Table of Contents

• Fundraiser grosses $36,000 despite difficult economy
• Low mortgage rates tempt homeowners to refinance
• What type of loan should I get?
• Refinancing a second home
• Get on your Internet soapbox
• Avoid the legal perils of griping online
• CA's hotline is in the ring with you
• 2002 Donors and educational partners

Fundraiser grosses $36,000 despite difficult economy

By Linda Sherry

Consumer Action celebrated its 31st anniversary fundraising effort on Thursday, June 20 with a party at the Marines Memorial Club in San Francisco.

CA raised $36,460. While not a record, the amount was significant in a year when many corporations have cut back on philanthropy, said Consumer Action Executive Director Ken McEldowney. McEldowney makes special note of the Inner Circle donors, who gave $2,500 or more. The 2002 Inner Circle includes AMD, AT&T, Capital One Services, Inc., PacifiCare Health Services, Pacific Gas & Electric, SBC Communications, United Parcel Service and Washington Mutual.

“These companies deserve special mention for their willingness to support consumer education and advocacy at these levels,” said McEldowney.

Educational partners

McEldowney also thanked the many organizations and corporations who are educational partners this year, as well as the 6,500 community-based organizations all over the country who make up CA’s educational distribution and advocacy network. (Click here for a listing of all gifts and educational partners.)

At the party, CA presented its 2002 Consumer Excellence Awards to AbilityFirst, a Los Angeles area provider of services to people with disabilities; Reynolds Holding, an investigative reporter for the San Francisco Chronicle, and Louise Renne, who retired last year as San Francisco City Attorney.

“These outstanding individuals and groups have done much to advance consumer protection in California. A lot of their work is done behind the scenes, and we want to make certain that they know how grateful we are for their hard work,” said McEldowney.

AbilityFirst

Based in Pasadena, CA, AbilityFirst provides programs and services to help children and adults with physical and developmental disabilities realize their full potential throughout their lives.

AbilityFirst has been an active partner with Consumer Action in education and outreach on banking and money management in Southern California.

Founded as the California Crippled Children’s Society in 1926, AbilityFirst provides support to clients of all ages, from infants to senior citizens, with programs ranging from child development to employment services, housing and recreation. The organization serves five Southern California counties in 21 locations.

Ritchie L. Geisel is the organization’s president. Steven Rosenthal, the organization’s director of public relations, accepted the award.

Reynolds Holding

Holding is an investigative reporter and legal columnist for the San Francisco Chronicle. Last October, Holding’s “Private Justice” series in the Chronicle examined how mandatory arbitration deprives people of their legal rights, fosters conflicts of interest that would never be tolerated in a court of law and lures judges away from the public court system with potentially high-paying jobs as arbitrators.

Holding graduated from Harvard College and Duke University School of Law and practiced law at the New York firm of Debevoise & Plimpton for nine years.

His journalism career started between college and law school with the Shreveport (Louisiana) Journal, where he wrote news stories and editorials as assistant editor of the paper’s editorial page.

Holding joined the Chronicle in 1991 as a legal affairs writer, covering the courts and trends in the law. In 1999, he was a Pulitzer Prize finalist for a series on the dangers of medical needles.

Louise Renne

Renne, who retired last year as San Francisco City Attorney, is now general counsel for the San Francisco Unified School District. CA honored Renne for her decision to put San Francisco aboard as a plaintiff in a lawsuit charging that America’s largest paint companies continued to sell lead-based paints for decades after they knew their products were causing lead poisoning.

San Francisco and Oakland, with their aging housing, are reporting lead-poisoning rates far above the national average.

In 2000, Renne was named one of the state’s most powerful attorneys by California Law Business Magazine.

Renne, who served as City Attorney since 1986, took on many corporate wrong-doers, including tobacco companies, gun manufacturers, big banks and utilities. The San Francisco Chronicle noted that Renne “put a bullet into Joe Camel” by winning more than $2.3 million in a historic settlement with the R.J. Reynolds tobacco company.

After graduating from Michigan State University and earning her law degree from Columbia University, Renne worked for the Federal Communications Commission (FCC) and in private practice and served more than a decade as a California deputy attorney general.

Mark Johnson (left) and Jack Dzimba of The Sturdevant Law Firm in San Francisco attended CA’s anniversary party.

Reynolds Holding (center) of the San Francisco Chronicle was a recipient of Consumer Action’s 2002 Consumer Excellence Awards. Holding is seen with Ken McEldowney, CA’s executive director, and Patricia Sturdevant, a member of CA’s board of directors. (Photo by Linda Sherry)

Linda Sherry (left), CA’s editorial director, and Kathy Li, director of CA’s National Consumer Resource Center, at the anniversary party. (Annie Tran photo)	Sandy Lee of KRON-TV (left) is seen with attorney Steven Solomon and Rosemary Shahan of Consumers for Auto Reliability and Safety (CARS). At right, award recipient Louise Renne is seen with Owen Clement of the San Francisco City Attorney’s office.
Award recipient Louise Renne is seen with Owen Clement of the San Francisco City Attorney’s office.	Shirley Davalos (left) and Emerald Yeh of KRON-TV enjoy the celebration.

Low mortgage rates tempt homeowners to refinance

By Gina Baleria

Interest rates have fallen to their lowest levels since John F. Kennedy was in the White House. Many homeowners looking to save money are jumping on the mortgage refinancing bandwagon.

Conventional wisdom says to wait until mortgage interest rates are at least two percentage points lower than your current mortgage before you consider refinancing your mortgage. But this is not a good rule of thumb for everyone. In making the decision to refinance your home loan, consider:

• How long you plan to be in the house.
• How much lower the payment will be on your new loan.
• Closing costs.
• How much equity you have in your home.
• If you need to get cash out of your home by refinancing.
• If you will be charged a “pre-payment” penalty for leaving your current loan.

To get a lower rate, you’ll have pay closing costs on the new loan—even if you find a so-called no-fee loan. Many closing costs such as title insurance and real estate fees are mandatory. Even if you are not required to pay up-front fees, they might be reflected in a higher interest rate or rolled into the principal balance of the loan.

When lenders advertise loans, they are required by federal law to give you the “annual percentage rate,” or APR, which includes not only the interest rate but also estimated closing costs, fees due at closing and mortgage insurance.

What is refinancing?

Refinancing is renegotiating the terms of your loan to get a lower interest rate. The money saved through a refinance could be used to lower monthly mortgage payments, pay off debt, take on home improvement projects, or simply free up extra cash.

“Interest rates are probably as low now as they’ve been in the last 40 years,” said Bob Wilson, a mortgage broker with the Campbell Mortgage Company.

Wilson said the average homeowner who refinances now could see substantial savings of about $100 a month on a $100,000 loan.

Finding the right deal

The barrage of radio, TV, print, direct-mail and online advertisements can make the would-be refinancer’s head spin. To find out what rates are available, look at as many sources as possible: visit local bank branches, consult web sites such as Bankrate.com or scan your newspaper’s real estate section.

Refinancing is generally handled by direct lenders (banks, credit unions and finance companies) or mortgage brokers. These lenders supply the money. Brokers usually act as middlemen between the lender and the borrower. The broker’s fee is usually rolled into the interest rate you pay.

When researching different options, always ask about all loan costs, including the interest rate, fees and prepayment penalties.

Online resources

The Internet can be a great place for someone who has done the research and is educated on the process, but it is not for everyone. Many borrowers need guidance through the process and online loans don’t always offer this—especially at the initial application stage.

The Internet has become such a popular choice because it offers a wide array of easily accessibly information that is difficult to obtain from other sources. Armed with the facts, borrowers can better negotiate with potential lenders.

But experts warn people not to rely too heavily on the Internet.

“Just don’t assume that, if you go on the Internet and see it, that it exists, that it’s true. You want to work with someone who’s accountable, who’s going to give you the most accurate information at a competitive price,” said Jay Shoop, mortgage loan officer at Union Planter’s Mortgage in Palo Alto, California and a contributor to the “Real Estate Guys’ Mortgage Minute” radio show on San Francisco Bay Area radio station KYCY.

“If you deal with somebody online, you may not be talking to a real person. If you’re not comfortable with that, then that probably is not the way for you to go,” said Wilson.

Points matter

A point is money paid up front by the borrower in order to get a lower interest rate on a loan. One point equals one per cent of the loan amount. For instance, one point on a $100,000 mortgage would be $1,000.

“The reason people consider paying points is that it’s supposed to be a fair exchange with the lender,” said Shoop. “As a rule of thumb, for every one point of prepaid interest that you pay, you’ll receive a 1/4 point reduction in your interest rate.”

Shoop counsels that borrowers should compare the cost of the points to how much money will be saved per month. Generally it takes about five to seven years to recoup the cost of paying a point up front—so if you plan to remain in your home for a long time, paying points might make sense. Smart Money magazine has an online work-sheet (www.smartmoney.com/home/buying) that can help you figure out if it’s worth it to pay points.

The application

When you apply to refinance your mortgage, you’ll have to document your salary, assets and debts. This information is used to determine your credit rating. The better credit you have, the better interest rate you can get.

During the application process, experts say it’s important to get a “lock-in” on the promised rate in writing—otherwise the lender has the right to raise the mortgage rate before the application process is completed.

Ask the lender or broker for a breakdown of all charges, and question all charges. Some brokers may slip in extra costs—known as “junk fees”—that could total hundreds of dollars. A good mortgage broker should be able to protect you from mortgage junk fees.

Borrower beware

Unfortunately there are companies that prey on the uneducated borrower, earning them the label “predatory lenders.”

“There are some companies out there that have been accused of predatory lending, where they keep refinancing borrowers, increasing their loan amount and charging fees that are more than what they’re advertising,” said Shoop.

Shoop said he believes that predatory lending is on the decline, because the government has targeted it, and borrowers are becoming more savvy. People are “not afraid to ask the questions,” he said. “There’s much more attention being paid to what mortgage lenders are doing. The consumer is becoming better educated, because there’s so much information available.”

Misleading ads

Be aware of ads promising extremely low rates—they might be there simply to get customers through the door in a “bait-and-switch” tactic. Or they might be balloon loans, where you pay very little interest up front but after several years owe an enormous lump-sum payment.

“Interest rates are subject to change as often as two or three times per day,” said Wilson. “If somebody quoted you a wonderful rate two days ago, it may not exist today.”

Educate yourself

Both experts say that if a rate or deal looks too good to be true, it probably is.

Shoop said the most important thing a homeowner should do when considering refinancing is research.

“In a perfect world, you would have a referral to a professional. Short of that, it’s really all about educating yourself on what refinancing is and why you would want to do it,” he said. “To make sure you’re getting competitive rates and pricing, it’s important to compare. Don’t be shy about asking your mortgage lender, ‘How does this compare? What is the rest of the market doing?’”

One of the best resources for researching a lender or broker may be your address book. “Ask friends or acquaintances about the lenders they’ve dealt with and if they felt they were treated honestly and fairly,” said Wilson.

What type of loan should I get?

When refinancing, you can choose from several types of loans. Thethree basic loans are fixed, adjustable or hybrid.

A fixed rate loan is a loan for a specific amount of time with a set interest rate. An adjustable rate mortgage could offer a lower rate now and in the near future than a fixed rate loan, but that rate is subject to adjustments (up or down) over the years, depending on prevailing interest rates.

A hybrid loan starts out with a fixed rate, but after a term of three, five, or seven years it converts to an adjustable-rate loan for the remainder of its term.

“Hybrid loans are very popular right now,” said mortgage broker Bob Wilson. He added that this is especially true for people who plan to stay in their home for just a few years. “The hybrid’s fixed interest rate can be a whole percentage point lower than current 30-year fixed interest rates.”

Mortgage officer Jay Shoop said hybrids allow people to get a lower interest rate now and be poised to trade up to a better home in a few years.

“You’ll benefit from a lower interest rate and payment for the period of time that you anticipate living there,” said Shoop. “You don’t care what it’s going to do in five years, because you will have sold it and moved on.”
—GB

Refinancing a second home

If you are one of the millions of people who own a second home—a vacation house or a rental property—you might wonder whether you can obtain a better deal by refinancing. It pays to know up front that you are not going to get the very lowest interest rates on these properties, but refinancing can still offer savings depending on your current rate.

Vacation homes usually have “a little bit higher interest rate or higher cost, because second home loans represent a higher risk to the lender,” said mortgage loan officer Jay Shoop. “If the borrower were to lose their job and move out of the area, they’re more likely to default on their secondary home as opposed to their primary residence.”

Rental homes carry a different set of rules when it comes to refinancing.

“If it’s a rental, it’s a whole different ball game,” said Shoop. “Not only is the owner qualifying, but the property has to qualify also.”

On a rental home refinance, lenders look at your tax returns, especially Schedule E (income or loss from rental real estate, etc.) to see if the rental income and operating expenses make financial sense.

If you live in part of the property and rent out another part, you might get a better deal than if you are trying to refinance a stand-alone rental property, said mortgage broker Bob Wilson. “For example, if it’s owner-occupied, you might pay no points, while on a non-owner-occupied, you’d pay 1.5 points for the same interest rate. Lenders feel there’s more risk involved in a non-owner-occupied property so they command a higher interest rate or higher return on their investment.”
—GB

Get on your Internet soapbox

By Linda Sherry

From time to time, everyone’s had a complaint about a product or service and struggled to get the company to listen to them. Now a growing number of “gripe sites” on the Internet are giving consumers an alternative to picket lines and soapbox tirades. And unlike standing around all day waving a placard, posting your rant online has the potential to alert thousands of people to your complaint.

The best way to solve a consumer complaint is to contact the company directly. If that fails, write a clear and concise letter about your problem and send it to the company. Unfortunately, that doesn’t always work, which leads disgruntled consumers to look elsewhere for help.

Many consumers seek help from the Better Business Bureaus, which assisted with 2.7 million complaints in 2000, the latest year it compiled such figures according to the Council of Better Business Bureaus.

Since the advent of the Internet, web-savvy people have been creating sites that target individual businesses. And not surprisingly, powerful institutions often do not take kindly to being criticized.

Free speech online

Public Citizen, the consumer advocacy organization founded by Ralph Nader, has been in the forefront of the legal defense of the First Amendment right to express your free speech on the Internet. It has been defending site owners against claims of trademark infringement or libel that are invoked as a basis for shutting down critics.

With Public Citizen’s legal assistance, Carla Virga, a California secretary, succeeded in getting pest control giant Terminix to drop a trademark infringement suit against her Terminix gripe site.

“Consumers shouldn’t roll over and play dead if a corporation comes after them,” said Paul Alan Levy, a lawyer for Public Citizen.

“People should be able to exchange ideas and criticism without being hounded by spurious lawsuits that attack them simply for using a company’s name,” said Levy. “It would be pretty meaningless if every time we were critical of a corporation, we were forced to refer to it as ‘company X.’ Consumers want to know the bad side as well as the good side.”

Levy noted that the original idea behind trademark law was to keep consumers from being deceived or confused. “Now they see it as a protection for companies. Part of what we’re doing is trying to redirect trademark law to its roots.”

Recognizing that the Internet gives people the unprecedented ability to exchange ideas with a global community, Public Citizen offers valuable online advice on how to establish “litigation proof” web sites. (See Avoid the legal perils of griping online.)

Tom Ballock of Birmingham, AL has created webgripesites.com, an Internet site he hopes will become a clearinghouse for people looking for information on gripe sites.

‘Valuable information’

“These sites usually have valuable information to impart,” said Ballock, who created his own gripe site targeting a local car dealership. He was sued by the dealer in federal court and found legal assistance with his case through Public Citizen.

A web-griping convert, Ballock said that the average consumer might be able to tell just a few people about a bad experience with a business, which isn’t much of a publicity threat. “But with the Internet, an aggrieved consumer can reach tens of thousands of people with the message.”

Last year Nader and other consumer activists proposed “dot sucks” as a new domain name. (Domain names show up at the end of web addresses, such as “dot com.”) Many gripe sites purchase domain names that parody the names of the companies they are criticizing. Companies are fighting back by purchasing the rights to critical domain names.

It was proposed that the money raised by selling access to the “dot sucks” domain name would be used to start a non-profit group—The Dot Sucks Foundation—to help fund free-speech battles on the Internet.

Free-for-all griping

A number of all-purpose gripe sites now exist where you can browse and post complaints for free. (Some others—including Ugetheard.com and Bitchaboutit.com—seem to have vanished from cyberspace.) Complaint sites can be helpful to consumers who are considering a major purchase or signing a contract with a company. With a click of your mouse, you can check out the problems other consumers have had with a firm.

• Baddealings.com was founded by Steven Mizrahie in Spring 2000. Mizrahie says his web site “was formulated to combat fraud and separate the legitimate companies or persons from the illegitimate ones.” In order to post a complaint, you must register. Baddealings.com will send an e-mail to the business you are complaining about.
• Complaints.com is run by Matthew Smith of Illinois, under the name Sagacity Corporation. The site posts apparently unedited complaints with the aim to “empower consumers to make better purchase decisions and get better customer service for purchases they’ve already made.” If you provide an e-mail address for the company you are complaining about, the site will let the company know your complaint has been posted online.
• Consumeraffairs.com provides consumer news and opinion from individuals about companies and scam operations. It is run by attorneys Joan E. Lisante, a former assistant district attorney in New York City, and Clifford Horwitz. The site doesn’t publish every complaint it receives, but instead reviews complaints for their potential as legal cases. When you post a complaint, you might get a call from these attorneys—you don’t have to pay for this consultation.
• eComplaints.com bills itself as “your chance to fight back” and be heard by the offending company and your fellow consumer. The site publishes complaints and sends them to the company in question. Jennifer Biscoe, founder and CEO of the New York City-based company, is a former consultant with the Gartner Group, an Internet research and advisory firm. Biscoe says that “consumers need more leverage for their voices to be heard. We give them that leverage. Companies may not like the taste of this medicine, but smart companies know it is good for them.”
• Passengerrights.com co-founders Michael Gross and Randy Warren started their site to “bring accountability back to the travel industry.” The site will refer e-mail complaints directly to airlines, hotels, cruise lines, car rental companies, the federal government and travel organizations. Visitors can review selected “horror stories” on the site.
• Planetfeedback.com features consumer feedback (compliments, complaints, questions, suggestions) on various companies. Pete Bradshaw founded the Cincinnati-based Planetfeedback.com in 1999 and served as CEO until its 2001 merger with Intelliseek, a corporate intelligence gathering firm.
• The Rip-off Report is a consumer reporting web site where you can post or browse unedited complaints about companies and individuals who have ripped people off. Owner Ed Magedson says his site dispenses advice and helps consumers get refunds. Working with lawyers across the country, he organizes lawsuits against companies that have numerous Rip-off Reports. "We are responsible for getting our readers back millions of dollars," said Magedson. "We work with the FBI, the FTC, attorneys general and assist with police investigations and Canadian authorities to bust up these rip-offs against consumers. We work very hard for the consumer."
• Complaint Station allows you to post your complaints or research other people’s complaints. Your complaint appears exactly as you write it—unedited—so don’t include any personal information you wouldn’t want the world to see, such as your address or phone, credit card or bank account numbers.

Avoid the legal perils of griping online

Consumer criticism is a protected form of free speech inmost cases, unless it can be proved that a false statement was made knowingly to damage a company. Paul Alan Levy, a lawyer for Public Citizen who specializes in the legal rights of free speech on the Internet, offers these tips to protect yourself if you maintain a web site that is critical of a business or corporation:

• Don’t use a typeface or artwork that is similar to the trademark owner’s logo or color scheme. (You may be able to defend such a use on the grounds of parody, although Levy says such legal cases can be expensive and time consuming.)
• Visit your target’s web site to make sure yours doesn’t have the same look and feel.
• Emphasize near the top of the page that this is a web site devoted to criticizing or sharing experiences about a company.
• Feature a disclaimer of sponsorship.
• If your target sends you a letter demanding that you shut down your site, make reference to the company’s demand on the web page
• Let the media know that the company is hounding you.

More about Public Citizen’s work in this area can be found on its web site .
—LS

CA's hotline is in the ring with you

By Christine K. Chin

Consumer Action’s hotline counselors—who speak Chinese, English and Spanish—offer referral and advice on many topics of concern to consumers. Of late, we’ve noted increased complaints about cell phones and credit repair programs.

Among the complaints about cell phones, CA received 16 about MCI Worldcom Wireless since June. Consumers are complaining about billing discrepancies and poor customer service. For example, a New York man complained that MCI overcharged him by $6,800 and said that he hasn’t seen an accurate bill in 10 months. Now Worldcom’s collection department is calling him for not paying the bills.

If you have a complaint about your cell phone company, contact your state’s utility regulator. This is the state agency which oversees companies providing phone services. To find your local regulator, look in the phone book or call the National Association of Regulatory Utility Commissioners (NARUC) at (202) 898-2200.

We’ve all seen ads on TV for “credit repair” companies that claim to remove negative information from credit reports. A California man paid $832 to one such company and after several months has yet to see any results. He has been trying to get the company to respond, but it keeps brushing off his complaints. Now he’s considering suing the company in small claims court.

Credit repair companies are prohibited under federal law from collecting any payment from you until after you get an amended copy of your credit report.

If you believe you were ripped off by a credit repair outfit, contact your local consumer protection agency or your state attorney general (AG). A listing of all state AG’s offices can be found on the web site of the National Association of Attorneys General . These agencies can offer you advice and may also be able to resolve your complaint.

If you would like help from CA’s hotline, call (415) 777-9635 or (213) 624-8327 and leave a message. A counselor will return your call. You can also e-mail: .(JavaScript must be enabled to view this email address).

(Christine K. Chin is one of CA’s hotline counselors.)

2002 Donors and Educational Partners

Corporate Gifts

Inner Circle

AMD
AT&T
Capital One Services, Inc.
PacifiCare Health Systems
PG&E
SBC Communications
United Parcel Service (UPS)
Visa U.S.A.
Washington Mutual

Corporate Benefactors

American Express
Anonymous
Chavez & Gertler, LLP
Edison Electric Institute
Sprint
Verizon
Sponsors
MasterCard International
Southern California Gas Company

Corporate Friends

AAA - California State Automobile Association
Jim Conran - Consumers First, Inc.
Consumer Attorneys of California
Experian, Inc.
Jenkins & Mulligan
The Sturdevant Law Firm

Individual and Community Gifts

Silver Circle

Judith R. Rosenberg

Individual and Community Benefactors

Candace Acevedo
James Beck - Haight Ashbury Free Clinics
Marsha Cohen
Gene Coleman
Robert C. Friese
Walter McEldowney
National Home Equity Mortgage Association
Rich Sayers - 10-10PhoneRates.com
Steven Solomon Law Offices

Individual and Community Friends

Amy Bach - United Policyholders
Chris Bjorklund
Al Borvice
Gerri Detweiler
Richard Elbrecht - California Department of Consumer Affairs
Ellis and Jennifer Cross Gans
John Geesman
Pastor Herrera, Jr.
Martin Mattes - Nossman, Guthner, Knox & Elliott, LLP
Audrey Moy - S.F. District Attorney’s Office
Kay Pachtner
The Hon. Jackie Speier
S. Chandler Visher

2002-2003 Educational Partners

AT&T
Bank of America
Beatrice Gendel
California Consumer Protection Foundation
California Public Utilities Commission
The California Wellness Foundation
Capital One Services Inc.
Children’s Council of San Francisco
Consumer Credit Counseling Service
Earle Palmer Brown
The Federal Reserve
GEM Communications
Richard & Rhoda Goldman Fund
The Miriam & Peter Haas Fund
Hager Sharp
The Hastings Group
Home Depot
Investor Protection Trust
Levy, Ram, Olson & Rossi
Milberg Weiss Bershad Haynes & Lerach
PacifiCare Foundation
PacifiCare Health Systems
Providian Financial
Sage Communications
SBC Pacific Bell
The San Francisco Foundation
Texas Legal Services Center
The Tides Foundation
The Van Loben Sels Foundation
U.S. Dept. of Housing and Urban Development
U.S. Dept. of the Treasury

And, our national network of 6,500 community-based agencies!