Consumers Fighting Back at Hidden Fees
2/27/2008
Source: By Tony Pugh, MCCLATCHY NEWSPAPERS

WASHINGTON --Hidden fees and surcharges that drive up the cost of everything are spreading like wildfire, creating a nuisance for U.S. consumers and making truth in billing little more than a hollow promise.

Some hotels impose automatic towel, bellman and grounds-keeping fees.

Airlines charge up to $25 to check an extra bag. Want to terminate your cell phone service? Don't be surprised by a $200 cancellation fee.

Many of the charges are undisclosed, buried in contract fine print or listed as an unclear line item on a bill.

While the costly fees get our blood boiling, the smaller ones have turned the marketplace into a minefield of nickel-and-dime charges. These smaller fees typically range from less than $1 to roughly $10, depending on the goods or services involved.

For years, consumers ignored them because they were relatively small and weren't worth the hassle to fight. But multiply those small amounts by millions of customers and they become a multibillion-dollar corporate windfall.

A 2006 study by the Ponemon Institute, an independent business-research firm, found that the average adult pays about $942 each year in hidden fees and surcharges.

The study's results are featured in a new book, Gotcha Capitalism, by consumer advocate Bob Sullivan, who called the fees the "fastest-growing white-collar crime in America," even bigger than identity theft.

Class-action lawsuits are the preferred choice for fee-based suits because individual cases over small amounts of money aren't worth the legal fees and aren't profitable enough for lawyers to pursue.

The Kentucky case

Many class-action cases begin like the suit that Andrew Jones filed against JP Morgan Chase Bank in December.

Jones, the owner of Woody's Fine Foods & Spirits in Richmond, Ky., claims that the bank wrongly charged him $30,000 in overdraft fees over several years. Jones' money problems began when restoring the restaurant cost more than expected, but they worsened, he claims, because of his bank's method of posting debits and credits to his account.

Instead of rejecting transactions for insufficient funds, many banks now cover their accountholders' overdrafts and charge an average of $35 for the service.

Consumer advocates say that banks increase their overdraft fees by debiting larger checks before smaller ones that are drawn on the account in the same period. Doing so assures that a larger number of checks bounce if the client has insufficient funds, resulting in more fees for the bank.

Jones, 39, said that this activity, along with the bank's failure to deposit his restaurant credit-card receipts in a timely manner, led him to incur many of the overdraft charges.

"There is nothing that ... could ever heal the two-and-a-half years of mental and emotional anguish that I endured at the hands of Chase bank," Jones said.

As a possible first step toward a class-action designation for the case, Jones' attorney, Roger Oliver, said he was considering advertising to see whether other Chase customers had had similar experiences.

Chase officials declined to comment on Jones' case, but have denied his allegations and sought a dismissal of the suit. Chase asserted, among other arguments, that Jones' problems were of his own doing, the state court lacks jurisdiction and Jones' grievances should be arbitrated.

Relief on Internet

After years of being squeezed, customers are fighting back. Just calling to complain satisfies many people. Others use Internet sites such as Complaints.com, PlanetFeedback.com, Callfor action.org and ConsumerXchange.com to help settle disputes. If those channels fail, they turn to the courts.

A federal law that limited securities class actions by shareholders also has caused more lawyers to gravitate toward consumer cases.

"There has a been a significant uptick in consumer class actions as a result," said Andrew Sandler, co-chairman of the American Bar Association's consumer and personal rights subcommittee. "... There's lots and lots of litigation against financial service (providers), with respect to utility bills, telephone bills, cell phone bills, credit cards, store charges and store value cards."

The disputes reflect a changing marketplace, in which frustrated consumers are pushing to make advertised prices meaningful again.

"Part of what you're seeing is a growing resentment of these abuses that are constant in our daily lives," said Ira Rheingold, the executive director of the National Association of Consumer Advocates.

Commercial banks were on pace to reap $38 billion in fees from deposit accounts in 2007, according to the Federal Deposit Insurance Corp. The entire financial-service sector pockets more than $216 billion annually in related fees, says Consumer Reports.

Corporate America largely dismisses concerns that the extra charges are price gouging. It defends them as a valid way to cover the cost of providing services and of meeting regulatory requirements.

But problems arise when customers don't know what triggers the fees.

Regulators also have taken notice of add-on fees, particularly in the hotel industry, which collected nearly $2 billion in such fees last year, up from $550 million in 2002, according to PricewaterhouseCoopers.