BBB changes way it grades firms

The Better Business Bureau said Monday that it is grading millions of businesses and nonprofit groups with letter grades from A+ to F, a change from the former rating system of "satisfactory" and "unsatisfactory."

The BBB also is expanding its ratings to include the 113,000 businesses and nonprofit groups based in Utah, such as Intermountain Healthcare, which received an A+, and Overstock.com, which received a C+. In addition to viewing the letter grade, people can also view complaints and reasons why an organization was given the grade at www.utah.bbb.org. The information is free.

BBB Utah President Jane Driggs said the new system is easier.

"People have never liked the 'satisfactory-unsatisfactory' ratings," Driggs said. "Businesses didn't like it that the best they could get is satisfactory. That's why we went from A+ to F. I think more people understand that, since we all had it in school."

BBB employees consider 16 factors when grading a business. Those include the severity and number of complaints, whether complaints were resolved in a timely manner, whether the organization demonstrated a good-faith effort to resolve them, whether an organization has proper licensing, government actions against businesses and any advertising issues. Some factors are weighted more than others when grading a business or nonprofit group.

"It does take into account how large a business is," Driggs said. "So obviously, a business such as IHC could have more complaints, versus a small business, which could have one complaint and get an F."

Businesses and nonprofit groups that sign up for accreditation by the BBB also tend to have a higher rating because they agree to certain actions such as resolving complaints in a timely manner, Driggs said, which will bump their grade up on the ratings.

Some businesses, however, may get dinged on ratings because they are associated with an industry that the BBB considers unfair to consumers. For instance, Check Cash Advance in Murray has no complaints from consumers, but it has a C-minus rating because of its industry: payday lending, Driggs said.

Jonathan Johnson, president of Overstock.com, said he was surprised that his company got a C+.  "This last year, National Retail Federation and American Express ranked us the No. 2 customer service retail organization in the country," he said.

Questions greet BBB’s new system

The Better Business Bureau’s nationwide move earlier this month to a letter-grading system for businesses doesn’t appear to be making the mark in some cities.

So much so that the local BBB has asked for and received an extension on implementing the new system until Feb. 1.

“We think it has tremendous inequities,” said Dan Parsons, president of the BBB of Greater Houston and South Texas.

In short, the national group that thousands of consumers rely on to resolve complaints against businesses and to help determine whether firms are reputable is scrapping its “satisfactory” and “unsatisfactory” ratings. Instead, businesses will be awarded letter grades from A-plus to F.

The new system assesses points based on 16 factors, such as the type of business and its business model, how long a business has been in operation, government actions against a firm, paid BBB membership and complaints filed.

Charges of ‘pay to play’

Five cities — including Los Angeles, Santa Barbara, Calif., Albuquerque, N.M., Asheville, N.C., and West Palm Beach, Fla. — tested a similar system that the nonprofit BBB is using as a model. According to news accounts, the test projects received some complaints, including one that some Los Angeles restaurants that pay BBB membership dues got higher grades than those with similar ratings but are not members.

Rick Berman, president of Berman and Co., a Washington, D.C.-based public relations firm that represents restaurants nationwide, refers to it as a “pay-to-play system.” He has mounted a nationwide media blitz against the system.

“I really do believe this is all about money,” said Berman, who prefers the BBB return to the old system.

Parsons disagrees with Berman’s article circulating on the Internet, saying that he’s basing his comments on the test system in the five cities instead of the program adopted for the rest of the nation. And he noted that a business’s membership in the BBB accounts for only 4 points out of a possible 100 under the new rating system. But Parsons said he doesn’t disagree with Berman’s premise that the new system has some issues.

He said his bureau has been working to figure out how to apply the system fairly so it won’t offend members and at the same time report accurately on those who are not members.

“You run the risk of giving somebody we really don’t know either too good a grade,” he said. “Or, let’s say they got problems and we are not reporting that accurately.”

In Missouri, the Associated Press and the Springfield Business Journal have reported that businesses are complaining they have received bad grades unfairly. According to the AP, some businesses also say the BBB of Eastern Missouri and Southern Illinois has been using high-pressure and heavy-handed sales tactics to force them to pay for accreditation, which would boost their ratings.

That BBB denies the allegations.

A spokesman for the Council of Better Business Bureaus in Arlington, Va., couldn’t be reached for comment this week. But in a news release on the council’s Web site, he lauded the rating system.

“Consumers want more than marketing spin or a few comments about a business posted on the Internet, and rightly so, because given tough economic conditions, they literally can’t afford to make bad buying decisions,” said Steve Cox. “BBB’s improved reports provide detailed insight into a business’s track record and are based on our time-tested standards, in-depth research and the millions of consumer complaints filed with BBB.”

In Florida, one of the agency’s that tested the system also defends it.

Michael Galvin, of the BBB of Southeast Florida and the Caribbean, said his agency hasn’t received any complaints from businesses over the year that it has been using the test system.

“In today’s world, the more information that the consumer has to protect and inform them, the better they are,” he said. “And with the business being an accredited business, they have taken it upon themselves to adhere to the excellence and the standards required by the Better Business Bureau.”

We’ll be watching to see how it plays out, here.

Owners of businesses ranging from a contractor to a pre- school are complaining about high-pressure and heavy- handed sales tactics from the St. Louis-based BBB. Several owners said they believe the BBB is pushing businesses to pay to be "accredited" and get protection from complaints. Some believe accredited businesses get higher ratings than unaccredited businesses.

Who’s watching the watchdog? they ask.

"I had a really hard time with the concept of paying them. It almost felt like I was paying them for protection," said Jim Yankee, president of Flat Branch Mortgage in Columbia.

Yankee said he got three phone calls last year from the BBB asking him to join. Each time it seemed like he was being asked to pay mostly for a positive review, he said.

"We have 14 employees, and they wanted us to pay $570, and that would put us in their good graces apparently and allow us to get positive feedback through the Better Business Bureau," he said. "They put it in a way that suggested if we didn’t do it that, you know, customers would find negative information about Flat Branch. They basically said, ‘Do this or else it could reflect negatively on your company.’ "

Rhonda Carlson, co-owner of C&C Construction, said she was badgered by BBB representatives’ phone calls five or six times in the summer. One salesperson told her she had been specially selected to become accredited and said ominously when Carlson declined, "I’m sure several of your other competitors in town would like to have this honor."

Carlson ended the conversation feeling intimidated. "It felt like a shakedown," she said. "I really felt like they were very heavy handed in their tactics."

In other cases, the tone of the BBB caller was so jarring that some business owners said at first they thought their own company was under investigation.

"I got a message on my answering machine and it said, ‘This is so and so from the Better Business Bureau, and we need to talk to you immediately,’ " recalled Steve Wendling, owner of the Academy of Fine Arts and Early Childhood Learning. "I felt like, ‘Hey, there is a concern here.’ "

But when Wendling called the BBB, he learned they just wanted him to pay to become accredited.

"They’ll call and pretty much let you know, ‘If you’re not a member, then we don’t have information on you, so basically we can’t give a good report,’ " he said. "And so it’s built like a pressure technique. ‘If you belong to the Better Business Bureau then we can give you a good report, but if you don’t, then we’ll see what happens.’ "

The BBB also recently began listing businesses with letter grades of A+ through F, based on whether the business operates "in a trustworthy manner."

Some critics say the grading represents a conflict of interest because the BBB depends for its livelihood on some of the same businesses it’s rating.

Consumers have noticed that accredited businesses get much higher grades than unaccredited counterparts. For example, of 23 mortgage brokers in Columbia that are listed on the BBB Web site, five are BBB accredited. Accredited brokers received an average grade of "A" while average was a lowly "C+" among 18 unaccredited brokers. The Web site lists five mortgage brokers as "not rated."

In addition, the search engine on the BBB Web site automatically steers the viewer to BBB-accredited businesses unless an information box is un-checked. BBB-favored businesses also are highlighted with a BBB logo, although the BBB contends it does not endorse businesses or products.

"They all have scripts, they all have direct supervision and they all sign a form prohibiting certain tactics from being used," she said. "Because of who we are, we have to have close controls."

Corey said accredited and unaccredited businesses are both held to the same standards in the grading system and no preference is given to accredited businesses. She said that last month two accredited businesses were expelled from the BBB for excessive customer complaints.

The BBB has no tolerance for high pressure or misleading sales tactics, Corey said. "We are concerned about it, we want to know about it and we want to take action if it’s occurring," she said.

But for some Columbia-area businesses, it’s too late.

Roger Fries has been an independent real-estate appraiser more than 30 years. He said he has always had a good impression of the BBB, but he was shocked in September when a BBB representative called him at home and seemed to offer a "veiled threat" to put him "on their sh- list" if he didn’t pay the accreditation fee.

After hanging up on caller, Fries said he weighed his options. "I considered calling the Better Business Bureau" to make a complaint, "but I didn’t think it would do any good," he said.

Local BBB scrutinized for practices

Several reports published by the Southland Better Business Bureau (BBB) has left one company based in Los Angeles upset over its impact to their business.

The Hollywood Group, an entertainment company which represents a number of talent agencies, alleges Southland BBB located in Colton, failed to thoroughly investigate complaints lodged against their clients beginning three years ago.

"It's been a very lengthy battle filled with a lot of correpondence between both parties," says Tracy Wells, director of business and legal affairs.

"The complaints that were filed were published in reports by the Southland Better Business Bureau from people who weren't customers." Southland BBB published at least 11 reports the company called "defamatory" following four complaints which the Hollywood Group contest.

As a result, The Hollywood Group claims their clients' reputation has been unfairly damaged costing them an estimated $300,000 in losses from paying customers.

"It seems they (BBB) don't care to really look into the claims," says Amy Brown, marketing manager of The Hollywood Group. Brown says Southland BBB takes complaints at face value, disregarding the effect it has on businesses.

But William G. Mitchell, CEO of Southland BBB, contends his organization participated in no wrong-doing. Furthermore, Mitchell says the process of filing a complaint leading up to the reports compiled by the BBB, provides businesses an opportunity to respond to allegations and correct any mistakes made before the BBB files its report. "We let the company have the last say," said Mitchell. "At the conclusion ... we are going to look at the various complaints and rebuttals. We are going to make a subjective decision about this matter," he added.

Consumers rely on BBB

Jan Keller, a 29-year-old purchsing assistant in Ontario, recalls a situation in March where she nearly had Southland BBB intervene in a dispute with a car dealership that refused to refund her down payment after financing the vehicle fell through.

"When I returned the vehicle and asked them to refund my down payment, they told me I was not entitled," she said "I spent a week calling continuously talking to the sales people, the finance department ... before I sought legal counsel."

Keller could not afford any potential legal fees and decided to contact the BBB. After brief consultation, she contacted the dealership's general manager threatening to involve Southland BBB. She says the next day, she was refunded her entire down payment.

For almost 80 years, the BBB which is a national organization, has extended consumers an opportunity to protect themselves from fraud and abuse. The BBB, often confused for a government agency, is a non-profit franchise funded primarily on membership fees.

Southland BBB, the largest local bureau of the national BBB, provides approximately 160,000 reports monthly. Many of the reports are viewed by consumers via their Web site, but can also be mailed.

In 2002, the Southland BBB experienced heavy scrutiny for listing businesses with memberships as having "satisfactory" reports-businesses that received action from the government for illegal and unfair practices.

According to an article published by the Orange County Register in 2002, Southland BBB granted members an additional chance to clear complaints from their record.

Brown said on at least one occasion, Hollywood Group was courted for membership with Southland BBB by a telemarketer following the initial complaint with the local bureau.

Mitchell acknowledged the possibility, but refuted the notion that the organization would clean any negative records in exchange for membership.

... We could have signed them a million different times. They would give us their check in a New York minute, but that will never happen," said Mitchell.

Freedom of speech?

Southland BBB and the public are entitled to file complaints and reports under the First Amendment. However, Wells says it does not allow any party to assert their opinion as being fact.

"Simply couching a statement in terms of opinion does not dispel its false, defamatory implications because the statement still implies knowledge of facts that lead to a defamatory conclusion," she said in a letter.

Of the four complaints filed with the Southland BBB, three were from people who never used the company's services. The outstanding complaint filed stemmed from a "late refund" which Hollywood Group says it rectified almost immediately.

Wells says customers began canceling the Hollywood Group's services after reading the negative reports published by the Southland BBB. She is concerned that their business will collapse due to the BBB's reports. But Mitchell has his own opinion on the issue. "The reason they are even making an issue of this is because (the reports) are affecting their sales," says Mitchell.

The service, launched last month by the Better Business Bureau of Central Ohio, is at best "misleading," said Greg Barnhart, owner of a home-improvement company that received an initial grade of C-minus.

Barnhart said he couldn't figure out how his Hilliard-based company, Barnhart Home Works, could get such a low mark when none of its customers had ever filed a complaint with the BBB.

"If I'm a consumer and I see a C-minus for a company, I'm instantly going to think that something's wrong," he said.

Before it revamped its "Reliability Reports" on Jan. 6, the BBB simply rated companies as "satisfactory" or "unsatisfactory." Barnhart said his company never dipped below satisfactory.

Officials from the BBB said they switched to letter grades -- A-plus through F -- to enable consumers to make more-accurate comparisons.

"Consumers are flat-out asking if they should do business with a particular company, but the old ratings didn't give a clear answer," Kip Morse, president of the Columbus-based organization, said last month.

"Consumers now more than ever can't afford to make bad decisions."

Like the old ratings, the letter grades are available free on the BBB's local Web site, www.centralohio.bbb.org. More than 18,000 area businesses are included.

Although he has heard complaints from a few companies, Morse said he makes no apologies for the new grading system, which is based on 16 weighted factors, including a company's complaint record, its adherence to appropriate licensing requirements and its commitment to mediation or arbitration.

Morse said it's easy to explain the grade given to Barnhart's company.

One of the factors taken into consideration is a company's longevity, Morse said. Because Barnhart Home Works wasn't incorporated until this past September, its score in that category has to be lower than, say, a competitor with a 30-year track record, he said.

Barnhart, 31, said consumers might focus on the grade his company received and pay little or no attention to how it was calculated.

Morse doesn't buy that argument.

"The grades spell out very specifically what it is that's driving that grade down, so a consumer can see," he said.

The BBB's listing for Barnhart Home Works does include the company's incorporation date and this notation: "Reasons for this rating include: Length of time business has been operating."

Barnhart might not like the BBB's grading formula, but it does offer a silver lining of sorts: Provided that Barnhart's company continues to avoid complaints, its grade is all but certain to rise over time.

In fact, by the end of last week, thanks in part to some additional information that Barnhart supplied, the company's grade had climbed to a C.

BBB hands out letter grades
One quirk: Top rating goes to member firms

Be aware the system has limits and, some say, a few quirks. The A+ is reserved only for accredited dues-paying companies that belong to the BBB.

Some anomalies exist

Peter Wilde, managing director of the Townsend, told me Thursday that the hotel learned of the F grade when I called. He politely said that any kind of feedback that an organization gets is valuable. The BBB said it had two complaints in 36 months, one regarding advertising issues and one regarding billing. The BBB site said the hotel failed to address one complaint and resolved the other.

OK grades questioned

Is it pay for play?

Vickie Galpin, president and CEO of the Better Business Bureau Serving Eastern Michigan, disagrees.

"Frankly, I think it's really unfair," Galpin said. An accredited BBB firm gets more points, she said, but accreditation is a small percentage of the entire grade. Some BBB accredited businesses do not have an A-plus grade.

Galpin said businesses should get credit for being accredited by the BBB because they go through a process to be qualified.

"We refuse people accreditation frequently," she said.

Galpin said people are using the reports at a higher rate than last year, so there's value to grades compared with the old system.

Editorial: BBB's ratings unfair

The grading system is based on 16 different factors, including how long a company has been in business, the type of business and the complaint volume, among other factors. The bureau determines the importance of each factor and distributes points accordly. Theses points are added together and calculated in a formula before the bureau bestows a business with a certain grade.

Though it may seem that having a wider range in the BBB grade scale would provide a clearer and more accurate assessment of businesses for consumers, this hasn't been the case.

The new way in which the bureau has gone about assigning ratings is unfair to many businesses for several reasons.

Instead of judging each business on a level playing field, the system favors paying members over non-members. From the start, non-members are already penalized for their lack of membership to the BBB. Non-members can never achieve an A+ no matter how perfect their business because the highest ratings are reserved only for paying BBB members. The highest score non-members can receive is an "A."

According to Richard Kitterman, executive director of the bureau's office that serves the Waco area, the bureau justifies its grading discrepancies on a stipulation required as part of the BBB's membership. Kitterman told the Waco Tribune-Herald that members must agree to a binding arbitration through the bureau in the event that a business is unable to resolve consumer complaints. Once this condition is accepted, members are allotted extra points, giving them a ratings advantage over other businesses.

The double standard inflicted upon non-member businesses is hardly fair. For businesses that can't afford to pay the membership fee, such as small family-owned restaurants or mom and pop stores, money becomes the issue. Based on the size of the company, annual membership fees can range from a minimum of $360 to thousands of dollars. Some businesses aren't able to afford an A+, even if they deserve it.

How the bureau chooses to issue extra points is comparable to a student paying a teacher for higher grades. As this practice would never be tolerated in the academic world, such practice should also be condemned in the business world.

Not only is the BBB's grading scheme designed to favor paying customers, it's also industry biased.

Businesses in certain industries, which include "online casinos, work-at-home companies and sweepstakes," as reported by the Tribune-Herald, are subjected to point deductions. The reason is these industries have higher customer dissatisfaction rates. It's obviously unfair to punish every business in an entire industry because of the faults of a few.

Preconceived prejudices shouldn't have a place in the bureau's new rating system. Instead of judging a business based on the members of its extended family, the bureau needs to judge each business as its own individual. If a work-at-home company complies by the standards of the bureau, then it should receive equal treatment from the rating system.

Another way points can be deducted is if the bureau has insufficient background information on a business. Something as small as an un-updated e-mail address can cost businesses points. Before the lack of information is factor into the grade, the bureau should notify the business a give them a chance to respond, to send in updated or missing information.

It's not to say this new rating system isn't an improvement from the last. It does offer more comprehensive grades. But for all the measures that the bureau has taken to give consumers more information about businesses, it's actually doing consumers a disservice by allowing double standards and bias to impinge upon it grading practices.

For the bureau to be a credible and fair assessor, it must reformulate its system and purge itself of the double standards and favoritism that are present.

BBB Losing Hundreds of Members

The Better Business Bureau of Northeast Florida is struggling during this recession. Several business are closing their doors. Others are dropping their BBB accreditation because of a change in priorities.

Q: What is the Better Business Bureau? What does it do?

A: A BBB is a private, nonprofit group that monitors and reports on marketplace activities. There are about 120 bureaus across the U.S. and more than a dozen in Canada. They are licensed by, and pay dues to, the Council of Better Business Bureaus (CBBB), based in Arlington, Va., which sets basic standards. Local boards of directors govern individual bureaus.

A bureau's primary source of income is dues from local businesses.

Most consumers who contact the BBB are checking out companies before they do business with them. The BBB's "reliability reports" on businesses may be accessed via automated phone systems and over the Web. The BBB is not part of the government. It does not endorse particular businesses, although it tries to steer consumers to companies that are reputable and reliable based on complaint records, regardless of whether they are BBB members. It cannot force companies to respond to its inquiries.

Q: How effective are BBBs?

A: Depends on whom you ask. But nationwide last year, BBBs resolved more than 630,000 complaints, or nearly seven of 10 complaints received. Though they were deemed "resolved," not all complaints were settled to the complete satisfaction of consumers.

Q: What's the difference between the BBB and the Chamber of Commerce?

A: The primary mission of the former is to promote marketplace ethics and help protect consumers. The chief goal of the latter is to promote economic development.

Q: What's the genesis of the BBB?

A: The BBB traces its roots to the early 20th century and an effort by businesses to curb dishonest advertising.

A booklet published by the council highlights a defining moment in a courtroom in 1906. That's when a Coca-Cola company lawyer dismissed a federal prosecutor's attack on the company's unscrupulous advertising by contending all ads exaggerate and "nobody really believes" them.

The position offended Samuel C. Dobbs, a businessman destined to become Coca-Cola's president. He helped launch a crusade for higher ethical standards, including local "vigilance committees" to police advertising abuses.

Q: On whom does the BBB report?

A: Nationwide, the system maintains roughly 2.2 million "reliability reports" on businesses, including roughly 75,000 for companies in Oregon and Western Washington. Five or more inquiries — or a single complaint — typically trigger a reliability report, according to national BBB officials. Bureaus generate those reports whether or not a company is a member.

Q: What happens when a consumer complains about a business?

A: The BBB usually first asks the consumer if he or she has contacted the business to work out the problem. If the consumer has but remains dissatisfied, the bureau will try to contact the company to resolve the problem. Companies that are BBB members agree to certain procedures, including arbitration, to work out complaints. Members that fail to answer complaints generally lose their membership.

Q: How many businesses belong to BBB?

A: Nationwide last year, there were more than 310,000 members, up nearly 16 percent from 1999. But 94 percent of businesses don't join BBBs. Bureaus report on businesses based in their service areas. For example, the local BBB compiled reports from around the country on Redmond-based AT&T Wireless.

Q: What else do BBBs do?

A: The CBBB and local bureaus offer a variety of other services. Among them are offering "scam alerts" for consumers and businesses; providing reviews that evaluate charitable organizations against a set of standards; running the BBB Auto Line program in partnership with certain car makers to help handle consumer complaints on alleged manufacturing defects; and maintaining the BBB Online service through which participating companies pledge to protect consumers buying online. Law-enforcement agencies such as the Federal Trade Commission and the Washington state Attorney General's Office look to the BBB for help with investigations.

Q: Are the BBB's services free?

A: For most consumers, yes, although three bureaus — New York City, Buffalo and Chicago — charge for inquiries and complaints. Businesses pay membership dues set by the local bureaus. In the case of the local BBB, the basic membership fee for new members is about $500, although dues are on a sliding scale depending on the company's size. This year, for example, AT&T Wireless paid the local bureau about $15,000, and Microsoft about $12,000, a local BBB official said. Additional services, such as belonging to the BBB Online program, cost businesses extra.

Attorney General wants answers to how BBB gave shaky business its highest award

State Attorney General Richard Blumenthal, in a highly unusual move, late today requested documentation from the Connecticut Better Business Bureau (BBB) on how it decided to award its highest prize last November to a company he and prosecutors are investigating on fraud charges.

Blumenthal also questioned in his letter to BBB president Paulette Hotton Scarpetti how and why the BBB nationally developed its new rating system.

Blumenthal wrote that Custom Basements of Connecticut, a Glastonbury firm,  was allegedly bouncing checks to subcontractors last summer months before the Torch award was presented.

"Our investigation shows that the company has since closed after taking tens of thousands of dollars from customers and failing to finish renovations," he wrote her.

Richard Blumenthal Attorney General Paulette Scarpetti President Better Business Bureau Wallingford, CT  06492 Dear Ms. Scarpetti: ...Some contractors have alleged that Custom Basements of Connecticut's checks were bouncing in late summer and early fall, even as BBB was preparing to present its Torch Award to the company.  My office is vigorously investigating these allegations, which are also the subject of a separate criminal investigation. ....In addition, questions have been raised about BBB's recently revised rating system.  Please provide the following information regarding the BBB's new rating system: What criteria does BBB use to determine a business' rating? How are the various criteria weighted?  Does one criterion, for example, count for 20 percent, while another makes up only 5 percent of the overall rating? What role do membership and the level of giving play in determining BBB ratings? Are there rating levels that businesses can only achieve if they are members?  Does the amount of donation influence rating?  If the answer to either question is yes, please explain. Why did the BBB introduce a new rating system? I request that you provide this information by March 28.  FOR THE COMPLETE LETTER custom basements bbb letter.pdf

 
"Our information has confirmed that Custom Basements purposefully and effectively used the Torch Award and the BBB recognition event to promote its businesses," he wrote.

Blumenthal made his letter available to The Courant after the BBB had closed its offices.

BBB spokesman Howard Schwartz, reached at home, said he was ill and was unaware of the contents of the letter. He declined to provide Scarpetti's cell number and said the BBB's response would have to wait until today.

However, Schwartz was quoted in a WFSB-TV Internet posting as saying the bureau had had no issues with the company for the previous 36 months.

Channel 3's I'Team had investigated the company and started a series on it Monday.

One reason Blumenthal may have gotten a little extra worked up about the Torch Award to this company was because he was the featured speaker at the November event when it was presented. The remodeling company used that fact to promote its business, falsely insinuating that the attorney general was giving it his stamp of approval.