PEN-L message, [PEN-L:28382] Consumer Credit Card Debt

The first issue concerning corporate fraud is the systematic practice of "inaccurate" billing. The GAO has estimated it is at least 10% and academic research in the area of medical billing estimates it at closer to 20%. In the suit against FIRSTUSA, we are charging them with violating their responsibility to adhere to the terms of consumer complaints under the Fair Credit Reporting Act. In this case, a credit card company that has since been acquired by FIRSTUSA billed the plaintiff five times the original charges (about $500) and refused to follow-up on the complaint. Today, FIRSTUSA is claiming that the plaintiff owes $2000 plus about $5,000 in late/interest charges plus attorneys' fees--eventhough the merchants have been paid for the original credit card charges. This complaint has been ongoing for over 8 years and the plaintiff--ironically an accountant--has had her personal credit ruined. The point is how many consumers have been o! vercharged and are so intimidated by big corporations that they are willing to be extorted to maintain their "good" credit standing. If we can find where the corp deposits its fraudulently obtained revenues, then we can begin to trace the thousands of extorted consumers whose reluctance to fight their corporate "providers" will underlie a major class action suit. And, this is where it becomes very interesting. These fraudulent revenues have inflated the revenues and profits of FIRSTUSA which, not incidentally, had its books validated by none other than Arthur Anderson. Once we show that AA approved this accounting system, then you can expect an SEC investigation, fall in stock price, and shareholder suits. How many other corps could find themselves in such a situation?

The ripple effect is even greater. I have been working with Congr. LaFalce to pressure the FED to take a more aggressive enforcement position on the 1975 Deceptive Credit Marketing Statute; Greenspan responded last month that he may rethink his reluctance to pursue more aggressive enforcement policies following some of my empirical examples. The reason that this is so important is that many corps are loathe to report the importance of finance revenues in their profitability. For example, Circuit City (major electronics retailer) for the first time reported that 53% of its corp revenues last year were due to its financing division. If the various deceptive credit marketing practices were reformed, many corps like Circuit City may end up in bankruptcy; for example, the highly touted 12 months of free credit translates into retroactive payment of interest charges in month 13! So, the credit web is actua! lly far more complex than the simplified discussion of the tenuous relationship between the stock market, corps, and consumers.

Lastly, the strong dollar is not an explanation of different cultural attitudes towards savings and consumer debt. When US corps argued that Japan was restricting "market access," they expected that Japanese consumers would run to purchase American products. Instead, with the exception of young Japanese (esp. single women), they found that attitudes toward household saving influenced consumption patterns; US corps finally received "access" but had to figure out how to encourage higher levels of consumption. So, the new international research projects are examining different state-promoted programs that encourage household saving, societal attitudes toward consumer debt, and trends in consumer purchasing behavior. Hence, if American corps can find a way to get other societies to accept "American style" debt, they believe that they will sell more products and thus become the saviors of U.S. balance of trade crisis! and implicitly the engine of US job growth. Remember, Citibank is now "positioned" in 103 countries and would be happy to finance greater world-wide household debt in the "national interest" of a shrinking balance of trade deficit.

bob

Michael Perelman writes:

> >Robert, could you please elaborate on this paragraph? Thanks.

> >

> >Robert Manning wrote:

> >

> >>

> >> By the way, I am an expert witness in a civil suit against

> >> FIRSTUSA which has Enron like potential if the judge permits our

> >> discovery requests. Also, it appears that the market "access" that

> >> U.S. corps have been demanding and are receiving under WTO is now

> >> becoming a concern rather than a panacea because European and Asian

> >> households are not particularly interested in increasing consumption

> >> of American products. As a result, some new international projects

> >> are being formed with the objective of how to increase U.S. exports

> >> and thus reduce the U.S. trade deficit. Social scientists are being

> >> recruited to study global trends in consumer savings, cultural

> >> impediments to willingness to incur 'American style" debt, and

> >> marketing campaigns that successfully encourage greater consumer

> >> consumption without accompanying increases in household income.

>Wouldn't a big part of the explanation simply be the strong dollar?

>Bill