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For nearly two and a half years, msnbc.com writer Bob Sullivan has been exposing scams and sneakiness through his blog, The Red Tape Chronicles.
Based on his investigative reporting, Bob has written a book, “Gotcha Capitalism: How Hidden Fees Rip You Off Every Day – and What You Can Do About It.”
Bob’s book highlights the machinations of a system that is rigged to make most consumers throw up their hands and simply give up. After all, who has the time to wade through an avalanche of fine print and decipher all the incomprehensible fees on their cell-phone bills, credit-card bills, cable bills, hotel bills, retirement plans, gym memberships, bank statements, mortgages and student loans?
To give you an idea of just how quickly these $5 and $10 charges can add up, consider this sobering statistic: Such fees are costing the average American $946 a year.
“A thousand dollars is a lot of money,” Bob said. “It’s enough to stock a sizable retirement fund. Many of us are losing more in these fees every year than we’re saving for our futures.”
Bob’s book provides step-by-step instructions to help ordinary consumers fight back against the fly-by-night companies and the Goliaths that are nickel-and-diming us to death. So just when the book gets your pulse racing and your blood pressure skyrocketing, it shows you precisely where and how to channel your frustrations.
“Don’t feel helpless,” Bob advised. “There is help to be had, and you can find it. You can get refunds and you can get justice if you go to the right places.”
Here is a sampling of some of the smart tips found in “Gotcha Capitalism”:
1. Eyeball your retirement “expense ratios.” How would you feel if you learned that fees ultimately were eating away nearly 30 percent of your retirement savings? Well, it turns out that fees are having just that effect on many diligent investors out there – so much so that they may have to continue working years longer than they expected. To combat this, Bob recommends taking a moment to look at your 401(k) statement (or similar retirement fund statement) and locate the “expense ratio” for each mutual fund you have in your account. If any of those expense ratios are more than 1 percent, then seriously consider getting your money out of those funds and moving it into an index fund. (Note: If you can’t find the expense ratio in the fund paperwork you have at home, visit a site such as Yahoo! Finance (http://finance.yahoo.com/) and type each mutual fund’s ticker symbol into the search field. You should spot the expense ratio easily after doing such a search.) Index funds, which replicate the performance of a stock market index, typically have expense ratios of 0.5 percent or less because they don’t cost as much to manage. “They’re almost always much cheaper,” Bob said. “You have a computer picking the fund, not a brilliant MBA running the fund.”
2. Live your life without regrets. Have you gotten yourself locked into an auto loan, a gym membership or a satellite television contract that you didn’t fully comprehend? If so, be aware that more and more states are adopting “regret laws” or “free-look laws.” These laws make it possible for consumers to back out of such deals after a cooling-off period of, say, three to 10 days. “It’s a really good policy to allow people to get out of something they didn’t understand,” Bob said. With auto loans, for example, you can invoke such laws to get yourself out of high-priced tack-on fees for rustproofing or unnecessary extended warranties. To find out which regret laws are on the books where you live, contact your state’s attorney general’s office or consumer affairs department. You can start the process of finding contact information for your state by clicking here (http://www.msnbc.msn.com/id/15228784/).
3. Break free from cell-phone hell. Speaking of regrets, thousands of consumers are locked into long-term cell-phone contracts with draconian early-termination fees. That might not be the end of the world if your phone works well in your home, on your commute and at your place of business – but what if it doesn’t? “Cell phones are such a crazy product,” Bob said. “Everyone should have a chance to see if the darn thing works before they have to pay for it.” He offers the following recommendations – some extreme, some less so – for getting out of “cell phone jail”:
* Move to an area where your current cell-phone company doesn’t provide coverage;
* Swap your phone and your phone plan with someone else online through a trading site such as CellTradeUSA.com;
* Call a customer service representative – and/or his or her supervisor – and attempt to negotiate your early-termination fees in a calm, reasoned way;
* Avoid contracts altogether by using pre-paid cell phones.
Bob also cautions consumers to be on the lookout for hefty “handset updgrade” fees and to avoid “premium text messaging.”The fees associated with getting a new phone or subscribing to joke-of-the-day or special ring-tone services can be astronomical. Complain constructively about such fees or cancel such services if you’re shocked to see their impact on your bill.
4. Pause before deciding to switch – or not switch – area codes. If you’ve moved to a new part of the country, you may have kept your old cell-phone number with its old area code for the sake of convenience. But guess what? Those taxes on your cell-phone bill are based on your area code regardless of where you live – and the differences in taxes can be somewhat staggering. To avoid any surprises, visit sites such as this one to see what the taxes are like where you used to live and where you’ve relocated.
5. With mortgages, the interest rate isn’t all that matters. It’s also very important to compare the fees associated with different mortgages. Such differences in fees can cost you hundreds if not thousands of dollars. To spotlight just one example: Many people are so overwhelmed when buying a home that they fail to notice the hefty premium they pay for title insurance as part of their closing costs. Most buyers don’t ask any questions and simply go with the title company recommended by their real estate agents or banks. But it pays to shop around and ask for fee breakdowns from different title companies. You typically can haggle over a variety of discretionary fees – such as search fees, document-preparation fees, escrow fees, closing fees and courier fees – that can add hundreds of dollars to your closing costs. What’s more, it also pays to get Good Faith Estimates for mortgages from at least three lenders. Those estimates should be based on the same rate and terms – say, 30-year fixed – so that even more differences in fees and closing costs will become obvious.
6. Beware of the so-called “courtesy” of courtesy overdraft protection. Unless you say no to this innocuous-sounding service, you could end up paying as much as $39 for each overdraft from your checking account. Your bank will lie to you, in effect, by allowing you to withdraw cash from ATM machines and make purchases using your debit or check card even though you don’t have sufficient funds in your account. To avoid this downward spiral of badness, Bob advises consumers to link their checking accounts to their savings accounts, credit-card accounts or home equity lines of credit instead. “A credit card will cost you money, but it will still be pennies on the dollar compared with the (courtesy overdraft) fee,” he said. “Or if you link to a line of credit, you’d be borrowing from yourself instead of from the bank.”
7. Devise a plan of attack for withdrawing cash overseas. If you’ve used ATM machines to withdraw cash while traveling overseas in recent years, you may have been stunned by the sheer volume and enormity of the fees that appeared on your bank statement. Credit-card currency-conversion fees also may have walloped you. To prevent cardiac arrest upon your return home, “Gotcha Capitalism” recommends that you do a little bit of homework before you head to a foreign country. Call the customer service numbers on the backs of your credit cards to find out just what they charge for currency-conversion fees, or visit this Bankrate.com site for details. Those fees can vary by a full 2 percent, so this process can help you decide which card to use when you’re traveling. Also, check with your bank to see whether it partners with any banks in the countries you plan to visit. If so, you could avoid hefty fees altogether by using your ATM or check card at those participating banks. Bank of America, for example, is part of a Global ATM Alliance with other banks in the United Kingdom, France, Germany, China, Mexico, Canada, Australia and New Zealand.
8. Rebates aren’t always worth the hassle. Rebate offers can be enticing, but be careful: Plenty of businesses are counting on you to be forgetful, unmotivated or not detail-oriented enough when it comes to following up on such offers. According to an estimate in “Gotcha Capitalism,” about 40 percent of rebates never get redeemed. To make matters worse, the retail sector generally has been making it harder for consumers to cash in on rebates. Bearing all of this in mind, never make a purchase solely because of a rebate offer, and always check out the retailer and the offer before you buy. Do a quick online search of companies offering fabulous rebates on purchases of cell phones, electronic equipment – or anything else, for that matter. Your search may lead you to dozens, if not hundreds, of complaints about bogus rebate offers. Also recognize that most rebates must be mailed in after you’ve paid full price for the item, and the instructions associated with qualifying for the rebate tend to be cumbersome, time-consuming and confusing.
9. Follow this overriding principle: Just ask. It really is OK to ask for deals that aren’t widely promoted or that initially may not seem to apply to you. Here are just a few examples of “secret” low-cost plans Bob identified:
* Limited cable TV service for less than $20 a month;
* Very low-minute, low-cost cell-phone plans;
* Bank accounts that, believe it or not, have minimum deposit obligations;
* A whole slew of other deals that are made available to occasional users or frequent users who pipe up and ask for them. For instance, many businesses offer deals “for new customers only,” but you may be able to score those same deals even if you aren’t a new customer by requesting them in a persistent, yet polite, way.
10. Know where else you can turn. If you’re feeling run over by fees and you’re not getting any satisfaction after speaking up about the matter constructively with customer service representatives and their supervisors, then you have other options. You can send a firm letter of complaint to the offending business with carbon copies to your state’s attorney general’s office, the Better Business Bureau and the Federal Trade Commission. (“Gotcha Capitalism” includes a variety of sample complaint letters.) And, if need be, you also can file formal complaints with all of these agencies, and you can complain to your legislator.