As American consumers, 70% of the economy is based upon our spending. This makes us very powerful in some ways. It also makes us a target for aggressive sales tactics and deceptive marketing claims. You may think companies would appreciate the consumer’s contribution to their bottom-line, but the opposite is often true. Many companies now look upon consumers as easy marks. And, fleecing the American consumer has become the new business strategy.
Dirty Tricks with Overdraft
Most of the younger generation doesn’t realize that overdraft is a recent phenomenon. Before 2001, if you didn’t have enough money in your bank to complete a transaction it would be declined or the check would bounce. According to banks, this new “service” was added for the convenience of customers. The truth is that banks are the ones who benefit from overdraft, to the tune of billions of dollars per year. And, since many banks order transactions starting with the largest item first, unwary customers can get hit with hundreds of dollars in overdrafts from a single transaction that is over their balance. An interesting fact I discovered is that many banks pay a third-party company a percentage to maximize their overdraft fees. So, this isn’t a new service for customers, it’s a new revenue stream for banks.
The good news is the Government has heard a lot of complaints and soon you may be able to choose whether or not you want overdraft on your account. And, you may be warned of an overdraft occurring before you complete a transaction, so you can choose whether or not you want to pay the fee. The bad news is that banks earn 74% of their total fees from overdraft or NSF and they aren’t happy about giving up that income.
Check Out: FDIC Study of Bank Overdraft Programs
Junk Fees and Services
I have been a customer of the phone company for over 25 years. And, every couple of years, I notice they add new services to my bill, such as inside wiring insurance. Of course, I never asked for this “service” and as soon as I complain they are happy to take it back off. After the third time this happened to me, I noticed a pattern. Whenever I made any changes to my phone service, extra items would appear on my bill. I suspect the customer service rep or the computer systems add these services automatically. And, phone companies make millions of dollars from them each month, unless customers figure it out and cancel.
Junk fees, added services and fake taxes are the new revenue enhancers. It is almost to the point where customers expect to see them on bills and contracts. And, very few people read their bills or contracts in detail any more. Another sneaky trick is the evergreen contract, which renews automatically, unless you cancel in writing. When companies combine an evergreen contract with a hefty cancellation fee, customers are trapped by the provider. Companies known to add sneaky fees are banks, mortgage brokers, phone and utility companies, car dealers, hospitals and insurance companies.
Check Out: Secrets for Negotiating a Better Contract
Interest Rate Abuse
Anyone with a credit card knows most banks are raising interest rates dramatically. They are doing this ahead of the new CARD law that will go into effect in February. Banks are spinning this abuse of consumers as necessary because of rising defaults. In my opinion, this is simply a defiant way to punish consumers and to rake in as much revenue as possible, ahead of the reform. Thankfully, the Government is not happy about this attitude, which is causing them to be more aggressive with the overdraft reform. Banks may be slitting their own throats by thumbing their noses at reform.
There are many other forms of finance that customers need to be wary of. Those offers for zero interest until 2010 come with a nasty surprise. If you are late on even one of the payments, you may be hit with an astronomical interest rate. Another thing to avoid are store credit cards. They often have very high interest rates and unfriendly policies towards consumers. Auto financing is another dicey prospect, where funding fees and kickbacks are common. But, the worst of all financing fiascos in my opinion are mortgages. Did you know that millions of people stuck in sub-prime loans could have qualified for better loans? There is only one explanation for this. Points and commissions are higher on sub-prime loans.
Check Out: Raising Rates Ahead of New Law
Know Your Rights
One of the reasons businesses have been so successful in taking advantage of everyone is the apathy of consumers. There was a time when people worked hard for their money and they would get angry if they felt cheated. And companies that took advantage of people would have a hard time finding new customers. Now, with slick advertising campaigns, inept regulation and millions of consumers, companies are getting away with murder.
Unless you don’t mind being cheated by companies with unfair business practices, you need to know your rights as a consumer. Different types of companies are regulated by different branches of the Government, so it can be confusing trying to find someone to help. For example, utilities are regulated by the PUC, Securities Dealers are regulated by FINRA and automotive repair shops are regulated by the Department of Consumer Affairs. The most important thing you can do whenever you have a problem, is to figure out which authority oversees a company before you call them.
If you have been cheated, it is much more effective to say something like, “this is in violation of the Fair Credit Reporting Act and if you don’t correct this immediately, I am going to file a complaint with the Department of Consumer Affairs.” By knowing your rights, you will often get much better results from a Customer Service Rep.
Check Out: Credit and your Consumer Rights
The Bottom Line
The bottom line for consumers is “Caveat Emptor” or “Let the Buyer Beware”. Despite recent legislation designed to protect consumers, we still have a long way to go. Consumers are on the short end of almost every commercial relationship, because of sneaky fees, one-sided contracts and shifting terms and conditions. Only by carefully monitoring your purchases, bills and agreements will you avoid the ignorance premium placed on unsuspecting consumers.
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