committee. this is an hour and 35 minutes. >> i will make an opening statement.

[inaudible conversations] every single day, millions of american consumers sit down in front of their computers to make travel plans, to send somebody some flowers or to order movie tickets for some other transactions. for many american shopping on line is know as routine as going to the grocery stores for milk. according to a recent survey 59% of all adult americans have now purchased goods or services over the internet. shopping online is in fact an exciting new way for people to learn about products, to compare prices, and to find a good bargain. and in tough economic times when americans are doing all they can

to make ends meet, every nickel, every dollar counts. but when we go on line to buy things, we all have a few very important expectations about how we should be treated, regardless of how and where we make the purchase. first of all we expect the merchants that we do business with to treat us honestly, fairly and we expect that on the internet. we expect on line merchants to clearly explain their prices in their terms to us. so that we know exactly what we are getting if we decide to spend our money at their web sites. and when we agree to buy something from them we expect mergence to protect our credit card and other financial information that we share with them. that is why aegis so darned disturbing to me to learn

through our investigation that we have done on this committee, over 300,000 pages of research, what is happening to millions of american consumers every day who were shopping on the internet including the to consumers we have invited to testify today. what is happening is that many online merchants have decided to be trade their customers' trust. for a few extra bucks in profits, these mergence pass the consumers' personal billing information on to mysterious companies with names like f.e. on, vertrue, webloyalty, companies that have a long troubling history of misleading sales practices. from the consumer's point of view, here is how it happens. section 1 of the scam. you are shopping on line and you decide to send somebody flowers or buy a plane ticket or a movie

ticket or whatever or even order a pizza. you type in your home address and you type in your e-mail address and other information necessary to process the sale. vinnette the very end of the process, you do the really important thing. you pull your wallet out comment you type in your 16 digit credit-card or debit card number and you press purchase. what our committee has been investigating is what can happen to you after you have made that purchase. it is truly unbelievable. while you think that you are going through the final checkout process, and i associate this through buying books on aol.com. there is a definite process and it takes the number of steps. what is really going on is that

some very sophisticated on line businesses are taking you into signing up for you celeste membership clubs. these businesses take the credit card number you have typed in for your purchase and use it to enroll you in a bogus club with names like reservation rewards, great fun, value max shopping service. most consumers don't realize they have been scammed until months later, when they noticed that the club has been charging their credit card $10.95 a month or whatever. why does this matter? a-10 dollar monthly charge may not sound like a big deal to some people in this room. there are these numbers to consider. today as we conduct this hearing there are more than 4 million american consumers whose credit cards are being charged by these

clubs. and most of these customers don't even know that is happening. according to a report, the commerce committee staff presented to me about this problem, these on line scams that made more than $1,400,000,000 to these tactics in charge more than 30 million american people. consider these numbers for a moment. that is a lot of money and simply outrageous to me and frankly, i think it is unamerican and i know you share my views. i suspect you share my views. what i find most that rages about these dams are the reputable on line businesses that are willing to take part in these scams. committees provided me with the vista av-8 well-known on line businesses that have each made more than a billion dollars in sharing their customer card internation-- information with

the internet's camera so they get what they want. we have printed copies of this if anybody is interested in several of them have already withdrawn since they knew this was going on and we were going to have this hearing. u.s. air, continental airlines etc. have withdrawn from all of this, or say they are about to get rid of all of this. but we have all heard of these companies when we have shot that some of the web site. conclusion? america is a country of businessmen and businesswomen but we all have great respect for enterprising people who have developed good products and sell them in our competitive marketplace. but we are here today because we want to highlight the important point that tricking customers into buying goods and services they do not want is not okay. not even close. it is not ethical, it is not right and it is not the way

business should be done in america and it should be stopped. it will be stopped. the american consumers and none of the worry their favorite web sites are ripping them off during the checkout process. the checkout process is complicated. we have not completed this investigatio >> so far is very, very troubling. and to be frank with those -- my colleagues who are here starting with this hearing today, i'm thinking the committee needs to start thinking about legislative steps to make sure that this process comes to a complete halt. we did with telemarketing and with phone scams and we can do it on the internet. that's the end of my statement. senator, do you have a statement that you would like to make? >> thank you, mr. chairman. i would like to commend you for holding this important hearing. the chairman has a great record and reputation for fighting fraud and having this hearing to talk about these issues is important to the people of the

country as well as to the people of america. and people of florida who i represent. we have too many hard-working floridians who are being scammed in transactions just like that and one of our great floridians, mr. ray france who has fallen prey to these predatory techniques on these post-transaction marketers. people are unaware that they have signed up for these scams. that's why they are scams. i had a chance to meet with mr. france today, mr. chairman. he is an american hero. he served our country bravely in the army as part of airborne. in fact, he was so committed, mr. chairman, to be in the airborne that when he sought to enlist they said no you can't be in the airborne and he fought and fought and fought and you can join and you'll to have give up your bonus and he said that's okay. i want to serve my country and that's why he was volunteered

for the army. he was injured in iraq and he's living his life as a good floridian and he gets scammed but like a good army soldier that he is he went after these fraudsters and he tracked them down and he helped figure out what they were doing and why they were doing it and you'll hear more from him today. mr. chairman, i call this post-transaction marketing click and scam. you go on. you're purchasing something like you described aol buying a book or whatever may be and this pop-up comes up and i think it's one of those normal sort of disclosures that no one reads and you get it to go through with your transaction and you're signed up for $10 a month like you said and they are out there stealing from our people. my attorney general in florida, bill mccollum is doing a great job going after these folks and he's filed several actions and is working hard against them but we need to do more and you're drawing light to this problem, mr. chairman, i really appreciate it because the people of this country need to know

through information that this scam -- these scams are out there. the best prophylactic to know about these scams is knowing about them and perhaps we need to increase penalties or help on the enforcement side so we can stop these fraudsters from stealing from our people. i appreciate you having this hearing. thank you. >> mr. chairman, thank you very much. in the last congress i held a couple of hearings on the issue of internet privacy. the question is, what's happening to information that they have on virtually all of us. what sites do we visit? what do we navigate and i made the point then that if somebody followed you when you went to the shopping center and made notes about everywhere you went, everything you looked at and so then and the question in your mind would be, why are you following me, number one? and number two, who are you selling the information to about where i went and what i did? the privacy issues is very important. we held two hearings on it and i hope we'll get some legislation

together, which i'd been working on, on that issue. but this is another piece of this issue of the internet. the online activities. first of all, advertising on the internet is what supports the internet and the internet is a remarkable thing. i mean, no one wants to withdraw the support that is necessary for the internet to exist and survive. online commerce is very important as well. that's what we're talking about. online commerce. but the question for all of this with online commerce is, who uses our credit card information? and for what purpose? when you put your credit card information in in order to purchase something as senator rockefeller indicated you would expect especially on a reparable website that's not going to be shared with anybody. that's protected. well, we find out now by some good work by some investigators on our staff that's not the case. the issue of post-transaction

marketing, data-passing. free to play conversions. i mean, that's all a fancy way of describing practices engaged by people who should be ashamed of themselves. they really ought to be ashamed of themselves. websites -- i guess, i've been to all these websites. fadaogo to buy movie tickets and sites that are reparable and they do that bait-and-switch and that's website that's used by somebody else that's used by free. it's free for a bit and then it's a monthly billing thereafter. and by the way, the website that blocks the pop that says free and they sucker you in on this. if you see things that are shameful, you would expect that would stop immediately but shame is not always an emotion that persuades people who are making

a lot of money to stop. my understanding is that some of the others the chairman has mentioned have changed some of their practices since this investigation began. and we welcome that. but there are others out there. and i think this is a really important reason to have a hearing. at the root cause here, the question is, who get financial information? and how you is it used or how is it misused? and this investigation has turned up, i think, some shoddy business practices that have to stop and i don't think they'll stop on their own necessarily. and i think the chairman has suggested there may well need to be required some legislation here. i appreciate that work and the work of the committee. let me just finally quickly say i appreciate the witnesses who have been here and will present testimony today. i thank you for traveling and being with us and shedding some light on these issues. >> thank you, senator.

and some that pulled back a little bit is totally insufficient and some of our legal scholars are going to make that really clear. ray france, we're very proud to have you here. linda, you also. and we also have an assistant professor at the new york university school of law. you too. you're one panel so you're all one person. professor robert meyer, wharton school, university of pennsylvania, who had done a lot of work on all of this. mr. france, let me go to you first if i might and sort of pull that microphone up. first of all, i would like to thank you as the senator did for your service to your country and your bravy and turning down that $12,000. >> it was actually 13.

[laughter] >> a superhero plus. now i think we got to defend you from some scams. and we're going to. in your testimony, you made the point that when you made a purchase on a website you got automatically signed up in a so-called membership club called value max. and then value max started charging you $19.99 a month; is that correct >> that is correct, sir. [inaudible] >> that would seem fair. starting with you, mr. france, forget my questions and make a statement. >> okay. >> questions will follow. >> okay. >> i do this quite frequently. >> it's your show, sir. >> that is true. [laughter] >> first of all, i would like to

thank you, chairman rockefeller, and ranking member hutchison, for inviting me out to speak. i would also like to thank the senator of my beautiful home state of florida for his kind words. that was unexpected but greatly appreciated. i'm raymon france. i'm a paratrooper. i fought in afghanistan and iraq. in iraq i received a traumatic brain injury when my humvee was struck by an ied which exploded next to my vehicle. i was awarded the purple heart and i have a service disability of 100%. earlier this year i paid to use the service for an online company to look up people on the internet. it's an informational website. i had used this company in the past and was familiar with their website and their services. on this particular occasion just like before, i got the information i was looking for.

entered my billing information and completed the transaction. the next day the fee i paid posted to my account just as usual. about two or three months later i was notified by my bank that my account had been overdrawn. i was unsure how this could happen since i live on a fixed income and i support myself within those means. i went to the bank to figure this out. at first they were only able to tell me it was due to an automatic withdrawal that was active on my account at the time. eventually the bank was able to give me the name of the company that made these withdrawals, value max. the bank manager also informed me that this had been a recurring transaction that i had supposedly agreed to. they were unable to give me any more information. i had no idea who this company was and still to this day do not know what they do. i started searching the web in hopes of finding some way of contacting this company. what i found hundreds of blogs asking the same question as i. eventually i found an email

address for value max and sent an email to which i received no reply. later on, i found a phone number. when i called, the person who answered repeatedly asked for personal information on myself. things such as social security and email addresses. when i was reluctant to give up this information i was told i had reached the wrong division of the company and needed to call another branch in another state. this process repeated itself quite a few times and through it all, i still had no answers. so i decided to write the better business bureau. quite some time passed with no reply from value max then i received an email from the better business bureau. value maxed told them they would refund my money but it was my fault because i agreed to a free four-day trial and then a $19.99 fee after that. i had agreed to this when i used the service of the company i used earlier.

in total this all took over eight months and the refund took even longer. and if my account had not been overdrawn, who knows how long before i would have noticed these withdrawals. i'm a disabled vet who loves his country and served her with pride. though i may not have it as bad as some of the soldiers returning to the front lines i do have a lot of challenges i must face due to my service-connected disabilities. but this company, value max, caused me both financial and mental hardship. it took me close to a year to recover my money, money that i did not give them permission to take. i'm 27 years old. i use the internet constantly. i both understand it and able to utilize it with ease. i've even earned computer credits in computer application. with that said i believe i would not have agreed to a financial obligation i knew nothing about nor wanted. it is still unclear to me at this point how they were able to access my account. that is unless you consider the

fact that this company chooses to use deceiving methods in correlation with other companies to take advantage of online consumers. this is nothing short of theft. my country promised to take care of me when i returned home. but without laws to govern these unethical practices identity allowing my country to be taken advantage of. this must be resolved. it's not just vets but all americans. if not today or tomorrow or next week. the bottom line is, if left unchecked these kinds of practices will spread out of control. now that this issue has been brought to light, it is imperative that the leaders of this great country are proactive and aggressive in putting an end to it. thank you. >> thank you very much. ms. lindquist? >> good afternoon. my name is linda and i'm from sussex wisconsin.

in april of 2007 my 19-year-old daughter and i went to temporarily live in atlanta, georgia. my daughter had sustained a spinal cord injury in 2007 while downhill skiing and was a quadriplegic. she started to get movement back in her legs and both my husband and i felt that she needed to go to a spinal cord facility for the best opportunity for recovery. my husband would have to care for our other children solo back in wisconsin. one of the best things about being in atlanta was meeting and socializing with other families in the same situation. one of our favorite things to do was to go to the movie theater. in july of 2007, i started purchasing tickets from movietickets.com. i remember that at the end of the transaction on the confirmation page was a coupon stating get $10 off your next purchase. so i clicked on the coupon because it seemed that it was a legitimate offer for

movietickets.com and i thought they were a good website. the next page needed my personal information. i then decided that i did not have enough time to fill out that page so i closed out of the website. approximately two weeks later again i purchased tickets on movietickets.com. this time, however, i did start to fill out the personal information. but after going to the next page, i realized that this was probably a scam. at no time did i ever include my credit card information or knowingly agree to any terms and conditions. after four months of physical rehab, my daughter was beginning to make great improvements and our stay ended being lengthened by another year. we returned home in august of 2008 and finally in october of 2008 my husband was paying our bills and asked me to take at the credit card statement. there were two charges for $10 each, one from reservation rewards and one from shoppers discounts. i did not know what these charges were for but i told my

husband that i would find out. i first called the 800-number that was listed on the credit card statement. under reservations rewards. i spoke with a customer service representative who told me that i had signed up for reservation rewards and shoppers discounts online after a movie ticket purchase on movietickets.com. i told the representative that i had not knowingly signed up for this service and asked how they had gotten my credit card number. she stated that movietickets.com gave them my credit card number. i then asked what service exactly i was paying for. she stated they offered coupons and discounts for restaurants and hotels. i told the representative that i had never gotten any correspondence from them either online or via mail regarding my membership. i then asked her to cancel my membership and also to tell me how much money i had paid to date. she replied that i had paid $320. i was shocked. i asked if i could get a refund

for my money and since i had no idea since i had even subscribed to the service. she stated she would cancel my membership and credit me the last month's payment of $20. at that time i did not think i had any other options as far as getting my money back but the more i thought about it, the more i was upset with movietickets.com. here was what i thought was a good website when in reality they were allowing this scam at the end of the purchase. i then went on movietickets.com and sent them an email regarding the money i had lost due to them giving my credit card number to a scam. approximately 30 days later i had gotten a correspondence from them stating that i would be getting a full refund. i am a college-educated person who is online every day. i have made hundreds of online purchases. over the last 10 years. i have seen many scams and offers on the internet and have only been lured in by one, this one due to the fact that the scam was associated with a good website. and required just one click.

just last weekend back when i purchased the airline ticket for my son to travel here to washington, d.c. with me on airtran airways what should appear on their confirmation page was a get $20 back. you can get i'll send an email in their disappointment in their choice of an affiliate. thank you. >> thank you very much. professor meyer? >> thank you, good afternoon. my name is robert meyer. i'm a professor of marketing at the wharton school of university write served on the faculty since 1990. throughout my career my search has focused on the study of consumer decision-making particularly the psychological processes that lead consumers to adopt novel goods and services. in addition to my research i spent the past 27 years teaching the practice of marketing at the graduate, undergraduate and the executive levels. i was invited to offer testimony on a post-transactional marketing methods used by firms

to sell subscription memberships on third-party benefit programs online. i originally became familiar with these practices while serving as an expert in a class action suit involving a direct marketing company in 2007 and more recently while serving as an expert for the iowa attorney general's office. my overall machine is threefold. -- opinion is threefold. they do not constitute marketing as practiced by ethical businesses and is taught in major schools of management. in almost all cases the membership programs being offered to consumers hold limited if any value, no attempt is made to communicate any information about the programs in a way that would allow informed choices by consumers. and the firms who use these methods display little interest in building or nurturing long-term relationships with contacted customers. in contrast the sales methods are the cornerstone of a scheme in which firms lure customers into programs they would not subscribe to given their full

awareness. second, while the substantive content of these sales practices varies the deception is achieved through a coordinated set of communications that display distinctive common architecture. these include the use of web designs that obscure the relationship between the first and third-party sellers, offering enticements of free premiums or incentives that consumers will have little chance of ever obtaining. creating false beliefs that no financial risks are incurred by agreeing to the transaction. and by creating exit barriers to make it difficult to avoid and/or recover unintended membership payments. such as by making continued membership the default option for consumers who are not fully cognizant of what they had signed up for. third, the architecture achieves deception by of a known psychological biases for consumers to make informed choices in the markets. it's the creation of web environments that lead consumers to make decisions using

automated or unconscious processes that do not fully consider all the information that is available in a website or presented in its decision-setting. examples include site designs that create the false impression that the offer is being made by a familiar, trusted seller, designs that misdirect consumers attention away from text that might describe the true nature of the transaction and by exploiting tendencies to choose default or acceptologists when there is confusion about what the correct course of action would be in a web session. i should also note that the lack of ethicality that they are targeted at vulnerable populations who are ill-equipped the financial losses they impose. it may be effective when targeted consumers of limited means for whom the small cash even tiesments promised by the programs offer significant financial assets and/or older consumers who have limited experience navigating the web. consumers with limited web experience may be taken in for

no other reason harbor beliefs that the sellers on the web follow the same norms that they have come to expect in traditional markets for payment of goods or sources. it's not something one has to opt out of. finally, the persistence of these sales schemes also pose a long-term risk to legitimate businesses who conduct sales in an ethical manner over the web. as these practices proliferate the negative experience of consumers who are taken in by these schemes may foster mistrust towards legitimate sellers that's impeding a major channel of commerce. thank you. >> and now the professor. >> chairman rockefeller, members of the committee, thank you for inviting me to testify on the issue of aggressive sales tactics on the internet and their impact on american consumers.

i teach commerce and sales and most of my research is on electronic commerce. the key question regarding post-transactional marketing in today's hearing is whether consumers are legitimately entering into these transactions whether they're being effectively tricked into him. -- into them. the norms of online commerce and academic research is that consumers may indeed need further protections from these marketing practices. my first point is that post-transactional marketing techniques violate consumer expectations. one of the well established norms of online commerce is that sellers allow consumers to complete a checkout process by entering their payment entering whenever they want to make a payment online. it allows them consumers to be online commerce. post-transaction marketing techniques interfere with these established norms. the timing interrupts the standard processing checkout thus increasing the likelihood

that consumers end up subscribing because they were prompted to enter an email address instead of payment information instead of the second transaction. what i would like to highlight here is that thesegsq practices violate norms of online practice. -- commerce. they associate them with commerce details. the next question is then whether fine print explaining the nature of the transaction can substitute from this deviation of norms. so my second point is that current methods of disclosure of the terms of the post-transactional marketing offers are insufficient to provide adequate notice. the basic problem with relying disclosures on fine print is that people simply don't read it. for example, two co-authors and i have studied the extent to which people who software online, we found only one or two every 1,000 shoppers chooses to read the contract.

those who spent the contract spent too little time to actually read it. in a follow-up study we found the prominence of the disclosure did little to decrease the probability that contracts would consumers are unlikely to read the fine print even when sellers put the terms right in front of them requiring explicit assent by checking a box immediately below the terms. and even if it was the case which consumers are inclined to read the fine print which they're not they display a text that further discourages reading and comprehension. these marketers often present their offers that is deaccept actively selected vendor and the brand name and logo. consumers were induced to believe that they're dealing with familiar vendors can easily be lulled into complacency. our study suggests this is a genuine problem. we found even fewer than 2 in 1,000 consumers read fine print when they were dealing with

bigger more good sellers. post-transaction marketing firms often exploits this trust. another way in which these marketers discourage reading is by identifying their offers as rewards or bonuses that consumers should be grateful to receive. the offers also splash relatively larger font terms such as congratulations and thank you. and consumers focus on salient aspects when deciding a practice. these bells and whistles have the effect of diverting attention from important information about fees. so just as good news is conspicuously splashed on the screen the bad news it's suspiciously hidden. the terms related to the fees and automatic transfers of payment information appear in small print in the left or bottom of the page and appear under another layer unrelated and happy titles such as congratulations and great news. the relevant disclosures appear at the end of dense paragraphs. of course, the problem with this researchers have also shown the

manner in which they display it is the way consumers pay attention to it. given the way it's written the rare consumer who actually does take a quick look at it could be forgiven for not understanding it. i have a few suggestions to help remedy these problems. automatic transfers from known vendors to post-transaction marketer should not be allowed. consumers should be asked to enter their credit card at each transaction. it will establish the norms of ecommerce and they should be allowed to differentiate themselves from the original select vendors. third they should clearly and prominently explain fees and services. finally, they should plainly explain how enrolled consumers can cancel or seek a refund. thank you very much. >> thank you very much. before i go to you, professor cox, you both talked about fine print and the fine print is just the greatest scam of all time. i see some charts over there. do any of those have fine print on them? >> yes, they do.

>> yeah, i'd like -- >> sure. >> i wouldn't make this a metropolitan art show. i would just like to see them. well, actually that's not as good as some that i've seen. but where they have -- where they'll have $10 in bright blue. a big square up at the top. and then there will be like five more of those paragraphs, small print, which -- i'm not 20 but i have good eyesight. and if i had a galileo telescope i would not be able to read that fine print. i mean, it is absolutely impossible.

in that fine print if i'm not mistaken is all of the damage that they're going to do to you but, of course, you don't read it because underneath is the same bright blue that i'm thinking of, which said $10 underneath that in big print is, yes. so what do you do. you go $10, yes. you don't read anything in between because you said what, 1 every 1 million do it. >> 1 every 1,000. >> so anyway, i just want to make that point. and professor cox, go on to you. >> thank you, mr. chairman. for over a decade, first as an assistant attorney general with the minnesota attorney general's office and as a law professor, i have attempted to combat and call attention to the practices examined here. practices that drain the financial accounts of americans without legitimate purpose cause cynicism about commerce and harm competitors who are trying to be honest. i would like to make three points.

first, the practice that's examined here is not limited to the internet. they're part of a bigger problem. a problem called preacquired account marketing. the essence of preacquired account marketing is the sale by retailers and financial institutions of special access to consumers accounts so that third parties can charge these accounts without obtaining account numbers for consumers. it occurs through every channel of direct marketing including direct mail, inbound telemarketing as well as internet transactions. it involves all the nation's largest financial institutions at some point. and it continues to involve the vast majority of the nation's largest banks, credit card issuers and mortgage companies. interestingly, it is not something that's widespread among internet and community bankers or credit unions. it works by circumventing the shorthand methods we all use to signal consent to a transaction. we know we're done when we hand somebody our credit card. we swipe it in the machine we read them the number over the phone or we enter it into the internet.

this problem especially bad with those with mental impairments due to illness or other reasons. and those who do not speak english as a primary language. they're ticketly victimized by the complexity of these transactions. my second point it's difficult to control this problem with existing deception practice laws. likely or not, they are fully disclosed even in a fundamentally misleading context. this causes some courts to struggle where the consumers should be held responsible for carefully reading the fine print as we've gone over. i think this is like blaming the crime victim for getting pick-pocketed in a street where it says beware of pick-pocketing. this debate of law about deceptive practices is distinct from the larger and more important point. preacquired account marketing of which this is a prominent

example is a giant insidious machine. the evidence on this point is absolutely overwhelming. and i'd like to say your staff report on this i literally got up and cheered when i read it. it's phenomenal. it's detailed. it's thorough and it's beautifully presented and it's consistent with all the other information about this form of marketing and other direct marketing channels. for instance illinois lisa madigan who's attorney general asked consumers involving an agreement between a national bank and a membership club and found literally nobody who was aware that they were a member even though they were paying for it. iowa attorney general tom miller

did a mail survey with members and the same thing. there was one against fleet mortgage company where people's mortgage accounts were charged through both direct mail and telemarketing. and they did a survey of the consumer services representatives with fleet mortgage and you got almost the same exact responses that are reported in your staff report from those consumer services representatives. quotes such as this is a fraud. this is a scam. why do we allow our customers to be charged like this? the third and final point is that unlike the often difficult and tricky consumer regulatory problems where you have to balance how exactly you intervene in the market so as not to prevent legitimate commerce this is one of those rare cases where there's a clear and obvious solution, prohibit retailers and financial institutions from selling access to consumers accounts to third parties. there is no legitimate commercial reason to do this.

consumers mostly already think this is the law and it should be the law. it is with great appreciation to you, mr. chairman, for calling this hearing. it has been a very frustrating decade trying to call attention to this problem. and with one fail swoop, you've already made more impact on this than a decade worth of work by many other people who are trying to combat this problem. thank you very much. >> thank you, professor cox. you're very kind to the committee and its staff. i want to go back, mr. france, to exactly where i was because i think it's very important to get this stuff on the record so that we can achieve what some of you have called for. we are already at the point when you said then value max started charging you $19.99 a month and you said -- >> yes. >> have you ever heard of value max before they started charging you? >> no, sir.

>> did you ever authorize them to charge your credit card $19.99 a month. >> in no way knowledgeable to me. >> did you give value max your bank number or credit card number? >> no, sir. >> if you were asked to give them your credit card number to join this club would you have done it? >> no, sir >> thank you. ms. lindquist, i would like to ask you and for your son thank you for coming up today from wisconsin. over, up, whatever. your testimony is that you were using a website called movietickets.com. you thought that you were buying just movie tickets but in return it turns out that you bought memberships in two clubs called reservation rewards and shoppers discounts and both of these clubs were charging you $10 a month; is that correct? >> yes. >> have you ever heard of these clubs before they started charging you $10 a month? >> no. >> did you ever authorize

reservation rewards or shopping club to charge your card $10 a month? >> no, not knowingly. >> did you give them your credit card number or your bank account number? >> no. >> if you had been asked to type in your 16-digit credit card number would you have done so? >> no. >> so mr. france and ms. lindquist, i'm very sorry that you got caught in this scam. you clearly did. you're clearly highly literate, thus, taking away this thing that people can get scammed even though they don't know the internet very well. you know it very, very well. and you got scammed. one of our members claire mccaskill from missouri -- her mother got scammed and she's a rage about it and she may come tearing in here in a few minutes. many americans have been ripped off in the same way that you two have been. it's outrageous.

and we're going to find a way to stop it. mr. france and ms. lindquist, one of the most disturbing things we've learned in our investigation is that hundreds of websites are selling their customers information to these bogus membership clubs. in fact, we've discovered that every time a customer gets tricked into joining one of these clubs, the online merchants gets what is known as a bounty. they literally put a price on the customer's head. mr. france, how does it make you feel to learn that the website got paid a bounty for selling your credit card information to value max club? >> it's hard to put that into words, sir. the easiest i'm disgusted that they could even do that and enjoy it. and profit off of it. and believe that they're doing

right that they can even sleep and especially if they're american companies 'cause if we claim america is the greatest country in the world then it starts with taking care of our fellow citizens. and not taking advantage of them. disgust is the best way to describe that. >> and you ms. lindquist? >> i would have to agree he. it's shocking that they can basically sell my credit card information to an unknown company. and everybody i talk to that i told i was coming here, it's happened to so many people i know. but they just maybe got charged a minute or two and then found it. and maybe that's the goal of these companies is just to charge these people 10 or $20 but multiply that by millions of people. >> like 30 million people at different times. you're right. my time is up and i turn to senator dorgan.

>> ms. lindquist, my understanding is you say that you were charged by this company and never received any product; is that correct? >> correct. >> no mailing from them? >> no. >> no coupons, no product of any kind? >> nothing. >> does that sound like fraud to you? >> yes. >> so someone is charging you because they say you purchased something from them except you received nothing. >> right. >> and they're charging your bank account. i don't know the legal niceties maybe one of the professors can suggest but it seems to me if someone is taking money of your checking account and giving you nothing in return, that's something beyond just shameful. there must be a legal term there. the other issue that i find really troublesome here is that good sites -- i buy movie

tickets online from time to time, you know, and you go to these sites because they're good presumably. they are actually reimbursed by the companies that are scamming you and i believe they are reimbursed because they are able to be a rider on that company's website and that's where they get their customers. you show up at the website wanting to make a transaction buying a ticket for a movie or an airline ticket and that brings you to this page and then they he pop up with some sort of an ad that suggests you get something free. and then the website gives that company your -- provides that company your credit card number. >> i know. >> mr. france and ms. lindquist, that's unbelievable to me. that is so -- in addition to being shameful, so dishonest. and i think professor cox said it right. this is a very important hearing in the sense that my hope from

this hearing is that we will find ways to shut down this activity. there's no nice way of describing this. this is wholesale cheating of a lot of people. and i think it just has to stop. i had not previously as i indicated earlier -- i had not previously been even aware of the terms that are being used. but i'm aware there are a lot of charlatans out there looking for ways to cheat people to the extent they can get by with it. and mr. france, you indicate you have no knowledge of how someone even got your credit card information; is that correct? >> absolutely not. unless they worked with this company and gave them my credit card information. and put a so-called bounty on me. >> mr. cox, you work in the attorney general's office in minnesota. >> senator dorgan, and mr. chairman, i use to run the consumer protection division at the minnesota attorney general's

office, 4 1/2 years ago i left to go to the university of minnesota law school. >> it look we have consumers that need protecting pretty badly. probably millions of people. but what do you make of the notion of somebody extracting money from ms. lindquist and mr. france's accounts or adding it to their credit card without providing a product to them. without them even knowing they purchased something. that seems to me like fraud. >> mr. chairman, senator dorgan, i have been astounded for 10 years that this goes on and on and tried every way to call attention to it that i could. the fundamental problems here are that a disclosures are made so when you try to attack the problem you wind up in this legal battle about the sufficiency of the discloses. you have to shift focus and ask the questions you're asking. who in god's name agrees that we should allow a practice where everyone who winds up getting charged with unaware -- essentially anyone, maybe 1 or

2% is essentially unaware they are a member and they're being charged for something they don't know and don't want. on another point, it partly works because you would think that the market might self-correct by the reputational hit to the eretailers with the legitimate sites or the banks that are involved, et cetera. the problem is when the charge comes through, it comes through in the name of the membership club and all the attention is directed to the club and so you get this problem where the market doesn't take care of it because the reputational interests aren't at stake. >> let me ask the very good websites are playing ball and making money off of this scam. maybe we ought take a look at saying to the website, you know what? you allow that sort of thing to bounce up on your web page, you've got some liability here. you better be finding out who's using your web page and you certainly better find out who you're providing financial information on your customers to. you buy an airline picket, ms. lindquist to come out here and if if that company that you

bought the ticket from provides your credit card to somebody else, shame on them. >> right. >> they have some liability in my judgment. they may not now but maybe we ought to find out if there ought not to be some way to do that. my time is up but let me ask an obvious question ms. lindquist. you started about talking about your personal situation. and tell me about your daughter. is she better as a result of your trip? >> she is doing a lot better because we went to atlanta. she can walk with crunches short distances. and she's very lucky but she's still working. she still wants to get as far as she can. >> good for her. >> thank you. >> thank you, senator dorgan. these are available if anybody wants them. these are the bad guys that you're talking about who have some very big companies who, you know, they like their $10 every month or their $20 every month and the money can go up or down. at the discretion of the scammer. so you want a copy, we'll be

glad to give it to you. senator? >> thank you, mr. chairman. thank you for all the witnesses for your testimony today. i wanted to talk about some legal issues if i could with professor marotta-wurgler and professor cox. i too had the honor to serve in the attorney general's office down in florida and go after unfair and deceptive trade practices with our economic crimes unit. and our folks in that office now under bill mccollum are going after these different vendors. but i want to ask you and to follow up on what senator dorgan was saying because it seems to me that an attorney general could go after one of these so-called companies who are enabling these scam artists who are stealing information from unsuspected consumers. so an airline, for example, allows this company to operate on its website without proper disclosures and to unwittingly take this money from consumers on the, you know, annuity scam

that happens month after month after month, couldn't an attorney general go under the unfair trade or deceptive practices act or some other statute and hold these folks accountable? >> yes, these cases are a little more difficult to prosecute under what's called udap authority than you think they are. they are just extremely costly. as you know they don't shake a lot of money on attorney generals offices and you have to make tough choices between going after all kinds of bad guys. but, yes, and thank you. as an academic i'll plug my article. that's one of the suggestions i make in the article is to shift the focus away from the nature of the disclosures to the usage and the fact that nobody knows it and to go after these other entities but, frankly, i think the hearing you're doing here is probably more effective at doing that than anything else. the answer to your question is, yes, and it should happen. >> professor?

>> my answer is similar to professor cox. i believe that going under udap might be more effective. clearly there are disclosures. the disclosures are not effective. where some courts might say that in order to have a sense in fine print transactions, a sense -- there has to be noticed and assent must be unambiguous. i'm highly suspicious that given the way the offers are presented, assent in an ambiguous fashions. i believe some courts believe assent was not meaningful and thus not valid. however, there might be other courts who might believe that the disclosure is, in fact, valid. that's why i think that going under udap might be more effective. that doesn't mean attacking on the disclosure part has no bite. >> i agree with you.

and if i was still in the a.g.'s office i would love to go after this case because it's not just deceptive. it's unfair. and it makes no sense, mr. chairman, that you can be in a situation where you're buying movie tickets and someone signs you up for a product or alleged product or service that you never receive and yet you get charged monthly for it. it's outrageous. it's unconscionable. >> i think the chairman is right and senator dorgan is right is that there should be -- and i don't want to follow-up on professor cox's comment. you should be prohibited from selling is this financial information. businesses who are working on the internet should be no different than businesses who are working in regular commerce. and if i went to 7/eleven and bought a cup of coffee and they took my financial information and they sold it to somebody else who started charging $10 a month, you know -- we all recognize that is outlandish. and outrageous. and it's no different if you're on the internet and we are so now accustomed to these etransactions and as you said,

no one reads these disclaimers. i don't read them. nobody reads them and they know that. when they put them out there. it's one thing to give you information on these disclaimers about what you can or cannot do when you're using this product or service. it's another thing to bury deep within that you are buying a service which probably is not even a real service or a real product. so i commend and support the comments that were made by my colleagues earlier that there should be a prohibition in the law that prevents unless all sorts of hoops are jumped through. all sorts of hoops which would show knowledge and consent by the consumer that your financial information be sold to somebody else. and shame on these companies, who are allowing this to occur on their websites. and i want to thank again mr. france and ms. lindquist for coming forward and spending your time and being involved here because you're shining a light on a problem that i assume and believe they are probably affecting millions of americans but for your willingness to come forward we may not know about it.

so i appreciate you and i appreciate the stuff that had done such a great job in bringing these afford and i thank you for your efforts today. thank you, mr. chairman. >> thank you, senator. thank you very much. senator udall? >> thank you very much, chairman rockefeller. i want in particular to thank you for doing this investigation and doing this hearing today because i think it raises consumer awareness in such a way that really brings sunlight to this process. and as one of our witnesses said earlier, you can go and do a lot of things but a hearing like this, i think brings it out to the public. and i'm in a way reminded of the -- my days as state attorney general where we used to say when we worked in the consumer protection context, a good business wants bad business out of business.

as senator lemieux just said any legitimate business that's teaming up with these kind of scam operators i wouldn't call them a good business anymore. the good businesses should be stepping forward. they should be distancing themselves from this kind of behavior. and they should be working with prosecutors. with state district attorneys. with attorneys general to get this done. and to get people prosecuted and to say we're going to take this very seriously. i have a case in new mexico that i believe professor meyer has highlighted. and this is -- here you have of a santa fe woman who was bilked out of $700 after multiple websites to purchase materials for a real estate business. you describe it in your written testimony that the confusing charges appeared on her credit

card long after the original online purchases. and she just -- she didn't have a clue what was going on. and it goes to professor cox -- i think what you were saying is the sufficiency of these disclosures -- what i want to ask any of the witnesses here, you know, we ought to be putting people to do this in jail. these are the same kinds of operators that we put in jail in new mexico doing telemarketing fraud. and i would ask the witnesses that have -- have the -- the expertise here to tell me, you know -- should the federal trade commission update its existing rules for telemarketing and mail order sales to address these new online scams? or does the agency lack authority? i mean, how do we get it so that state prosecutors, attorneys general, others can focus on

this -- focus on this area and make sure that the bad guys are being brought to justice? you can all jump in. >> i'm a little embarrassed talking about it but i will add one other thing at 18 i was the youngest for udall for president national campaign. >> well, thank you for that. he was also a prosecutor in his old days. >> i was a nice gentleman. >> the problem with the ftc and the problem with the civil enforcement problem here is that this thing is to use technical language rotten at its core. it's not a matter of separating out the good parties from the bad parties which it usually is in a civil enforcement context. this type of practice just shouldn't be allowed. i've never seen it ever in any of its many modalities ever do anything but you result in

chart -- millions of charges, overwhelming, 98, 99% of part time being charged for things they don't know. i think the problem is regulatory. real quickly on the federal trade commission. many of these -- in fact, i'm not sure what the percentages are these days. it's primarily run through banks and, of course, the federal trade commission has limited jurisdiction there. so it's going to be, you know, a difficult problem to sort out exactly where the regulatory authority needs to happen in order to control fundamentally this problem of selling access to consumer accounts by retailers and financial institutions. >> do either of you -- >> yeah, my view of it is that that's sort of the web introduces sort of -- basically, opens the door to a wide array of exploiting people's frailties and vulnerabilities and processing information. i think a lot of existing legislation was designed for a previous world and in some sense it significantly needs to be updated.

and i agree with professor cox that the structure of these businesses is such that these companies make money is through open, outright deception. and the one thing i've noticed is that they're incredibly good psychologists and they can find ways of getting people to -- lure people into these programs through some other different ways and they are constantly doing online experiments and if they find out it's bad and we'll find experiments until we have had one that works. >> well, the folks ought to know know that chairman rockefeller and a.g.s and district attorneys are going to focus on them and bring this out into the sunlight and bring these people to justice. thank you, mr. chairman, for focusing the commerce committee on this issue. i mean, this is a very important issue to consumers. and i thank you you've done --

done the american people a big favor in focusing on consumer protection in a new way that i don't think has been done in the commerce committee in a long time. thank you. >> thank you, senator udall, very much. senator klobuchar. >> thank you very much. was it you professor cox that you were on the president udall for president committee. >> i was distracting senator udall 'cause i was trying to figure out if you then jumped ship on humphrey or mondale during that time. [laughter] >> it appears that you did not. >> i will say ran out the vote in illinois for jimmy carter that year. >> okay. >> very poorly you might add. i actually got notices the get out the vote in illinois that year. >> i did one -- i wanted to welcome you professor cox for the purposes of the record, professor cox, you have been active in a number of very important consumer issues and has helped me on some of the work we're doing with cell phones, which has now emerged

again this week with the early termination fees charged by verizon and other things. so i want to thank you for that. and i know were you working -- was mike hatch the attorney general? did you file the suit and similar things like this before? >> senator klobuchar, yes, i filed suit against member works which was the predecessor to virtue and u.s. bank corps. there was five suits filed including feet mortgage. -- fleet mortgage. we were going to go up the chain and hold people responsible at the financial institution level and we had some success but then this whole thing sort of died away and -- i'm giddy. i'm giddy that you're taking a look at this huge problem. >> do you think there's things that we can do -- i mean, what you would you suggest we would do -- the easiest thing to make the current laws and regulation sufficient to curb the abuses online? >> thank you, senator klobuchar. this really again has an actual

easy solution which rarely is the case when you confront these problems. financial institutions and retailers shouldn't sell account numbers and access to accounts to third-party sellers, period. there's just no reason -- there's no legitimate commercial reason to allow that. and i think in my testimony as well as a longer article i explain some of the attempted justifications and why they're just almost pitiful. there's really not much of an argument here. now, you get into a more tricky legislative problem when you get the problem of sellers retaining account information and then later reusing it. >> for their own purposes you're talking about? >> right. for instance, you might let a website that you order contact lenses from every quarter retain your information and regularly bill you with that information. but then you can -- that information also can be misused in ways that mimic this problem so i think you can attack that problem but that's a little trickier legislative drafting issue. i really do think there's an obvious and clear solution to

this and it's to shut down selling access to consumers accounts. >> have been any attempt by online retailers to try to stop this? to try to, you know, exert pressure on this is it the fact they are giving access or why would they do anything? >> the online retailers are profiting from selling this. i will say if you look at section 502 of the act and title 5 the privacy provisions that were enacted, section 502-d has something that pretty much on its face says you can't do the financial institutions anyway which is a big part of the problem. can't do that. they can't make those sales. but the occ led and along with other federal banking legislators were enacting legislations and regulations that essentially completely circumvented the -- what i thought was the intent of that legislation and allowed the access to consumers accounts as long as the actual sharing of the information was just encrypted. but then the membership club yes

they can extend and they decrypt anything. but on its face it solves the problem. >> i mean, the evidence also shows of these people -- or maybe you know this. the people who get sucked into one of these, do most of them eventually cancel them? >> you can sort out into certain subgroups -- great question, senator klobuchar. you can sort out by the subgroups. some will capture in a 30-day cancellation. it shows that most people who wind up getting this catch it after its initially billed not during the 30-day period which is totally counter-indicated if you thought that it really worked the way they said it did. and then so most people catch it in like the 60 and 90-day time frame. and so most peo .. and 90 day time frame. some people, some people don't

catch it and particularly when it's billed annually, they have two sometimes be billed three, four, five years. so when i would talk to consumers who have this problem, if you look at it and you will build i'd say go back and look at your bill, your credit card or bank statement or mortgage account for the year before in the year before and find out how long does this happen to you. and these companies and parts list on these customers pay full revenue and are automatically renewed. >> right. i've gotten into some of the situations. those kinds of customers. and i go back to look at the visa bill and try to fix it. but then still eventually do most people can't pull it? >> of course, because eventually nobody really wants this. when you boil it all down at the end of the day, i don't think there's a partisan issue. i can't imagine why anyone and i'm so glad to see that it's not that way, anyone would say we want people to sell products for

the people being charged have no idea they're being charged for it and don't want it. it's just absurd. >> i just wanted to add that in terms of the multi-charges, for people that don't cancel, eventually every year to increase the charge by a couple of dollars. so eventually the longer they keep increasing the charge until finally you do catch it. like professor cox said, it could be three, five years before some people find out. >> so there is an art form to seeing how far you can race it without getting people to suspicious. senator nelson? >> thank you, mr. chairman. mr. france, i'm sorry you had to go through what you went through, just to get back your money, not even to speak of all of the trauma and time and so forth that you had to go through.

>> thank you. >> but you are an example what's happening with this explosion of technology. we have people that are now, instead of using a crowbar to steal, now use technological improvements, and they are doing the same thing. and they are doing it with a lot of deception as the chairman's hearing has pointed out. and this committee has been handling a lot of other things, called phishing with a ph, and farming with a ph. and spoofing which is another one we just had it in florida. a spoofing case. that's when you look on your cell phone and you see the number that's calling you. well, if you alter that number to make it appear like you're looking at what happened to this lady, a single woman, suddenly

she is getting a call from her own residence. and of course, somebody was doing this to play a prank on her. the lady is absolutely petrified. she thinks somebody is in her house. or one of the worst is that they call 911 masquerading at a certain number, home, that there's a burglary going on. 911 dispatches the swat team, and you can imagine what mayhem might happen on an unsuspecting household with the police suddenly breaking in. this is what technology has gotten us to come and this is what we have got to change. so thank you for sharing your story with us, mr. france or. >> you're welcome. thank you for having me. >> and we will try to do something about it.

and thanks to you, mr. chairman. >> thank you, senator nelson. and i would point out again, this is not just the few people were talking about at any given point. i think the fact is there's about 4 million people who are being scanned, and over -- we have commentary from people in 2003, 2002, over the years we are talking about tens and tens of millions of people. so the amount may be small, the amount is not small to those who are struggling to get by. and you made that point very, very well, as did you, mr. france. $10, $19.95, can put you in bankruptcy, can have people all over you. you know, add to what other thomas taking place in your life. question for our experts. there are thousands and

thousands of businesses out there on the internet trying to sell us their goods and services. they have to convince us that the product is good, if they want us to purchase from them and stay with them, and to be seen from our point of view as a trustworthy company. and then only after they have can then status, that their product is trustworthy, they are trustworthy and their product is worth it, do we then pull out our credit cards and enter the 16 digits to complete the purchase. in fact, according to visas rules for merchants, to complete a valid online purchase, customers must type in their billing information, they're 16 digit full credit card number, and their digit security code, called cbe to. so here's my question. to any of the three of you. if anybody else can charge

credit cards only after consumers have added their full credit card information, how is it possible that those companies, can charge millions of shoppers were never given them their credit card numbers? >> they can't, and they shouldn't. their argument is that the selected vendors disclosed or demand authorization of this by the consumers by disclosing them and disclosing this in their privacy policy. you go to the privacy policy, which nobody reads by the way, businesses, they actually say you know, we're protecting all sorts of information but you are also giving us your authorization to transfer your payment or personally vital information to some selected partners. so the authorization stems from this type of contract, which is

i should mention, unenforceable because the consent is ambiguous enough. clearly it would seem to me that there is no reasonable way in which this would be an enforceable -- onstar, a legal way of transferring payment information without the consumer ever entering the numbers, his or herself. of course, it has been, but theoretically i don't think it should be. >> i think from the other related part of that is that how is it that consumers suddenly find themselves having to agree to the transfer of this information. and i think the answer there is in many circumstances consumers are making these decisions using very, very quickly sort of automated processes that they are not aware of. and in many cases, they think

they are still in the original site. they think in many cases they are in the original purchase process of the original site. i should say that with mr. france i was actually taken in by the site as well. and what happened there was you go to the site if you think you're getting some information, and there's a little part where you have to i think in my case i had to pay like 1 dollar on a credit card to be able to get some information. and then you click the red button that says give me my information and you click it, and what happens next is that you're not given the information but suddenly you are at a new page and you're wondering where's my information? then you are looking around for a button to click to get the information and there is a red button at the bottom that says show my report. you click on the report and as soon as you have done that, you have become a member in this program. and it would be the thing where you would have no awareness whatsoever as to what you had agreed to do.

>> you said, professor cox, in your testimony that this membership close industry, quote, would cease to exist almost overnight if it had to sell its products like every other retailer. can you explain that? >> thank you, mr. chairman. if nobody is aware that they are actually, quote, buying your product, that rather suggest that you're going to have a problem actually sell your product if you have to convince people to pay you the money that you're demanding for this service. after 10 years in observing this, i have no question that if they had to sell this in a legitimate way, that these companies would not be successful. >> my time is out. before i go to the next senator, one thing i regret about this hearing is the lack of focus on the evilness and lethality of

fineprint fine print, of small print. that if you can put something in an fine print and you know, it's like to take a prescription out of a brown paper bag and you take a bottle out and there is this paper which he immediately throw in, because you can't read it, or you have to set aside an evening to read it. i mean, it is so phony, and yet it is a flat-out practice that we allow it to continue. senator? >> thank you, mr. chairman, thank you for holding this hearing. i have one final question for our experts, and that is, is there anything that we did not talk about today that you would offer as suggestions to how best combated as fraud? and we would start with professor miron go down, and then maybe we will finish up with our citizen consumers and see if there's anything else they think of which would be a good way to prevent this from from happening to other unsuspecting americans. >> sure pick some of these sort

of have been mentioned before. one of which is i think it's important that if you have a handoff from one site to the next, that the consumer really needs to know that they are no longer dealing with the original merchant that they have -- as an example, i have a figure over here on the right. this is a case where a customer was adding this to print the site eyeing online labels, and this is sort of the site they are taken to, and throughout the site there are all these references to the fact that it is this to print and vista print thanking you and mr. print everywhere. and only if it is the case that you look at the very tiny fineprint at the very bottom do you find out that this is asked a site maintained, had nothing to do with vista print. had nothing to do with any other merchants that happened to be named there. and i think that one of the reasons why this happens is that customers are lured into not thinking very carefully and making decisions very quickly, but whatever you could do to

suddenly sharpened their antennas and say hey, you're no longer any safe zone. you have no in an area where you have to be wary. start looking at the fineprint. that i think that would be one small step. [inaudible] >> they are trading off the credible brand. >> absolutely. no reason when you look at this to think that there would be any reason for trust. that you couldn't totally trust there, whatever offers they are providing. >> i guess what i would like to highlight is the importance of preserving online norms. the reason why people don't have to delve into the fineprint is because they know with a certain step, they are expected consequence of their particular for financial liabilities. it and are a credit card information, you expect to be liable. if you enter an e-mail information you expect to get an e-mail. so that is important, otherwise trusting online markets would be seriously damaged and people might be reluctant to in online transactions.

the second point i would like to make is disclosures in the form of fine print are terribly ineffective at alerting consumers that most of our current law focuses on the idea of disclosure. as long as you disclose things in fine print it is fine because consumers know what they're getting into so they are actually ascending to the transaction that is being described in the fine print. research after research, study after study has shown this is not the case. this is not the way consumers behave. so i'd like to highlight the importance of that disclosure is really not that effective and into duping consumers into these transactions. >> senator lemieux, i would like to thank you because i always try to teach my students the body of anything else question. i think i have been heard today. >> mr. branch, anything else you think that we need to be aware of that might be helpful for preventing this fraud from happening in the future? >> i think one of the big steps that could be done is like has been mentioned earlier, is to

actually hold these reputable, one time reputable companies responsible for allowing these other side to come in and do that. and essentially they are one and the same. they may not be taking as much money, but by allowing the other companies to come in, they are just as guilty. and if we can discourage them to allowing these companies in, then i think that we will see a lot less of this problem in the future. >> thank you. >> i agree with mr. france, that the companies, the reputable websites, they need to be held more responsible about who they are affiliated with. >> thank you again, mr. chairman. i think we have some good direction from our witnesses today. >> i agree with you senator. before -- we will have a vote on a very good judge who has turned out to be controversial, but isn't. and in about 10 minutes so we need to close.

i want to ask one question and put something on the record. i ask unanimous and get consent to play several in today's hearing. one is a report called aggressive sales tactics on the internet. which was circulated to members yesterday afternoon. the prepared statement of robert mckenna, the attorney general of washington, the prepared statement of professor benjamin adelman of the harvard business school, a letter and other materials sent to the committee by richard fernandez, the ceo of web loyalty. and statements by members of the committee who want to be group but were unable to be here because as usual, many, many hearings going on. the final question. from our experts, i guess you,

professor, opinion and virtue have recently announced their reincarnation, and they have decided pullback a little bit. it's interesting, it's interesting that it's just like you know, i get a letter from his seat he held up u.s. airways inc. say they are not going to do this anymore. we haven't even had a hearing and i got it yesterday. and then caught no airlines is going to check in and probably pull out of the whole thing. at your shows how fragile this whole situation is and how devastating it is and how easy it is to make it devastating. so they have pulled back a little bit and what they are now going to require their customers, consumers is to enter the last four digits of their credit card for proof of acceptance of their offer.

now, virtue announced this move just yesterday. an opinion and now's their move on friday of last week. professor marotta-wurgler, i understand you recently enrolled one of these programs after you purchase movie tickets from fandango. did they ask for your last four digits of your credit card as proof of enrollment? >> yes, chairman, i did on friday night. i thought it would be a good experience before the hearing to actually enroll in a. i was concerned about this, whether e-mails disclosed the confirmatory e-mails disclose anything. and yes, i did purchase a movie ticket to see where the wild things are which i didn't go to. and i receive a pop-up telling me for $10 everywhere, asking me to please play my reward. and requested i enter my e-mail address again the last four digits of my credit card number. i was too lazy to pick up my

credit card from my wallet, which was far away from the chair which i was sitting in. so what i did, i went to my account where i saw my billing information, and of course there were little stores across my credit card number except for the last four digits which i just copied and pasted onto the box that requested it. and i clicked i agree. i don't think this is enough notice that it is clearly not enough notice for two main reasons. one is, these offers appeared to come from the original vendor. so it seems passionate when one is even with an original vendor and given it practices not only online but also off-line, with associate to give the last four digits of a credit card number as a way of verifying your identity, not as a way of paying. you call your credit card number and wanted to, the last four digits of your social security number. so putting, inserting my last

four digits of my credit card number didn't require any extra effort. it didn't require that much more attention because i thought that fandango was the one offering my $10 for being a loyal customer. and that they were just trying to see that i was the person whose claim to be. now they have a little legend that says limit one per person. just in case people are flooding into these types of services. so yes, they give you on one site but they take away on the other. so i don't believe you are enough. they are clearly better than the default, but they are surely not enough. >> i agree, and thank you for that. the great news that senator mccaskill is on her way over here at about 127 miles per hour, and she wants to get in one round of questions before the vote. and so i will defer to her at the moment she steps in. just from my point, a few closing thoughts. this investigation i think starts and ends with the american consumer.

you know, everybody is taking advantage of everything they can. the back is always a temptation, and when it comes up like in telemarketing we stop it and when it comes a. we have to stop and you can argue whether it should be fdc or legislation or whatever. but the point is we have to stop it. we have to stop that from happening ever again. and expose it for those who continue to do it. my message to consumers i guess would be, be very careful, make sure your glasses are good for you can read fine print. but you probably will never get there on that big and that's the subject that really makes me very, very angry, that the use of fine print, to deceive americans at all levels and in many subjects we have not yet covered in this hearing. the use of small print to hide pharmaceuticals secrets, you know, does this mix with that, etc. well, it is in the fine print well, you should have read the

fine print. and that intrigues me. i think this is a huge problem that it is a mainstreet problem. it is an american problem. it is sort of classic greek and the sad part is, you know, these big companies are getting 10 bucks a month or $19.95 a month. actually these web loyalty is, they can raise it to whatever they want. there is nothing stopping them, right? so they can raise it to whatever they want. and as i indicated, they get to the -- type to get the very point where ms. lindquist goes bananas because she suddenly realizes she has really been had, and then she closes down. so that fine art, beware if you're a consumer. i worry about is frankly because the holiday shopping season is just beginning, and all of this country, people who are in economic distress will be spending what few dollars they have on holiday shopping because they have children and

grandchildren, and that's what parents and grandparents tend to do. and that brings me to my second thought. and that is my message for the companies that profit from tricking consumers into doing their clubs, yet say over and over again that what they do is legal. and they operate within the law. i am not a lawyer, this is what i think just because you say what you do is legal, it doesn't make it right. professor cox, i would like you to finish my sentence. >> amen. >> all right. [laughter] >> we are waiting now on senator mccaskill. believe me, it is worth the wait. >> if we did this to telemarketers to stop them cold, what's the big problem? >> mr. chairman, i don't actually agree that we stop telemarketers called. one of the things, and i was intimately involved in this,

telemarketing sales role promulgation, but the original rules was exactly what we are talking about. you just can't sell billing information and can't give it to a third party. and then somewhere in the process between the proposed rule in the final rule would want to put this very complex process that involved his concept of free today conversions. so company started to circumvent all that by charging 1 dollar. instead of saying it's free, they say it's 1 dollar to get your 10-dollar coupon or whatever. so there is promise, particular inbound telemarketing where you just call your customer service representative at the bank, and then when they're done talking to you, they say by the way, would you like to do this? an example of this would be ticket master. when they are done, depending on the kind of take it you called in for, they will say were you interested in a free trial offer in this? i'm not sure that the telemarketing will completely solve that problem. i'm certain it didn't. i think it raised the stakes a bit and that made it enough so

that companies shifted most of the resources over to direct e-mail and internet. but the problem is you push those down, this becomes more attractive. i don't think we have completely solve that problem. >> you know, granted i am waiting for senator mccaskill, but the internet is very interesting to me, because it was discovered by darpa, and is the source of almost everything that everybody does. i don't go on aol.com. i don't go on amazon.com. for books. and then yet under president george bush and under president barack obama, there are two directors of national intelligence who are the most powerful people in the two administrations, respective intelligence world's.

have both said that the number one national security threat is not north korea. is not china. it is not, you know, i ran. it is cybersecurity. and that is the use of the internet from any place in the world, undetectable for the most part, to shut down already portions of brazilian cities, they've already done a lot of damage to the pentagon, to a variety of, you know, downloading in the summer of information from secret u.s. government information's. so the internet is our friend, and the internet is our enemy. and the most dangerous thing that confronts us in terms of surviving, they can shut down a great. they can shut down hospital systems. i mean, it is a very tricky business to me, the internet.

and somebody can tell you that senator mccaskill is about here i'm going to close the hearing. >> i think she is on her way. >> now, i am sorry. i can't wait. if you want to, she will pop in here and she will be worth it. because she is terrific. and she's eight, you know, prosecutor, attorney general, all this kind of stuff. and she is just wonderful. and agreed on this subject that i want to thank you all very, very much for taking the time. i agree with you, professor cox, that this will have, this hearing will have an effect. it already has. and it may be $10 or $20 a month, but it is a wrongful 10 or $20. and it is not fair to do that to the american people under any circumstances.

we have to stop it. having said that, this hearing is adjourned. [inaudible conversations] [inaudible conversations] >> president obama will address the nation on his new military and diplomatic strategy for

afghanistan tonight. the president will make his remarks at the west point military academy. watch live coverage at 8 p.m. eastern on the c-span networks. earlier this month the federal reserve announced new rules that would restrict banks and others that issue debit cards from charging overdraft fees without the express permission of the cardholder. the rule is scheduled to take effect next summer. now a senate hearing on bank overdraft fees. you will hear remarks from banking industry executives and consumer advocacy groups. this is an hour and 30 minutes. >> let me welcome our witnesses this afternoon to our hearing on protecting consumers from abusive overdraft fees. fairness and accountability and receiving overdraft coverage act. it is a long title. there is an acronym in there somewhere. we appreciate you being here. welcome to the audience that is here as well.

welcome, my colleague, sherrod brown of ohio on the committee, and members of the staff and other members who will come in and out. i should notify my call is as well that there may be a vote around 3:45 p.m. what i will try to do is continue the hearing and we will try to stagger. senator reed of rhode island has joined us as well. let me begin with a opening statement after which i'll ask my colleagues if they had agreed opening comment and did we will turn to our witnesses and hear from them. and then have a series of questions for you this afternoon regarding this bill and related matters. so i began by again thanking each and every person for being here this afternoon. our job on the banking committee is to make sure that regular folks get a fair deal from their lending institutions and other financial institutions. the whole notion that depositors in the bank, people who buy insurance policies, people who buy shares in our public

companies, people who have mortgages, all those financial activities, we've got to keep in mind as we talk about the stability of our finances, safety and sounds of financial institutions. is critically important to talk about the safety and security of consumers. who depend upon these institutions serving their interests well. and this brings us to the subject matter of this afternoon. for too long, credit card companies have made tremendous profits, excessive profits in my view, by charging consumers outrageous fees or raising rates whenever they felt like it. our committee approved legislation to stop those abusive practices. legislation has passed the senate earlier this year with overwhelming bipartisan support, was signed into law by president obama later this spring. we thank him for the. today we meet to discuss another practice that i find into me instances abused. and that is misleading overdraft programs that encourage consumers who overdraw their account and then slam them with

too high fees. let's be clear. people have responsibility. it begins there. as responsibly each one of us have to manage our personal accounts as well as we possibly can. and to spend within the means that we have available to us. and the banks have a right to charge a fair fee for legitimate services that they provide. that otherwise expect them to perform or conduct activities that would lead them disadvantaged. lending institutions often add overdraft coverage to consumer accounts without informing them or giving those consumers a choice in whether or not they want to have an overdraft fee or be notified. in fact, if they have overdrawn and allow them to do with them accordingly. the overdraft charges a high fee. consumer can pay as much as 35-dollar fee for overdrawn on a 2-dollar transaction. we're going to specifically about just such a case this afternoon. in some cases a consumer can rack up multiple overdraft fees in a single day without ever

being notified until days later that have overdrawn their account. many institutions, also charge additional fees for each day and account is overdrawn. the longer it takes you to realize there is a problem, the more fees of course you can be charged. sometimes banks will even arrange, rearrange the order in which they process your purchases, charging you for a later, larger purchase first so that they can charge you with repeated overdraft fees for earlier, smaller purchases. so the truth is, at the service of overdraft protection often serves as nothing more than a way for lending institutions to profit by taking advantage of their very own customers. last year american consumers paid $24 billion in overdraft fees. and the financial times recently reported that banks stand to collect a record 38.5 percent in an overdraft fees this year.

almost double what they collected a year ago. according to the senate for responsible lending, nearly 1 billion of those fees will come from young adults. another 4.5 billion will come from senior citizens, like mario, one of our witnesses today and a resident of ranford connecticut. we thank you for being with us. i will let mario to his own story about how an initial overdraft fee of $2 in debt and a 100 overdraft coverage fees and just a matter of days. the method in his bank use will sound familiar. to many, many americans. families in my state of connecticut and across the country are already struggling to make ends meet. we all know that. and these unfair and excessive charges are making it even harder. last with the federal reserve to its great credit announced that they would require banks to get a consumers consent before them again in an overdraft coverage program. this was a welcome but long

overdue announcement for american consumers. and we indeed and we need rather to do far more to protect them from these abusive practices. that's why i introduced the fairness and accountability and receiving overdraft coverage act. my colleague senator schumer, senator reed of rhode island, senator brown, senator merkley, senator levin, senator reed of nevada have joined us as cosponsors of the sponsors of this bill. and likable, our legislation will establish an opt in rule for overdraft coverage for atm and debit transactions. customers would now have to consent before overdraft coverage is applied to their account. our legislation would go further, however, and limit the number of overdraft fees that banks can charge, one per month, and no more than six per year. that he would have to be a reasonable and proportion to the cost of processing the overdraft. our legislation would also put a stop to the practice of manipulating the order in which the transactions, transaction or

post every require banks to warn customers if they are about to overdraw their account, giving them a chance to cancel the very transaction they are about to engage in. finally, our legislation would require banks to notify customers promptly when they have overdrawn an account, through whatever means the customer chooses to e-mail, text messages, so they can quickly restore the balances and avoid unnecessary future fees. abusive overdraft policies are plainly fair, in my view. and the banks know it. after it came out in the press that i was working on this legislation, a few of the large institutions to their own steps towards responsible reform. i assume out of the kindness of the heart, and i welcome this as well. it is a thoughtful thing to do. last week the federal reserve released a new rule that will require banks to get a customer's consent before and will again in an overdraft coverage program. that's a very good start and

again, i applaud them for doing so. but our legislation goes further and i remain committed to ensuring that american consumers are going to be further protected. let's just remember, regulators did little while consumers were being taken to a fish by these very misleading and unfair overdraft programs for years. despite the fact that these regulars have the power for years to step in putting into these practices. it is exactly why we need an independent consumer financial protection agency. it will be focused on preventing these abuses and addressing them quickly. rather than having to wait week after week, month after month for the congress to pass legislation. folk such as mario livieri deserve a lot better. there is one person here today but there are millions like him across the country. and i remain committed at my college i believed it to ensuring that american consumers are protected. i look forward to our discussions were going to have this afternoon. with that let me turn to my colleagues, senator, would you care to be heard for a minute or

so and it will get to our witnesses. [inaudible] >> we're going to push the pedal into another extreme, perhaps as resolving others will create other problems. i believe that happen with some aspects of the credit card legislation. i would rather it not happen here. in particular, i'm concerned about closing certain services and opportunities to consumers, and also shifting the costs that should be borne by consumers, depending on their behavior to consumers more broadly. i'm very concerned about that.

it seems to me there is no way this legislation, as it currently drafted, would do that since, as the chairman said, it sets a limit on overdraft charges and fees, no matter what a particular consumers practice is. no matter what number of overdraft -- draft may happen. it seems to me if that's the case at the end of the day, then we are going to shift off from less responsible to consumers to the entire class of consumers, including those who act more responsible. and i don't think that is the proper direction to move it. i would hope we can focus on real problems and real solutions, and close those without that massive cost shifting and without closing the door of certain opportunities

and service to consumers who may welcome them. so those are my thoughts and concerns going into the process at the front end, and i will look forward to working with the chairman and the entire committee as a move forward. thank you, mr. chairman. >> senator, thank you. you raise very legitimate issues. that's why we have hearings like this to these ideas and thoughts, and i've welcomed in. that's not the first time i have heard them, others have expressed those concerns. senator brown? >> thank you, mr. chairman. thank you for convening this hearing and your leadership on this issue. thank you, to all the five members of the panel. i am proud as senator dodd is to be a cosponsor of this act. we need this bill because too many americans pay too much for a service that is supposed to be a courtesy. what i think of the new $24 billion in overdraft fees americas paid last year, 900 plus million in my state of ohio alone, courtesy is not the word that comes to mind.

fees generated from the so-called courtesy of been grown by leaps and bounds. the center for responsible and tells us the average overdraft fee was about $35. that means if a woman in toledo or a man in akron purchases something ends a few dollars short, they can be charged a fee 10, 20, 30 times the amount of the overdraft. want to have to keep in mind is these are real people, real families struggling with banks or placing them deeper and dead. people like mr. john carey from toledo who was overdrawn by $6 up paying $113 in fees. the center for responsible and he reports that 93 percent of all overdraft fees are paid by only 14 percent of account holders and his account holders are most often folks who have lower income, who are often young are often nonwhite. these are people like charles from watching words, ohio, near akron. a recent college graduate ever paid an overdraft fee in his

life until a couple of months ago. his problem, when he checked his balance with his agent, the ballots reportedly received did not deduct any transactions to what he thought he had $80 in his account hillhead $15. he paid for three items totaling less than $20. with the bank records how the transactions he had $80 in fees charged to the big overdraft protection loses its meaning if consumers are at greater risk in the protection that without. understand the cautionary notes from chairman dodd and the comments from senator vitter, that people need to be responsible. this is something that has just gone too far. we need to pass that their overdraft coverage act, reduce the amount of the season give consumers more control over their bank account. in closing, i just want to share a frustration that i hear too many times from 20 people in my state. people believe rightly or wrongly each of the following things. they believe that our economy was almost brought to its knees because the financial services

industry. they see that government bailed out the financial service industry. they see that many of the executives of the financial services industry gets big losses, and they see people in the counties in the financial services industry charging these kinds of these two generally working-class consumers. that just doesn't -- i just hope the people from industry on this panel and others in the audience understand the frustrations, fair or not in those assessments, understand the frustrations of so many americans have with how their government is treating them, how wall street is treating them, how banks, and i don't latest at the feet of the community bankers, but how banks are treating them and how their lives are going in these very tough economic times. >> we don't often enough to the dissension between community banks or even a large investment banks. i always promised by so i will draw that distinction when we gather because it is important to use the word banks across the border it draws draws an awful lot of people who do a very good job. so we thank you for the comment. senator reid?

>> thank you, mr. chairman. thank you for holding the hearing and i want to thank the witnesses. and i want to add to your comment about the community banks. i was in rhode island yesterday and the two largest participants in our sba programs are community banks, not the big national and regional banks. and they are actually have avoided some of the excesses and they are well-positioned to help out. so they are an example. that should be a related and i think you're right to point out that i am pleased not only to be here today, but also to be cosponsor of senator dodd's overdraft coverage act, and we are in the midst of significant financial reform legislation. and i hope we can include aspects of this bill in that legislation, if not passed separately. the federal reserve has taken some steps but i think we have to do more, and the legislation that senator dodd has proposed will do that. and i think it will provide a sense of opportunity,

transparency, and choice for customers. senator brown's comments about perceptions i think are absolutely right. i think most people had a suspicion as they saw during the first decade of the century that no bill increases in income, yet financial executives were enjoying huge, huge paydays. when they saw insurance deteriorating for working families, that the deck was stacked against them. and i think is more we learn about what happened in the financial situation, the more that suspicion is buttressed by some evidence about how women's large institutions get in trouble, they did help. but when families across the country need help, avoiding foreclosure or avoiding excess charges, it is their responsibility. so i think this legislation is timely, appropriate and

extremely appropriate. >> senator merkley? >> thank you, mr. chairman. and my mind goes back to a credit card discussion earlier this year. i had maggie from salem, oregon, who had had a credit card account for about 15 years, always paid on time. couldn't believe what she found that she had a late payment. so she called her back and said, i always pay on time. i always do at the same time. how could i possibly be late? the credit card is represented chagnon said here's the thing. we got your payment on time, but if you'll notice in the contract, we can sit on the payment for 10 days and we did it when we posted it, it is now late and you all a late fee. maggi said, i think the phrase that captures the sense of millions of americans, she said how can that be fair? and that's the same standard of reasonableness and fairness that we need to bring to this conversation.

i think any bank customer who finds out that their bank has reordered their transactions in order to multiply the number of overdraft fees that they are being charged with say, how can that be fair. so certainly, this is an important conversation. i am pleased to be a cosponsor and i look forward to the testimony. thank you. >> thank you very much, senator. i am going to leave the record open for other colleagues as well for any comments they made want to make. and now let me introduce our panel of witnesses. i've already introduced in the wake mario livieri who is a constituent as i pointed out earlier. he has traveled here from branford, connecticut. and will testify before us with regard to his own personal experience that he and i have talked about this before. we met in connecticut several weeks ago and i thought his story was so compelling that he deserved a national audience for historic. so we thank you for being with us. jean ann fox is the director of financial services for the

consumer federation of america. is a nonprofit association of 300 consumer groups, and this fox advocate for issues including financial services, electronic commerce and consumer protection. frank pollack is the president and ceo of the pentagon federal credit union, which has close to 1 million members and whose core mentorship comprises men and women of the army, air force, coast guard and the department of homeland security. we thank you for a much, mr. pollack, for being with us. mr. john carey is the chief administrative officer for the consumer banking of north america for sega. he is responsible for consumer matters including business practices, community regulatory and governmental relations. we thank you very much mr. carey for joining us. michael calhoun is the resident what he is held that position since 2006. the center is a research and policy institute for focusing on consumer lending and protection. and again, we are very, very pleased that all of you with us today. and we thank you. by the way, any of your opening

fall opening statements, comments and any supporting information you would like the committee to have will be included in the record so we will begin with you, mr. libby or. you have to pull the microphone close to. there is a button down there that have active debate the microphone. >> i got it. >> you're all set. you are on. >> good afternoon, chairman senator dodd and members of the committee. my name is mario livieri. i am a senior citizen and i live in branford, connecticut. i am honored to be invited here today to share my story with you. i hope that it will help you to do the right for consumers like me go been unfairly and misled by the bank about overdraft fees. until a few months ago, i was a customer at a prominent bank in my town where i no longer am a customer there because i don't think they treated me fairly. over the summer, i wrote a check for $200.

when the check was cashed, it over to my checking if the count by $2.17. my bank charged me $35 fee for my $2.17 mistake. i had no idea i had overdrawn my count. if i had, i would have immediately deposited money in the account to cover the overdraft. but instead, it took the bank over one week to notify me of the overdraft. either time he finally got around to telling me my account was overdrawn, i had made a few other transaction with my atm card, totaling $100. the bank charged me $140 in fees. now, i owned a small business, a building and lover, and when i was a young man and i have been in business for over 50 years. i am quite sure that they would have never done to me 50 years ago. and now it happens, but i also

know that you don't get anywhere in the world, in business by treating your customers unfairly. so i called the bank, and after a whole bunch of arguing, they agreed to refund one, 35-dollar charge. but insisted that i pay all the other fees. i told them i didn't think it was fair. they told me it was legal. as a matter of fact, the people that told it was legal was the thrift institution in washington, d.c.. i have been in business too long for that to be acceptable answer. if that sort of practice running up ridiculous charges for an overdraft protection program, i didn't even sign up for it is legal, it shouldn't be. and certainly it isn't fair. i'm glad my senator, chris dodd, is doing something about it. and i'm grateful to the entire committee for opportunity to discuss my story with you. there's a lot of folks like me in your state who aren't in the exact same situation.

they make a little mistake and get slammed for it by their bank. i hope that we can stop abusive overdraft coverage, practice so that no one else, no matter what bank they use, has to go through what i went through. thanks for inviting me here today, and thank you for fighting the good fight on behalf of us consumers. thank you. >> mr. livieri, thank you very much. gene, we thank you for being with us here today. >> thank you, chairman dodd, members of the committee. i am jean ann fox, director of financial services for consumer federation of america. i am testifying today on behalf of the national consumer group listed on our testimony. we enthusiastically support senate bill 1799, that they're overdraft protection activewear also commend you for the proposal to create a consumer financial protection agency, which would not only implement that their overdraft coverage

act, but also enforced the law and clampdown on all high-cost loans abuses. so thank you for doing that. in the dock after docket, the federal reserve has failed to protect consumers from abusive overdraft lending. the rule that was announced last week will be a help but it is not sufficient to protect consumers from the abuses that are inherent to overdraft coverage by bank. along with a recently announced changes in big bank overdraft programs, the rules are too little, too late to provide the reforms that american consumers need and want. banks extend credit when they pay a transaction that over draws a consumer's checking account. instead of denying a debit purchase at the point-of-sale or a cash withdrawal at the atm on insufficient funds, banks permit this transaction to go through, load the banks money. and then the largest banks

charge typically a 35-dollar fee for the extension of that credit. these loans are not authorized by consumers. no consumer ops and typically on an overdraft to provide as a quote unquote courtesy by the bank. consumers don't apply for these loans. they don't get caught disclosures. they did not get a contract tha the bank promises to cover overdraft up to a certain limit. they do not get a warning when the transaction will trigger an overdraft and their credit worthiness is not a evaluating. these loans are for small loads of money. the study released last week found a typical debit card purchase overdraft was just $20. so banks are charging $35 to loan $20 for a few days. and the typical overdraft did not exceed $78 in the fdic study. these small loans, with

astronomical costs. and bank fees up to $39, the highest we found in a most recent survey. banks pile on extra fees if you don't repay in a day or two. the majority of the largest banks charge of sustained overdraft fees, you can be charged $35 for your first 5-dollar overdraft if you don't pay that back in five days. at no cost you $70. and these overdraft loans are taken out of the next deposit consumer banks account making the bank of first creditor who gets paid out of your next paycheck or your social security check deposit into your account. and these loans are extremely expensive. for the fdic's typical $20 debit overdraft, if the fee is just $27 you get a whole two weeks to pay it back, that is 3520% apr. which leads us to describe bank

overdraft lending as payday loans as done by banks. these loans come with balloon payments. if you don't get an affordable repayment schedule, these get paid first, which can cause other checks consumers have written about, and trigger an more overdraft fees. and banks use tricks and traps to drive up the number of transactions that will overdraw by ordering the largest withdrawals first so that that wipes out your balance, and then they can charge a overdraft fees of all the other smaller transactions. this is not what consumers want to have happened. in polling's this summer we found that 71 percent of american consumers say they want things to get permission to cover overdraft for a fee. 85 percent of americans want banks to be required to disclose on the atm screen if it withdrawal will trigger an overdraft. 70% say that banks should pay

transactions in the order they received them. and enabling done for consumers union, they found that consumers expect that if you don't have enough way to cover a transaction, and you usually debit card, the bank will reject it. that is not typically the case. the consumers who are trapped in overdraft are the ones who can least afford the most expensive form of credit that banks offer. about a fourth of bank customers pay that $24 billion in overdraft fees that were collected last year, and they are most likely young, low income and minority. i would be glad to answer questions later about this specific provision a bill that let me wrap up by saying fee-based overdraft lending traps consumers and astronomically expensive debt, and deprives family of money that they need to meet their basic needs. these are not a convenience. overdraft loans are dangerous, high-cost loans that must be

reined in, even people who agree to use them. we urge this committee to reverse the drain on vulnerable consumers bank account by supporting senate bill 1799. thank you. >> thank you very, very much, ms. fox. grateful for your testimony. mr. pollack, you're very gracious to be here today and anxious to hear your perspective. >> thank you, mr. chairman and thank you for the committee. on behalf of the credit union i would like to thank you for this opportunity to testify today. as mentioned earlier we saw the military and department of homeland security, and we are conservative and institution that is particularly the immersed in our total fee income represents less than 10 percent of our total income in any given year. while our first priority is to remain safe and sound, our strategic objective is to provide products and services that offer high rates on savings, low rates on loans, and low fees. we have recognized in the military can and as a leader with our overdraft protection

programs. we have always viewed overdraft protection as a particularly viable service for the military member. in their line of work maintaining good credit is important to their military readiness and ultimately their career. that's our program dates back more than 20 years preceding most of the overdraft programs that come into question today. from the very beginning we had believed that members should either qualified or our low-cost linux that it ought we should not allow overdraft of their accounts. we would note that with more than two decades of experience, we find our mirrors are appreciative of that approach. will offer a line of credit attached to a member's checking out with a minimum of $500 of overdraft protection. this service is offered to every creditworthy member who opened a checking account. 45 percent of our active checking account members have such a line of credit. as a result, our programs always have been opt in. we believe strongly that every consumer must have opt in rights.