SPECIAL REPORT: Customers lose $14 billion in hidden fees


by Diane Moca

WAUKESHA -- The average consumer spent more than $350 in 2011 on their credit or debit cards for things they didn't want and may not have even known they were paying for, according to consumer financial security service BillGuard.

Experts say the bottom line on these hidden fees is that you are at risk if you aren't checking your bank and credit card statements.
One example of such hidden fees are called zombie charges.

Just like zombie characters that scare us in horror films, zombie charges are haunting many of us in our high-tech life.

But these modern zombies aren't fictional or easy to identify like the ones in old movies.
Zombie charges are not always discovered for months and show up in your bills when a previously canceled subscription comes back from the dead to haunt you.

"That's where maybe you sign up for a gym membership, and you cancel the membership. And maybe the time period expires and suddenly you start getting charged that $19.99 a month again," explained certified financial planner Tony Drake.

And just like those creepy creatures from the grave, these modern zombies may have been stirred up by a little bit of evil.

Drake says the companies that bill for a membership that was canceled may say: "Oh, I don't know how that happened! But the pattern seems to indicate it's an intentional process."

Such fees can take a big bite out of your wallet, because companies are collecting $14 billion annually through grey charges.

According to a new report from BillGuard, the 10 grey charges include:

1) Free-to-Paid Trial, where a consumer receives goods or services for free (or at a nominal fee) for a trial period. After the trial period, the seller automatically charges a fee unless the consumer cancels or returns the goods or services.
2) Phantom Charges, where a consumer unwittingly orders an additional product or service that may come from someone else besides the company that sold the initial order.
3) Service and Luxury Fees, which are unwanted fees consumers don't realize will be charged to acquire luxury items or for the privilege of processing a special request.
4) Unintended Subscription, where a consumer completes a one-time transaction that turns into an unwanted ongoing bill.
5) Misleading Advertising, when a consumer is presented with false promises, unsubstantiated claims, incomplete descriptions, partial disclosures, or visual distortion of the product or qualifications presented in small print.
6) Memberships, where a consumer joins a club that provides products or services at a discounted price on a regular basis unless the club is notified not to send anything. If the consumer takes no action, the seller still charges the consumer and sends goods regardless of whether there is a new order.
7) Unwanted Auto Renewal, when a consumer inadvertently enters into an annual agreement to purchase goods or services. If the consumer does not cancel the arrangement prior to the deadline, the seller automatically renews and bills the customer without notice.
8) Unintended Purchase, which happens as a result of misleading information during a sign-up process.
9) Hidden Fees, which are extra charges that were added to the price even though they were not disclosed or were deceptively disclosed.
10) Zombie Charges, which is a subscription or membership that doesn't end even after it has been canceled.

Experts say consumers can protect themselves by taking several steps:

1) Using credit cards rather than debit cards, because credit cards have more protections in a dispute.
2) Paying attention before and after paying, by reading the small print and checking each credit card bill and bank statement carefully.
3) Downloading a credit monitoring app. One example is available at this link: https://www.billguard.com/

The president of Drake and Associates says grey charges are unethical but legal.

BillGuard says only one out of 10 people thoroughly check every credit card bill and bank statement to be sure no zombies are lurking in the shadows. Most consumers just skim statements quickly for large purchases and don't catch the smaller ones.

But even savvy consumers get dinged with devious fees, like Amanda LaVenture, who works for a financial advisor and is careful about her online purchases.

"I was very shocked," remembered LaVenture, an avid runner who had to chase down some answers when she got an email about an unknown $65 charge that was deducted from her checking account.

She said if she hadn't seen the message in an email account she seldom checks, her account would have gone negative while paying her other bills because she did not plan for any surprise fee and she doesn't check her bank account daily.

"I was mad, and I told them they needed to reverse it," recalled LaVenture, who said she got no response to multiple email complaints.

"I had to figure out how to budget for that week and pay my other bills with money from my savings. It was just a headache. It's frustrating," noted LaVenture.

She said the initial email was from Active.com, though she "could not remember for the life of me when I had signed up for that."

Three days later LaVenture got an explanation, that the charge snuck up on her when she was signing up a month earlier for the Color Run, a 5k race mixing together marathon runners and paint.

She didn't know the Color Run website was mixing together registrations and website memberships to the online running community, which charged LaVenture a fee without her knowledge. She remembers checking a box asking if she wanted more "information" about running but not agreeing to any extra charges.

"I think those types of things are sneaky and deceptive," insisted LaVenture.

BillGuard's new report says such Unintended Subscriptions trip up customers 15 million times a year.
Experts say a Free-To-Paid Trial is even more common, with 115 million transactions annually, often when cable companies convince customers to try premium channels for no cost.

The study says businesses collected $6 billion last year for such free offers.

"Sometimes if you're persistent enough you can get refunded for those months you were charged; sometimes they're gonna say, That's something you signed up for. You didn't opt out. We'll cancel it now, but you're still on the hook for what was charged," noted Drake.

Even an experienced financial advisor like Drake can end up turning red over grey charges.

He said he ordered a bottle of vitamin supplements and was surprised when another bottle showed up the next month, and the month after that.

"Everything was pretty clear, at least in my mind, I was ordering one bottle," Drake recalled. "I was pretty caught off guard, a little embarrassed frankly."

The new report says one in three card holders will get dinged with devious fees and pay an average of $215 dollars a year on them.

"A lot of companies get away with it because it is disclosed in the fine print," explained Drake.

The Federal Trade Commission is suing one company that allegedly sent people texts with horoscopes and love tips and then added $9.99 onto their cell phone bill for the unsolicited advice.

BillGuard says most grey charges are small amounts ranging from $12 to $18.

"The reality, though, is these charges really do add up," noted Drake.

"If it's $20 here, $30 there, some people would just forego the call and just eat the cost. And they're making money off people by doing that," said LaVenture.

Experts say companies realize that many people are no longer balancing their checkbooks or tracking their credit card purchases as life gets busier.

But BillGuard says companies pay out millions in refunds and additional costs to handle complaints and sometimes turn devoted consumers into disgruntled customers.

LaVenture said after Active.com tried to trick her into joining, "I probably don't want to be a part of that type of organization."

If you have a story you'd like us to investigate, send an email to dmoca@cbs58.com.


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