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Beware misleading ads

Humberto Cruz (Dayton Daily News) -- After reading that A federal judge has come down on tax-preparer H&R Block for what he called deliberate and malicious, misleading advertising, I decided to look through a few ads from other financial-services firms.

I can't tell you whether the ads I saw were deliberately malicious, but at least 20 percent were definitely misleading.

And I'm not talking about ads that promise you will "Retire Wealthy" or that "You Can Be Rich Too" if you simply sign up for a free seminar. These are obvious come-ons and most readers with a modicum of intelligence will spot them (I hope). Arguably more harmful, because they are not easy to detect, are your garden-variety ads that prompt many consumers to act on incomplete if not erroneous information.

In the case of H&R Block, U.S. District Judge Raymond Jackson in Norfolk, Va., ordered the company to stop claiming in its ads that it offered "rapid refunds" for what were really bank loans.

Jackson said H&R Block acted "maliciously, willfully and in bad faith," and ordered it to pay $500,000 to a rival company, Liberty Tax Service in Virginia Beach. H&R Block has denied any wrongdoing and said it would appeal.

Companies that prepare tax returns such as H&R Block can obtain a short-term bank loan for the expected refund amount to get the money to their clients within a day or two. But consumers could end up paying collection costs and attorneys' fees if the refund proves too small to cover the full cost of the bank loan.

And in some cases, clients could be saddled with an annual interest rate on the loans of as much as 500 percent.

Enticed by the words "rapid refund," however, many taxpayers don't realize they are getting in debt to speed up their refunds.

Similarly, I found these other ads misleading:

* Ads from mutual fund firms advertising attractive gains in 2000 in the face of a market downturn. "Last year, the market slumped..." one ad said, "and investors celebrated... Ours did, anyway."

One full-page ad prominently displayed the gains of three of a company's funds. All three are so-called "value" funds that invest in stocks considered inexpensive and out-of-favor. Value funds as a group did very well last year. The ad, however, did not include the return of a couple of the company's flagship growth funds that suffered double-digit losses in 2000, greater than their benchmarks.

* Ads that say that "you can get 8 percent or better," or some similar figure, with preferred stocks. This figure refers to the current yield of the securities. Yield, however, is not the same as total return.

You could get your 8 percent yield all right, yet make less than 8 percent if the market price of the preferred stock goes down.

Conversely, you can make more than 8 percent if the price goes up. But nowhere in the ads, not even in the fine print, does it say you could lose some of your principal. As a result, readers may erroneously conclude that yield is the same as total return.

I found these and too many other ads misleading. It's as if advertisers don't know any better or don't think much of our intelligence as consumers. But those who deliberately try to mislead us eventually will lose our business.

(c) 2001 Dayton Daily News

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