Consumer Issues
Here are some notable companies facing deceptive advertising claims

This holiday season in the US major companies and advertisers are not inspiring confidence in their practices, in pursuit of more eyeballs and consumers


This year, consumers have been crammed, throttled, spammed and generally flimflammed in a variety of ways by companies selling everything from dog food, to energy drinks to phone service. Here’s’s list of 12 companies that we think deserve coal in their holiday stockings.
Not only did it pay out $105 million to settle charges of cramming this year but it is also facing federal allegations that it deliberately reduced the data speeds of millions of smartphone customers with unlimited data plans — also known as throttling.
Bank of America:
America’s bank is repaying customers more than $700 million for fraudulently billing 1.9 million of them for credit card protection products consumers didn’t authorise or, in some cases, even receive. The only protection the bank was providing was for its bottom line.
Big Pharma:
Five major pharmaceutical companies were named in a California suit that charged that for the past 20 years the companies, together and independently, engaged in a deeply deceptive marketing campaign aimed at both health care providers and consumers to convince them that taking opioids was a must to relieve chronic pain. Purdue Pharma, distributor of OxyContin, which accounts for roughly 30% of the entire painkiller market with annual sales of about $2.5 billion per year, was named in the suit. All this begs the question; will these companies be feeling some financial pain?
Blue Buffalo:
This is a long and twisty pet tale (pun intended). But suffice it to say, Blue Buffalo, a maker of premium-priced natural pet food, which was sued by Purina for claims that its kibble was better for pets because it didn’t contain by-products, admitted that actually some of its premium-priced natural pet food did actually — and accidentally– contain by-products, leaving pet parents to wonder which company is barking up the wrong tree.
Corinthian Colleges:
How’s this for getting schooled? The lawsuit claims that Corinthian coaxed students — many from low-income families — into taking out loans for costly tuition expenses by falsely advertising job placement rates and career services that it couldn’t deliver. The company then engaged in a debt collection scheme that forced students to pay back those loans while still in school, the lawsuit alleges.” Federal officials say Corinthian not only coaxed low-income students into taking out loans for costly tuition by promising post-graduation jobs it couldn’t deliver, it also then engaged in a debt collection schemes to force students to pay back the loans while still in school — turning “the American dream of higher education into an ongoing nightmare of debt and despair.”
GE Capital:
And we are back to credit card products with this one. As part of a $225 million settlement order GE refunded more than 600,000 customers who were subjected to deceptive marketing of credit card add-on products promoted as providing debt cancellation protection (maybe GE was taking a card from Bank of America’s bag of tricks). The Utah-based company was also cited for discriminating against Hispanic customers.
The story that Hellmann’s is suing a small vegan competitor for labelling its spread “Just Mayo” despite it not having a key ingredient — eggs– spread rapidly (aka ‘went viral”). But the story ended up leaving Hellmann’s — and corporate owner Unilever — with egg on its face when word also got out that the company was rapidly changing labels on its website from “mayonnaise” to “dressing” for some of its products that contain a variety of different ingredients such as olive oil, which don’t meet the FDA’s definition of mayonnaise.
Lear Capital:
This purveyor of precious metals needs some lessons in basic math. While it talks about how well metals have done in the “last decade” or the “past decade” in its gold and silver TV commercials, it magically stops time in 2011. Why? Perhaps it’s because over the last three years gold and silver have taken a nosedive. Oh, and that free silver it promises? Not free at all.
Perhaps, a better name for this online retailer is over-hype and over-priced. A California court found that the company engaged in false advertising relating to pricing and supposed customer savings. An internal Overstock email summed it all up: “Oh, I think it’s been established that the ‘List Price’ is egregiously overstated. This place has some balls.” For its balls, it had to pony up $6.8 million in civil penalties.
Cellular service providers may be fiercely competitive, but the FTC is finding one thing in common — some are earning revenues from cramming. Before the AT&T settlement on the same issue, FTC filed a complaint against T-Mobile, alleging that it used third-party billing to collect up to 40 percent of the total amount of fees charged to customers without their consent or knowledge. The fees were for purported premium texting subscriptions for content such as flirting tips, horoscope information or celebrity gossip that typically cost $9.99. T-Mobile is fighting the suit. The FTC said it is continuing its investigation of major carriers.
Not only has this Arizona-based mangosteen and minerals energy drink and dietary supplement company, which recruits heavily on college campuses, been found to be a pyramid scheme in Italy, but here in the U.S. its members continue to make unsubstantiated health claims in violation of a previous federal order and the company is also facing a class-action lawsuit over such claims. The company, which has been investigating for two years, has been under scrutiny by other national and international media for pitching the high life to prospects who in reality have a slim chance of ever getting near a high income.
This Utah-based MLM also is heavily recruiting on college campuses, also has an energy drink, as well as a host of other products distributors pay a premium for despite being able to get them cheaper elsewhere, or even for free. The company also boasts that its distributors can earn big incomes despite that fact that not only is it losing money, and its leaders are in debt, but less than one percent of its members grossed more than $2,000 a year.  That’s some “secret” it has.


Pre-Christmas present: Vistara to take to the air soon

Air travellers look forward to SpiceJet overcoming its present difficulties and await the arrival of Vistara before Christmas!


Vistara, a Tata Sons-Singapore Airline sponsored carrier, may soon get the air operators' permit (AOP), as they have successfully completed the "proving flight schedule" requirement of the Directorate General of Civil Aviation (DGCA), which was the last hurdle in the process. This was stated by CEO Phee Teik, who expects the DGCA to issue them the AOP shortly.


This means, there are chances that Vistara may be able to take the sky as a pre-Christmas present to its passengers.


SpiceJet's woes have worsened, with the DGCA directing SpiceJet to stop booking tickets more than 30 days into the future. This appears to have been done to protect both the airline and its passengers.


Civil Aviation Minister, Ashok Gajapathi Raju, is reported to have said that he looks forward to SpiceJet continuing its services, but the DGCA has put the airline under “heightened surveillance" nonetheless.


SpiceJet is in the process of refunding to the passengers, the fares for the flights that have been cancelled, as they have reduced their daily departures from 332 to 239 flights. This restructuring is likely to help the airline bring their financial situation under control.


The DGCA has reportedly asked SpiceJet to come out with a concrete plan for settling dues of all stake holders before 15th December. The AAI (Airport Authority of India), in the meantime, had threatened the airline that they would be put on "cash and carry" if they failed to clear Rs200 crore that SpiceJet owes to the airport operator!


According to information available on 5th December, SpiceJet has an outstanding dues of Rs1,600 crore. DGCA wants them to clarify and has asked for a proposal on how they plan to settle the outstanding balance.


In a separate and interesting development, the Karnataka government is to hold its Assembly session in Belgavi, 500 Kms away from Bengaluru. Most of the MLAs, ministers, officials and others who would attend the Assembly Session were forced to book their flights on SpiceJet. The fares charged ranged from Rs7,800 to Rs18,000! According to the press, there was "inadequate time" to make other alternative arrangements of road transport etc. This will certainly help them reduce their outstanding burden.


The other developments in the airlines industry covers the successful operations of Air Costa and the preparations of Turbo Megha (from Hyderabad) and Air Pegasus (from Bengaluru), who are in various stages of clearances. It may be remembered that Turbo Megha currently operates only charter flights from Hyderabad and their other plans are expected shortly. These airlines are planning to cover tier II and III cities/towns.


IndiGo Air, the largest domestic passenger carrier, who operates a profit-oriented customer-friendly airline, had recently placed orders for A-320 neos, as these planes are expected to consume lesser jet fuel, thus bringing down the operational costs. Air India, too, is expected to lease A-320 neos to save fuel costs and replace its A-320s

Finally, the US Federal Aviation Authority team is already in India to perform an audit of Indian aviation. Hopefully, Indian aviation will get back to the Category I status when it is completed. In the meantime, air travellers look forward to SpiceJet overcoming its present difficulties and await the arrival of Vistara before Christmas!


(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)


How mutual fund houses are using close-ended schemes to overcharge investors

Certain fund houses are charging investors an additional 20 basis points, which the regulator gave as an incentive for crediting exit loads back to the scheme, even though the schemes are close-ended


Over the past one year, as many as 40 close-ended equity schemes have been launched. However, for the investor, such schemes not only turn out to be illiquid but expensive too, thanks to our regulator and greedy fund houses.


In August 2012, the Securities and Exchange Board of India (SEBI) issued a press release on mutual fund regulations which mentions that “the entire exit loads would be credited to the scheme while the AMCs will be able to charge an additional expense ratio to the extent of 20 bps”. It seems that close-ended schemes that do not allow investors to exit, are taking undue advantage of the ‘incentive’ given by the regulator, by charging the additional expense ratio.


As per SEBI regulations, fund houses can charge an expense ratio of up to 2.50% for investment management and advisory fees. Additional expense of up to 30 bps can be charged based on the inflows from beyond the top 15 cities. Additional expense of 20 bps is allowed for recurring expenses, an incentive given by the regulator to fund houses as exit loads are credited back to the scheme. Therefore, adding the above expenses, a fund house can charge an expense ratio of up to 3%.


On an average, a single close-ended scheme is able to gather assets of just about Rs100 crore-Rs200 crore. The expense ratio of these schemes is anywhere between 2.80%-3% annualised. The average expense ratio of the 200-odd equity diversified schemes in existence works out to 2.40%. Of the 22 close-ended equity schemes that have disclosed their expense ratio, six schemes have charging an expense ratio of 2.80% and above.


Fund houses prefer to launch close-ended schemes as the assets are locked-in for the tenure of the scheme. It can be seen that most fund houses are charging the full expense ratio for close-ended schemes, where ideally, the total expense ratio should be a maximum of 2.80%. As SEBI has not specifically mentioned the relation of the additional expense ratio to the exit loads charged in the regulation, fund houses are taking undue advantage because they can charge an additional 20 bps irrespective of whether or not exit loads are charged.


At the losing end is the investor who ends up paying an additional cost. Unfortunately for them, they can’t even exit the scheme and would end up paying the high expense ratio.


In the press release at the time of forming the regulation, SEBI mentioned that “This will not result in any additional cost to the investors.” Unfortunately, the regulator failed to do a thorough research. Will the regulator act now seeing that fund houses are taking undue advantage?


Source: ICRA Online




3 years ago

SEBI should ask all fund house to run only Max of 10 funds not more
than that.Just by calling by different names we cant allow them to keep on floating funds.


3 years ago

The responsibility of the Mutual Funds cease with inserting certain clauses in the Risk Factors. Of course, not all mutual funds can be blamed alike but certainly the majority. While the expense ratios are the maximum permissible, the transactions and administration expenses need to be pruned to a reasonable level by the mutual funds concerned without vitiating the purpose. With more and more mutual funds start operating more and more schemes, there is ample scope for the analysts to critically view this part while the funds' concerned claim tall performance, though the investors' money has eroded in fact. Also SEBI should initiate punitive measures against the funds which makes false and misleading claims on their performance including merger of schemes. After all, if one has to go by the investment themes, invest for long term in investibles and forget and in a booming market, it is an automatic process. With the intervention of mutual funds, who are considered to be specialists with all the infrastructural advantages on their hand, what is expected is sound and prudential operations so that the NAV goes up in a solid manner. No mutual fund is required to make a negative NAV.

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