It's the digital equivalent of "couch change" -- random,
niggling credit card charges that might not be large enough to
raise your eyebrows when you glance over your statement, but over
time they add up to a lot.
These unwanted fees, coined "gray charges," by BillGuard, a
company that created a program to detect these charges on
consumers' statements, include recurring membership fees,
subscription fees, unwanted auto-renewals, cost creep (where a
service or subscription gradually increases its cost over time),
hidden fees such as foreign transaction fees or car rental
surcharges and billing errors.
And they are a growing problem. According to BillGuard, about 20
percent of its current users have incurred some type of gray
charge. Among those users who have been affected, the average of
these charges is about $350 a year, says Mary Anne Keegan,
BillGuard's chief marketing officer.
Companies take advantage of the fact that you're not paying
attention
Though some gray charges are honest misunderstandings between a
consumer and a company -- perhaps you were overcharged or
double-billed due to an operator error -- they often involve
companies that are banking on the fact that people don't scrutinize
their financial statements as carefully as they should, says
Gregory Meyer, community relations manager for Meriwest Credit
Union in San Jose, Calif.
"Merchants know consumers are busy and don't read every page of
the disclosure, so on a page deep in the disclosure, they address
the $5 monthly fee to access their service," Meyer says. "It's not
on the front page because no one would sign up for it if they knew
they would be charged each month. It's not illegal, but it sure is
sneaky and needs addressing by the [Federal Trade Commission]."
One potential type of gray charge grows out of "negative
options," a practice in which merchants offer free trials that
later launch a series of automatic credit card charges if consumers
forget to cancel. The practice is already lightly regulated; the
FTC announced in 2009 it was considering adding more layers of
protection but has not acted. "Caveat emptor -- let the buyer
beware," says Meyer. "Anything that says it is a trial offer will
likely have successive charges. There are a lot of e-newsletters
that charge now. There are also a lot of online and smartphone
games that do this."
Because of what some consider to be unethical practices, gray
charges have been the target of numerous recent legal disputes. For
example, the Web marketing company Affinion Group Inc. has been a
party to four lawsuits from 22 states' attorneys general for
deceiving consumers -- most recently involving New York in 2010,
which resulted in a $10 million settlement.
Affinion's scheme worked like this: A consumer might purchase
something -- a movie or airline ticket or flower delivery service
-- then click a pop-up advertisement for an additional discount,
and unknowingly become automatically enrolled in a membership-based
savings program, usually to the tune of around $15 per month.
The cost of being 'too busy'
To many people, two unexpected $15.99 charges on a credit card
might go unnoticed. But to Alan Gangi of Chicago, who lives on a
limited income, those charges meant he had to skip two medications
because he couldn't afford his co-pays.
After visiting a stamp-collector's website via a Facebook
link, Gangi claims his wife's credit card information was passed
along to the site without her knowledge. Gangi said she did not
enter any personal or financial information, but suddenly monthly
subscription fees began appearing on their credit card
statements.
"We still don't understand how it happened," said Gangi, who
talked to numerous representatives of both the website and his
credit card company before the fees were stopped (he was not
refunded the first two monthly fees). "Reps repeatedly told us that
we needed to log into their site to unsubscribe -- except that we
couldn't. None of our email addresses worked, none of the password
combinations we used worked. Even the 'secret question' was nothing
we could guess.
"As we are both disabled, the $15.99 charges were a significant
part of our limited income," says Gangi. "Dishonest companies
should be held liable for the damage they do to individuals."
Mitchell D. Weiss, financial author and adjunct professor of
finance at the University of Hartford, says people should call gray
charges like the ones Gangi dealt with what they really are:
"They're illegal," he says. "It's a euphemism."
Weiss himself was nailed by a gray charge on his American
Express account that added up to a year's worth of charges, which
were later reversed. He had mistaken the charges for a legitimate
subscription that he thought he might have purchased. "I missed
it," he says. "The way it appeared on my statement misled me. It
was absolutely done unethically. And I've been much more vigilant
afterward."
Tips for regaining control over 'gray charges'
The key to eliminating gray charges is to be aware of everything
that goes on your credit card statement.
"The first rule of personal financial management is look at your
bills," says Weiss. "Make sure that you did in fact incur the
charges that are there."
Another thing to keep in mind is that the old "no free lunch"
maxim holds true in the digital era.
"You've got to read what it is you're agreeing to," Weiss says.
"If you're being offered a product or service for free ... the
tipoff would be if you're being asked to enter your credit card or
checking account number to get it," he says. "Stop right there. Why
would you do that? Never do that. Never enter a credit card in
order to get something for free."
Weiss says that he also recommends consumers use a credit card
instead of a debit card in order to take advantage of the greater
protections offered by the Fair Credit Billing Act, which makes
special provisions for consumers to dispute any billing errors on
their credit card statements within 60 days of the first bill.
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