Sneaky Fees

Recently, I renewed my XM Satellite Radio subscription. I had expected the service to cost $13 per month, since that was the amount the company advertised. I found out, however, that in addition to the $13, Sirius XM had implemented a new, monthly $2 “music royalty fee.” I was annoyed, but I grudgingly agreed to the new add-on charge and said, “Send me the bill.” Well, the Sirius XM rep replied, there was one more thing: I’d have to pay a $2 “invoice fee” if I wanted a paper bill mailed to my house.

That relatively reasonable $13-per-month service I thought I was signing up for ended up costing me $16.95 each month, or 30 percent more than expected, through fees that Sirius XM never bothered to mention in its pitches to renew.

Sneaky fees drive me mad. The number of these nickel-and-dime charges I pay each month has my head spinning. Where did all of the extra fees, charges, and taxes tacked onto my cable, wireless, and Internet bills come from?

Sneaky-Fee Economy

Sneaky fees cost each U.S. resident an estimated $950 each year, according to the Ponemon Institute, a research group specializing in consumer privacy. They show up on bills under names like “OVS fees,” “network access charge,” or “federal subscriber line fees.” None of them are outlandish–maybe $1 here or $3.95 there. But they add up, boosting the total cost of your monthly wireless bill or of an airline ticket you book online far beyond what you thought you were going to spend.

For companies, such miscellaneous charges work like a charm, says Bob Sullivan, author of the book Gotcha Capitalism. “How does a $39 cable bill become a $70 bill? How does a $55 wireless plan cost you $75? The answer is fees,” he says. According to Sullivan, surveyed companies from ten markets make $45 billion annually in hidden fees.

Perhaps the most annoying are the fees that make a “free” offer not free at all. For instance, in an effort to keep PC sales strong, many computer makers offered customers who bought a system right before the introduction of Windows 7 a once the new OS was available. What the companies neglected to tell customers is that many of them would have to pay “shipping, handling, and fulfillment fees” to get their copy of Windows 7. Lenovo is charging all of its customers $17.03. Acer and some other PC makers are waiving the fee, but Compaq, Dell, Hewlett-Packard, Sony, and Toshiba are making some customers pay fees between $11.25 and $14.99.

Wireless Fees

Nowhere do consumers find fees more confounding than on their wireless bill. Maybe it’s a $3-a-month charge for a daily horoscope you don’t remember requesting. Maybe it’s an $18 “upgrade fee” that your wireless carrier failed to mention when you bought your snazzy new 3G touchscreen phone. Or maybe it’s a charge for a ringtone you never wanted but came with a “free” offer. Whatever the source of the fee, if you’ve had it with your, you’re not alone.

The U.S. Government Accountability Office determined that one-third of cell phone owners found unexpected charges on their bills or complained to the agency about having problems understanding their bills. Worse, according to the GAO, one in five customers who contacted their wireless carrier were dissatisfied with their carrier’s efforts to resolve the problem.

What gives? Experts say cutthroat competition drives wireless carriers to push down the advertised monthly cost of their plans. The companies make their real money with ancillary fees. “Once you sign that multiyear contract, you’re right where they [wireless carriers] want you–trapped,” Sullivan says. And if you want to part ways, you’ll have to pay an early-termination fee.

Verizon Wireless is typical of most carriers: It advertises a low $40-per-month Nationwide Basic plan and adds charges on top of that. Verizon’s Nationwide Basic plan details state that first-time customers pay a $35 activation fee and can expect to pay between 5 percent and 37 percent more each month in “tolls, taxes, and surcharges.” That doesn’t include charges for going over the plan’s preset limits for texting, data transfers, and voice minutes.

One of Verizon’s fees is a monthly $0.92 “administrative charge.” Verizon describes the charge on its site as one of several fees that “aren’t taxes, aren’t required by law, are kept by us in whole or in part, and the amounts and what’s included are subject to change.” Essentially, if you’re a Verizon customer, you pay the company 92 cents each month to cover the cost of the company’s doing business with you. It’s the kind of charge that always used to be included in a main bill. After all, when you go to the mall, you don’t pay an extra charge to have the cashier total your purchases; that cost is built into the price of your sweater. But we’re moving to an economy in which companies attempt to hide their costs–and their profits–in small charges that they hope we won’t notice, or won’t know about until we’ve signed a contract. Consumer advocates say that this “fine-print” pricing obscures the true monthly cost of a wireless plan.

I asked Verizon Wireless spokesperson Michael Murphy why the company doesn’t roll the nontax fees into the advertised monthly price so that consumers could know what their final bill would be. Murphy says that since surcharges and fees vary by market and are subject to change, they can’t be rolled into one advertised price.

Sullivan doesn’t buy it. The real reason Verizon is sneaky, he says, is that everyone else is too. “You can’t be the only company with transparent pricing, or you’ll always appear to have the highest prices.”

You can’t always blame your wireless carrier for sneaky cell phone charges, however. Wireless customers can easily get stuck spending $10 every month on third-party services for ringtones, wallpaper, and daily jokes delivered via SMS. Many customers who complain about such charges say that they believed the services were free or that they would be charged a one-time fee, not committed to a monthly subscription. And some claim that they never requested the service they’re being billed for.

Within the last couple of years, AT&T Mobility and Verizon Wireless reached similar yet separate settlements with Florida’s Attorney General Bill McCollum related to sneaky charges. McCollum had accused both carriers (plus Alltel, which Verizon was in the process of acquiring) of allowing advertisers to put out misleading offers for “free” ringtones, wallpaper, and horoscopes, and then to bill customers for services they didn’t want or thought were no charge.

In June, Verizon Wireless reached an agreement with McCollum. Without admitting to any wrongdoing, the company agreed to reimburse its Florida customers up to $30 million for unwanted third-party charges. As part of the settlement, Verizon agreed to set stringent advertising standards that prohibited the word “free” from being used without the “clear disclosure of the actual price.” AT&T Mobility reached a similar agreement in February 2008 when it agreed to return up to $40 million in charges to Florida consumers.

The wireless telecommunications industry trade association CTIA has worked to create voluntary standards for carriers to make bills clear, says John Walls, a CTIA spokesperson. Despite the industry’s efforts, though, problems persist. Consumer complaints filed with the FCC relating to billing and rates for wireless services rose from 8822 in 2006 to 10,930 in 2008, an increase of approximately 24 percent.

Triple-Play Plans Triple the Annoyance

Does your cable bill seem to be inching closer to the stratosphere every month? It isn’t your imagination. Advertised low prices seldom stay low, and with more companies locking customers into multiyear contracts with stiff early-termination fees, consumers are getting a raw deal, experts say.

Contracts may lock your base price down, but they don’t put a cap on extras, says Joel Kelsey, policy analyst with the Consumers Union. According to Kelsey, 25 percent of people who sign up for a combination of TV, Internet, and phone service say additional taxes and fees make their bills much higher than they expected.

I discovered that the hard way. When looking over my monthly bill from RCN, my cable TV, Internet, and telephone service provider, I encountered a field of fee land mines. Eighteen months ago, RCN’s triple-play bundle of cable, TV, and phone sounded good to me at $109 a month. Of course, I had to agree to a two-year contract with a $150 early-termination fee. Now I’m paying $130 a month on average, to cover pass-along costs, fees, taxes, and penalties.

Because of the transition to digital TV, if I want more than two television sets in my house, I have to pay an extra $2.95 a month for each digital converter box rental (I have four TVs). On top of that, add $14.30 to my bill for what RCN calls “Taxes, Fees, and Surcharges.” Some of that money goes to pay state and federal taxes, naturally, but the bulk of it goes to dues that RCN owes for keeping its service going. For instance, I pay $6.50 for a “Federal Subscriber Line Fee.” Despite the name, though, the fee doesn’t go to the federal government. In fact, some of it may go directly into RCN’s pocket; it’s a charge paid to telephone companies to recoup the cost of having a phone line connecting your house to the phone network. The money goes to “local telephone companies such as Verizon, AT&T, and RCN,” according to RCN’s site.

It’s not unreasonable for RCN to pass its cost of doing business on to me. But hiding such costs under the opaque label “Taxes, Fees, and Surcharges” is misleading and makes it impossible for me to accurately compare RCN’s costs with those of Comcast or any other competitors. If RCN’s “fees and surcharges” are fixed costs, why aren’t they part of the advertised monthly price of the service?

RCN spokesperson Lisa Barder says it’s impossible to calculate absolute “fee and surcharge” costs because they vary by region. But couldn’t RCN, through its Website, quote me a true monthly cost by using my zip code?

“Consumers don’t have enough information to make an informed decision,” the Consumers Union’s Kelsey says. “They shouldn’t have to call up their cable company and beg and plead for someone to explain what the true cost of a service is.”

Financial Fees

Few sneaky fees are more infuriating than those that leech from our finances via our checking account, our credit card bills, and services such as PayPal. Wes Novack of Phoenix knows this firsthand.

Novack is a PayPal veteran who was happy with the electronic-payment service until July, when PayPal started deducting mysterious fees from his transactions. “I had no idea what was going on until I paid someone $120, and they called up and complained that $3.78 was removed for no apparent reason,” says Novack, a Web server administrator. The debits were labeled only as a “fee.”

Novack went to the Fees section of PayPal’s site and learned that PayPal money transfers labeled as payments for goods or services sent from personal accounts were now subject to a fee of 2.9 percent of the total, plus 30 cents. PayPal says it instituted the fees to discourage users from conducting business transactions on personal accounts.

“This isn’t a lot of money, but it steams me that there was no warning,” Novack complains. He suspects PayPal intentionally created the sneaky fee, hoping 75 million PayPal customers would give it little attention.

PayPal’s Anuj Nayar explains that customers were notified via e-mail of the new fees. But Novack insists that the e-mail Nayar refers to didn’t mention the fee.

“If people were confused about this fee, PayPal apologizes,” Nayar says. He bristles at the suggestion that PayPal is profiting from applying the fee. The service just wants to make it easier for users to distinguish personal transactions from business-related ones, Nayar says.

Online Travel Fees

Business-travel expert Joe Brancatelli says that airlines, hotels, and car rental agencies, like other industries, have begun breaking out fees for what used to be considered part of doing business, and inventing new ones too. And we aren’t just talking $5 minibar tabs.

Budget carrier Spirit Airlines charges $7 to $20 for advance seat assignments. American Airlines announced a $15 fee for checking your first bag. If your bag weighs too much, you might pay another $100. And in a new twist, major air carriers have added a $10 fee for flying on the busiest days.

Brancatelli says you can thank the Internet for these fees. Travel sites such as Orbitz and Travelocity make it easy to find the cheapest airfare, hotel room charge, and car rental rate. “Companies know the only thing people focus on is price,” says Brancatelli, so they work to keep their base price as low as possible while piling on extra fees and surcharges that don’t show up in your search results. “People are trained to look at only the lowest fare,” he says. “People need to be aware that the price you are looking at is not the price you pay.”

Sneaky-Fee Future

Companies are getting away with doling out sneaky fees, not because consumers don’t care, but because hidden fees have become a way of life. “Sneaky fees just exist, and we give up,” says Mike Spinney, senior privacy analyst for the Ponemon Institute. He adds, “There isn’t enough time in the day to fight every fee.”

Sneaky-fee expert Sullivan is equally pessimistic. He believes that many of the charges buried in bills wouldn’t pass legal muster. But the Federal Trade Commission, which has the legal authority to go after companies, is currently too preoccupied and understaffed to tackle the problem, he says.

“The FTC requires companies to be clear and conspicuous with their pricing,” Sullivan says. But the bills he has been seeing lately, he notes, have little that is clear or conspicuous. Without more-stringent oversight from state and federal governments, consumers had better watch their own bills like a hawk, he says.

She Fought the Fee–And Won
Mallory LaBoube

“I am surprised [T-Mobile] reacted to change its policy so quickly, and I am certain that it was the result of my lawsuit. T-Mobile sends over 16 million invoices per month. I figure I saved customers about $24 million a month!” –Mallory LaBoube, Webster Groves, Missouri

In August, T-Mobile, hoping to spur customers to use electronic billing, started charging the 16.5 million T-Mobile customers who received a paper bill $1.50 a month. The goal was to cut back on the costs of sending out 10.8 million pounds of paper bills each year.

The backlash was immediate, with Websites and forums percolating with loud and angry customer complaints. LaBoube, of Webster Groves, Missouri, was so angry that she canceled her T-Mobile account and demanded that the company waive her $200 early-termination fee.

“Who ever heard of paying to get your bill?” LaBoube says. “When you go to the grocery store, do they charge you $1 to get your paper receipt?”

When T-Mobile refused to drop the termination fee, she contacted her sister, who worked at the Medler & Roither law firm in Clayton, Missouri. Lawyers there took the case.

On September 5, Medler attorneys filed a class-action lawsuit against T-Mobile in the United States District Court for the Eastern District of Missouri. The suit alleged that the billing change was a breach of the contract that T-Mobile customers signed. The company should allow customers to cancel service without getting hit with an early-termination fee, the lawyers argued.

Six days after LaBoube’s attorneys filed the lawsuit, T-Mobile dropped the paper-bill fee. T-Mobile representatives said at the time that it was a situation where a company heard loud and clear what customers wanted. “Since the announcement we’ve heard everything from kudos to concerns about the move to paperless–especially from our customers who today are receiving paper bills at no charge. So, we’ve decided to not charge our customers a paper-bill fee for now.”

For more on companies’ charging for bills, see “Punishing Consumers for Paper Billing.”

Sneaky-Fee Survival Guide

Can’t stand sneaky fees? You may be paying more of them than you think. Here are some common hidden charges and how to avoid them.

Cell Phone Fees

Sneaky Fee: The salesperson who sold you your cell phone plan set you up to pay too much. Maybe you don’t use all your monthly voice minutes, or maybe you text over your limit and incur steep overage charges.

Fee Fix: Wireless carriers such as AT&T Mobility, Sprint, and Verizon Wireless offer prorated early-termination fees, reducing the penalty the closer you get to the end of your contract. That could mean that the penalty for ditching your cell phone contract could be worth it. Before cutting ties, though, find a better cell phone plan through third-party services such as BillShrink; the site allows you to compare multiple wireless plans, helping you identify the one that best matches your needs. Keep in mind that the best plan might very well come from your current wireless carrier.

Sneaky Fee: Your wireless company charges you for things like storing your contacts remotely, obtaining roadside assistance, or subscribing to a ringtone service, even though you don’t recall requesting the services.

Fee Fix: Go over your monthly bill with a fine-toothed comb and make sure that you are not paying for extras you don’t want. Fight the excess charges with your wireless carrier. If that doesn’t work, contact the Better Business Bureau for help in resolving the dispute. Look for free alternatives for some services, too: Yahoo Mobile offers a free mobile address book that could save you a $2 monthly wireless-backup fee.

Travel Fees

Sneaky Fee: You found a great airfare for your upcoming vacation, but JetBlue is charging you $15 just to book the flight.

Fee Fix: Avoid JetBlue’s booking fee by purchasing your ticket online directly from the airline’s Website.

Sneaky Fee: You have your ticket, but now that you’ve reached the airport, the airline says you owe an extra $125 for transporting your bags.

Fee Fix: Most carriers charge $25 for checking a second bag, and they heap on heftier charges (up to $100) for overweight bags. American Airlines even charges $15 for the first bag. The U.S. Bureau of Transportation Statistics reports that airlines generated $669 million in bag fees during the second quarter of 2009. To avoid the charges, pack light. You can also shop around–Orbitz offers a handy chartthat breaks down how much extra you will pay for bags, meals, and snacks with different airlines.

Cable, Internet, and Phone Fees

Sneaky Fee: Your cable company’s triple-play (TV, Internet, and phone) package charges you extra for a 20-mbps Internet connection, but you’re getting only 5 mbps. You also pay extra for premium phone features such as call forwarding, but you’ve never used them.

Fee Fix: Run a bandwidth speed test at a site like to find out if you’re getting the Internet connection speed you’re paying for. If not, call your provider and ask for a discount. If you don’t need all the features you’re paying for, investigate any other triple-play packages with fewer bells and whistles that your service provider might offer, and request a no-penalty transfer. Threaten to take your business elsewhere if your provider doesn’t agree. With DSL companies and satellite TV providers, you almost always have alternatives.

Sneaky Fee: EarthLink charges an extra $1 to send a monthly statement to your home.

Fee Fix: Find out what your fee-free options are for paying your bill. Most companies offer free bill payment via the Web.

Financial Fees

Sneaky Fee: When you use your bank card for retail purchases, you keep seeing 35 cent point-of-sale fees. And when you ask for cash back at a store, you get hit with a $2 charge as if you had used a competing bank’s ATM.

Fee Fix: Go ahead and use your bank card–but when asked, always sign for the purchase by choosing the credit option, not debit, to avoid the 35 cent fee. If you must have cash back, odds are you’ll be stuck with the ATM charge; consider looking for a nearby in-network ATM to dodge the fee.

Sneaky Fee: You overdrew your bank account by a couple bucks, but the bank is charging you $35 to cover the overage. Worse, you never even asked for overdraft protection.

Fee Fix: Contact your bank and ask to opt out of the overdraft protection. Look into linking your savings account to your checking account so that money in your savings account can cover overdrafts automatically.

Sneaky Fee: Wachovia Bank charges you $5.95 per month to download account information to Microsoft Money, QuickBooks, or Quicken.

Fee Fix: A number of banks charge similar fees. If yours does so, ask if you can switch to an account that doesn’t charge to download data. At Wachovia Bank, the $5.95 charge is waived if you have a “premium” savings account that maintains a $5000 balance. If that doesn’t work for you, switch banks.

Sneaky Fee: You gave a friend a gift card, only to find out that they lost part of your gift to monthly inactivity fees and maintenance charges.

Fee Fix: In 2008 the gift-card industry earned $6 billion in fees and expired cards, according to TowerGroup, a research arm of MasterCard. True reform is on the way with the passage of the Credit Card Act of 2009, which limits the number of fees that gift-card companies can charge–however, the new regulations don’t go into effect until August 2010. If you plan to give another gift card, consider doing business with companies that have taken a no-fee pledge. In October, American Express announced that it would cut many gift-card fees, though it still charges a one-time fee between $2.95 and $6.95 for the purchase of the card.