The Rice Consumer Protection Agenda

These are tough times. The last thing New Yorkers need is for a bad situation to be made worse
by deceitful businesses and fraudsters. Yet the working families, individuals, and elderly
citizens of our state are encountering more scams than ever as they struggle to make ends meet.

Crimes against consumers are also not limited to the kind that endanger bank accounts—they can
also threaten the health and safety of individuals and families. Internet predators, toxic toy
peddlers, and insurers who delay or block treatment for profit all endanger New Yorkers through
consumer products.

It is a fundamental responsibility of the attorney general to protect New Yorkers’ safety, as well
as their pocketbooks. The AG is granted broad investigative and prosecutorial powers to combat
illegal and unsafe business practices throughout the state. There is tremendous potential for the
next AG to isolate and end emerging threats, and eliminate the persistent consumer crimes that
plague our state.

The following is Kathleen Rice’s agenda to protect consumers in New York:

Protecting Our Health and Safety

When we set up a new computer for our daughter or buy a baby bottle for our son or pay an
insurance premium for our family, we should not be concerned that these products can cause
harm to the ones we love. But the reality is that the safety of consumers is at serious risk without
smart, tireless law enforcement to protect them—and it is the ultimate responsibility of the
attorney general to provide that protection.

Here are solutions for the top consumer safety issues affecting New Yorkers:

1) Keep Internet predators at bay. About 20 years after email, web surfing, and chat room
became part of the American vocabulary, the Internet is as dangerous a place as ever.
Pedophiles stalk social media and instant messaging services, prowling for unsuspecting
children, and far too many are successful in finding them. No matter how many security
measures a parent takes at home, kids these days have access to the Internet
everywhere—and so it must be the mission of the next attorney general to proactively
find predators before they can strike, and ensure we jail them if they try.
 To stop them, a permanent, joint task force within the Economic Justice Division –
combining the resources of the Investigations Division, Internet and Consumer Frauds
Bureaus – must be permanently deployed to scour the Internet for predators, bullies and
fraudsters. This “virtual field unit” will tie together efforts to track deceitful use of the
Internet and work with other law enforcement agencies and the companies that are
responsible for helping protect the consumers they serve.

The law must also be strengthened so that pedophiles who lure minors for sex through the
Internet can be stopped and prosecuted before they commit a crime. Right now, the law
makes it difficult to protect children from predators before it’s too late—even if the
perpetrator uses the Internet to coerce a child and then actually meets them inperson.

2) Stop the use of toxic chemicals and compounds in consumer products. Believe it or
not, consumers are subjected to poisonous levels of toxins in products they buy every
day, right off the shelf. Most troublingly, the products that most consistently show up in
consumer alerts are geared toward children and babies—such as bottles, toys, and even
clothing. Most of the time these products are foreign-made in places where there are
virtually no safety standards. Though there are U.S. government agencies responsible for
monitoring the sale of consumer products and the content of their materials, it’s
impossible for every single thing sold to be tested.

That’s where the AG comes in. Only severe penalties and jail time can deter the
proliferation of dangerous consumer products, and it is up to the AG to make sure that
these unscrupulous manufacturers and retailers are regularly – and strictly – brought to
justice. The next AG should take a two-pronged approach: force retailers to become
directly responsible for their wares; and sue to stop any use of known potentially harmful
toxins in consumer products.

Through the Economic Justice Division, the OAG could create – and publicly push
retailers to sign – a code of conduct requiring content and safety information from
manufacturers. If manufacturers don’t report the necessary information, retailers would
not carry their products. Any retailer who refuses to sign would be subjected to the
harshest scrutiny imaginable under the powerful Consumer Protection Act and Executive
Law §63(12), which allow the AG to subpoena corporate officers and employees, and dig
deep into the practices of any company in New York until wrongdoing is found.

The AG can also go after toxic consumer products at the source by suing to stop their use
by manufacturers. Incredibly, some uses of hazardous chemicals like lead, phthalates,
PBDEs, cadmium, and bisphenol A are still approved, or not well-controlled. In some
cases, it will take legal action to force them off of store shelves.

3) Prevent insurance companies from risking lives for profit. We’ve all been through it
before: endless phone menus and insurance company flunkies forcing us to jump through
every bureaucratic hoop in order to get a mundane test or treatment approved. But,
unbelievably, the same time-intensive processes are used for much more pressing – and
even life-threatening – circumstances. Every day, New Yorkers in need of emergency
 care are put at risk by the red tape and stalling tactics of big insurance providers who
would rather save a dollar than a life.

Let’s take a lung cancer patient, for instance. This patient unusually – but not totally
uncommonly – develops a node during radiation therapy. The doctor prescribes a more
sophisticated procedure, targeted radiation, to address the danger. But the insurer ignores
the special circumstance and rejects the treatment in favor of traditional radiotherapy
because it is less expensive, and more broadly used. Now begins a weeks-long process to
gain authorization for the needed treatment—one that can only be initiated and followed
through by the dying cancer patient. And that’s time and energy the patient doesn’t have.

When such critical decisions have to be made, it is too often not a doctor who is
ultimately determining the course of treatment; it is an accountant, or worse, an operator
with an instruction manual. Such an irresponsible and callously greedy system is
unacceptable. The next AG must require insurers who operate in New York to develop
an expedited adjudication process for cases where a medical provider deems delay in
treatment a serious risk to the health or life of a patient. If the insurers don’t comply, the
OAG should go after them for endangering the health of New Yorkers. A unit combining
the resources of the Health Care and Consumer Frauds Bureaus and a new Special
Deputy Attorney General for Public Intelligence would also help advocate for consumers
who need immediate help to get urgent treatment.

Protecting Our Pocketbooks

It seems the worse the economy and the more vulnerable our citizens to financial peril, the
greater the incidence of fleecing and fraud. And so it is today. It has been a generation since
such a downturn has left so many so vulnerable. They must be protected from those who use
their desperate position to coax them into schemes to steal their hard-earned money. In this
economy, predatory lenders, insurance and Medicaid scammers, and major corporations with
dishonest agendas are the worst kinds of criminals.

Here are Kathleen Rice’s solutions to protect New Yorkers’ pocketbooks:

1) Expand the OAG’s mediation practice and access to whistleblowers. Most New
Yorkers don’t know that they can avoid Small Claims Court by requesting mediation
through the OAG, or that the OAG has dozens of attorneys waiting to act on their tips
about bad business practices. The OAG should have the resources it needs to educate the
public about these services, and the infrastructure to deal with the increase in tips and
complaints it would create.

More mediation cases will likely lead to more, larger actions on behalf of entire classes of
taxpayers when common complaints show trends of illegal activity. Cash recoveries and
penalties from these cases would pay for the expense of expanding the mediation unit.
 Designating a Special Deputy Attorney General for Public Intelligence would give the
OAG a whistleblower czar to reach out to New Yorkers about existing and emerging
threats to consumers, oversee a new integrated system for receiving tips (including an
improved, 311-linked hotline for whistleblowers), and help coordinate and vet the tips
received by the various units and bureaus of the OAG.

2) Halt mortgage fraud and predatory lending. Every year, thousands of unsuspecting
New Yorkers are taken for a ride by unscrupulous merchants in the mortgage lending and
consumer finance industries. These scammers frequently target low-income, minority
and elderly consumers, who they believe have few options for securing a safe loan. But
the AG has powerful investigative and prosecutorial tools to stop them, including the
state’s consumer laws and the Real Property Actions and Proceedings Law.

They key to making these laws work is enforcement. The OAG already has a task force
for taking on such crimes, combining staff from the Criminal Prosecutions, Civil Rights,
and Investor Protection Bureaus. Its work should continue. But its team needs tips and
additional resources to get the job done. In particular, an initiative must be undertaken to
codify rules for coordination and reporting between the Banking Department and the task
force so that the two can join resources to jump on emerging threats, specifically, when
unregistered brokers and dicey loan outfits set up shop to steal from New Yorkers.

An expanded mediation unit and whistleblower czar will also help funnel tips and
evidence of wrongdoing directly to the task force for quick action against bad actors, and
immediate results.

3) Ramp up the fight against Medicaid fraud. New York’s Medicaid system is rife with
abuse. The federal government has estimated that between 1.5 and 10 percent of our
Medicaid spending goes toward fraudulent claims, which is between $750 million and $5
billion annually—all of which comes directly out of taxpayers’ pockets. Twenty-five
percent of most Medicaid costs are also passed down by the State to local governments,
which are then forced to increase property and local taxes to pay the tab. In many New
York counties, Medicaid costs exceed property taxes. In other words, reducing Medicaid
fraud equals lower property taxes.

Reducing Medicaid fraud is the direct responsibility of the OAG, and so its Medicaid
Fraud Control Unit (MFCU) must be fully funded to ensure New Yorkers are protected.
Because of a 3-to-1 federal match, and the direct correlation between funds spent and
funds recovered, it makes the most sense to fully fund the unit to the federal cap. Doing
so would triple the total budget of the office—and triple the money saved for New
Yorkers by catching more Medicaid cheats.

In addition to a fully funded MFCU, the next AG should undertake the following
initiatives to fight Medicaid fraud:

• New, more severe penalties for Medicaid fraud. Create a Martin Act for
Healthcare, as suggested by Attorneys General Spitzer and Cuomo.
 • The MFCU can request, at any time, that providers produce records to support
their billings. If they don’t produce records in a timely fashion, the state should
automatically withhold its portion of their Medicaid payments to the provider.
• Make illegal kickbacks from Medicaid providers to patients who come into their
office or clinic, and their agents (so-called “flyer boys”) a felony.
• Set strict guidelines for interaction between the MFCU and the Office of the
Medicaid Inspector General (OMIG) so that there is maximum inter-agency
efficiency.
• Expand the use of sting operations to proactively investigate fraud by creating a
field team unit within the MFCU to crack down on providers breaking the law.
• Audit major providers frequently. Individual providers make up a much smaller
percentage of fraudulent acts than hospitals and managed care providers, and they
should be evaluated regularly.

4) Put the brakes on auto insurance fraud. Fraud in New York’s no-fault auto insurance
system is a pervasive and expensive problem. The staggering cost of false medical and
accident claims are passed on to consumers, essentially adding a 50 perent surcharge to
the average New Yorker’s policy over the U.S. average. In New York City, the
premiums are nearly four times the national rate.

Normally, county DAs work with the Insurance Frauds Bureau of the state Insurance
Department on prosecution of auto insurance fraud—however, the OAG can also get
involved if the fraud is pervasive, or across multiple jurisdictions. Dedicated personnel
from the OAG’s Consumer Frauds Bureau should initiate a Compstat-like approach to
tracking insurance fraud statewide in an attempt to reconstruct the many players involved
in the fraud rings. The new unit could also act as a liaison with the various federal, state,
and local agencies that are involved in anti-fraud efforts, such as the FBI, local DAs, and
the Insurance Department.

As further deterrent, this OAG “Auto Unit” could also coordinate with state medical
boards to publicize the penalties for certified medical practitioners who engage in fraud.
While many involved in the crime rings are likely to be career criminals, the medical
professionals essential to filing the false claims are already engaged in a potentially
profitable, and legal, profession and could therefore be more susceptible to scrutiny.

Finally, the next AG must also push strongly to make “runners” – the scam artists who
solicit accident victims in order to defraud insurance companies – Class E felons, and to
pass Alice’s Law, which would also make staging an accident a felony. The legislature
has had both bills on their dockets for some time, yet have failed to make them law.

5) Block cell phone “bill shock.” It’s called “bill shock” – when wireless companies
charge huge penalties to customers that unknowingly go over their monthly data, voice,
or texting limits – and, if you have a cell phone, you’ve probably been a victim. At a
time when most New Yorkers are scraping together the cash to pay for just the basics, it
is unconscionable that utilities would so blatantly gouge their customers.
Providers of wireless coverage in New York should end this practice of over-billing
immediately or set up instant warning systems when consumers are approaching their
limits, similar to the alerts issued to credit card users at the point-of-sale. If the telecom
giants don’t do what’s right, the OAG can go after them for possible fraud and
misleading contracts.