A Talk with Bob Sullivan

Author of GOTCHA CAPITALISM

 What exactly is GOTCHA CAPITALISM?

Today, nearly everything we purchase is booby-trapped.  A car, a home, a cell phone, a mutual fund—everything.  Marketing and sales folks huddle in dark rooms trying to figure out how to trick you and me.  They emerge with diabolical plans, usually involving small print, asterisks, and general confusion.  Then, when you slip up and fall for the trap—GOTCHA!—there’s a penalty fee.  In some cases, they are pennies.  In some cases, the nickels and dimes add up to tens of thousands of dollars. 

People are busier than ever, and Gotcha Capitalists know it.  When I think about this subject, I always picture a woman fiddling with a booster seat and a crying child returning a rental car.  What if she doesn’t remember to fill the gas tank?  Does gas really cost $6 a gallon at rental agencies?  Of course not.  But the woman is a captive consumer.  She has to pay.

It’s not fair.  It’s also not capitalism.  It’s not a functioning market economy.  There is no connection between the cost of what’s being sold and the price that’s being charged.  Something is terribly broken.

Why did you feel compelled to write a book about Gotcha Capitalism?

There are hundreds of laws that protect consumers.  Evoking these at the right time often brings swift justice.  There are also excellent negotiating tactics that often get people refunds and fairness. Through 10 years of chasing down these strategies for MSNBC.com users, I’ve learned a lot about what works and what doesn’t. And I want everyone in America to know what their rights are.  I wrote this book to give people fighting chance in an economy that increasingly is built to cheat them.  Ultimately, I hope that this book can be a small part of a large movement that helps bring about real change in the way America does business.

According to GOTCHA CAPITALISM, hidden, sneaky fees cost the average consumer $1000 a year for the most common purchases, cost thousands more in home purchases, and steal 25-50% of most people’s retirement savings.  When did hidden fees first get a toe-hold in the American economy, and why have they flourished? 

There are several seminal moments in the history of hidden fees.  In many ways, technology is the key ingredient to the hidden fee economy.  Sophisticated databases are now used to track us and understand precisely how many pennies can be squeezed from our wallets before we’ll balk.  There have even been experiments run by companies like Amazon in which each consumer is charged a different price based on their buying habits!  The more a consumer wants an item, based on a database profile, the more they are charged.

Hidden fees have flourished largely because laws governing false advertising aren’t enforced.  I challenge anyone signing up for cable television service today to tell me what their bill will be one year from now.  It’s just too easy for companies to lie; there is virtually no downside.  The history of hidden fees is really the history of enforcement of consumer protection laws, which has faded since 1980.  Federal agencies like the Federal Trade Commission, Food and Drug Administration, and Consumer Protection Safety Administration—all have fewer than half the employees they had in the 1970s.  All this, while international trade has flourished and the country has grown about 40 percent in population.  

How do hidden fees contribute to the “middle class squeeze”? 

It may be hard to believe, but those nickels and dimes have a large effect on the economy.  For example, hidden fees actually keep our inflation rate artificially low.  Most firms don’t report surcharges to the Bureau of Labor Statistics. So when the national inflation rate is calculated, hidden fees are left out.  That’s one reason things seem a little harder every month, but the government keeps telling us that inflation is at record lows.

Hidden fees cost the average adult American about $1,000 each year, our research found, and that’s on the low side.  Consumer Reports estimated that hidden fees drain about $215 billion from the economy each year, or more like $4,000 for each adult.  Imagine what you could do with and extra $4,000!  Go to school, stock the retirement account, and take a couple of vacations, which would all lead to increased economic activity . . .

Of course, it’s the middle class who pays hidden fees.  Bank customers with $100,000 checking account balances don’t pay $7 service charges.

But there’s much more to it than nickels and dimes.  Hidden fees are robbing the average mid-career worker of about one-third of their retirement kitty.  It’s even worse for younger people.  Fees will literally make U.S. workers postpone retirement for several years, as Wall Street siphons off at least $25 billion out of 401 (k) accounts every year for doing essentially nothing.  

Are hidden fees really undermining the system of capitalism we think we live under?

Yes!  Many businesses report that they simply cannot compete without engaging in the hidden fee game.  For example, Holiday Inn hotels experimented with up-front pricing a few years ago—quoted prices included all surcharges and taxes—and it simply lost business to cheating competitors.  No company can afford to be the only honest player at a poker table where everyone else is cheating.  Privately, some companies say they would love stricter rules to ensure a level playing ground for all parties.  But right now, cheating is required for survival, and that’s a terrible shame.

In GOTCHA CAPITALISM, you highlight twelve industries that regularly hit consumers with sneaky fees.  What are they?  How did you decide which industries to include?

I went right for the biggest offenders. That was a fairly easy list to come up with.  Every week, when I publish the Red Tape Chronicles, hundreds and even thousands of people write to me.  It’s pretty clear what they are most upset about: Banks, cell phones companies, credit cards, travel, and pay TV, and in that order.  So those industries merited special attention.  

Some other fees are obfuscated so cleverly that consumers don’t even think of them as fees.  Supermarket loyalty card programs, for example, seem like discount programs.  Of course, if you don’t join, you pay pretty steep surcharges. But even if you do join, thee are plenty of hidden costs.  What if one day your health insurance company buys your grocery records are finds out you are a serial potato chip eater?  Maybe they’ll pile on some potato chip-eater premiums.  There’s a whopper of a hidden fee.  Is your grocery store ready to promise that will never happen?  I would take that promise with a grain of salt and some vinegar. 

What are some of the most surprising ways a company can cheat you?

The biggest way of all is obscuring the true price of things.  When car companies talk loan payments instead of prices, it’s easy for them to pack the loan full of goodies like extended warranty contracts.  By distracting you from the price, they can work their slight-of-hand magic.  But these techniques are hardly limited to the seedy world of car buying.  Ads for cable television regularly promise introductory prices and never mention the true price, which kicks in four months later.  Cell phone companies charge $39 for a new phone, then slip a $36 “upgrade fee” onto a bill two months later.  Then there are printers, which are nearly free now at any office supply store, but come with a tremendous catch—outrageously priced refill cartridges with mysterious amounts of ink.  As I explain in the book, it’s nearly impossible to rationally pick a printer, as it is truly impossible to determine the true cost of ownership. 

In addition to attacking sneaky fees as an author, you offer advice on a case-by-case basis on the popular blog “The Red Tape Chronicles” for MSNBC.com.  In your experience, which industries and/or issues push people’s buttons the most?

Well, that’s easy.  Many people just really hate their banks.  Whenever a problem comes up, they feel like they’re talking to robots behind those overly-tall counters and plexiglass.  I think in the end, most people understand if they overdraw their account, they will have to pay a penalty.  But layering on five or six $35 dollar charges for a weekend’s worth of debit card transactions?  That’s reeks of unfairness.  And when a 22-year-old bank teller delivers a lecture about financial responsibility rather than delivering a little compassion, most people understandably blow their tops.

While banks win the most-hated-industry award, there are several runners-up. Credit card issuers (also banks) certainly get under consumers’ skin, though our survey found they were much more likely to issue refunds than banks holding savings and checking accounts.  Cell phone firms irk consumers, too, as do airlines.  And of course, there’s nothing quite like calling the cable company to discuss a misunderstanding.

What can we do to start changing the system?

In a word, complain.  OK, two words: complain effectively.  People need to speak up when they’re treated poorly.  But that doesn’t mean berating a poor 19-year-old retail clerk and making a scene.  It means writing old-fashioned letters to executives and government agencies.  It means sending targeted e-mails to the right people.  You won’t always get satisfaction.  But complaining is like voting.  It’s hard to see how your one voice makes a difference, but what if everyone felt that way?  Nothing would ever change.

I hate to say it, but set aside real time each month to commune with your monthly bills and hunt down hidden fees.  Then, pick the biggest offenders and take the time to get some refunds.  Make a game of it if that helps.  When you score a refund, put the balance in a “hidden fee recovery jar” and go out to nice dinner with the money.  Better you than a fat cat cable executive!  But most important, set aside at least 30 minutes each month to Gotcha-proof your life.  It may be the most profitable part-time job you’ve ever had.  Getting rid of one recurring $10-a-month fee during a one-hour phone call is the equivalent of saving $10,000 in an interest-bearing checking account.  It’s also the equivalent of a $120-an-hour job, when you consider a year’s worth of savings.  Who among us can turn down that kind of pay rate?

In GOTCHA CAPITALISM, you offer a number of strategies to consumers who want to get their money back.  If you had to pick your top three, what would they be?

1). Get “customer retention” treatment. 
2). Know the law.  
3). Get your form letters ready. 

What can your readers expect to see next from you?

 I’ve already hinted at my immediate project, which is to fashion tools that make it easier for consumers to share their know-how with each other on the Internet. 

I’ve got several book ideas kicking around; none are finalized.  But I think there is endless need to educate consumers on their rights, so that’s one project I’ll likely undertake soon.  I’m also looking into ways consumers can more quickly identify salespeople and other company agents who are deceptive.  And the challenging, multi-faceted topic of privacy fascinates me as well. 

As readers of the Red Tape Chronicles know, I am very open to suggestions.  Look me up there, or send me an e-mail at BobSullivan@feedback.msnbc.com.