Connecticut Attorney General Richard Blumenthal is threatening the Better Business Bureau with legal action unless it changes its controversial marketing program which gives accredited businesses better grades in return for annual payments.
According to sources, Blumenthal’s investigation into the bureau’s letter grade system has convinced him what many consumer advocates – including myself – have been saying, that it’s a marketing system designed to pressure businesses to pay to become accredited members.
Blumenthal Friday sent a letter to the national council of the BBB (the full letter is published below) giving the bureau two weeks to responding to his concerns.
The Attorney General’s position is that the bureaus either stop using the A+ to F grade system on their web sites to rate businesses or to make it crystal clear to consumers that it rewards businesses that pay to be accredited by automatically giving then higher ratings.
The letter grade system is only about three years old and bureau officials claim it was instituted to make to easier for consumers to make decisions about businesses. They deny it was instituted in all the BBB chapters as a marketing tool. However, five BBB chapters resisted using the grading system until they were threatened with expulsion by the national BBB council.
Until the last few years, the BBB graded businesses using a “satisfactory/unsatisfactory” system.
Now only accredited members can receive A+ ratings and some businesses can receive A- ratings even without a track record or even a legitimate address just by paying a fee. Normally a new business that doesn’t join the bureau can only receive a B or a B- rating or receives no rating.
A group of anonymous California businessmen created fictitious businesses earlier this year to prove that the rating system was simply a “pay to play” scheme. They purchased accreditation for the businesses, including one called Hamas – the name of a terrorist organization, and all received A- ratings.
Blumenthal’s legal threat is being made as ABC news is preparing to air Friday its investigation into the BBB on its 20/20 program which I aided by providing information about my experience with the bureau.
“The optimum solution is that the BBB de-couple its ratings entirely from the payment of dues. At a minimum, it should immediately and completely disclose the fee portion of its rating system to consumers who rely on the BBB’s evaluation of businesses. In particular, the BBB should disclose in the main rating page the fact and amount of any accreditation fee, and that businesses are awarded four additional rating points for payment and accreditation. Furthermore, the BBB should state the most recent date when information and ratings about a business were reviewed and updated,” Blumenthal wrote in his letter.
His letter also raises concerns made by consumer advocates that the bureaus do not have the staff to properly evaluate and give grades to hundreds of thousands of business.
The Connecticut bureau was also sued recently by a Connecticut company, TicketNetwork, Inc., which provides marketing and software solutions to ticket sellers and resellers.
The suit against the Connecticut chapter claims that its rating system is misleading and seeks an injunction to force the bureau to stop issuing grades and limit its information on its web sites to factual data about businesses.
TicketNetwork said “The BBB claims on its website that it is “an unbiased organization that sets and upholds high standards for fair and honest business behavior,” “an unbiased source to guide [consumers] on matters of trust,” and the “most objective expert on the topic of trust in the marketplace.”
TicketNetwork said it decided to pursue a complaint for the simple reasons that the BBB is not upholding its tenets based on the biased information it provides to consumers and the resulting penalty it imposes on those business who do not pay its fees.
“The current BBB system gives consumers an unfair shake when it comes to providing an objective view of how businesses perform and how they treat their customers,” said Don Vaccaro, CEO of TicketNetwork. “Consumers should feel confident that the information provided by the BBB is accurate, unbiased and a clear depiction of how every business operates. The BBB’s practices call into question whether it can be used as a trusted resource prior to buying products and services. Consumers should be aware that the BBB favors paying, member businesses—this is outright favoritism influenced by payments,” added Vaccaro.
Blumenthal’s has been investigating the Connecticut BBB chapter ever since it convinced him three years ago to attend a ceremony where a company – which later was discovered to have been ripping off customers -was honored with the chapter’s highest award – the Torch Award. His investigation later broadened into the grading system itself.
ABC’s 20/20 investigation team today is airing its probe into the Bureau, in which I assisted.
“As part of the ABC News investigation, an ABC News producer with a camera was present as two small business owners in Los Angeles were told by Better Business Bureau tele-marketers that their grades of C could be raised to A plus if they paid $395 membership fees,” ABC says.
“Terri Hartman, the manager of a Los Angeles antique fixtures store, Liz’s Antique Hardware, was told only a payment could change her grade, based on one old complaint that had already been resolved.
“So, if I don’t pay, even though the complaint has been resolved, I still have a C rating?”
“Hartman then read off her credit card number and the next business day the C grade was replaced with an A plus, and the one complaint was wiped off the record.”
“In a second case, Carmen Tellez, the owner of a company that provides clowns for parties was also told she had to pay to fix her C- grade, based on a two-year old complaint that she says had already been resolved.
“The C minus became an A plus the very next day after she provided her credit card number for the $395 charge.
“If I’m paying for a grade, then how are the customers supposed to really trust the Better Business Bureau?” she asked on the program.
The ABC News investigation found numerous examples of well known companies that are not members of the Better Business Bureau being branded with F grades, often apparently based on scant evidence or a small number of complaints.
The five-star Ritz Carlton Hotel in Boston was given a F rating after only two complaints.
“A million customers served, two complaints resulting in an F rating, seems to be somewhat unusual, to say the least, ” hotel general manager Erwin Schinnerl told WCVB-TV in Boston.
Celebrity chef Wolfgang Puck told ABC News that parts of his food and restaurant empire have received an F grade because he refused to pay to join the Better Business Bureau.
“You know, if you become a member, you’re sure to get an A, but if you don’t pay, it’s very difficult to get an A,” said Puck, who has been a regular on the ABC News program “Good Morning America” since 1986.
“I think where you have to join an organization to get a good grade is wrong,” Puck said.
According to the Associated Press, the national BBB Council had the following statement:
Alison Southwick, spokeswoman for the national BBB, said its officials have been talking with Blumenthal and believe they can satisfy his concerns.
“We disagree with his characterization that BBB does not adequately disclose the fact that accredited businesses financially support BBB,” she said. “However, we are always interested in hearing from our partners in consumer advocacy, and are pleased to accept constructive feedback from his office and other consumer advocates.”
Alan L. Cohen
Vice President and General Counsel Council of Better Business Bureaus 4200 Wilson Blvd, Suite 800
Arlington, VA 22203-1838
Dear Attorney Cohen:
The Better Business Bureau has a long and laudable history of consumer advocacy, and has partnered with my office on many occasions to fight scams and bad business practices. Unfortunately, I am deeply concerned that certain BBB practices threaten its reputation and effectiveness as a reliable resource for consumers. In particular, the BBB’s current rating system is based, in part, on the payment of inadequately disclosed accreditation fees. This financial influence is potentially harmful and misleading to consumers. I am also concerned that the BBB has granted good-business awards based on inadequate research and judging criteria. In one instance, the BBB awarded its Connecticut’s BBB Torch Award to a company that soon after filed for bankruptcy and was criminally prosecuted.
I appreciate that you and your colleagues have met with my staff and engaged in serious discussions toward resolving my concerns, but much more needs to be done. I repeat my call for the BBB to de-couple enrollment fees from ratings. At a minimum, the BBB must disclose to consumers that its ratings system is influenced by fees.
My investigation of the BBB began in March 2009, after the 2008 BBB Torch Award Program (TAP) recipient, Custom Basements of Connecticut (“CBC”), defaulted on customer obligations and filed for bankruptcy. The investigation initially focused on the criteria and judging process for the TAP award. My investigation later expanded to the BBB’s new letter grade, or “alpha,” rating system that replaced its previous method of rating businesses “Satisfactory” or “Unsatisfactory” based on the number and resolution of consumer complaints.
I am concerned that the new alpha rating system skews ratings results in favor of BBB dues-paying businesses. The BBB allocates these businesses four extra niting points unavailable to non-members. In Connecticut, these dues apparently can range from almost four hundred dollars to five thousand dollars or more depending on the size of the business.
I find no reasonable basis for tying rating points to a membership fee — in essence, creating what could be viewed as a “pay-to-play” system, rather than a transparent and equitable “rating” system. I understand that the BBB’s position is that the additional four points are awarded to a business in recognizing that it contractually commits to follow the BBB’s guidelines for resolving consumer complaints and adherence to the BBB’s code of ethical standards.
The BBB could better accomplish its goals by de-coupling ratings from dues payments -allowing businesses the option of committing to follow the BBB guidelines and ethical standards and awarding the four points irrespective of their dues-paying status. When businesses violate the guidelines or standards, the BBB could revoke the four points and alter other grading categories as appropriate.
The optimum solution is that the BBB de-couple its ratings entirely from the payment of dues. At a minimum, it should immediately and completely disclose the fee portion of its rating system to consumers who rely on the BBB’s evaluation of businesses. In particular, the BBB should disclose in the main rating page the fact and amount of any accreditation fee, and that businesses are awarded four additional rating points for payment and accreditation. Furthermore, the BBB should state the most recent date when information and ratings about a business were reviewed and updated.
Separate and apart from these issues, I remain concerned that the term “rating” inaccurately describes the BBB grading system. There are clear, practical and logistical limits to the BBB’s ability to accurately and fairly implement a full ratings system for businesses. Extensive resources are necessary to verify the self-reported information that the BBB receives from businesses. This information includes compliance with state and federal licensing and registration requirements, outstanding lawsuits, time in business and financial stability. My understanding is that the BBB does not have the resources to verify all self-reported business information. The BBB must disclose in a clear and prominent manner this and any other factual limitations on its rating system. Failure to do so may be misleading to consumers and adversely impact those good businesses who are not rated by the BBB — a result that is bad for both consumers and businesses.
Furthermore, I understand that the BBB has established a separate rating system for charitable organizations. I am similarly concerned about this rating system and would appreciate any information you can provide my office concerning rating factors for non-profits and charities, fees charged to these charities and whether they also receive points for paying dues. My office has a significant statutory responsibility to protect the integrity of public charities.
I thank the Connecticut BBB for its efforts to address my concerns regarding the TAP. Specifically, my investigation questioned the reliability of the self-nominating process in which the TAP judges failed to keep minutes of their meetings, require information concerning financial stability, maintain memoranda or notes regarding verification of application information, and used only the documents and information provided by the nominees to make their decisions. Furthermore, the judges did not contact third parties, such as customers or other businesses or government agencies, to verify the accuracy of any of the information contained in the applications.
I am pleased to learn that the Connecticut BBB has altered the TAP, first by adding two new criteria requiring applicants to supply: (1) information demonstrating that the business is meeting its financial obligations, including but not limited to a current credit report, annual certified financial audit, and/or current Dun & Bradstreet report; and (2) three references that BBB will contact to discuss the business’ reputation in the industry, community and with customers.
I understand that further changes to the TAP will include verification of applicant information through third-party sources, including court records and government agencies. Additionally, judges now conduct on-site visits for all finalists. If no applicant ultimately meets the TAP criteria for the award, no award will be given that year. While the changes made to the TAP so far are good first steps, all the promised changes should be implemented by next year’s TAP.
The Council of Better Business Bureaus should promulgate a uniform, reliable set of standards governing business awards. My hope is that the Connecticut BBB — after implementing my recommendations — will serve as a model for BBB councils throughout the United States
My office has discussed these issues with you for more than a year. I have appreciated your cooperation and hope that it will continue, but the time has come for real and decisive action. I urge you to act now to address serious and significant continuing shortcomings in the alpha rating system and the torch and other awards.
I look forward to your response to this letter with a plan to address these concerns no later than 15 days from receipt. The plan should include effective steps to reform the alpha system including de-coupling pay from ratings and, at a minimum, full and fair disclosure to consumers.
Very truly yours,
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