply do not care.

Every time a company attempts to sell an annuity, they are pulling a scam. Annuities have the worst rate of return of any investment, and by telling you otherwise, in fact by assuring you that it’s the best investment you can make, the salesperson as well as the company is lying to you. By not offering an investment that has a higher rate of return, they are using a variation of bait and switch.

USA Today offers this advertisement as an example: "Come learn from the IRA Technician" at a seminar that more than 10,000 seniors have attended. Top sirloin steak will be served — along with tips on "how to guarantee your IRA will never run out, regardless of market fluctuations." The seminar then attempts to sell you an annuity. Since it takes forever for annuities to pay off, those over 50 should never invest in them.

When I was teaching, I was offered annuities almost every year. Many of my fellow teachers actually invested. Today, partly because I refused to invest in them, I have more money than they do.

An annuity is an investment that is tax deferred. You put in an amount, usually it’s taken out of your pay check and any interest you earn is not taxed until you cash it out, usually when you retire. Annuities are poorly regulated, and the companies are not required to disclose everything to you. They actually produce the lowest return of all legal investments. Many of them not only have large, occasionally hidden fees and commissions, but also take a percentage of your earnings out for maintenance or other silly excuses. Even Fidelity Investments, one of the most trustworthy names in the industry, was cited for annuity fraud.

It is highly recommended, based on more than 30 years of investigation by lawyers and consumer advocates, that you never put any money into an annuity and if you have money there you should consider withdrawal as soon as you can, even if it creates a penalty. A typical municipal bond fund, which is mostly tax-free and has consistently returned over 3%, occasionally up to 5%, produces as much as five times the return of an annuity.

The following information is from infofaq.com: “Variable annuities cost too much. Because annuities are primarily insurance products, their fees typically dwarf those charged by mutual funds. This is simple to understand when you realize there are two players involved instead of one.....the insurance company and the mutual fund company. According to Morningstar, the average variable annuity passes along expenses of 2.2 percent of the assets per year. This percentage probably won't mean much to you unless you realize how such a large fee can drain the momentum out of a portfolio. Let’s suppose, for example, that you invested $3,000 a year in a typical variable annuity that generates a yearly and unbelievably large 8 percent return before expenses. At the end of a 25-year period, your annuity would have grown to $168,000. If you had put that money into tax-efficient index mutual funds, charging between a low of 0.20 percent and a high of .50% in yearly expenses, the index fund would be worth $230,000. That's a difference of $69,000.”

Salesmen love to boast that you won't pay taxes on the money that's growing inside an annuity, because it’s "tax deferred". That's true, but it’s only half the story. You'll owe ordinary income taxes on every dollar of annuity withdrawals. This might not seem so bad until you appreciate what would happen if you had invested the same money in stocks or mutual funds in a plain old taxable account. These withdrawals would be taxed at long-term capital gains rates, which is only 15%. So lets say you're in a 35% ordinary income tax bracket and you've got a variable annuity. You'd pay $350 in taxes for every $1,000 you pull out. In contrast, if you'd kept this money in a taxable account, you'd pay no more than $150 for every $1,000 withdrawal. Extending this a bit, an investor cashing out a $100,000 annuity would pay $35,000 in taxes vs. $15,000 in a taxable account.

“So it is likely that investors buying variable annuities will actually end up paying more in taxes and having less after-tax wealth at retirement. In fact, the tax deferral feature of annuities actually harms investors who hold mostly equities in their accounts. If these investors are not told that they are being tax-disadvantaged by this tax deferral feature, then their brokers are making material misrepresentations and omissions.” 401-K accounts also have the same tax problem.

“Further, the tax disadvantage won't die when you do. It can hurt your heirs. That's because your beneficiaries will be saddled with paying capital-gains tax on any profit your annuity generated. If your original $50,000 annuity grew to $75,000, your heirs would owe tax on the $25,000 profit. In contrast, if you had placed your money in taxable mutual funds, because of the step-up in basis, your kids would get that $25,000 tax free.”

Earlier I mentioned that many of my fellow teachers have fallen for annuity plans. Teachers do not have access to 401-K plans for retirement. The only similar thing that is available to them is the 403-B. This is one of the worst investment and retirement options ever conceived. Howard Clark, a scam blogger and radio talk host, states “In the worst cases, teacher’s unions are handling the retirement plans and are taking kickbacks for putting teachers in a certain annuity. In New York, for example, the New York State United Teachers union gets a $3 million kickback to put teachers in these plans. If you’re a teacher, you need to know about this and take action. You can transfer your money tax free to two low-cost companies. The companies with the lowest costs are TIAA-Cref and Vanguard. Both are much better choices than any kind of annuity your union is pushing on you.”

So how do you know the best way to invest your money? You hire an investment counselor or you respond to one of the many ads for investment services. You might as well give your money to me right now. I’ll spend it on a few cups of coffee that we can share and you’ll have gotten a better return.

Cox Broadcasting recently had a show about investment counseling. Their conclusion was, “One of the greatest danger points is in mid-career, when you find yourself with a great deal of money in a 401K. At that time you're at the greatest risk, because that's when you're most likely to end up hiring a commissioned salesperson. Is that a problem in itself? No. There are plenty of situations when paying a commission is just fine. But in the investment world, there can be inherent conflict of interest with commissions. There are plenty of investment products that may not be the best choice for you, but you may be sold on them by the person you hire simply because the commissions are humongous. Variable and Index Annuities are referred to as 'sold', not 'bought', since people don't buy these on their own -- they are convinced to do so. Salespeople use code words such as Retirement Secured Account and other phony phrases to keep from tipping you off that you're being sold an annuity. Sometimes a Life, or Immediate Annuity makes sense, but the commissions are so low you won't hear much about them.”

“You also need to stay away from "fee-based planners." These salespeople start with a fixed fee, but the commissions on products they may sell you defray those initial costs, which again, may not be in your best interest.”

Financial scams are not limited to annuities and the sale of high-commission investments. In fact, there are so many of them that it would be impossible to list all even in a 1,000-page book.

Credit cards use bait and switch. They offer you initially low rates that zoom upward quite rapidly. Debit cards have hidden fees and, with interest charged from the moment of use, they are among the worst ways you can shop.

Mortgages come in so many flavors that it’s often hard to know if you have been switched from the one you wanted. In 2007, a Seattle mortgage company used a unique scam. According to the Seattle Post-Intelligencer:

“While Linden Loans LLC advertised residential home loans at "1 percent, with no points and no fees," the state Department of Financial Institutions said it found that "not one borrower actually received those terms in 2006." The department is looking into the company's 2007 practices.”

"The 1 percent rate touted by Linden lasts only a matter of months, and requires borrowers to accept predatory loan terms that would greatly increase costs to borrowers," Deb Bortner, the department's director of consumer services, said in a statement. "Consumers have to be careful. Low rate, low-cost mortgage loans may be available, but they often result in borrowers paying more than they should."

The Los Angeles Times offers this hoax from 2008: “Federal authorities in Brooklyn today indicted two former Credit Suisse brokers, alleging that they tricked large corporations into buying more than $1 billion of so-called auction-rate securities tied to mortgage debt in recent years. The companies had hired Credit Suisse to invest their short-term cash reserves in auction-rate debt backed by federally insured student loans, according to the indictment. But the brokers instead often placed clients in auction-rate issues backed by subprime home loans and other mortgage-related debt known as collateralized debt obligations -- because those issues paid them "significantly higher" commissions, the government says.”

BusinessNet has this example: “According to an Oct. 29, 2002 securities fraud action filed by the SEC in U.S. District Court in Oklahoma, Southmark has defrauded at least 400 investors, most of them elderly, since 1996 with a "bait and switch" gimmick using advertisements for high-yielding certificates of deposit. Customers seeking the safety of CDs would inquire, the suit says, then Southmark agents would aggressively pitch to them "a purportedly personalized managed mutual fund investment program." The agents described the program as "as safe or safer" than CDs. But principal invested in mutual funds may depreciate, unlike CDs which guarantee a set return.”

“Also investors were sold Class "B" mutual fund shares that carry deferred sales charges (loads) and higher internal expenses than Class "A" shares. One customer, a retired commercial airline pilot, invested his $2.1 million retirement savings with Southmark and quickly incurred more than $84,000 in commission charges and fees, according to court records.”

Just because the institution has a known name, and a good reputation, does not mean that individual salesmen will not attempt to defraud their customers. Enter every financial transaction with your eyes opened.

Bait & Switch: Pet Scams

Consumer Safety & Awareness Part 11

Bait & Switch: Pet Scams

Nothing is cuter than a cat. Nope, no dog, hamster, or fish comes close. And nothing is less adorable than a scam revolving around animals. Scambusters reports on five pet-related frauds.

If you have placed an ad in a local paper about your lost pet, and particularly if you offered a reward, you may get a call from someone claiming to have found your pet and asking for money to get it to you. There are many obvious ways to avoid this scam. Ask for a description of the animal, especially distinguishing marks not listed in your ad. Ask where it was found. Ask if there was a collar, especially if there wasn’t one. Tell the person to send you a picture by e-mail. Inform them that you will pay cash on delivery only.

Occasionally the caller threatens to harm your pet to put the pressure on so you'll pay up. In such cases ask for a callback number as you have to arrange for the money. Then notify the police. Threatening an animal for cash is embezzlement as well as violates the state’s cruelty to animal laws.

In a variation, the caller claims to be a trucker who found your injured animal as he was driving through the area. The caller may offer to send the animal back with another trucker who is heading your way. Turn that offer down. Treat it the same way as already described.

If the caller claims that your pet needed vet care, which he has taken care of and paid for, but he needs you to wire him the money so he can pick your pet up, ask for the name of the vet so you can find out the condition of your animal. If he refuses then hang up. Never pay in advance and never give out your name and address. If the call is legitimate, meet the person at the vet’s, even if it is out of state.

In a more complicated scam, your ad prompts a call from someone who claims to have found an animal that might be yours. In the process of exchanging descriptions, the caller will say that he's found a different animal, not yours. He'll apologize for your loss, and for taking your time. This is a set-up -- in a short time, he uses the information he's gotten about your pet to have a second person call and claim to have found your pet. Again, he'll try to collect any reward money in advance.
Your lost pet ad prompts a call from someone who precisely describes your pet, and wants to return it to claim the reward. In reality, your pet has been stolen by this person, who knew you would run an ad!

In a bizarre twist, scammers also respond to 'found' ads with the claim that you have found their pet. When you return the found pet, it may be sold to a research facility.

There are also advanced money scams relating to purchasing pets. The most common is where you buy a pet online, pay for it, and never get it. Another common one is when you are selling a pet (or any animal) and the person sends you a money order or check for an amount much larger than the agreed price. When you make contact the scammer tells you to cash the check and send him the difference. You’re stuck with a stolen or counterfeit check, and the bank wants its money back.

Bait and switch works on pets as well. You respond for an ad for an expensive breed of animal, pay for it, and get a mutt.

When getting an animal, be alert if the seller does not let you spend time with it prior to purchase or if the animal looks or acts unhealthy. If the seller focuses on the money and not the animal, then you should leave. In some cases the seller lets you see the animal, puts it back in his car, then takes your money and drives away.

The Humane Society’s web site has stories about such scammers.

“We all know the Internet can be a great place to buy anything from books to DVDs and rare gifts, but it's not where you should go to buy a new pet. In addition to disreputable dealers and puppy mills, Internet scammers have crept into the realm of online pet sales, stealing money from unsuspecting people who think their new dog or cat is on the way to his or her new home, when in fact there was never really an animal at all. The only party harmed in these scams is the person who is out hundreds or thousands of dollars. “

“In the real world of online pet sales, families often lose significant money when the pet they ordered falls ill soon after arrival. Such animals come from breeding stuck in factory-style operations, churning out babies to be sold off for a quick profit.”

The first rule whenever someone thinks of buying a pet is to visit where that animal was born and see how the parents are living. That cute puppy in the photo on the legitimate-looking website is almost too cute to be real. Often, he isn't.

One scam promises you a free puppy—as long as you pay the shipping. Once the scammers get your "shipping" costs, the scammer says your puppy is stuck at the airport due to customs complications, and you are asked to send more money.

Finally, the scammer (and the puppy who never existed in the first place) disappears. In many cases, victims think their dog is at the airport waiting for them after they've sent two or three money orders.

One woman recently contacted the Humane Society for help in saving a puppy that didn't exist. She believed she was adopting the puppy from a person she had met on the Internet who was stationed abroad. After taking some money from the woman for "shipping" costs, the scammer requested more money to help transport the dog from a European airport, where she said the dog was being held because of problems with the crate. After receiving e-mails that appeared to be from airport officials, the woman was convinced that "her" puppy was really at the airport and in need of her help. But it was all a hoax.

One e-mail scam tells the story of a woman whose mother unexpectedly died, leaving behind "adorable bulldog puppies" who—along with their parents—are in need of a home because the daughter and her husband moved to an apartment where pets are not allowed. Respondents are duped out of "shipping" or "adoption" fees for these non-existent puppies.

In other cases, the seller claims to represent an animal shelter or a Good Samaritan, offering the breeds for "adoption." In these cases, it's important to remember that reputable shelters do not place puppies by sending out mass e-mails and then shipping animals to people.

Internet scammers can deceive would-be buyers by using readily available online photos or by using stolen photos of other people's pets to represent the non-existent animal. They will often copy the claims of legitimate rescue groups and attempt to sound reputable by saying that they will only adopt the pet to someone who has a fenced yard, for example. They will also copy the text from breeder ads and claim to have registration certificates, vet records and health guarantees.

For more information about pet scams, visit TerrificPets.com/Scams where they actually list e-mail sent from people who have been the target of scam attempts.

Pyramid Scams: Introduction

Consumer Safety & Awareness Part 12

Pyramid Scams: Introduction

Greed can make many people act unscrupulously; especially if they themselves have been scammed into believing what they are saying is the truth. Most pyramid scams are based on this. Pyramids, similar to what is known as Ponzi schemes, are illegal in every state. They are based on making promises that cannot be easily disproved and that appear to work. Many e-mail scams today are based on it. In fact I remember seeing similar things run by classmates when I was in school, oh so many years ago. I doubt the kids knew what they were doing was illegal.

Consider the shape of the pyramid and relate it to this scam. The person at the top comes up with a moneymaking idea: an investment in something that does not exist. For example, they promise everyone that they will invest money in a great company that has been averaging 5% returns a month for the last six years. Only he knows about them and only he can get the money to the investment company. It is usually located outside the United States and does not come under US laws and regulations. If you invest $200, the least they will accept, which is really not much, for three years, you will get a check for at least $10 a month every month for those 36 months, or a total of $360. And you will then get the original investment back. Since the company is building a Costa Rican hotel or a German factory, or digging a Peruvian gold mine, you will never have to report it to our government, as the money was not made in this country.

So you invest the $200 and, sure enough, in a month you get $20 in cash, a whopping 10% return. Then the scammer gives you a new opportunity: he will share half of the fee the company pays him, for every new person you can get to invest. He gets $4 a month for each investor, so if you get 10 people to join you’ll get an additional $20 monthly. Thus the pyramid grows. During the next few months your return may vary between 5 and 10%, so after four months you have gotten at least $60 back, more than a quarter of your investment

If he has 100 people on the hook initially, and runs this scam for four months before disappearing, he’s made $140 from your initial investment (times 100 people) and, if each of those people get 10 more, than those ten get ten more investors, there is obviously a lot on money being forwarded. Some invest more than $200 or contribute additional sums after the amazing 10% return the first month. You can imagine that in four months the quite large pyramid has made him well over $100,000 or even $200,000. He then, suddenly, and with no way of contacting him, disappears. Since only the original 100 people ever met the scammer, or shared e-mails with him, and each of them has profited from those they brought in and are thus unlikely to go to the cops, the scammer rarely gets caught.

The greatest of such scammers, Alyn Richard Waage, used a pyramid scheme to take money from around 15,000 investors. His total was estimated at $60 million dollars. He set up a company called Tri-West Investment Club, and, using a web site and e-mail, told investors the money would be put in safe, high-yield securities. When he was eventually arrested, and jailed in South Carolina, it was discovered that the money had been spent on a private yacht, a helicopter and real estate.

A close friend of mine lives in a small town around an hour from Bogotá, Columbia. His area made huge news last November with the breakup of a country-wide pyramid scam that possibly included as many as a ten percent of the people in the country. David Murcia Guzman, who named his company after himself, DMG, escaped to Panama, but was captured and returned to Bogotá. The 28-year old, executed his scheme for around 3 years, hooking in over 200,000 Colombians who sold their homes to invest with him.

The Colombian newsweekly magazine, Semana, described it this way:

For the last two years, a unique economic situation has calmed the income anxiety of those who live in the Putumayo region, which since the 1990s has based its economy on coca cultivation and harvesting. Many people arrive at the DMG offices as much as two days before the payment day. Months ago they had left millions and millions of pesos in DMG’s coffers. Some lost all of their savings. Others, what they got from selling their house, their car or their farm. There are even some who have taken out bank loans in order to invest the cash in this magical way of increasing their capital. When they arrive at the branch, the person receives the “benefit” of his investment, as agreed in each contract. Interest rates of 10, 15, 30, 50 percent, and during “special offer” periods even 100 percent.

Ten million pesos in DMG’s hands for six months can be turned into 20 million. Or if you prefer a monthly payment, they will give you a million pesos every 30 days. That is, 10 percent. One can choose whichever way one prefers. Either way it is well above what any bank would pay to a savings account holder.

David Murcía Guzmán is the person behind this miraculous system. A young man of less than 30 years about whom little is known in the region. Only that one day he came to six of Putumayo’s 13 municipalities and set up his business. The DMG offices, the local population says, have strong safes to hold the cash that arrives at the regional airports and is transported along the department’s awful roads by armored, escorted cars.

There is nothing clear about this business. There are no sanctions from Colombia’s bank-oversight agency; there are no results from the preliminary investigations that the Prosecutor-General’s office began. The business is so prosperous, that in a zone where the narco-economy led the parade for years, it is easy to imagine that something strange is behind this surprising way of getting many out of poverty.

But this matters to very few. In the region, people are so content with DMG that any politician who wants to campaign and win elections in Putumayo would do well not to get involved. “A legislator asked in public about the origin of this money and called for an investigation, and the next day he had thousands of opponents in the department. The people will not allow this subsistence source to be taken from them,” commented a departmental government official.

At least two people were killed in riots in November when the people who ran the local DMG offices started shutting their doors and disappearing with cash. Mr. Guzman faces charges including money-laundering and illicit enrichment. He denies the allegations. Even after he fled, was arrested and returned to Colombia, his scheme continued, taking on a life of its own. DMG was still operating until the police closed its 60 branches across Colombia. Protests against the government by investors who insist that the company is legitimate and that the government had forced its collapse lasted for weeks. The Colombian authorities believe DMG was the most sophisticated pyramid scheme this country has ever seen.

Pyramid Scams: History of Pyramid Scams

Consumer Safety & Awareness Part 13

Pyramid Scams: History of Pyramid Scams

The Consumer Awareness Institute classifies several scams as pyramids. They include multi-level marketing, network and consumer direct marketing, as well as the typical pyramid schemes. Included in the multi-level marketing category are Shaklee, Herbalife, Amway, Avon, Mary Kay, Nu Skin, Sunrider, and Vector marketing. Wikipedia lists over 40 active companies in this group.

The earliest recognized pyramid schemes were chain letters. The initiator sent out an unknown number of postal letters stating something like, “This is a good luck letter. Put your name on the bottom of the list and send it to 5 people, plus the person on the top of the list.” If everyone followed through, eventually it would go to 5, then 25, then 225, then 625, and finally over 3,000 people.

If the scam was to, “Send $1 to the person at the top and put your name at the bottom of the list,” and if everyone followed through, the scheme would net around $3,000. The United States Post Office prosecutes pyramid schemes senders for mail fraud.

Many pyramid schemes involve selling products of little or no value. In the 1950s and 1960s, many such activities involved signing up at least 5 people you know to get important, priceless information on how to make money legally from such things as government or armed forces surplus auctions, confiscated goods, or some financial investments. You had to send their names in with $10 to get the information, as well as notify them that they can also participate. In most cases there was time pressure as it was a limited offer. If 500 people fell for the scam, the originator was $5,000 richer, which in those times was a year’s salary for the average worker.

Charles Ponzi, an Italian immigrant to America in 1903, who had been arrested in Canada for various fraudulent activities, made a fortune after World War I illegally trading international currency. In 1919 he established a company, the Security Exchange Commission, and advertised that investments in his company would receive a guaranteed return of 100% in three months. Thus, if you invested $100, 90 days later you would receive $200. He accepted amounts of from $10 to $50,000 from individuals.

Using new money that he received from those who heard about this amazing return, he paid off the initial investors, giving them the harvest he promised. The success of the Security Exchange Commission became well advertised and people flocked to send him money. His scheme only lasted nine months, but he accumulated over $15 million, a huge sum for 1920. He served time in jail and was deported back to Italy in 1934 where he eventually died nearly penniless.

In the 1960s, William J. Armantrout founded Modern Floor Fashions to sell carpeting. He ran his company as a pyramid scheme, netting millions. His salesmen sold overpriced and poor quality carpets to customers who were told that if they recommended up to ten others, they would get referral fees that would eventually reimburse them the total cost of the carpet. For each person they recommended that actually bought, they would get $60. If, eventually, those secondary clients recommended others who made a purchase, they would get $40. Thus if half of their recommendations purchased, they’d receive $300, and if half of those people’s referrals bought, they could potentially get an additional $1000. On average the carpets sold for between $1,000 and $1,500. Very few people saw more than $100 total in such commissions, and since the carpets provided considerable profit for the company, they did quite well until shut down by the government.

For six months in 1967, in Morgan City, Louisiana, Howard Blachly, operating under the trade names of Pioneer Products or Pioneer Marketing, sold water softeners using what they called a Referral Selling Plan. Along with two confederates, Blachly set up appointments with potential purchasers during evening hours. As part of the sales technique, it was required that both husband and wife be present. This is typical in a selling scam, as we will see when we look at pressure sales techniques.

A demonstration of the product was given by means of a miniature model of the water softener, and the advantages of using the treated, demineralized water in the home were explained. At the conclusion of the demonstration the parties who expressed an interest were then informed of the mechanics of the Plan. They were told that as a result of a promotional advertising plan, the family could not only acquire the water softener at no cost to themselves but also would have the opportunity to earn a profit. This was possible since each sale thereafter made to a future prospective customer whose name had been supplied by the current potential purchaser would entitle such purchaser to a referral sales commission of $40. No limit was placed on the number of referred parties that the purchaser could give. The right to an additional $40 sales commission also extended to secondary sales. Thus each sale to a third level customer would also net the current family $40.

Once the family was convinced, they signed a contract for the water softener for $610, including taxes, or for a time payment that came to $829 over 36 months. The contract also spelled out the referral commissions. A second copy, with additional information was also signed, by both the husband and wife and the salesperson. This one was, they were told, “for purposes of record keeping or for obtaining credit references.” In actuality, the second was a blank property deed, which, once filled out, turned the ownership of their house to Pioneer Products.

Blachly was convicted on 17 counts of mail fraud and sentenced to 3 years' imprisonment on one count, sentencing on the remaining counts suspended with 5 years' supervised probation.

In one of the first direct marketing cases heard in the United States, Ger-Ro-Mar and its president Carl Simonson, were convicted under the pyramid scheme statutes for using a technique now commonly used by the multi-level marketing companies we looked at earlier. In this case, the company enlisted the services of people to sell their products at wholesale and retail, requiring distributors to buy an inventory of varying size before they may participate in the program. A potential distributor (also called a "consultant") may enter at one of three levels ("Key Distributor," "Senior Key," or "Supervisor"), and eventually work up to a fourth and fifth level (District Manager and Regional Manager).

Entry into the program is through a non-refundable purchase of merchandise from the company or one of its distributors. All distributors except the lowest purchased directly from the company; a Key Distributor purchases from his sponsor. The initial purchase requirement for entry into the program is $300, which is discounted 35% to $215. As you advanced in management level, your purchase amounts also increased, first to $1,000, then $3,000. Each was also discounted.

Thus when the manager sold to a supervisor, the manager received a profit of around 15%. The manager then sold down to the next level, also getting 15%. The promotional literature stated that a district manager could earn up to $56,400 per year and Regional managers up to $90,600. The legalese was the phrase “up to,” and in reality no one came close, except the officers of the company.

There are several general techniques that identify pyramid schemes, and these also apply to mass-marketing companies.
Participants are recruited in an endless chain of participants.
Advancement is based on how many others you recruit.
Participants are expected to buy products or services in order to qualify for commissions or bonuses or to advance in the scheme.
The company pays commissions and bonuses on more than four levels of participants.

Next time we will discuss Multi-Level marketing, which, although they conform to the letter of the law, are in actuality considered selling schemes by most consumer advocates.

Next Article: Jan 14: The Truth About Multi-Level Marketing

Consumer Safety & Awareness Part 14

The Truth About Multi-Level Marketing

"Jump onboard the next big Internet wave. Get paid up to five times each and every month. Be mentored by millionaires who have walked the walk. "

This will be published on a new page Click here for 2012 collection (coming January 14)

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