By Gregory Karp
Consumers are busy with their daily lives, making it difficult to keep abreast of all the trends and issues that affect their wallets, household savings, fine print in contracts they sign with companies and insurance shopping, for example.
Here is a sampling of recent consumer news items to know.
Arbitration battle. The vast majority of consumers don’t realize when they sign up for services and financial products, from wireless phone service to credit cards, they’re often signing away their right to sue a company in court. Buried in the fine print of take-it-or-leave-it contracts, tens of millions of consumers agree to settle disputes with arbitration, which some claim can be a kangaroo court rigged in favor of companies. Arbitration clauses also often kill a consumer’s ability to join with others in a class action.
A new report by the Consumer Financial Protection Bureau examined how financial services companies use forced arbitration. It found the practice resulted in a windfall to financial service companies worth up to hundreds of millions of dollars each year. It found three-quarters of consumers have no idea whether their credit card agreement contains an arbitration clause, and just 7 percent of those agreeing to an arbitration clause understand that it squashes their right to go to court.
After the report was released, consumer groups banded together to ask the consumer bureau to make rules prohibiting forced arbitration clauses in contracts for financial services, saying “few practices are as abusive, unfair and deceptive as the widespread use of forced arbitration clauses in most consumer contracts.”
The financial services industry supports arbitration.
“Arbitration makes it possible for American consumers to resolve disputes in a cost-effective, fair and timely manner that often benefits all parties involved,” said Richard Foster, senior vice president of legal and regulatory affairs for the industry group Financial Services Roundtable, after the report was released. “This is an important tool for the customers of financial institutions that helps keep costs down and keeps financial products, including credit cards and checking accounts, affordable.”
New budgeting tool. Tools for creating a household budget abound, including Quicken and its online sister Mint.com and YNAB at youneedabudget.com. And a blank spreadsheet or pencil and paper work too.
A new offering comes from money guru Dave Ramsey, author of “The Total Money Makeover,” who has long advised people to create a household budget to avoid living paycheck to paycheck. He recently launched his own online tool.
Ramsey’s EveryDollar.com claims to make it easy to set budgets and track expenses, income and savings. It highlights Ramsey’s “Baby Steps” method for saving and debt reduction.
The basic version is free, but if you want to import bank transactions, it costs $99 per year.
“The goal of a budget is to assign every single dollar a name, on purpose, before the month begins,” Ramsey said in launching the tool. “When you know where your money is going, you have control over it instead of it controlling you.”
Savings tool. Digit is a service, highlighted recently by money guru and radio-show host Clark Howard, that claims to find money in your budget and save it automatically.
Online at Digit.co, the service promises to use artificial intelligence to examine your spending patterns. It automatically withdraws money from your checking account when you can afford it, usually $5 to $50 every few days, and stashes it in an FDIC-insured savings account.
It will pay overdraft fees if you get hit with them as a result of the auto-savings service. You can withdraw money from the savings account with a phone text message, which transfers money back to your checking account on the next business day.
Howard points out the minor downside is that the account pays no interest, Digit keeps it, which is how it makes money. However, current interest rates are so low that bank or credit union savings accounts barely pay interest either.
Automated savings that require no effort have been shown to be effective, such as automatic contributions to a 401(k) retirement plan at work, automatic contributions to a 529 college savings plan or just a monthly bank transfer from your checking to savings.
Google insurance? When online behemoth Google enters a market, people notice. It recently got into the auto insurance game, offering a comparison shopping site at google.com/compare/autoinsurance.
So far, it’s only available in California, but Google said it intends to expand to other states and add ratings and reviews of insurers.
Of course, Google is not the only online insurance broker. There is insuranceQuotes.com, CoverHound, Insure.com, Nerdwallet.com and AccuQuote for life insurance, among many others.
The broader point is not which comparison tool you use, you might use several, but to compare insurance rates, which can vary widely for the exact same coverage, whether for home, auto or life. Sticking with the same company may actually result in higher rates.
Public complaining. The Consumer Financial Protection Bureau has invited deeper public shaming of financial companies, for the first time allowing consumers to share details of their horror stories publicly if they file their formal complaint online at its Consumer Complaint Database, consumerfinance.gov/complaintdatabase. The CFPB will review the complaint and strip out personal information, it said. “Making your story public will give more people, including you, the power to improve the financial marketplace,” the CFPB said.
Financial companies are none too pleased.
“While the banking industry is committed to helping consumers make informed and responsible financial decisions, public disclosure of unverified consumer complaint narratives doesn’t advance that goal and raises significant consumer privacy issues,” said Frank Keating, CEO of the American Bankers Association. “This risks turning the CFPB database into a questionable, even misleading, resource and risks tarnishing the reputation of individual companies without substantiation.”
Using your tax refund. The National Foundation for Credit Counseling found in a poll that most taxpayers, 68 percent, would prefer to pay down debt with a tax refund this year instead of growing their personal savings. The NFCC said that means debt is getting in the way of personal savings for many Americans, which is true. But if you have debt, paying it is probably a good use of a tax-refund windfall, which averages around $3,000, according to the IRS. Simple math shows the interest you pay on debt is probably far higher than the interest you earn on savings.
Home warranties. Home warranties, which cover a home’s major appliances, are notorious for being consumer-unfriendly. For 10 straight years, they were the most complained about category on Angie’s List, a members-only review site of service companies. But in 2014, home warranties dropped to No. 3 on the naughty list, topped for the dubious distinction by furniture retailers and property management companies. Still, 20 percent of home-warranty companies received a letter grade of D or F. Angie’s List members rate companies based on price, professionalism, punctuality, quality and responsiveness.
ABOUT THE WRITER
Gregory Karp, the author of “Living Rich by Spending Smart,” writes for the Chicago Tribune.