Capital One Being Sued For Unethical Business Practices

Credit card issuer Capital One Bank and four other businesses were sued by West Virginia
Attorney General Darrell McGraw for deceptive and unfair practices and bad business practices.
The complaint was filed this week in West Virginia’s Circuit Court and it asserts that Capital
One hooked consumers into repayment plans by mailing out solicitations disguised as new credit
offers.

Capital One offered to give people one dollar of new credit if they agreed to transfer the entire
balance of a charged off account to the new credit card. This meant that Capital One could re-age
debts to thwart the statute of limitations, which would start anew.

According to the lawsuit, Capital One issued cards with limits as low as 200 dollars for low-
income consumers with credit histories that were poor. The cards carried membership fees of up
to 59 dollars per year. Usually, the annual fees were billed on the consumer’s second monthly
statement, leaving the consumer with just 141 dollars of credit when they thought they had 200
dollars. Then, if the consumer mistakenly exceeded the limit, they could face over the limit fees
of up to 29 dollars.

In the past few months, McGraw’s office has targeted debt collection agencies in part of an effort
to protect West Virginia’s debtors. In November his office took two payday lending firms and
four collection agencies to court.

As members of the debt collection industry, we often scratch our heads and wonder why, in a
suffering economy where debt is running rampant, we cannot retrieve the money that consumers
owe. Experts allege that with unemployment rates running so high, it is impossible for
consumers to repay their debts. But bad business practices are not going to help the situation
either. It may be a knee jerk reaction to try to con consumers out of money, but it is just that. A
knee jerk reaction.

Mallory McGuinness-Hickey is employed by a debt collection company. She also writes

storieson consumer spending, business, finance, and debt collection.
ECONOMIC-AND-BUSINESS

Inquiry into anti-competitive practices

CARTELISATION and anti-competitive practices may be more obvious in the sectors like
cement and sugar but these are not limited to just one particular industry or a particular
sector of the economy. Just look around and you will find many businesses somehow or the
other involved in anti-competitive practices for maximising profits at the cost of consumers. 

LPG (liquified petroleum gas) sector is suspected by the Competition Commission of

Pakistan (CCP) to be one such example where a major player - Jamshoro Joint Venture
Limited (JJVL), a $100 million company, largest domestic LPG producer with more than 37
per cent market share, is alleged to be involved in anti-competitive practices and possibly
cartelisation to maintain its monopoly, shut off imports and prevent new entry. The
company is also accused of being involved in predatory pricing of the product. 

The CCP has begun proceedings to determine the charges of possible cartelisation and
predatory pricing against the company on the basis of a preliminary inquiry conducted by
the commission on a complaint filed by an importer, Progas. Similar charges have been
levelled against the LPG Association of Pakistan (LGPAP), an alliance of the LPG marketing
companies. 

JJVL denies the charges and terms the commission’s preliminary report as grossly
inaccurate and fraught with contradictions. “The report is based only on the statements of a
rival company and a person who has a long history of hostile relationship with our
company,” says the company’s director and spokesman, Fasih Z Ahmed. 

Apart from JJVL, there are nine other LPG producers and around 80 marketing companies in
the country. The industry is structured in such a way that the producers give allocation of
LPG quota to marketing companies, which sell the product to distributors or other marketing
companies without quota allocation. Consumers buy the fuel from retailers or decanters.
Thus, the LPG price is determined at three stages -- production, marketing and retail
levels. 

The CCP report accuses JJVL of using its clout on the previous government under Pervez
Musharraf to get the producer price de-linked from the benchmark Saudi Contract Price (CP)
in December 2007 in order to keep it down. Just a year before the government had linked
the producer price with Saudi CP to facilitate imports, especially during high demand periods
when shortages push up the fuel’s consumer rates. Only JJVL out of 10 producers is said by
the CCP to have opposed the decision. The reversal of the decision done under the influence
of JJVL and marketing companies allowed local producers to determine their own prices as
long as they did not exceed Saudi CP. The marketing companies were allowed to make up
to $150 per metric tonne above the producer price. 

The consumer price is determined by retailers and is usually within the reasonable
consumer price set by the Oil & Gas Regulatory Authority (OGRA) except during winters
when the LPG demand peaks in the difficult to access Northern Areas. The removal of
import price parity is believed to have resulted in rendering LPG imports uncompetitive and
price instability. 

But Fasih argues that LPG imports had remained consistent and dipped only once in the
recent years when global oil prices peaked in 2008 and Saudi CP rose to $932 a tonne. “This
year Pakistan has imported record 60000 tonne of LPG due to reduction in oil prices. So it is
wrong to allege that the LPG pricing policy discourages import. Besides, when the Saudi LPG
prices peaked, local producers had to give huge discounts to sell their product,” he says. 
He also claims that the producer price has always been fixed in accordance with Saudi CP as
the import parity policy is still in force except that OGRA has stopped notifying this price
since December 2007. He says OGRA had stopped notifying Saudi CP price because public
sector producers had erroneously interpreted it as a directive that the producers could not
sell below the notified prices, which pushed LPG prices appreciably. It also caused losses to
marketing companies as they could not sell the product at a higher rate because its demand
is highly price sensitive. 

JJVL is also accused of retrieving the revenues lost on account of the low producer price by
directly owning marketing companies or entering into profit sharing arrangements by
charging premiums or third party commissions from other marketing companies with quota
allocation. The marketing companies that don’t have quota allocations are forced to pay
heavy commissions to other companies in order to get the product from them. That
increases their costs, which, in turn, pushes the consumer price. Same model is followed by
other producers to recover the lost revenues. 

Though the report suspects collusive behaviour at the production level, it is not certain
about it. But it suggest that JJVL had used its influence in the government to convince other
producers to keep down their producer prices despite their higher than JJVL production
costs. The mechanism adopted to recover the lost revenues might also have influenced the
other producers. Fasih says JJVL is not involved in any illegal act. 

The low producer price -- Progas alleges that JJVL refuses to accept higher price and insists
third party commissions instead for quota allocation -- saves JJVL from paying a higher
royalty to SSGPL, which supplies gas to it for LPG extraction. Besides, it also helps the
company save substantially on tax payments without actually losing any revenues. Fasih
insists that the amount of royalty being paid to SSGPL has been rising since the
establishment of the JJVL plant because it is paid on the basis of the highest notified LPG
producer price in Pakistan. 

JJVL is also blamed of forming a cartel with its associated and other marketing companies
with quota allocations from it to ensure that it recovers the amount lost due to the lower
producer price through commissions and premiums. Therefore, the benefit of lower
producer price does not reach a consumer who is actually forced to pay much more than the
reasonable consumer price (fixed below Saudi CP) set by OGRA. — Nasir Jamal
Credit cards: unethical bank practices:

THIS is to warn unsuspecting customers of unethical methods and practices some banks
adopt in order to fleece their customers. 

I am a credit card holder of a foreign bank operating in Pakistan. Recently when my credit
card was up for renewal, I received a letter from the bank informing me that owing to my
very good repayment history they have decided to upgrade me from a standard card to a
gold card. 

I received my gold card a few days later. 

When the subsequent bill arrived, I was shocked to see that I was charged the annual fee of
the gold card which was double the fee for a standard card. I called up the bank to protest
the additional charges and after having to patiently hold for a considerable period of time
and after being bounced from one bank rep to another they agreed to reverse the additional
charges. 

However, I gathered from the conversations that it is standard practice of the bank to
charge the additional annual fee to all voluntarily upgraded by the bank card holders and
then whoever protests is refunded. 

I was also told that in order to avoid any inconvenience I should first pay the billed amount
and that the reversal of charges would appear in the next bill. I was warned that if I do not
pay the bill in full by the due date I would have to pay the additional late payment/financing
charges. My protest that it was the bank’s fault and that I should not suffer fell on deaf
ears.