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| The Basics | How 'stealth inflation' sneaks up on your wallet
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It's not your imagination: In an era of near-zero inflation, you have less to spend. Every surcharge, every fee, every futile hour on the phone is eating away at your spending power.
By Liz Pulliam Weston
If your bills lately have included one too many unpleasant surprises, youre not alone.
Companies and governments are trying to sneak an astonishing variety of fees past us, hoping we wont notice. Unable, or unwilling, to raise revenue the old-fashioned way -- by increasing prices or boosting taxes -- businesses and lawmakers have gotten creative in bleeding us by a thousand cuts.
This so-called stealth inflation takes a number of forms. For example:
Phones: Surcharges and fees add 10% to 20% to the typical phone bill, but most arent mandated. Theyre costs the carriers dont want to absorb and instead pass on to their customers.
Hotels: Many are charging for what used to be free. Rooms at the Golden Nugget in Las Vegas, for example, can be as little as $45 a night. But using the exercise room means youll pay an extra $15. If youre a couple with a baby, youll pay an added $20 a night for the extra guest. Some hotels now charge for maid service or the in-room coffee maker.
Banks and credit card companies: About half of the banking industrys earnings now comes from fees -- late fees, over-limit fees, ATM fees, even fees to get a paper statement or have your checks returned.
Retailers: Restocking fees for returning merchandise are becoming more common -- even if the product was defective.
User fees: Strapped governments are piling on fees as a way to avoid raising taxes. The institution of $5 daily activity fees to park, hike or bike in national forests has prompted widespread backlash.
Bad customer service: This ones more subtle but just as annoying as the others. Companies make mistakes and then make it all but impossible to fix the problem, leading many consumers to just give up rather than get whats coming to them. This latter phenomenon was pointed out by David Pogue, technology writer for The New York Times, who encountered the problem with a cell-phone plan that repeatedly gave him fewer minutes than promised. Every month, the carrier pledged to fix the problem, and every month Pogue had to get back on hold with customer service when the same error was made again.
He conjectured that all this might be part of a pattern of passive-aggressive robbery perpetrated on the premise that a certain percentage of customers won't notice, or won't bother to protest.
Companies insist no such conspiracy is afoot, but after Pogues article appeared, his e-mail box filled with hundreds of readers offering similar examples of their own.
So whats wrong with all this back-door revenue raising? Besides being irritating as heck, its bad policy. Heres why:
Stealth fees distort the market. Capitalism works best when consumers have complete and accurate information about costs. How can you make an informed decision about which hotel, cell-phone plan or retailer to use if you dont know the true price until after youve committed? Stealth fees not only steal your money, they reward the markets inefficient competitors.
Stealth taxes are regressive. Lawmakers often prefer imposing fees to raising taxes, but tax increases are generally progressive: Those who have more, pay more. Fees, on the other hand, hit everybody regardless of their ability to pay. These are just some of the industries where stealth inflation is getting out of hand:
Travel
Big declines in travel, combined with overbuilding, have really squeezed the hotel, airline and rental car industries. Most dont feel like they can boost rates, so they find a bunch of surreptitious ways to increase their take.
In Rental car rip-offs: a survival guide, I discussed how airport and rental car company fees can boost the advertised price of a vehicle by 50%. Airlines increasingly charge for meals and snacks on domestic flights. But its hotels that are pulling out all the surreptitious stops.
Heres a list from PriceWaterhouseCoopers, which tracks these trends and says hotels will rake in $100 million in new fees this year, such as:
- New or stiffer cancellation charges: Some hotels now require up to five days notice or theyll dock your credit card for a nights stay. Leaving early might cost you $50.
- "Resort" or gym fees: Whether or not you actually heft a pair of barbells, you pay an extra $10 to $20 a night.
- Mandatory service charges: It used to be up to you how much to tip the room service waiter or the maid. Now many hotels add a mandatory gratuity of 15% to 20%, plus a delivery fee averaging $2.50. Maid service may be an additional $2 to $3 a day.
- Freebies that arent: In-room coffee. A newspaper automatically delivered to your door. Overnight packages brought to you by the bell staff. Any of these could generate a charge on your bill.
- Even more telephone surcharges: Everybody knows hotel phone rates are a scandal, but now theres a new twist -- surcharges for calls over 20 minutes, along with connection fees for guests who use toll-free numbers or credit cards to circumvent the hideous direct-dial rates.
Most hotels try to head off complaints by disclosing the fees before check-out time -- with placards by the phone, notes in the room service menu or a list by the mini-bar. But that doesnt help consumers who havent checked in yet and who are hunting for the best deal.
The consumers best defense: Call the hotel before you book and ask what extra fees will appear on your bill. Sites like Expedia or Quikbook will reveal the basic room rate and applicable taxes, but youll often need to do a little more footwork if you truly want to compare costs.
Phone companies
Phone companies have a lot of leeway in the fees they charge you, but youd never know it from your bill. Carriers love to use words like federal, national or mandate to convey the idea that its the bad old government forcing them to pass their costs along to you.
In many cases, thats hooey. Some stuff, like taxes and municipal charges, is beyond the carriers control. But phone companies have the flexibility to absorb or pass along a lot of other costs.
Heres a sample, compiled from comparison shopping site SaveOnPhone.com, of frequently used names for charges the carrier chooses to foist on you:
- SLC: Subscriber Line Charge or Federal Subscriber Line Charge
- LNP: Local Number Portability or Number Portability Service Charge
- PICC: Presubscribed Interexchange Carrier Charge, National Access Fee or Carrier Line Charge
- USF: Universal Service Fund or Universal Service Charge
Again, your best defense is to research before you commit. If your friends use the carrier, ask to take a peek at their bills, or, from the carrier, get a list of the fees and surcharges that will appear on your bill. If they resist, insist.
Lenders
Fees used to account for about one-third of bank earnings and 18% of credit card companies income. Today, fees comprise more than half of bank profits -- 51% -- and 35% for credit cards, according to bank card consultant R. K. Hammer. Credit card companies rake in $11 billion in late fees alone.
Lenders help keep the money coming by inventing new fees, or making the older ones tougher to avoid. As I wrote in Dont fall for these stupid credit card tricks, shorter grace periods mean more people miss payment deadlines and pay late fees. Many lenders have imposed cut-off times as well: If your payment doesnt reach them by 1 p.m. on the due date, for example, youll pay a late fee. Some card companies lower your credit limit as you pay down a balance, making it likely that any new charges trigger over-limit fees.
All these fees will be outlined in those fine-print brochures your credit card companies send you. Your best strategy as a consumer is to read those disclosures, and institute the kind of credit card habits that will boost your credit score, as well as reduce the chances youll pay fees. Such as:
- Pay on time. Pay your credit card bill as soon as it comes in -- in full if at all possible.
- Watch your limit. Dont charge more than 30% to 50% of a cards limit.
- Dispute fees. If charged a fee, call and ask the lender to waive it. You may not succeed, but many credit card companies will drop a fee rather than lose a good customer.
User fees
The federal government may be looking at a $1 trillion deficit over the next few years, but Uncle Sam isnt the only one struggling to make ends meet. The recession and the stock market bust also blew big holes in many state and local governments.
All together, state governments faced an $80 billion deficit this year and a total $200 billion cumulative budget gap since fiscal year 2001, according to the National Conference of State Legislatures.
Fees were the most popular way to bridge the gap. The states levied nearly $2.6 billion through more than 200 different fee increases, according to a conference survey. That compares to $1.8 billion raised through increased personal income taxes and $456 million through corporate tax increases. The most popular fee increases focused on:
- Health care: One example is increased fees for clinics.
- Motor vehicles: The tripling of the car tax in California helped lead to the recall of Gray Davis as governor.
- The courts: Revenue is generated through higher filing fees and other tolls.
Other targets include higher permit fees for hunting, camping, hiking and hazardous waste disposal.
User fees can be tough to avoid, so if you dont like them, call your lawmakers and complain. Stealth inflation is harder to pull off when people notice and make their opinions known.
By the way, most of the price increases Ive outlined are, in fact, stealthy only in the sense that consumers might not anticipate them. Most actually are reflected in the official measure of inflation: the Consumer Price Index maintained by the U.S. Bureau of Labor Statistics.
The exceptions:
- Credit card late payments: The bureau has decided these are a form of interest payment, and the CPI doesnt include interest.
- Bad customer service: This one would be pretty hard to quantify -- how do you value a consumers time spent on hold, the cost of aggravation or the value of mistakes that rarely seem to be in the consumer's favor?
The bureau tracks the rest, from phone fees to hotel surcharges, by looking at a mix of what urban consumers actually spend.
Were better than (critics) give us credit for, said Steve Reed, BLS economist. People criticize us, and sometimes rightly so, but its not as if we havent at least thought about these issues.
Liz Pulliam Weston's column appears every Monday and Thursday, exclusively on MSN Money. She also answers reader questions in the Your Money message board.
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