Category Archives: Consumer protection

Consumer protection

Cuccinelli to North Carolina on Electricity Regulation – Avoid Virginia’s Mistakes

The Cooch is back. Former Virginia Attorney General Ken Cuccinelli penned an op-ed for the Wilmington, North Carolina based Star News opposing Duke Energy’s proposed changes to electrical regulation.  The title of the opinion piece is, “N.C. should block this Duke Energy power grab”.  Cuccinelli’s biggest issue with the pending regulation is extending the period of time between utility rate cases.  The editorial board of the Star News agrees. Cuccinelli writes:

“Key provisions to extend the period of time between utility company rate cases are embedded within N.C. Senate Bill 559, being debated at the N.C. General Assembly. Similar provisions hurt Virginia customers, and will hurt North Carolina customers, too.”

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Promoting Financial Literacy

Here’s a government initiative I like. The City of Richmond’s Treasurer’s Office is holding its first Financial Literacy Fair this Friday. States the press release:

The purpose of this fair is to empower the citizens of Richmond to take more control of their finances and begin the initial steps needed to build personal wealth. The mission of the Richmond City Treasurer’s Office is to inspire, encourage and pursue the high possibilities of potential in others through the elimination of financial barriers by taking “Small Steps for Big Change.” This literacy fair is one step toward big change in the lives of our Richmond residents.

The fair will hold workshops such as Banking 101, Budgeting and Saving, Balling with Budget and Credit. Financial counselors will be onsite.

Bacon’s bottom line: One reason — I’m not saying it’s the main reason, but it’s a contributing factor — that people fall into the poverty trap is that they often make poor financial decisions. The literacy affair addresses a root cause of poverty. Let’s hope it gets great attendance!

JLARC Report on Licensing: Useful, But a Missed Opportunity

As the old saying goes, you find what you look for. And in its examination of occupational licensing in Virginia the Joint Legislative Audit and Review Commission (JLARC) largely found what it was looking for — inefficiencies and overcharges. Conducting the review was worthwhile, but the exercise was small ball — it missed the opportunity to examine much bigger issues.

In 2017, JLARC instructed its staff to study the Department of Professional and Occupational Regulation (DPOR) staffing and organization, its processing of occupational licenses, and its enforcement of occupational rules. Staff also assessed the affordability of fees and the processes for adjusting fees.

Here’s what JLARC did not study: To what extent does licensing create barriers to entry into the regulated occupations and professions? To what extent do regulated professions use regulations to protect their occupational turf and boost their earnings? To what extent does the public suffer from these legalized labor monopolies?

To its credit, given the limited scope of its inquiry, JLARC did come up with some interesting findings in “Operations and Performance of the Department of Professional and Occupational Regulation“:

  • No legal justification for regulating 11 occupations. Eleven occupations regulated by DPOR appear not to meet the criteria for regulation established in the state code. These include community managers, opticians, residential energy analysts, soil scientists, landscape architects, waste management facility operators and others. Regulation of these occupations does nothing to advance the public health, safety and welfare of the public.
  • Excess fees. DPOR is funded by the fees it charges to applicants. DPOR’s method for calculating fees has over-projected agency expenses leading to unnecessarily high fees in the past. Fees have been reduced since, but the balance still has grown $27.2 million — up from $15 million ten years ago, and far more than needed.
  • Many complaints go unexamined. Staff closed 71% of the disciplinary cases it opened in FY17. Staff do not investigate all potential violations.
  • Poor use of IT. DPOR does review and approve licensing requests in a timely manner, but it would make the process more user friendly by making it more accessible online and by automating key processes.

These are all useful findings, and the report makes some 36 recommendations on how to improve the system. While the goal of improving administrative productivity is laudatory, however, making a flawed system work more efficiently doesn’t do much to build a more prosperous, equitable Commonwealth.

Conservatives have long targeted occupational licensing for creating barriers to upward mobility. Do the state’s 73,000 barbers and cosmetologists really need regulating? Do they really need formal education and credentialing? Is the public health and safety truly harmed if someone gets a bad haircut or cracked fingernail? The crafts of hair cutting, cosmetology and hair-braiding, which provide an avenue of occupational mobility for lower-income Virginians, could be taught perfectly adequately in informal apprenticeships. Why burden people with educational costs and licensing fees?

Of greater concern is the regulation of the medical professions. In theory, the system is designed to protect the public from frauds, charlatans and malpractice. The system does do that, so some form of licensing is necessary. But the system also carves out occupational turf, protecting doctors from competition from nurse practitioners, and nurse practitioners from registered nurses, and registered nurses from licensed practical nurses, and so on down the line. That may not be a big problem in major metro areas, but it is a huge problem in large swathes of rural Virginia that have trouble recruiting medical professionals.

Indeed, it is fair to say that the crisis of access and affordability in rural health care is largely the result of rigid occupational licensing rules that prevent nurses from performing a high percentage of the routine procedures, and dental hygienists from cleaning teeth and filling simple cavities. No health care, it appears, is better than health care not delivered by doctors and dentists.

I would love to think that the General Assembly might get serious about tackling these issues. But I don’t see it ever happening. As the Richmond Times-Dispatch editorial page observes today, only one in twenty jobs required government certification a half century ago. Today, one in four does. It should come as no surprise that highly compensated professions, intent upon maintaining their occupational monopolies, have become major campaign contributors. According to the Virginia Public Access Project, physicians have donated $347,000 to political campaigns so far in 2018-19, dentists $223,000, optometrists $114,000. Nurses? Only $33,000. Don’t expect rural healthcare reform unless it involves paying doctors and dentists more money.

The Real Reason Why Amazon Is the Future

I’ve finally figured out what people can do when robots and AI wipe out half the occupations in the economy — they can get jobs fixing all the #$*& that doesn’t work!

The last couple of months have been a succession of extraordinarily frustrating experiences in the Bacon family — from trying to find tradesmen to complete a gutter job at my mother’s house that the original contractor left unfinished for three months… to badgering our home-warranty company to get our broken microwave repaired, and, after waiting two months for useless parts from China to arrive, to get it replaced… to calling back Comcast technicians three times to get our Internet-cable-telephone service to function properly… to complaining about a two-week-old Microsoft Surface Go tablet whose network adapter stopped working. It’s just astonishing.

If other people are having the same kinds of experiences, our consumer economy is going straight down the toilet no matter what the GDP figures say. I’ll wager that the lost productivity of 340 million Americans navigating phone trees and waiting on hold is a bigger drag on the economy than climate change, hurricanes, cyber sabotage, and telephone marketers rolled into one!

I’ll spare you the gory details but I’m spending more time than ever before dealing with problems created by other peoples’ screw-ups and crappy products. I’m normally a fairly even-tempered guy but I’ve found myself hurling profanities at the wall on one more than one occasion. Other members of my family have been reduced to literal tears.

Some people believe that the progress of AI and robotics is rushing upon us so rapidly that it will obliterate half the jobs in the economy in the next 20 years. I’ll believe it when I see it. Sure, AI might be getting smarter, but everything is getting more complex — IT systems interacting with other systems, nested within yet other systems. Lines of code are multiplying exponentially, far faster than the ability of AI to keep up. Conflicts and failures crop up with increasing frequency. Who’s winning the race — AI or complexity? Right now, I’d say complexity is sprinting ahead of the pack like Usain Bolt.

While the systems are getting more complex, people aren’t getting any smarter. Indeed, given the quality of our educational system, I suspect people are getting stupider. Either that or more people are on drugs. And in a full-employment economy, even stupid, addle-minded people can get jobs. They are wreaking havoc on our lives!

Some people say that Amazon is taking over the world. I, for one, welcome my new corporate overlord. When I bought an inexpensive glare-free Kindle e-reader, the darn thing crashed about one week after the year-long warranty expired. I left a nasty comment on Amazon’s website. A week later, someone from Amazon contacted me and wound up sending me a free replacement.

I now see Amazon as the new model for the U.S. economy. Sure, its products fall apart just like everybody else’s, but its customer follow-up is amazing. Amazon hires people whose job is to clean up other peoples’ messes. The way things are heading, we’ll all be working for Amazon in twenty years.

Protestants, Progressives and Paternalism

If you’re a freedom lover, high scores are good. If you like telling people how to live their lives, low scores are good. Virginia ranks 39th. Source: Mercatus Center.

To put Steve Haner’s recent post about the Virginia lottery in broader perspective, I have displayed the “freedom from paternalism” ranking of the 50 states published this year by George Mason University’s Mercatus Center. Virginia ranks 39th in freedom from paternalism. The flip side of that finding is that the Old Dominion ranks as the 12th most paternalistic state in the country.

By “paternalistic,” Mercatus researchers Russell S. Sobel and Joshua C. Hall, professors at the Citadel and West Virginia University respectively, mean state policies that the political class has decided are for your own damn good.

If you don’t like a busybody government, then New York is the state from hell, with a ranking in a class all by itself. Vermont, Washington, and California are other hard-core busybody states. If you’re a freedom junky, head to Wyoming, the least meddlesome state in the country. Arizona, Nevada and Kansas also are among the least intrusive.

The Mercatus ranking breaks down paternalism into three buckets of policies — selective taxes, “saint subsidies,” and miscellaneous bans and regulations. Virginia scores pretty darned meddlesome across the board. On the less paternalistic side, Virginia has no soda tax and a low cigarette tax but it has a killer tax on distilled spirits.

The ranking encompasses such policies as plastic bag bans, happy hour restrictions, mandatory motorcycle helmets, fireworks restrictions, blood tests, social gambling and Internet gambling. To the point of Steve’s post about the state lottery, Mercatus does not include the presence of state lotteries, horse race betting, or casino gambling.

Why is Virginia so paternalistic? It is often observed that Virginia is either the southernmost Northern state or the northernmost Southern state. I’d hypothesize that we have incorporated the most meddlesome traits of both North and South — Bible Belt blue laws inherited from our Protestant past and the Northern progressives’ instinct for economic regulation on environmental, consumer and other grounds. One way or the other, if you’re a libertarian, you live in enemy occupied territory.

Would an Eviction-Diversion Program Help or Hurt?

Renters-rights defenders and landlord advocates may be reaching common ground on how to reduce the rate of evictions in Richmond: Create an eviction diversion program. Reports Ned Oliver in the inaugural edition of the Virginia Mercury:

Planning is still in its early stages, said [Martin Wegbreit, director of litigation at the Central Virginia Legal Aid Society], but it would likely be modeled on similar efforts in other states, like Michigan, where Kalamazoo County established a program in 2007 as part of an initiative to reduce homelessness. In the Richmond area, more than 30 percent of homeless residents surveyed last year said they had been served with an eviction lawsuit, according to a recent survey by Homeward, a nonprofit that coordinates services for homeless people. …

The one-time program is geared toward low-income families and individuals who can afford their rent but fell behind after an unexpected financial emergency such as a car crash or medical problem. To qualify, they must demonstrate that they are no more than three months behind in rent and show that they will be able to afford their rent once the assistance ends.

Renters-rights proponents like the idea because it reduces the number of renters evicted from their apartments. The program in Kalamazoo assisted 412 households last year, providing $138,000 in rental assistance, an average of $300 to $350 per family.

Landlords like the idea because it provides funding to ensure that they get paid rent on time.

A big question, unaddressed in the article, is where money would come from for an eviction diversion program. NAlso, n one pretends that such a program would settle all the issues between renters and landlords.

Bacon’s bottom line: The eviction-reduction movement is no more than a palliative for underlying social and economic problems: (1) the tightening shortage of affordable housing in the Richmond region, (2) the inability of poor people to find and sustain living-wage employment, and (3) the inability of some people to manage their personal finances responsibly. Until we address the underlying issues, the problem of evictions will always be with us.

Still, I’m a big believer in conducting small-scale experiments, which, if successful, can be replicated and scaled, and, if unsuccessful, can be shut down. The key in an eviction-diversion program is not to measure the number of families assisted but to measure the number of evictions. If a program creates a moral hazard in which renters, knowing that assistance is available, become more lax about husbanding their money, it would be counterproductive. If experience shows that moral hazard turns out not to be an issue, and if the number of evictions demonstrably decline, then the program could prove its worth.

More Evidence that Virginia’s Healthcare System Is Broken

Surprise bills for medical care that Virginians expected insurance to cover are on the rise, a General Assembly healthcare panel was told yesterday. (The Daily News has the story here.)

Typically, the unexpected charges occur when patients are billed from outside their insurance company’s network. A person might go to a doctor who orders a test from a lab that has no agreement with the insurance company. Or a someone might go to an emergency room and get a bill from an anesthesiologist or pathologist outside the network. Or an emergency-room patient might wind up spending the night at an out-of-network hospital.

Another problem is the absurdly inflated prices attached to services for which insurance companies negotiate steep discounts. If a patient goes out-of-network, they get stuck with the inflated price. In one example cited in the hearing a Blue Cross Blue Shield member on the Virginia Peninsula was charged $3,687 for urinalysis tests over three months that allegedly could have done at Rite Aid for $50.

“There’s no excuse for these kinds of charges for something somebody else is making money with at $50. Basically, it’s fraud,” snapped state Sen. Frank Wagner, R-Virginia Beach.

Bacon’s bottom line: Well, labeling the charges “fraud” is unhelpful hyperbole — although I can understand the sentiment. Providers aren’t acting out of some nefarious desire to stick it to their patients. They are trapped in a fundamentally flawed system with two core components.

First, providers charge prices for services that bear no relationship to the cost of providing the services; they do so as part of their annual dance with insurers, which negotiate discounts as part of their value proposition to members. Over the years, the prices have become untethered from reality. Anyone stuck paying the list prices is totally and utterly hosed.

Second, insurers have found that they can negotiate steeper discounts by creating exclusive provider networks. Hospitals, doctors and others are willing to offer steeper discounts for policies that steer patients to them. In a marketplace with multiple insurers and multiple providers, the relationships can get very complex and confusing. Checking to see who is in-network and out-of-network can be problematic if the need for treatment is urgent, as it typically is in an emergency room.

The danger I see is that the General Assembly might create some arbitrary consumer protection that generates unintended consequences in which the new set of problems is even worse than the original set. Before taking hasty, ill-considered action, legislators need to attack the root of the problem — the insane disparity between list prices and negotiated prices. That’s where the system has broken down, and that’s what needs to be fixed.

Revisiting Virginia’s Public Accommodation Laws

Virginia is for lovers haters. A sad scene unfolded in Lexington, Va., last Friday evening. Sarah Huckabee Sanders, President Trump’s press secretary, tried to enjoy a meal with her family at the Red Hen restaurant. The owner, a New York transplant named Stephanie Wilkinson, asked the Sanders party to leave the restaurant after starting their appetizers. Wilkinson claims that she spoke with the staff at her restaurant and they jointly decided to ask the Sanders party to leave. This was done because of Ms. Sanders employment by the Trump Administration.

However, Ms. Wilkinson’s account of the event is at odds with what really happened. In an interview with the Washington Post Wilkinson said, “I am not a huge fan of confrontation,” in an effort to justify her confrontation with the Sanders party. However, subsequent to her Mahatma Gandhi impersonation it has come out that Wilkinson’s confrontation of the Sanders party didn’t stop at the Red Hen restaurant. During a talk radio interview Sanders’ father, former Governor Huckabee, related the rest of the story. After being tossed out of the Red Hen Sarah Sanders and her husband left their group. As the remainder of the group went to another restaurant Wilkinson followed them somehow arranging for people to continue the harassment at the new restaurant. It seems that Ms. Wilkinson is not only a huge fan of confrontation but a huge fan of the liberal art of lying through her teeth as well. I have looked and found no refutation of Sen Huckabee’s account of the story by Ms. Wilkinson. Following a group of people from restaurant to restaurant is certainly confrontational but is it stalking? Stalking is a crime in Virginia. The applicable code can be found here.

Let’s add knucklehead to the list. The original party at the Red Hen consisted of Ms Sanders, her husband and some of her in-laws. Her in-laws are described as liberals who do not support the Trump Administration. Therefore, the people Wilkinson followed and harassed were a bunch of anti-Trump liberals. So, at the second restaurant, a group of Trump-opposing liberals were harassing a group of Trump-opposing liberals. It seems we can safely add knucklehead to the list of adjectives describing Ms. Wilkinson.

The other Red Hen. In the City of Washington, D.C., there is another Red Hen restaurant with no affiliation to the Red Hen restaurant in Lexington, Va. People, presumably conservatives, who wanted to counter-protest the actions of Wilkinson managed to become knuckleheads themselves. The D.C.-based Red Hen restaurant has been “tarred and feathered” by people trying to protest Ms Sanders’ treatment at a wholly different restaurant located 200 miles away.  Interestingly, Ms. Sanders would not have been turned away from the Red Hen in Washington, D.C., since that city forbids discrimination in a public accommodation based on political affiliation. You can find the code here. The city of Seattle and the U.S. Virgin Islands have similar bans on discrimination based on political affiliation.

Has anybody seen my governor? If Ralph Northam maintained any lower of a profile his face would start appearing on milk cartons trying to locate our lost governor. The Red Hen incident happened in Virginia. Where is Virginia’s governor with his take on this? A web search of “Ralph Northam” and “Red Hen” produces no relevant results. Is this incident at the Red Hen restaurant how Virginia wants to be seen? Does public harassment help our “Virginia is for Lovers” image? I think not. Should Virginia broaden its public accommodation law to be more like D.C., Seattle and the USVI? I think so. While I’d hope that proper Virginians wouldn’t bring shame to the Commonwealth by refusing service to somebody based on their political affiliation, I have to recognize that carpetbagging asshats like Stephanie Wilkinson will do just that. Time to squelch this now.

— Don Rippert

Use the Tenant’s Money to Cure the Tenant’s Rent Shortfall

by Martin Wegbreit

Recently, Virginia drew national attention for reportedly high eviction rates, especially in central Virginia and Hampton Roads. This has inspired many efforts to address the issue. These include a Campaign to Reduce Evictions, an evictions workgroup at the Virginia Housing Commission, and a possible Eviction Diversion Program in Richmond and elsewhere. These initiatives may result in changes that decrease the number of evictions and benefit both tenants and landlords.

One partial solution requires no change at all: Use the tenant’s money to cure the tenant’s rent shortfall. The Sunday April 8, 2018, New York Times article about evictions reported that the median amount owed in a non-payment of rent eviction in Richmond was $686. By contrast, a Virginia landlord may hold a security deposit of up to two months’ rent. With an average monthly rent in Richmond of $1,269, a typical landlord may hold around $2,000 of the tenant’s money.

And the security deposit is the tenant’s money. It is not the landlord’s money. The landlord is a fiduciary, or a trustee, holding the tenant’s money and using it only for a permissible purpose.

In most cases, the tenant’s security deposit is not an issue until the tenant has moved and been gone for 45 days. During that time, the landlord either must refund the security deposit or provide a written accounting for how the funds were used, or some combination of the two.

A Virginia landlord also may use the security deposit during the tenancy for any permissible purpose. This includes payment of rent owed. The law, part of Code of Virginia §55-248.15:1, is clear: “The landlord shall notify the tenant in writing of any deductions provided by this subsection to be made from the tenant’s security deposit during the course of the tenancy. Such notification shall be made within 30 days of the date of the determination of the deduction and shall itemize the reasons.”

In 38 years of legal aid practice in Virginia, I never have seen or heard of a landlord deducting a rent shortfall from the security deposit, and seeking a repayment plan to replenish the funds, rather than undergo the time and expense of filing a non-payment of rent eviction. Unquestionably, tenants who intentionally or habitually fail to pay their rent deserve an eviction lawsuit, a judgment of possession, and eviction by the sheriff. But true hardship cases ought to be treated more humanely. Use the tenant’s money to cure the tenant’s rent shortfall.

A tenant’s non-payment of rent should not be subject to a “one size fits all” solution of an eviction lawsuit. Landlords have in their own hands a partial solution to lower eviction rates. Treat tenants like customers, not like a commodity to be disposed of whenever a problem arises.

Martin Wegbreit is director of litigation for the Virginia Legal Aid Society.

Transparency Coming for College Financial Aid

Last week I blogged about the confusion engendered by many colleges and universities when they send students details of their financial aid packages along with their acceptance letters. The terms and conditions spelled out are often opaque and sometimes deceptive. “If Congress doesn’t act,” I suggested, “the Commonwealth of Virginia could require a standardized letter for all state institutions.”

It turns out that Virginia is moving in that very direction. Beverly Covington, SCHEV’s legislative liaison, informs me that the General Assembly has instructed SCHEV in its budget language to review their financial-aid award letters.

“During this review,” reads the budget, “the Council shall identify opportunities for improvement as well as best practices for … clarity and completeness of the information provided on gift aid as well as students’ responsibility regarding student loans or work study.” 

SCHEV will develop policies to make the following information  available to the student: (1) a breakdown of the components of the institution’s cost of attendance, designating billable charges; (2) a clear identification of each award, indicating the type of aid; (3) the use of standardized terminology consistent with the National Association of Student Financial Aid Administrators; and (4) whether awards are condition and what the criteria are for renewal.

The Council shall report findings to the House Appropriations and Senate Finance Committees by Dec. 1, 2018.

Also, notes Covington, the General Assembly authorized SCHEV to create an office of the student loan ombudsman. The Council is currently working to fill the position.

Bacon’s bottom line: Needless to say, this is all very positive. Higher-ed institutions need to provide students the information they need to make informed choices. I’m delighted to see Virginia taking the lead in consumer transparency.

The cost of attendance at Virginia institutions of higher education is still way too high, and there is no substitute for bringing soaring tuition, fees, room, and board under control. But at least students will have a clearer idea now of the financial commitments they are making. We should see fewer young people finding themselves over their heads financially, dropping out, and floundering in thousands of dollars in debt they can never repay.

Where Are the Consumer Rights Advocates When You Really Need Them?

Consumer rights advocates work themselves into a wrathful froth over the misdeeds of banks, payday lenders, credit card companies, and mortgage lenders. But what about the truth-in-lending abuses perpetrated by institutions of higher education? We don’t hear so much.

With the cost of attendance of a four-year degree routinely exceeding $100,000, selecting a college can be one of the biggest financial decisions that Americans can make — probably the biggest decision for low-income families that never purchased a house. But the financial terms and conditions provided in acceptance letters are notoriously opaque, finds a study by the New America think tank and financial-counseling firm uAspire.

The two outfits published a study last week based upon an examination of 11,000 award letters sent in 2016 by more than 900 colleges. Summarizes NewAmerica’s Kevin Carey in the Wall Street Journal: “It found most of them use obscure terminology, omit vital information, or present financial calculations that appear deliberately deceptive. Many letters are confusing in their own unique ways, making it difficult for students to compare colleges.”

Of the 515 colleges that awarded them via nonstandard letters, more than a third provided no information about how much attending school would cost. The letters highlighted grants and scholarships as a way of convincing students to enroll, but without listing tuition or explaining how much money students would owe. …

The letters that did disclose costs were inconsistent. Some listed only tuition. Others included room and board. Others added books and estimated living expenses. … Seventy percent of colleges with nonstandard letters created further confusion by lumping together grants and loans, as if both were freebies.

Carey cited a letter sent by the University of Arizona that told a student that the cost of attendance was $48,200 a year, then subtracted $5,815 in grants, $5,500 in work-study opportunities, and $26,885 in loans. “Net Costs After All Aid” were “$0.00.”

A used car dealer who delivered a pitch like that would be slammed with a fine and driven out of business.

Many (not all) public colleges and universities engage in practices that would make a payday lender blush. It all makes sense when you understand that higher-ed institutions are, beneath the lofty rhetoric about justice and equality, mechanisms for the extraction of wealth from students and taxpayers, the pursuit of status and prestige within the academic community, and the remuneration of elite faculty and administrators.

Feeding the system requires inducing as many students as possible to enroll, which is becoming increasingly difficult as the cost of attendance continues to outpace incomes and financial aid.

How can lower-income Americans be protected from the higher-ed racket? New America recommends requiring colleges to use a standardized award letter that explains expenses, grants and loans clearly so recipients can easily compare offers by competing institutions. The Department of Veterans Affairs already mandates this kind of transparency for students benefiting from the GI Bill. Congress should require a standardized letter for all institutions receiving federal money.

And if Congress doesn’t act, I would suggest, the Commonwealth of Virginia could require a standardized letter for all state institutions — or, at the very least, for institutions offering state-funded financial aid. Colleges and universities should be free to determine the substance of their own financial aid packages, but there should be full transparency in how those packages are presented to students and their families.

The Service-Dog Thing Is Out of Control

Attorney General Mark Herring has taken action against a problem that is fast becoming a social crisis: that is, the runaway enthusiasm for “service dogs.” The AG’s office has filed a lawsuit against Service Dogs by Warren Retrievers, Inc., a Madison County dog breeder that trains Labrador and G0lden retrievers to be “diabetic alert dogs” and sells them for $25,000 a pop… er, pup.

While making grandiose claims about the dogs, Service Dogs by Warren Retrievers often delivered “poorly trained puppies with significant behavioral issues and inadequate skills or training to notify a customer of a potentially life-threatening high or low blood sugar situation,” the AG’s office said in a press release. The business also allegedly misled customers about certain aspects of its payment structure and lied about the principal’s service in the armed forces.

“Our investigation shows that, in many instances, Service Dogs was simply selling a $25,000 pet, leaving customers with a huge bill and no protection,” Herring said. “Customers have a right to rely on the accuracy of a business’s claims, especially when it involves a person’s health and well-being.”

The company says it is committed to changing the lives of those living with “invisible disabilities such as Autism, Diabetes, PTSD, and Seizure Disorders.” The website provides heart-warming video testimonials of happy employees, satisfied customers, even former Governor Terry McAuliffe, and, of course, lovable pooches. You truly have to have a heart of steel to watch these dogs and not go, “Awwwwwww.”

I don’t know if the AG’s charges against Service Dogs are warranted or not. But I will say this: The service-dog thing is out of control.

Service dogs have long been a staple of society as companions for the blind. Blind people need help navigating streets and sidewalks, and and everyone accepts the idea that the dogs can give them mobility and autonomy. Because the blind are few in number, everyone is willing to make minor accommodations for them and their dogs.

But the concept of a “service dog” is morphing. Service Dogs by Warren Retrievers is a perfect example: It helps people with “invisible disabilities” such as autism, diabetes, PTSD and seizures. That stretches the definition to encompass, I’d guess, 10% of the population. But the concept is even more elastic. Now people have “emotional support dogs.” And they want to take these dogs onto airplanes and into the workplace. If we include people who need “emotional support” among the protected category of “the disabled,” we’re probably talking about half the population!

Because the “disabled” enjoy legal protections, and because anyone who utters inappropriate sentiments might find him/herself tarred as an “ablist” and a bigot, people are scared to resist the trend. Americans always push the boundaries as far as they can, and there are no discernible criteria in our culture of victimization that people can draw upon to say, “That’s enough!”

What if you’re allergic to dogs? What if the dog sniffs your crotch? What if seeing a dog triggers post-traumatic stress because a neighborhood dog mauled your kid? Do you have rights? Not now.

Herring’s lawsuit does draw a line of a sort — the service dog must be capable of providing the advertised service, in this case, detect swings in blood sugar. That’s a start.

The “Food Desert” Theory Does Not Reflect Reality

Inner-city convenience store responding to what local demand.

A large social-scientific literature has documented that low-income neighborhoods are far more likely than affluent neighborhoods to be “food deserts,” that is to have low access to healthy food. The big question is why. Does the food-desert phenomenon reflect institutional racism, in which corporate grocery-store chains are unwilling to serve neighborhoods dominated by poor minorities? Or does it reflect the fact that poor people just aren’t interested in eating what a patronizing intellectual class deems best for them?

A new study argues that food deserts are primarily a demand-side phenomenon: They exist because poor people have different tastes in food and place less value on nutrition.

“Using a structural demand model, we find that exposing low-income households to the same food availability and prices experienced by high-income households would reduce nutritional inequality by only 9%, while the remaining 91% is driven by differences in demand,” report the authors of, “The Geography of Poverty and Nutrition: Food Deserts and Food Choices Across the United States.”

The authors draw upon a rich combination of datasets, including a 60,000-household panel survey of grocery purchases, a 35,000-store panel of sales data that covers 40% of all grocery purchases nationally, and data on the entry dates and locations of 1,914 new supermarkets from national grocery chains along with data on real establishments in each zip code.

While healthy food costs more per calorie than unhealthy food, the authors write, the difference is attributable almost entirely to the cost of fresh produce. In food categories other than fresh produce, health food is actually about 8% less expensive. Therefore, they conclude, price is not the major obstacle to the eating of healthier food.

Also, the “food desert” effect is exaggerated. “Americans travel a long way for shopping, so even households who live in ‘food deserts’ with no supermarkets get most of their groceries from supermarkets. ” Households that move from food deserts to non-food deserts do not significantly alter their eating patterns.

Therefore, the authors conclude, the strategy of coaxing supermarkets to set up shop in food deserts will have only a nominal effect on household nutrition. The most important variable they identified in influencing the consumption of healthy vs. unhealthy food is the level of education. They suggest that improving public health education would have a more positive impact than worrying about the geographic distribution of grocery stores.

Bacon’s bottom line: Food deserts are one more example of people with good intentions mis-identifying a problem and squandering resources on solutions that don’t work. The food-desert theory appeals to liberals and progressives because it reinforces their conviction that a market failure exists for food, which only government intervention can remedy. Observing that poor people have different tastes in food, I have long inveighed against this idea. For the most part, the free market provides poor people exactly what they want to eat. If you wish for poor people to change their nutrition, you need to change their taste infood. Otherwise you’re just wasting everyone’s time and money.

(Hat tip: John Butcher)

A Better Model for Lending to the Poor

LendUp office in Chesterfield County. Photo credit: Richmond Times-Dispatch.

It’s time to introduce into the public lexicon a distinction between “social justice warriors” and “social justice entrepreneurs.”

Social justice warriors (or SJWs, as they are known short-hand on some conservative blogs) seek to remedy the conditions of the poor and downtrodden through political action, typically calling upon government to wield its power and money to fix some perceived institutional wrong.

Then there are social justice entrepreneurs. Instead of seeing government as the answer, they look to private action: creating new business and not-for-profit models to help the poor. The entrepreneurs don’t agitate, they don’t wave placards, and they don’t frequent protest rallies. They go out and change peoples’ lives for the better.

Regular readers of this blog know that I have no patience with SJWs, most of whose “remedies” are counter-productive, if not outright destructive. By encouraging the poor to buy houses they can’t afford, take out higher-ed loans for degree students never complete, and shutting down lenders-of-last-resort like payday lenders, SJWs have worsened the plight of the poor — all for the most noble of motives, of course.

California-based LendUp Global Inc., is an example of a social justice enterprise that has the potential to help ameliorate the lives of millions of poor people — without a single dollar of government funding. The company, which has established its first East Coast office in Chesterfield County, was recently profiled by the Richmond Times-Dispatch. I base the following account upon that article.

Sasha Orloff had worked in finance, including an internship at the Grameen Foundation, a global nonprofit co-founded by Nobel laureate Muhammad Yunus that provides micro-financing for poor people in developing countries.  His experience there inspired him and his stepbrother Jake Rosenberg, who had worked in technology at Yahoo! and an online gaming company. They conceived the idea of tapping the emerging FinTech industry to make small loans to an estimated 100 million Americans, mostly poor with low credit ratings and income volatility, who cannot get loans from traditional banks. In early 2016, LendUp raised $150 million in venture capital with the goal of becoming a better small-loan provider.

As with payday lenders, LendUp’s interest rates are extremely high on small, short-term loans. A $250 loan repayable within a month would carry a finance charge of $44, equivalent to an annualized interest rate of 214 percent. Interest payments must cover the transaction costs of making the loans, after all. They also reflect the increased risk on non-payment by low credit-score borrowers. 

As Rosenberg acknowledges, “There is a subset of the population that actually needs payday loans, and for this population, banks cannot readily serve them for a wide range of reasons.”

“Yes, payday loans are expensive. The real problem is there is no other options,” he says. “The average borrower is getting ten [payday loans] a year, and they have no pathway to a better product. The key thing is, we’ve tried to create a model where we win when the customer wins. … We do that by trying to incentivize behaviors that are constructive to the consumer’s financial life. If they do those things, they get access to more, the cost goes down, and the amount of capital they can get goes up.”

LendUp offers customers a “ladder” out of the indebtedness trap. The company provides financial, advising customers on how to improve their credit rating and qualify for lower cost debt. Borrowers can win points by paying back loans on time. As they prove themselves, they can work from payday-like loans to installment loans of up to $1,000 with lower interest rates.

Earlier this year, LendUp passed the $1 billion mark in loans provided. It has made more than 3.5 million loans.

Time will tell if LendUp has a profitable business model. But if it does, it should have no trouble attracting capital and expanding. Most likely it will attract competitors, and it will push the payday lending industry to reform itself — either develop a better business model or get dismembered by new tech-savvy, FinTech enterprises.

Interestingly, although LendUp’s East Coast operation is based in Virginia, the company does not offer loans in the Old Dominion. The article does not explain why, but don’t be surprised if there are regulatory restrictions inspired by do-gooders trying to protect the poor from predatory lending.

Government’s War on the Poor: Parent Plus Edition

Rebecca McEvoy, Parent Plus borrower and likely victim of unintended consequences.

Rebecca McEvoy, Parent Plus borrower and likely victim of unintended consequences. Photo credit: Wall Street Journal.

Rebecca McEvoy, a retired school teacher coping with multiple sclerosis, borrowed $84,000 under the federal Parent Plus program to help her oldest son through art and design school. When he graduated, the government expunged the debt under a law that forgives balances for borrowers deemed permanently disabled. Three years later, she and her husband Dave, also a retired teacher, turned to Parent Plus again. The couple expects to borrow another $50,000 to cover costs for a second son, as Josh Mitchell with the Wall Street Journal tells the story.

The McEvoys’ finances likely would have raised red flags with private lenders, Mitchell dryly notes. They live off modest pensions, and existing debts eat up much of their income. Odds are, they won’t be able to meet their payment obligations for the second round of student debt any more than they could the first.

As of September 2015, more than 330,000 people, or 11% of borrowers, had gone at least a year without making a payment on a Parent Plus loan. The student loan debt crisis is engulfing not only students but many parents. An estimated 41,000 Parent Plus borrowers had their checks garnished in FY 2015.

“This credit is being extended on terms that specifically, willfully ignore their ability to repay,” said Toby Merrill with the Harvard Law School’s Legal Services Center. “You can’t avoid that we’re targeting high-cost, high-dollar-amount loans to people who we know can’t afford to repay them.”

Parent Plus defaults began rising during the Great Recession. By 2011, Obama administration officials recognized that they had a problem and put tighter restrictions into place. Writes the WSJ:

But after schools argued stiffer underwriting would prevent many students from covering tuition, thus reducing college access for minorities and poor students, the administration rolled back the new rules. Research shows that restricting access to loans based on credit scores leads to lower college enrollment.

The Government Accounting Organization (GAO) estimates that taxpayers ultimately will forgive $108 billion on student loans made through the current fiscal year, says the WSJ. Colleges are the only winners here. Federal loans allow them to jack up tuition, but they suffer no adverse consequences when students or parents cannot repay the debt.

Bacon’s bottom line: Thus has the student loan program, created with the best of intentions, been corrupted: simultaneously saddling taxpayers with the cost of a massively expensive entitlement and burdening students and parents alike with billions of dollars in loans they can never repay. That’s quite a two-fer. Two… Two… Two massively destructive unintended consequences in one!

It hasn’t always been this way. Once upon a time, student loans weren’t dogged by subprime mortgage-scale bad debt. The problem arose when Uncle Sam began treating student loans as an entitlement for anyone who wanted to attend college. Refusing loans to students with no credit rating and/or parents with poor credit ratings constituted “discrimination” against the poor and minorities. Once you play the discrimination card, the debate is over.

The unintended consequence, of course, is that when poor and minority students and parents load up with debt they cannot repay, they suffer disproportionately — even when billions of dollars in bad debt are written off. Except in rare instances like Ms. McEvoy’s, student loan debt cannot be dispelled. Uncle Sam extracts its pound of flesh by garnishing wages and social security. Families living on the edge of poverty are pushed into poverty; families living in poverty are pushed into destitution.

All for what? A significant number of poor students make it through college, obtain degrees, and get good jobs that allow them to service their debt. But millions don’t. Federal law limits undergraduate federal loans to $27,000 over four years. Even when parents step in by borrowing under the Parents Plus plan, many poor students lack the resources to graduate. (The problem may be compounded by a lack of academic preparation — student loan programs apparently don’t take that into account either.) Meanwhile, millions of well-paying, semi-skilled jobs go unfilled. Washington could not have better designed a system to crush the poor if it tried.