Names In the News

Tableware Conspiracy

Conspiracies lurk in every corner.

The latest evidence?

In August, two leading department store chains and two prominent manufacturers of tableware resolved allegations that the companies conspired to limit distribution of products sold to consumers. Under the terms of the settlements, Federated Department Stores -- owners of Bloomingdale's and Macy's, among others -- May Department Stores -- owners of Lord & Taylor, as well as bridal stores -- Lenox, Inc., and Waterford Wedgwood, U.S.A. will pay $2.9 million in civil penalties to the State of New York.

The companies were alleged to have conspired to restrict competition in the sale of Lenox and Waterford products from a national retailer, Bed, Bath & Beyond.

New York State Attorney General Eliot Spitzer's office uncovered evidence that the department store chains engineered a scheme to prevent Bed, Bath & Beyond from expanding into their lucrative tableware market.

In 2001, Bed, Bath & Beyond planned to introduce Lenox and Waterford products as "anchors" for the company's new tableware department, beginning with a test store roll-out in Elmsford, New York and in several other locations across the country.

The investigation revealed that Federated and May pressured Lenox and Waterford to pull out of the Bed, Bath & Beyond roll-out. As a result, Bed, Bath & Beyond was unable to offer to consumers tableware supplied by Lenox and Waterford, as it had planned. "Companies are not allowed to enter agreements that prevent competitors from offering choices to consumers," says Spitzer.

Bleeding Medicare

Ernst & Young will pay the U.S. government $1.5 million to settle claims that improper advice from the accounting firm led nine hospitals to submit false claims to the Medicare program for outpatient clinical laboratory tests.

The complaint alleged that Ernst & Young's health care consulting division knowingly caused nine hospitals to submit more than 200,000 claims for payment under the Medicare Program during the period from 1991 through 1997 for certain outpatient blood tests which were performed but which were not medically necessary.

Ernst & Young denies that it caused any false or inaccurate claims to be submitted, or that it concealed or failed to disclose any false claims.

The complaint alleged that Ernst & Young not only failed to discontinue its improper Medicare advice, but also prepared reports to the United States which knowingly failed to disclose the improper conduct of the client hospitals who had relied upon Ernst & Young for analysis and reporting of their improper billing.

"It is the duty of an independent reviewer to be alert to abuse and not to remain, as the complaint alleges, 'deliberately ignorant,'" says U.S. Attorney Patrick Meehan. "Those who market themselves as experts have the responsibility to provide accurate information. The integrity of the Medicare system depends on it."

Honda's Race Problem

American Honda Finance Corporation discriminates against African Americans.

That's the finding of a July report prepared by Mark Cohen of Vanderbilt University.

The report was based on an examination of records of 383,652 American Honda Finance Corporation (AHFC) customers over the period June 1999 to April 2003.

The report concludes that African-American borrowers consistently paid higher "finance markup charges" than white customers when they financed their cars at dealerships through AHFC.

The study controlled for factors such as term of loan, type of vehicle, creditworthiness of borrower and geographic area.

Auto loan markups occur when lenders allow car dealers to mark up auto loans above the "buy rate" reflecting the actual creditworthiness of borrowers. Cohen's report found African-American Honda Finance borrowers paying finance markup charges 43 percent of the time, as against 22 percent for white borrowers.

The report also concluded that Honda used a unique practice in which customers from different credit tiers were charged different markups. While most new car buyers were limited to either a zero or two percentage point markup, those from the least creditworthy tier could be charged a 3.5 percentage point increase. There appears to be no business justification for this differential markup policy since differences in creditworthiness are reflected in the "buy rates."

A separate report released earlier this year by the Consumer Federation of America, the National Council of La Raza and the Rainbow-PUSH Coalition estimated that markup overcharges cost consumers at least $1 billion annually.

"What is striking here is that, while the nation's top two auto lenders have begun correcting the practice, Honda has refused to respond," says Consumer Federation of America's Stephen Brobeck.

"Our hope is that the findings of this latest report will encourage Honda to change its abusive lending practices," he adds.

American Honda Finance Corporation is the defendant in a class action suit charging it with discriminatory lending practices.

-- Russell Mokhiber