Musings from my financial literacy workshop

The Chang School at Ryerson University ran some newspaper ads, attracting 100 people to my free seminar last week. Everyone was eager to learn and share tips, including a dedicated few who kept talking and arguing outside later on.

The course is designed to reach a 20-to-35-year-old group by my partners in this venture (the Financial Consumer Agency of Canada and the Investor Education Fund). But many are older.

Beth Kaplan, a friend at the event, mentioned her surprise at seeing a middle-aged audience here in her blog. She also made the brave admission that saving and investing are hard for her, even as she nears her 60th birthday.

Many questions were about credit scores (how to get access to them and how to raise them) and credit card rewards (who has the best deals). I also remember talking about exchange-traded funds and why they’re a good idea for beginning investors.

Did you know you can get a credit card that doesn’t charge interest? One man said he’d borrowed $20,000 on his MBNA credit card at zero per cent interest, using $10,000 for his mortgage and $10,000 to open tax-free savings accounts for him and his wife.

He said he was paying the minimum each month and saving enough to pay off his debt when the 16-month offer ended. But several people told him to set up online transfers to his credit card, so he’d never miss a due date.

Someone asked if I’d list all the personal finance books I brought with me, so here goes. I had Gail Vaz-Oxlade’s book on debt, Rob Carrick’s book on investing, and two titles for women readers (by Chatelaine and the Smart Cookies), all reviewed here.

Also had a few that focused on frugality that I’ve written about here by Marjorie Harris, Adria Vasil and Rosalyn Hoffman.

For home buyers or sellers, I recommend Toronto lawyer Mark Weisleder’s book, Put The Pen Down. And for those who want to avoid making mistakes in their tax-free savings accounts, there’s The Ultimate TFSA Guide by Gordon Pape.

Finally, I had a few books about making money and not wasting money: Stop Acting Rich by Tom Stanley, I Will Teach You to Be Rich by Ramit Sethi and Following The Goods by Adam Goodman.

The next session will be held on Oct. 20, 5.30 to 9.30 p.m. at the Chang School. So please try to come and send others my way.

Ottawa backs down on tax-free savings account errors

Finally, the government has come to its senses about the 70,000 letters sent to Canadians who made over-contributions to tax-free savings accounts or transferred them without the proper paperwork.

In a statement issued this afternoon, the two ministers responsible for the new tax shelter said they recognized the confusion that resulted from lack of understanding of the rules. And they’re trying to make amends.

If you received a request to pay tax on your TFSA, you can wait until Aug. 3 to submit further information (not June 30, the original deadline). Moreover, you won’t have to pay tax if it’s clear there was a genuine misunderstanding.

The Government of Canada confirms that for the 2009 filing year, the first year of the program, we have taken the decision to be as flexible as possible in cases where a genuine misunderstanding of the TFSA contribution rules occurred.

Our intention is to review each situation on a case-by-case basis and, where appropriate, waive taxes on excess contributions for this year.

For instance, individuals who used their TFSA as a regular banking account in 2009, making deposits and withdrawals on a frequent basis, or who have transferred funds between TFSAs at different institutions, but whose net contributions never exceeded the 2009 limit of $5000, may not be required to pay the tax on excess contributions for this year.

This is exactly what I’ve been asking for since taking up the issue in this blog here and here. So has the Canadian Tax Resource Blog, which spotted the potential problems back in February.

The press release doesn’t mention that some financial institutions gave misinformation to customers. They, too, have learned something from this mess — as shown by their willingness to help customers clean up afterward.

Check out one such case involving ING Direct and a client, FS, below.

Knock, knock, who’s there?

If someone comes to your door wearing a hard hat and a lab coat, watch out.

Chances are it’s a salesperson who wants to replace or upgrade your rented water heater. The “uniform” is designed to make you think you’re dealing with a technician working for your local gas or electrical utility.

Today’s column, the most emailed story of the day at the Star’s website, talks about the scare tactics used by these persistent pests.

One commenter also mentioned the deceptive duds they wear.

They appear at the door dressed in one of those fluorescent yellow halters with the orange X that road workers wear, with an aluminum clipboard in hand to lend credibility, and say “I’m here to replace your water heater”.

This is the same gear that hydro workers wore when coming around to install the smart meters. So it’s very confusing for the homeowner.

Many people told me they were annoyed by the sleazy sales tactics. I also heard from Joan, an apparent victim of fraud by a National Home Services agent who wrote a phony contract for her after seeing her old water heater being taken away. See her story below.

A few people said how stupid it was to rent a water heater when you could save money buying your own. Canadian Capitalist agrees it’s cheaper, as long as you’re willing to absorb the cost of an unexpected maintenance call (and you don’t mind cleaning up a mess of leaking water in your basement).

500,000 Rogers customers charged incorrectly

Rogers Communications says it will correct billing inaccuracies affecting half a million people who participated in its Better Choice Bundles program.

The scope of the errors is quite substantial, affecting up to 5 per cent of its customers, according to the news release .

About 200,000 people received greater discounts than they were eligible for. Rogers will not try to collect the under-payments, but will apply the correct discount from now on.

Another 300,000 people received smaller discounts than they qualifed for and will be getting a bill credit (for current customers) or a cheque (for former customers). Any unclaimed funds by former customers will go to charity.

Rogers will pay total refunds of $30 million, including interest and taxes. It blames the billing snafu on “administrative errors and system-related issues.”

So, what’s to stop this from happening again? Rogers has hired a management consultant, PricewaterhouseCoopers, to analyze billing data. Here’s what else it will do:

Rogers is implementing safeguards to help prevent a recurrence, including the roll out of an employee re-training program, the introduction of a daily audit to review new customers joining the program and implementing recommendations identified by PwC.

These steps will help ensure each new bundled customer is accurately billed.

So if you’re a current or former Rogers customer in the bundles program, find out if you qualify for credits and make sure you get them.

And if you’re unhappy with the process, contact the Commissioner for Complaints for Telecommunications Services.

I have a few questions. How long did the underbilling and overbilling go on? How did the errors get picked up? Has Rogers done enough to restore confidence in its billing?

As an affected customer who’s been in the bundles program for years, I’ll watch my bills and wonder if I can trust them again. This announcement has made me wonder.

Summitt Energy nailed for $495,000 penalty

My least favourite company these days is Summitt Energy. Rarely a day goes by when someone doesn’t tell me about being tricked into buying gas or electricity by its aggressive and deceptive door-to-door salespeople.

A constant theme in these complaints is impersonation. Summitt salespeople pretend to be anyone else than Summitt salespeople. They’re from Enbridge Gas, they suggest, or from the local hydro utility.

Moreover, Summitt agents don’t leave customers a copy of the contract when they depart. Later, Summitt’s compliance people say customers agreed to go ahead on the reaffirmation call. But what are they agreeing to if they don’t have the paperwork?

Finally, the Ontario Energy Board — hearing the same complaints I did — had enough. It’s asking the company to pay a fine of $495,000 for breaking the rules. And it intends to suspend Summitt’s license until it behaves properly.

I’m glad the regulatory agency is using its power to discipline a rogue energy seller.

There are fascinating case studies in the OEB charges.

In Ayr, Ont., an agent called MG told a couple he was offering a price cap for gas. If the gas price went down, so would the contract price. FALSE.

He told them the current market price for gas was 41.9 cents a cubic metre. FALSE. (It’s 21 cents now and was even less a year ago when this happened.)

He asked them to sign a document, but didn’t tell them it was a five-year contract to supply both gas and electricity.

He didn’t provide a copy of the contract’s terms and conditions, nor was it ever delivered to the customers.

MG visited a person in Milton, Ont. this January and said he represented Union Gas. He said there was a mix-up in names and she had to re-register for the supply of gas.

As before, he sold her both gas and electricity, without saying it was a five-year contract or letting her see exactly what she was signing.

There are six more examples of MG’s duplicity, as well as multiple transgressions by GW, GS, AB and AT.

The regulator must have hired private detectives to follow these guys around. It has proved that many Summitt agents told lies from the beginning to the end of their visits and made fools of their victims.

Good work, Ontario Energy Board. It’s about time.

P.S. The administrative charges and penalty were cut to $299,000 later after a hearing.

The power of an apology

The Globe and Mail didn’t show up at my door last Saturday. I called circulation and when the robotic voice said, “I’m sorry for your inconvenience,” my anger disappeared.

Here I was talking to a machine, but I still felt better to have my feelings recognized and acknowledged.

I’d advise companies to apologize early and often. Make customers know you care. Be sincere. Don’t be cavalier or hypocritical.

BP’s chairman, Carl-Henric Svanberg, said in Washington today: “We care about the small people.” Later, he said he was “very sorry” for speaking clumsily. Nothing worse than having to apologize for your apology.

Dan Ariely, a Duke University professor of behavioural economics, talks about the power of an apology in his new book, The Upside of Irrationality.

He describes a hair-raising experience with a new car whose engine conked out on the highway. The people in Audi’s customer service angered him with “their clear lack of concern and their strategy of playing a game of attrition with me.”

Later, when he picked up his car from the repair shop, the head mechanic told him, “Sorry, but sometimes cars break.” That had a surprisingly calming effect, he says.

I suspect if the customer service representative had said, “Sorry, but sometimes cars break,” and had showed some sympathy, the whole sequence would have played out very differently.

Could it be that apologies can improve interactions and soothe the instinct for revenge in business and in personal exchanges?

Ariely got his revenge. He wrote a fictional case study in the Harvard Business Review and sent a copy to the head of customer service at Audi, along with a note saying that the article was based on his experience. He never heard back from him.

Do you have stories about corporate apologies that made you feel better? Do you think that if CEOs ignored their lawyers and said they were sorry when they made mistakes, customers would feel less need to take revenge?

My free workshop on managing money

A week from today, you can learn about Financial Basics. It’s the same course I gave at George Brown College over three Saturdays, edited down to a single evening session and accompanied by a great handbook.

If you’re interested, just come shortly before 5.30 p.m. to the G. Raymond Chang School, 297 Victoria St., 7th floor, Bronfman Room. It’s near the Dundas subway stop, just north of Dundas St. E. and just south of Gould St.

What have you got to lose? Hope to see you there.

Lisa’s story: Charged $1,240 for TFSA over-contribution

Lisa will pay dearly for over-contributing to a tax-free savings account. She knew that up to $5,000 was free of tax, but thought she could deposit more. So, she moved $21,000 from her chequing account into her TFSA.

Now she has received a $1,240 tax bill for her excess contribution in 2009. And since the money stayed in the TFSA until May of this year, she’ll get a large tax bill next year too.

I’m aware of all the comments at my blog from those who did read the rules and refuse to absolve others who didn’t. Canadian Capitalist, a blog I usually admire, came out in favour of the onerous tax hits for everyone who made errors in the first year.

Still, I think there’s a fairness issue that I hope the Taxpayers’ Ombudsman will examine. Just look at the chronology.

The TFSA launch date was Jan. 1, 2009, but the Canada Revenue Agency didn’t start sending out tax assessments until June 1, 2010. This meant Canadians could make mistakes for 17 months before being told they owed 1 per cent a month on excess contributions.

Many people will have to pay tax on over-contributions for 2009 and for the first half of 2010 as well (until they make the needed adjustments).

Remember, too, that TFSA contributions are made with after-tax money. So, those being penalized are double-taxed — all to pursue a little tax-free income.

Check out the comments below from federal Finance and CRA sources, which help explain why the rules were written the way they were. Then, read Lisa’s story.

LS later told me a story (see her June 17 comment) that is similar to Lisa’s in many respects. Her tax bill is $1,230. She can’t afford to pay it and she’s contacting her MP.

If you’re upset, write to your MP and to finance minister Jim Flaherty. Say that the TFSA was marketed heavily by financial institutions that gave out misinformation and lacked safeguards against misuse.

Where were the verbal warnings and online alerts that could stop people from making errors?

I’m in favour of taxes when applied fairly. But this current enforcement effort, in my view, doesn’t pass the smell test.

Things that don’t smell right to me

I’m referring to corporate decisions that seem wrong-headed or communications efforts that try to mask the real truth.

Where do I start?

How about a letter from Andrew Pilkington, president of Chase Card Services? He told Sears cardholders that the annual interest rate is going up to 29.9 per cent in September, “in keeping with recent changes to regulations governing credit cards.”

Come on. Ottawa changed a few rules to make them more customer-friendly. Read this summary and tell me where it says credit card issuers have to raise their already high interest rates.

How about Bell adding the HST (harmonized sales tax) to some customers’ bills in Ontario before the July 1 date for implementation? Bell says here that HST may appear earlier for services billed in advance.

Diane called the Star to say her daughter was billed 83 cents in HST for a home phone line that was disconnected on April 30. The 83-cent charge (in addition to GST and PST) was wiped out as soon as I contacted Bell. See Bell’s response below.

How about Maytag dishwashers being recalled over fire concerns? The recall affects 160,000 machines in Canada sold between February 2006 and April 2010.

It’s just three years since the last safety recall of Maytag dishwashers. I wrote a column about the bungling and said Maytag had learned some valuable lessons. Maybe not, judging from what Daniel says about his experience:

We have three kids under the age of seven and waiting (what I expect to be) a month for a repair that was instigated by the manufacturer is unacceptable.

I personally will be wary of buying any brands under the Maytag umbrella in future; a company that makes the same mistake twice is to be avoided.

More on TFSA contributions and financial literacy

Since I did my Toronto Star column today, I’ve heard from many people who were penalized for TFSA over-contributions or transfers. They’re also leaving comments at the Star’s website.

Here are some further points I want to make after reading their stories and reflecting on what has happened:

* The tax-free savings “account” should have been called a tax-free savings “plan”. People had the impression that they could use the TFSA in the same way as a bank account.

* Financial institutions didn’t do enough to warn customers about the risk of tax penalties if they withdrew money from a TFSA and replaced it in the same year.

* The Canada Revenue Agency explained the rules at its website, but many people didn’t do any double-checking. They relied on their financial institutions for information.

* The message that TFSA contributions couldn’t exceed $5,000 a year was clearly communicated. But the equally important message about the danger of moving money freely in and out of the account got lost.

* Thousands of people made mistakes that resulted in tax penalties far greater than their tax savings. It’s clear the system failed, not the individuals who used it.

* The minority government has an embarrassing tax fiasco on its hands. A public protest could bring some results.

* Fairness dictates treating unintentional errors with leniency in the first year that a tax shelter is introduced.

So, what can we learn from this public policy snafu? I have three ideas.

One, people pay close attention when they’re engaged in a transaction or thinking about doing a transaction. “Just-in-time delivery” is far more effective than explanations given well before there’s an intention to act.

Two, the financial institutions don’t know enough about the TFSA rules to educate customers. They should be required to hand out a one-page warning document to anyone opening a new account or making contributions to an existing account.

Three, transfers of TFSAs should not attract penalties (unless they’re part of a tax avoidance scheme). Yet many people are getting penalized for transferring TFSAs. It’s clear that financial institutions are making errors, but the burden of correction lies on their customers. That’s not fair.

Financial literacy is a hot topic these days. I hope Finance Minister Jim Flaherty and his financial literacy task force can use this foul-up as a case study of what NOT to do in communicating key messages.

Finally, I’m teaching a free course in financial literacy at Ryerson University on Tuesday, June 22, from 5.30 to 9.30 p.m. Please pass along the message to anyone who might be interested.

The workshop is co-sponsored by the Financial Consumer Agency of Canada and the Investor Education Fund. Here’s a link.