Citizen Economists » consumers

A fueling fable: Consumer protection issues with payments

Ajay Shah — Thu, 02 Feb 2012 15:00:46 +0000

On 22nd December 2011, we purchased petrol worth Rs.100 from an Indian Oil fueling station in Bombay using an ICICI Bank debit card. The receipt suggested that we could have saved a fuel surcharge of 2.5% had we used an Indian Oil Citibank credit card. Upon seeing this message, we asked the cashier at the petrol pump if we would be charged 2.5% over and above the Rs.100 that we paid for the fuel. The cashier assured us that only Rs.100 would be debited from the account linked to the card. The chargeslip and the receipt were:

The chargeslip

The receipt

A couple of days later, we viewed the account statement online and found that the relevant transaction had been recorded. A full week later, we observed that an additional charge of Rs.11.03 had been
debited from the account for the same vendor. Not only was the entry unusual, the charge did not match the 2.5% figure which was mentioned on the transaction receipt:

The statement

We wrote to the bank asking them to explain the transaction. The bank explained that for fuel purchased at non-HPCL petrol pumps, a surcharge of 2.5% of the fuel cost or Rs.10 (whichever is higher) would be levied. A service tax would be levied additionally.

There is a consumer protection issue here. After the account had been debited, and up until we sought a clarification from the bank, we were not made aware of the surcharge. The chargeslip gave a false impression of the amount being paid.

Upon delving further, we find various websites where people have complained about this surcharge being confusing. Further investigation revealed an interesting combination of participants:

The surcharge on fuel is mentioned in the fine print in Terms and Conditions of a debit card.
The bank that deploys the POS machine (acquiring bank being Citibank in our example), at the end of day, surcharges the higher of 2.5% or Rs.10 and sends it to the customer’s bank (issuer bank being ICICI Bank in this case).
The issuing bank then creates a separate debit in the customer’s account for the surcharge
The acquiring bank shares much of this surcharge back to Oil Marketing Company (Indian Oil in this example).
Contrast this with typical debit card processing fees in India around 1.5%. In most cases, merchants will inform a customer before surcharging, and the value on the chargeslip is what the
customer pays.
Many banks apply these surcharges weeks or months after the transaction actually occurs, which helps ensure that most customers do not understand what is going on.

When paying for fuel in India with a debit card, the customer pays the surcharge by being misled, the Oil Marketing Company makes higher profits, the charge is administered in a non-transparent way, and is posted late when the customer may not even recall the
transaction. Thus, Government owned companies and banks have created a perverse incentive, whereby customers prefer to use cash rather than pay electronically.

A False Analogy

Simon Grey — Tue, 26 Jul 2011 20:20:14 +0000

Robin Hanson makes a predictable mistake:

Similarly, the kinds of innovation activities and intellectual property rights that make sense depend on available institutions and technologies. I’m happy to admit that today intellectual property (IP) is not obviously a good idea. Such property can create large “anti-commons” transaction and enforcement costs that greatly raise the cost of combining old ideas into valuable new ideas. Such costs often outweigh the social benefits of the incentives to create IP, in order to sell it. Today, it is often better to rely on other social incentives to innovate, incentives that don’t require such expensive support.

But if true, this is a sad fact about our limited abilities, not a fundamental natural law or right. You have no fundamental right to enjoy the innovations produced by others without compensating them. You owe them, at least your gratitude. Yes for now it may be best to let you take innovations freely without paying, since the alternative seems too expensive. But you have no right to expect that situation to last forever, any more than ranchers had a right to expect they could forever let their animals trample nearby farms.

The problem with Hanson’s comparison of IP rights to real property rights is that intellectual production is not tangible whereas real property is, and one can adapt another’s idea without in any way diminishing its usage by its originator. As Jefferson aptly observed centuries ago, as it is possible to use another’s candle to light one’s own without diminishing the other’s flame, so too can one use another’s idea as one’s own without diminishing the other’s usage of their idea. Taking another person’s ideas and using them does not any way prevent him from using his own ideas in whatever way he sees fit. Since using another’s ideas does not trample upon his rights, it is absurd to compare this to cows trampling a neighbor’s fields. Using an idea is not inherently deprivatory in the way that using property is, and so the comparison is false.

At any rate, since ideas are not tangible, there is no conceivable limit to their spread save for demand. Basically, demand, not supply, is the limiting factor for the production of any given idea and, as such, there is no need for prices or any other limitation of ideas. Prices indicate scarcity relative to demand, and attempting to attach prices to ideas is essentially an attempt to attach scarcity to ideas. Since there are an infinite number of ideas and production costs of ideas are close to nil (or at least so close to infinity and nil respectively that the upper bound makes a price schedule impossible), the only effect that bringing costs to ideas would be to limit something that is naturally unlimited.

Also, note that Hanson’s claims that “you have no fundamental right to enjoy the innovations produced by others without compensating them” and “you owe them, at least your gratitude” are both spurious. The first is false, but only because of how he qualifies it. He is correct in saying that no one has the right to enjoy the innovations of others. No one has the right to anything save for life, liberty, the pursuit of property, and any derivatives thereof. But it does not stand to reason that anyone deserves to be paid for what they produce, whether it be an idea or a physical object. Quite simply, no one has a right to an income of any sort. If you wish to be paid, convince consumers that you deserve it, whether it be on the technical merits of your product or whether it be on the ease of purchase relative to the cost of piracy. In keeping with this, if one does not have a right to income for producing something, then one certainly does not deserve gratitude either. Again, if a producer wants something from consumers, he must make or do something that causes consumers to respond favorably.

As can be seen, Hanson’s argument is riddled with plenty of intellectual errors, leading to erroneous conclusions. He would do well to simply acknowledge that IP is a myth, and that no one is inherently deserving of anything just because they happened to produce something.

Gift Card Advice as Borders Closes the Book on Business

Andrea Woroch — Mon, 25 Jul 2011 19:50:19 +0000

In the wake of Borders recent announcement it’s folding up shop, those holding gift cards from the bookstore chain may have cause for concern. While the second-largest bookseller says it’s presently honoring gift cards, shoppers are well advised to use up their
balances before it’s too late. We faced a similar situation when Blockbuster and Circuit City filed for bankruptcy and are likely to do
so again. To ensure consumers don’t get left in the lurch, here are a five lessons we’ve learned from these experiences.

1. MOVE FAST
Store liquidations usually begin rapidly — this past Friday for Borders — so it’s often best to use up gift cards online, rather than wait
until you have time to visit a retail store. Borders liquidation website says all 399 remaining stores will close by September, but
they may start writing the final chapter on your local store much earlier.

2. RESEARCH THE BANKRUPTCY STATUS
Borders was refused bankruptcy, meaning they had no choice but to liquidate. Other retailers, however, filed for bankruptcy and turned things around. Sometimes a company that’s filed for Chapter 11 is allowed by the bankruptcy court to honor its gift cards. California, however, specifically requires merchants in bankruptcy compensate gift card holders.

3. CONSIDER THE COMPANY’S STABILITY
If you hear tales of other merchants threatening to close shop, research their financial stability via such sites as BBB.com and Forbes Risk List. (Stores considered at-risk by Forbes presently include Rite Aid and Zales.) Also, ScripSmart.com regularly updates
its list of “Gift Cards to Avoid.”

4. USE IT OR SELL IT
If you’ve received a gift card for a merchant you wouldn’t frequent, don’t wait until a store goes out of business. You can exchange gift
cards for cash right now on such sites as GiftCardGranny.com and receive up to 95 percent of the card’s value in cash.

5. USE A CREDIT CARD
If you’re concerned about a retailer’s financial stability but still want to buy a gift card, do so using a credit instead of a debit card.
You can then ask the card issuer to withhold payment until you’re sure of the merchant’s status.

A Look at Regulation in the Credit Card Industry

B.P.T. — Fri, 22 Jul 2011 15:10:47 +0000

The Credit Card Accountability, Responsibility and Disclosure Act, (CARD Act) is now one year old, and the Consumer Financial Protection Bureau released data showing its impact on the credit card industry as it prepares to begin its role as regulator of consumer financial products later this year.

This data showed that credit card late fees dropped from $901 million in January 2010 to to $427 million in November 2010, due to a cap of $25 on the first late fee on an account and $35 for a second late fee within six months of the first offense, and the number of accounts that were charged late fees dropped by 30%.

Also, the number of accounts that were impacted by an interest rate increase dropped from 15% a year to 2% in the year after the new regulations took effect.

The final change mentioned by the agency was a regulation that prevents credit card issuers from penalizing cardholders for going over the card’s limit, unless the cardholder requests that these charges be accepted. As a result of this change, many credit card issuers have eliminated over the limit fees that were charged if a transaction pushed an account over its limit. These fees were as high as $39 before the new rules were put in place.

However, not all of the changes that have taken place since the enactment of the CARD Act have been positive. Banks have cut perks and added many fees in an attempt to make up the lost revenue, such as application fees, annual fees, inactivity fees, increased balance transfer fees, and even fees for receiving a statement by mail.

Another negative for consumers is that credit card interest rates have risen from 13.26% to 14.27%, making it more difficult to find a low rate credit card, and the amount of available credit has dropped from over $4,400 to $3,900 on the average account, which can hurt those with a high utilization or those who need to apply for a new card.

Overall, the act seems to have accomplished its goals of providing consumers with more information about the cost of credit and the consequences of carrying a balance and protecting cardholders from predatory practices by issuers, but that protection has come at a cost, especially to those with poor credit or lower incomes who have been effectively shut out of the credit market, leaving the results of this regulation mixed at best.

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How to Save This Summer

Andrea Woroch — Tue, 12 Jul 2011 14:20:45 +0000

The summer travel season is finally in full swing. While gas prices remain high, many major retailers are taking steps to cut costs for
disgruntled drivers. Wal-Mart is leading the charge, reducing their fuel prices by 10 cents per gallon for the summer months. The retail giant will offer discounted prices at gas stations in 18 states until September 30. Many other stores have followed suit with their own deals. Here’s a list of other major merchants helping Americans save at the pump this summer.

CVS
The drug store chain is offering a free $10 gas gift card to ExtraCare Rewards members when they purchase $30 worth of select
products. The promotion runs through August 28, so there’s still plenty of time to cash in.

KROGER AND SHELL
The grocery chain has been offering discounted gas for quite awhile now, but their partnership with Shell has really turned up the
savings. With 100 points on your rewards card, you’ll get 10 cents off per gallon on a fill up at both Kroger and Shell stations. If you’re
not satisfied with that discount, Kroger also offers $1 off per gallon when you earn 1,000 points on your rewards card.

KELLOGG’S
Do you eat a bowl of cereal every morning for breakfast? If so, you’re well on your way to saving on fuel. When you collect 10 UPCs
from cereal boxes and mail them in, Kellogg’s will send you a $10 prepaid gas card. Submissions must be received by December 31 and there’s a limit of five cards per household.

WAREHOUSE CLUBS
Big warehouse stores like Costco and Sam’s Club keep popping up all over the place. While they typically have some of the lowest gas
prices around, a fill-up still requires a membership. Joining the club can be done for around $50, so if your car guzzles gas, the long-term savings are worth it.

Gas discounts aren’t the only way to save, though. Here are a few more general savings tips to help you travel for less this summer.

GIFT CARDS
Gift cards are becoming a currency all of their own. Cards for popular fuel stops like Shell can be bought and sold at sites like
GiftCardGranny.com. Also, with merchants like Wal-Mart reducing gas prices for the summer, a discount Wal-Mart gift card can really compound the savings.

LOW OCTANE GAS
Unless you’re driving a top of the line sports car, premium gas probably isn’t necessary. Most cars on the road will perform just fine
with lower octane gasoline and it’ll save you a couple of bucks on a fill.

SLOW & STEADY
If you want to save some extra money, let up on that lead-foot for just a little while. Driving at high speeds and starting and stopping
quickly burns more fuel.
RESEARCH
Instead of waiting to hit the pump until you’re down to the last drop, plan your purchase in advance. Websites like GasBuddy.com
will help you find the lowest local gas prices. They even have a mobile app to help you save on the go.

RIDE SHARING
A combination of frugality and going green has led to a resurgence of carpools. If you’re trying to track one down, websites like
eRideShare.com and CarpoolConnect.com are useful resources for both drivers and riders.

PUBLIC TRANSPORTATION
As long as you’re not still in high school, riding the bus probably isn’t as torturous as you remember. If public transport isn’t an
option, you can always dust off the old bicycle. It costs next to nothing to maintain and it’ll get your blood pumping better than a cup
of coffee in the morning.
SHOP ONLINE
The easiest way to save on gas is to just stay at home. Most shopping needs, including groceries, can be satisfied online which keeps you from burning gas outside in the blazing heat.

Health Care Consumers

Russ Nelson — Wed, 27 Apr 2011 17:30:28 +0000

People are bringing up the point that people simply don’t shop for health care. That we’re not consumers. Usually that people are non-economists, like some ER doc who thinks that he had to study for 8 years to become a doc, but that economists are just people with opinions. Or like Paul Krugman, who gave up any claim to be an economist years ago.

To these people, I say: just *try* to be a consumer. Presume that somebody actually could act as a consumer, and go buy their health care. An honest seeker after the truth will quickly realize that so few people pay for their own health care that prices aren’t available. Go into a doctor’s office and say “I’d like a 20 minute visit with the doc — how much will that cost?” and the staff will be flabbergasted. Chances are very good that they won’t know what to tell you. This could make the point that people who consume health care aren’t consumers (although it’s hard to state that relationship without using the “C” word). I think, instead, that it makes the point that people are consumers, but they’re not purchasers.

Putting the Bow on a Positive 2010

Eldon Mast — Tue, 28 Dec 2010 15:59:52 +0000

U.S. retailers put a bow on a positive 2010 and registered their best performance in five years according to preliminary reports released on Monday.

Holiday sales jumped 5.5 percent as consumers returned to retailers across the board including high-end Macy’s Inc., Tiffany’s. and Bloomingdale’s.

Consumers were out in full forces at most every chain and also increased their spending on the Web. Their spending, which accounts for about 70 percent of the U.S. economy, is a further positive sign for a sustained recovery heading into 2011.

“Increasing confidence has freed up more money from savings,” said Michael McNamara, a vice president at New York-based SpendingPulse. “We are seeing this momentum building and being sustained.”

Apparel sales grew the fastest in the 50 days before Christmas, with an 11 percent gain, more than 10 times the pace of last year.

Reports just before Christmas showed that consumer confidence climbed in December to the highest level in six months and that U.S. jobless claims continue to fall with job openings on the rise.

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Consumers Score Another 2010 Trifecta

Eldon Mast — Tue, 29 Jun 2010 14:06:07 +0000

Income, Spending, and Saving All Grow in May

According to the Bureau of Economic Analysis the month of May provided a triplet of economic good news — personal income, spending, and savings all grew. Furthermore, income grew even greater than consumer expenditures and consequently, savings grew as well.

All three measures added similar gains in March of this year.

Personal income has remained fairly stable over the past three months, growing between 0.4% and 0.5%. Over the same period, disposable income has averaged about 0.5% growth. For consumers to be able to spend more on discretionary purchases, their disposable income must of course increase.

Spending has been less stable, recently. In February and March we finally saw spending growth increasing, after the recessionary downward trend of 2009. The first uptick however post-recession had consumers increasing spend without as much additional income, which meant shoppers were relying more on credit to spend and saving less. In April, however, that changed. Spending was constant, while income continued to grow. And in May? We’re now seeing an even better reading: more income growth, but with some additional spending as well.

Retail Sales Results Are Strongest of this Recovery Thus Far

Eldon Mast — Thu, 25 Mar 2010 15:39:07 +0000

On Tuesday Redbook reports indicated the strongest retail results of the recovery thus far. The results posted a plus 3.6% year-on-year same-store sales rate in the March 20 week. That rate was right in line with the ICSC-Goldman’s 3.7% rate also reported on Tuesday.

Redbook also offers a month-to-month comparison which is also at a solid plus 0.9% gain. (That’s an annualized 10.8% bump).

The report showed particular strength across women’s apparel and for lawn and garden equipment; items that sparked little to no interest with consumers a year ago.

With retail sales making up 70% of annualized GDP growth, Q1 2010 GDP results are shaping up to be even stronger than Q4 2009.

Private Debt Decline: Good For US, Bad for the Economy

Richard Daughty — Thu, 18 Mar 2010 11:52:17 +0000

I got a disturbing email from Bianco Research which showed a chart of “Private Credit Market Debt” which they say shows “Total credit market creation not including Treasury Debt, Municipal Debt and Agency Debt”.

It is actually a horror that the level of private debt peaked last year at about $36 trillion, which is certainly a lot of money, especially since total GDP of the Whole Freaking Country (WFC) is only $14 trillion (and falling!).

In some kind of bizarre “good news/bad news” joke, total private debt has now actually fallen by a couple of trillion dollars to $34 trillion, which is bad news for an economy that depends on consumption, but is good news in that people have lighter debt burdens.

David Stevenson of the Money Morning newsletter at moneyweek.com notes that it’s not just us, but “private borrowing is slowing everywhere” and that “US consumer credit has shrunk for a record 11 months in a row.”

The interesting thing is that the Bianco chart goes back to 1952, and there has never, ever been a time when private credit market debt fell by as much as a dime! Although it, sometimes, did not go up for short periods, nevertheless, it has never gone down. Never!

Until now. Oops!

Note that the soundtrack has gotten all gloomy, which makes sense, because if total private debt has – gasp! – gone down, then the money supply is not expanding because people are not borrowing to buy and invest. Oops!

Parenthetically, the money supply is not actually shrinking that much, as you would expect, because the asinine neo-Keynesian theory says that the government should replace private spending with deficit-spending, which they do, thanks to the Federal Reserve creating the money, which is another whole subject about which usually results in a loud Mogambo Scream Of Outrage (MSOO), which is, I think, more of a wail of anguish and crushing despair than a scream, although it usually concludes with me howling, wolf-like, “We’re freaking doooooooooommmmed!”

That’s, unfortunately, the bad thing that happens at the end of long booms produced by constant monetary stupidity, especially of the kind of stupidity found at the Federal Reserve, which explains why I say, with a loud, irritating repetitiveness that makes people run screaming from the room every time I open my mouth, to buy gold, silver and oil as your only defense against rampant government stupidity and insane levels of monetary over-creation of money and credit, as redundant as that actually is because of how incestuous they are.

I assume that you now understand the depth of the ignorance, stupidity and depravity of the government and the Federal Reserve (and, indeed, all the central governments and central banks of the world), and you are saying to yourself, “Hey! The Loud Mogambo Idiot (LMI) is right! Maybe he is not as stupid as everyone says!”

Fortunately, that knowledge is all that is required to be a Junior Mogambo Ranger (JMR), and now that you have begun on your path to economic enlightenment, I can let you in on a little secret; it’s going to get worse. Much worse. Much, much worse. Worse than anything, even that time when your First True Love (FTL) dumped you and started going out with that jerk from the baseball team, and how you still hate him for it, even after all this time, and you still love her in spite of it, even after all this time.

But you are not here to listen to my tale of love gone wrong, desperately loving someone who doesn’t love you, and rejects your aching heart over and over, and when you call her on the phone, her father answers and says, “My daughter says you are a creepy little rat-faced creep, so why don’t you just give up, kid?”

And so I did, on the spot, saying a final goodbye to her, through him, and with a tearful, heart-broken voice, and I told him to tell that scheming little lying two-faced cheating slut he calls his daughter, as a parting gift of wisdom from me, to “Buy gold, silver and oil when your idiotic government allows unrestrained creating of money and credit, and especially when the government deficit-spends said money to expand itself”, thinking, you know, that I would leave her with a fabulous piece of advice by which she could always remember me fondly.

Instead of him saying, “Well said, intelligent young man! I shall be honored to relay your wise advice to my daughter, and I shall act upon it at once myself!” he said, “What in the hell is that supposed to mean, you little punk?”

So I told him that he was obviously a moron about monetary policy, fiscal policy and raising demonic daughters and, judging by his reaction, burned another bridge behind me.

But I won’t need it! Hahaha! I have gold, silver and oil, and with them I can build all the new bridges I want, with riches untold, when his precious dollars and dollar-denominated assets turn into the crap that fiat currencies always become.

And his daughter, the tramp Carol? Now it shall be I who says, “Scram! Ya creep me out, loser weirdo!” Hahahaha!

Private Debt Decline: Good For US Bad for the Economy originally appeared in the Daily Reckoning.

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