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| The Basics | How to fight all those hidden charges
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Seemingly unavoidable fees and 'mandatory taxes' are everywhere, from your cell-phone bill to your 401(k). Here's how to spot them and say no.
By Liz Pulliam Weston
Your first cell-phone bill after signing up with a new carrier is usually a shock.
Even if you manage to avoid long-distance, roaming and extra-minute charges, youre faced with a bewildering array of vaguely official-looking add-ons: Federal Recovery Fee. Federal E911 Fee. Number Portability Service Charge.
If youve got a vague sense that these charges have been multiplying like bunnies lately, youre not wrong. And while cell-phone companies aren't alone in trying to slip hidden fees past unwary consumers (more on that below), they're the only ones gutsy enough to charge for services they haven't delivered yet.
Since January 2002, wireless providers have charged their customers nearly $1 billion in additional fees, purportedly to pay for federally mandated programs like phone number portability and emergency 911 locator services for cell phones. Thats according to the Center for Public Integrity, which is tracking the trend.
The problem? Most wireless carriers began charging these fees far in advance of the services being available to the customers paying for them. Number portability didnt go into effect until November 2003, and E911 service still isnt available in many parts of the country.
Using the fees for other purposes
While the actual costs of number portability are still unclear, the center and other consumer advocates say the charges are well in excess of wireless companies outlays. Some companies have even admitted they were using the fees to offset marketing and other expenses.
Meanwhile, the charges continue to add up:
- Wireless carriers had pocketed $629 million by October 2003, when the center first documented the trend, the Center for Public Integrity said.
- Since then, monthly charges have increased, the center said, for a total of $937 million collected by April 2004.
- As a whole, carriers are now charging their users $94 million a month, the center said.
The Federal Communications Commission, which regulates carriers, has so far declined to get involved.
Consumers have limited leeway to avoid these charges. By the time they discover the fees, theyre usually locked into a one- to two-year contract and cant escape without paying an early termination fee of $150 to $200.
Of course, your cell-phone bill isnt the only place your wallet is being picked on the sly. As I wrote in How 'stealth inflation' sneaks up on your wallet, hidden and excess fees are proliferating just about everywhere you look, from restocking fees at retailers to resort fees at chain hotels.
Here are several more places where youll find sneaky fees waiting to pounce:
Auto lending
You already know that car dealerships have plenty of leeway to negotiate on price. What you may not know is that the loan rate youre offered might be even more inflated than the sticker price. The car lot can legally and secretly add up to three percentage points to the interest rate offered by its auto finance company -- and pocket most or all of that excess interest as pure profit.
The difference in rates could add about $1,700 to the cost of a $20,000 five-year loan.
The finance arms of General Motors and Nissan recently settled lawsuits filed by African-American customers who charged that the rate-inflation policies were used disproportionately against minority buyers. Other major auto-finance companies currently are battling similar lawsuits.
Here are ways you can fight back:- Know your FICO credit scores and the rates for which you qualify. You can get your scores from MyFico.com which can also give you an idea of the average rates paid by other consumers with similar scores.
- Look for financing from your credit union or bank. Get at least three quotes. Dont worry about your rate-shopping hurting your credit score; as long as you get the quotes within a two-week period, theyll be counted as just one inquiry.
- Dont be lured by low-rate offers. You need good-to-excellent credit to qualify for those 0% deals, and you may find you still cant afford the monthly payments. (Some 0% come-ons are for five-year loans, but some require repayment in three years -- significantly boosting your monthly outlay.) Many buyers who enter the lot looking for a low-rate deal wind up with higher-rate financing. You can also get a credit report here.
- If you got stuck with a high rate, see if you can refinance. You may be able to qualify for a better loan with your credit union or bank.
401(k) fees
It used to be like pulling teeth trying to get information from your employer about what your 401(k) or other workplace retirement plan was costing you. Thats because, in most cases, the employers themselves had no idea what was being charged. A Dalbar study in the early 1990s showed 78% of companies did not know their plans costs.
In the wake of mutual-fund trading scandals, however, more employers are demanding to know, said Pam Hess, a defined contribution consultant for Hewitt Associates. The firm plans to publish its findings about 401(k) fees in June. Better disclosure is helping some plans negotiate better deals, Hess said.
This is important, since you -- and not your company -- pay the bulk of 401(k), 403(b) and other workplace retirement plan expenses. Whether the charges are itemized on your statements, or, more commonly, silently deducted from your returns, youre paying the price.
A cost difference of just 1% annually can have a huge effect on your future nest egg. A worker with a $49,000 balance in a plan could wind up with $82,000 less if his expenses average 1.5% over 30 years instead of .5%, Hewitt estimates.
Now, just about any 401(k) plan is better than no plan at all, so dont let fear of fees keep you from contributing. But workers who agitate for better disclosure and lower fees have had luck driving changes at some companies, Hess said.
If you cant get an accounting from your plan or your employer, look out for these warning signs that youre paying too much:- Your plan offers regular mutual funds. If your plan offers the same funds that any small-time retail investor can buy, you're probably paying too much. When buying retail funds, a plan with $100 million in assets is paying the same as someone off the street investing $1,000, Hess said, instead of using its size to win discounted expenses. Many popular funds are available in institutional versions with substantially lower expenses. And some plans also offer "commingled" or separate accounts, which lack the public track record of most funds but also have discounted expenses. Look for funds with expenses of 0.5% or less. (You can check a fund's expense ratio on MSN Money by looking at a Snapshot page like this one for the Vanguard Institutional Index fund and scrolling down to the "Fees and Expenses" section.
- Youre with a small plan. Unfortunately, small employers often wind up with the costliest plan options, either out of ignorance or because they dont have enough workers to attract the bigger, lower-cost providers. Theres not much you can do beyond encouraging your employer to look for the best deal -- or looking for a job at a bigger company.
- Your options are variable annuities. Variable annuities have an added cost known as mortality and expense or M&E, which is designed to cover the investments insurance features (typically a death benefit that few employees will ever use). While some plans, like TIAA-CREFs, specialize in keeping expenses low, other providers can pump up M&E and ongoing investment charges to the point where the annuities cost 1 or 2 percentage points more than a comparable mutual fund.
If you have options besides variable annuities, choose them. If you dont, ask your employer to provide some.
Travel fees
For years, the major travel-comparison sites charged their customers for booking airfares -- they just werent upfront about it, typically tucking the fee into a catch-all for taxes and service charges, if it was disclosed at all.
For a long time, the sites werent as transparent as they could have been, said Beau Brendler, director of Consumer WebWatch, which evaluates online travel sites. A lot of people were surprised that they were charged for booking a ticket.
Today, the three majors -- Expedia, Travelocity and Orbitz -- include the $5 to $15 fees in the airfares they quote and disclose them as specific line items before asking a traveler to book the trip.
But there are still plenty of other fees you might easily miss. Travelocity and Orbitz, for example, impose a $30 fee of their own when you make changes to a ticket. Thats on top of the $25 to $100 the airlines typically charge; CheapTickets fee for changes is $50. Changing or canceling hotel reservations can also incur a $25 fee at most sites.
The sites typically dont disclose if theyre charging a fee for booking discounted hotel rooms, but Brendler recommends anyone interested in the cheapest rooms spend plenty of time comparing the options at different sites -- and then call some hotels in your city of choice.
A lot of times we found a better deal going directly to the hotel, Brendler said.
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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