How junk fees cost Americans billions of dollars every year: Internet Scambusters #1,023
They masquerade as added service costs, mysterious charges or maintenance fees, but we know them better as junk fees.
From hotel resort charges to car paint protection plans, from credit card transaction fees to mortgage closing costs, they're adding tens of billions of dollars to consumers' bills every year.
Government agencies are preparing to do battle with some of the rip-off merchants but mostly it's down to you to protect yourself, as we explain in this week's issue.
Let's get started…
Declaring War on Hidden Junk Fees
Businesses, banks, and other organizations have been ripping off the American public to the tune of tens of billions of dollars every year by charging indiscriminate penalties or mysterious and sometimes outrageous junk fees.
These are additional sums that consumers often don't understand or even know about when they first buy or sign up for a product or service. Sometimes, the final price bears little resemblance to the cost a consumer thought they were going to pay.
Many times, these add-ons don't provide anything extra though they're generally not illegal but are sometimes deceptively hidden in the small print of sales particulars and contracts. And, usually, it's difficult or impossible to avoid paying them.
What Are Junk Fees?
A good example of a junk fee is the additional amounts you may have to pay when booking a hotel room. You make your booking, only to discover when you check in there's an additional daily "resort fee" for using the hotel's leisure facilities.
You don't have a choice. And yes, the hotel owner had to pay for those facilities. So, why don't they include it in the room rate? Simple - they want their rates to appear more competitive than they really are.
Lawyer Lauren Wolfe, who has launched a website called Kill Resort Fees, describes the charges as a "cash grab" and "a way to deceive consumers."
Here are some other examples of junk fees:
- Ticket surcharges. These are increasingly added when you book online or via a call center and often referred to as a processing fee. It happens not just with events; some airlines charge for a phone booking.
- Flight charges. Of course, airlines are the experts at add-on costs for anything like choosing a seat, having a carry-on, using a paper ticket or boarding pass, priority boarding, and so on. With budget airlines, the final fare can more than double the ticket cost.
- Car-buying add-ons. You can end up paying thousands of dollars more than the window price for a car once the dealer starts adding in costs for things like warranties, processing, arranging finance and, on one recently reported case, a "paint protection plan" and something called "payment insurance." Often these charges aren't mandatory but unscrupulous dealers will try to persuade buyers to pay or simply slip them into the final bill.
- TV, phone, and Internet services. Check your latest bill from your TV or Internet service provider and see the extras they pile on, including equipment rental (even if you've used the same devices for years), unspecified "taxes and fees," franchise fees, and more. These are rarely included in the headline monthly rates these companies advertise.
- Financial services. There are lots of these. For example: past due fees, mortgage closing costs, overdraft charges, foreign transaction fees, interbank transfers, minimum balance charges, account maintenance, and even fees for not using your account! These are intended to be penalties but they actually cost nothing and currently earn around $20 billion a year from overdraft fees, while credit card companies make about the same from fees excluding interest charges. That's $40 billion total for services that cost little or nothing to provide.
- Debt collection services. Unscrupulous debt collectors add on what they often refer to as a convenience fee, but which critics label "pay to pay" charges, to consumers who, by the very nature of the service, are already struggling financially.
What You Can Do About Junk Fees
Junk fees usually are not illegal, but as the US Consumer Financial Protection Bureau (CFPB) points out, they make comparison shopping difficult.
The agency's newly appointed director, Rohit Chopra, recently told the Washington Post: "There is more and more line items that are being added to bills that essentially obscure the upfront price of a product."
Banks and other financial institutions, he added, were "a bastion of many of these fees," which have now become a core part of their business.
"In many cases, these are fees where there's not even a service provided or where the bank or financial institutions doesn't even do any work."
The CFPB plans to put junk fees under the microscope with an in-depth review and action recommendations, following a public consultation earlier this year. Another government agency, the Federal Trade Commission (FTC), is introducing a new rule to protect car buyers.
In the meantime, it's down to you to take whatever actions you can to protect yourself from junk fees.
This means:
- Scrutinizing the small print in sales details and contracts, looking for add-ons and comparing the bottom-line price to the base price that originally attracted you.
- Challenging costs that you don't understand and, where possible, asking for them to be reduced or removed.
- Knowing the law. There are already some fee rules in place with regard to mortgage closing and car purchase costs.
- Complaining to the CFPB, the FTC ,and your state's consumer protection department when you feel you've been deceived or you're being charged fees that are illegal.
As long as they're legal or there are unscrupulous sellers, there will always be junk fees. When times are tough financially, as they are for many of us right now, make sure you not only get what you pay for but also pay only for what you get (or need)!
This Week's Scam Alerts
Western Union Refund: Were you tricked into wiring money to a scammer via Western Union between 2004 and 2016? If you were and still haven't received a refund from the $586 million settlement the firm agreed, you still have time to file. The US Federal Trade Commission (FTC) has extended the deadline for claims, originally July 1, until the end of August. Start here.
Gas Gift Cards: The high price of gasoline has sparked a scam campaign on social media and via email telling people they've won a $500 fuel card. All they have to pay, the message says, is a $2 processing charge. But, as soon as they provide payment information, the scammers use it to drain accounts and max out credit cards.
That's it for today -- we hope you enjoy your week!