How Marketers Use False Positives to Influence Your Behavior

Posted by Mark Frauenfelder | Credit Card Blog | Friday 26 February 2010 7:22 pm
201002261623 A "false positive" is a term used to describe the error of thinking that something is what it isn't. When the metal detector in the airport security line goes off and you don't have any metal in your pockets, that's a false positive. On the other hand, a "false negative" is thinking that something isn't what it is. A terrorist who carries a bomb past airport security without being detected is a false negative. In airport security, it's okay to have false positives at the expense of greatly reducing false negatives, because just one false negative could be disastrous.

Sometimes it's better to have more false negatives in order to restrict false positives. Gmail's spam filter does a great job of catching spam, but in my experience, a few spams are able to make it past the filter and into my Inbox each day. The spams that make it through are false negatives. Gmail could make a stronger filter to prevent those false negatives from coming through, but the danger with a stronger filter is that some legitimate emails will be marked as spam and won't show up in your email box. An email system that fails to deliver 100% of legitimate emails is unacceptable, so we have to put up with a few false negatives.

False positives and false negatives are found in nature, too. Camouflage, used by the stick insect to fool predators into thinking there's nothing edible, is a false negative trick. A harmless wasp mimic fly, which has the markings of a wasp to keep predators at bay, is a false positive trick.

Advertisers and shady finance companies use false positives all the time to trick you into paying attention. No doubt you've been fooled by one of those drop cards that look like $100 bills that sleazy businesses place on the sidewalk to trick you into picking it up. You've also received junk mail that looks like it contains a check. Gas pumps now make an "error tone" to get you to look at the screen to see what went wrong, only to discover it's just an ad for a rancid corn dog or a car wash. All of these are designed to make you think they are something that they aren't.

The problem with false positives is that people quickly become acclimated to them. It's the "boy who cried wolf" syndrome -- too many false positives lead to false negatives, with unfortunate results. I wonder how many people have thrown away checks, bills, and other legitimate documents because they assumed they were false positives? It almost happened to me about seven years ago.

I got an email from an online postcard business informing me that I had won $5000, but I thought the email was spam and I threw it away. When a second email arrived a couple of days later and had a personalized headline, I paid more attention and realized that I really had won $5000. It's possible that you have accidentally thrown away an important email because you thought it was just another one of the dozens of daily attempts to swindle you.

The use of false positives to trick people into paying attention is a dangerous and growing practice. In the crowded media environment we live in, where advertisers clamor for morsels of attention, the problem will only get worse. What can we do about it? I have no idea. Please share any ideas if you have them!

Mark Frauenfelder – Editor-in-chief of MAKE magazine and the founder of the popular Boing Boing weblog, Mark was an editor at Wired from 1993-1998 and is the founding editor of Wired Online.

New Gimmick in Credit Cards

Posted by randy37 | Credit Card Blog | Thursday 25 February 2010 8:42 pm
I made my annual sock shopping trip to Macy's a few weeks ago. I paid for my purchase with my Macy's Visa card, always worth a little discount. When I received e-mail notification of the bill a week later, I went online and paid it immediately.

Therefore, I was a little surprised to get a paper statement a couple of weeks later, but maybe their system is a little slow. Or perhaps they always send it. What astonished me was to see that the statement total was $2 higher than the bill.

Macy small



 

You can see that the bill was for $48.24 but that the statement shows an amount due of $50.24. 

I called to see how an additional $2 charge crept in. They said that was for interest if I chose not to pay the full amount due. I checked the credit agreement and it says:

B. There will be a Minimum INTEREST CHARGE of $2.00 in any billing period in which the INTEREST CHARGE resulting from application of the Daily Periodic Rate would be less than $2.00.

I protested that I had already paid the bill but they said it was, "Just our policy." I asked what would have happened if I had paid the $50.24 in full with the statement. They said that the $2 would have been credited to my account. I'm not sure I believe them.

The agreement does not say that they will charge you ahead of time, assuming that they will be entitled to collect interest on the next billing cycle. 

A further review of their credit agreement showed this feature:

If you make a Purchase during a billing period with an unpaid Previous Balance, we will begin charging interest on the Purchase from the date it is added to the balance and continue to accrue interest until payment in full is credited to your account.

As I read this, if I did not pay the bill in full and bought something else, that they would start charging me interest, currently 24.5 percent, on the date of purchase, not at the beginning of the next billing cycle.

Obviously, issuers of credit cards are trying everything they can to squeeze more money out of you. But this doesn't seem like much of a reward for my loyalty to the Macy's brand.  I wonder how much they will charge me to cancel the card. 



Randy Johnson – Author of How to Save Thousands of Dollars on your Home Mortgage and Savvy Borrower articles, Randy is a mortgage broker who has financed over $1 billion in properties. He writes about home buying and real estate finance topics for CreditBloggers.com.

Bulldoze in Lieu of Foreclosure? One Frustrated Homeowner’s Solution

Posted by credit.com | Credit Card Blog | Tuesday 23 February 2010 3:36 pm

This is probably not the best solution to the housing problem or the rising foreclosure issue, but that's exactly what one frustrated Ohio man did, according to an AP report this morning:

"An Ohio man says he bulldozed his $350,000 home to keep a bank from foreclosing on it.

Terry Hoskins says he has struggled with the RiverHills Bank over his home in Moscow for years and had problems with the Internal Revenue Service. He says the IRS placed liens on his carpet store and commercial property and the bank claimed his house as collateral.

Hoskins says he owes $160,000 on the house. He says he spent a lot of money on attorneys and finally had enough. About two weeks ago he bulldozed the home 25 miles southeast of Cincinnati."

Mr. Hoskins also spoke to local TV station WLWT and was quoted as saying: "When I see I owe $160,000 on almost a $350,000 home, and someone decides they want to take it -- no, I wasn't going to stand for that, so I took it down."

Here's a clip of Terry sharing his story on WLWT:



This story is blowing up on the airwaves and the web and many are calling Terry a hero for standing up and sending a message. Others are speculating whether Mr. Hoskins will be prosecuted for his actions and end up in prison. What do you think? Share your thoughts in the comments section!

Reality Check: Appraisals

Posted by randy37 | Credit Card Blog | Tuesday 23 February 2010 9:00 am
As everyone knows, Congress is working on a new set of laws to regulate all aspects of the financial services industry. Last I heard, the document was over 1,100 pages long and it is frightful to think of what the law will be when Congress finally gets through with it. After all, the mortgage industry is currently having trouble digesting the last changes in regulations.

The first of these new mortgage industry regulations was the Home Valuation Code of Conduct (HVCC) that became effective on July 1, 2009. It was supposed to "clean up" the appraisal process by having appraisals ordered through independent Appraisal Management Companies. These were not actually required by law but were adopted by Fannie Mae and Freddie Mac after the Attorney General of New York, Andrew Cuomo, twisted their arms.

Exactly why the Federal Housing Finance Agency that supervises Fannie Mae and Freddie Mac didn't say, "Hey! Wait a minute. That's not your job! We regulate these enterprises, not you; if you think something ought to be done, make your proposal to us." But Fannie and Freddie were reeling from years of mismanagement and losses that wiped out their shareholders. I suspect they just had no will to resist. What was more likely was that their regulator's leader, James B Lockhart III, dropped the ball and let someone else usurp his authority. In fact, in an ironic twist of fate, the administrator who oversaw two of the largest corporate collapses in American history now works for a private company that helps companies that need restructuring.

The effect of HVCC has been that these intermediaries interposed themselves in a system at a cost of between $100 and $150. Lenders order from an AMC that, in turn, orders from a list of appraisers. This was a pricewise competitive business before, so one of three things had to happen.

The appraiser would be paid a normal cost minus the AMC's fee that would be deducted from the cost charged to the customer. That would mean the appraiser makes $100 to $150 less. Or the cost of the AMC would be added on to a higher price of the appraisal so that the consumer pays more. The third alternative would be that only newer, less experienced appraisers would work for such small fees. In practice, all three have happened.

Let me insert a little information here. According to statistics complied by alamode, inc., publisher of appraisal software, the average price for appraisals in my county was $375. By comparison, I have a fee schedule that one AMC uses to establish what they will pay. This is the schedule:

One Unit Full Appraisal

Tier 1

$225.00

Tier 2

$250.00

Tier 3

$300.00

You can see easily that the appraiser's income will be 20 percent to 40 percent less than the old days if the AMC charges market price for appraisals. That is about what they earned back in 1982. In my view, no good appraiser can afford to work for that small of a fee.

Sometimes the AMC charges more. One lender has its own captive AMC and they now charge $475 for a standard appraisal.

The third case was amply demonstrated by an appraisal we received in early January. It had problems that were ultimately solved, but when I looked at the appraiser's state license, it showed that the appraiser got his license in September. He had three months on the job!  In the old days, an appraiser couldn't get in the list of approved appraisers unless he had at least two years' experience.

I shudder to think what the scene will be like a few years from now, but my guess is that many competent appraisers – the backbone of the industry – will have changed careers, a tragic loss.

It is clear to most of us in the mortgage industry that neither consumers nor investors are better protected by this process. I doubt that the complaints from consumers, lenders, and appraisers will have any effect on efforts to change the system either.

The only good thing is that they didn't make us order appraisals from the Post Office, but maybe that's next. After all, who knows the neighborhoods better than the letter carriers?  

As a consumer, you just have to add one more "potential problem" to your list of things to worry about in the mortgage industry.


Randy Johnson – Author of How to Save Thousands of Dollars on your Home Mortgage and Savvy Borrower articles, Randy is a mortgage broker who has financed over $1 billion in properties. He writes about home buying and real estate finance topics for CreditBloggers.com.

What’s the best way to store important receipts and papers?

Posted by Mark Frauenfelder | Credit Card Blog | Monday 22 February 2010 8:02 pm
201002221656 A couple of years ago my step-father-in-law became ill and now requires 24-hour care in a nursing facility. I take care of his finances, making sure his bills are paid on time. He was also the victim of identity theft, and I worked with the police department to arrest the criminal. (She was caught and sentenced, and was ordered to pay restitution but I'm sure she won't ever do that.)

Needless to say, the amount of paperwork that arrives from banks, credit card companies, hospitals, doctors, and state and federal government agencies is enormous. I bought some filing boxes but they quickly became full. For the last few months, I simply tossed all the paperwork into a large plastic bin, promising myself to buy a large filing cabinet to store the papers when I had a chance.

A couple of weeks ago, I reorganized my office, and I set the bin next to our garage, planning to bring it back in the next day. That night it rained, but I didn't think anything of it, because the bin had a lid, which snapped down tight. When I lifted the bin to bring it back in the office, it weighed a lot more than I remembered. That's when I noticed a crack in the lid. I'm glad my kids weren't around to hear the language I used when I took the lid off the bin and saw that the papers were soaked with rainwater.

It took a long time to dry the waterlogged papers -- I laid them out on the floor of the office, about 20 pages at a time. After a few hours they were dry enough to put on the "dry" pile. Then I laid out 20 more wet pages and let those dry. I swore to myself, "never again."

I don't want to deal with physical pieces of paper any longer. I want to go digital. Now that offsite backup is cheap and reliable (I use Backblaze, which costs $5 a month), I feel confident about storing my father-in-law's records (as well as my own records) as PDF files.

Right now, I'm looking at my options. I'm mulling over three different ones:

1. There's Shoeboxed, a service where you stuff all your receipts into a prepaid envelope and let a machine do all the scanning for you. Shoeboxed offers three different plans starting at $9.95 a month for 50 receipts and business cards. The downsides to Shoeboxed (at least for my purposes) are that it seems to be catered for archiving receipts, not all kinds of documents, and it stores the receipts on their system. I want copies of all the documents on my hard drive as well as online.

2. A company called The Neat Company sells a USB-powered scanner that converts receipts, documents, and business cards into digital files. This sounds appealing to me, but the reviews on Amazon are mixed. Some people say the scanner is slow and the software is buggy. I have asked the company for an evaluation unit and will let you know what I think.

The third option, which is the most attractive but also the most expensive, is the Fujitsu ScanSnap S510M, which can digitize both sides of a piece of paper in one pass, and can process 18 pages a minute. It's goten rave reviews on Amazon, but a new unit costs $800 and a refurbished one costs $395. I've also asked Fujitsu to send me an evaluation unit.

I'm curious to find out what your experiences with digitizing documents are. If you have suggestions or horror stories, please share them in the comments section! Mark Frauenfelder – Editor-in-chief of MAKE magazine and the founder of the popular Boing Boing weblog, Mark was an editor at Wired from 1993-1998 and is the founding editor of Wired Online.

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