Book Review: Gotcha Capitalism by Bob Sullivan

“The butcher on the corner of days gone by would never think of adding sneaky fees; if he did, he would have been run out of town. But satellite-TV firms and cable companies don’t have offices around the corner. To virtually all Americans, these firms are disembodied entities that exist in some virtual reality a world away; we know them only by the slips of irritating paper they mail us once a month indicating that, once again, we own them more than we think we should. Got a problem? Send off a letter to this disembodied entity in Never Never Land, or worse still, call on the telephone, sit on hold for an hour, and talk to someone who quite literally works a world away, at a phone bank somewhere in India. This detached virtual world is every consumer’s reality right now.” ~ Bob Sullivan

By Jason Worth

Gotcha Capitalism, according to the book’s author, Bob Sullivan, represents the latest evolution in capitalist business tactics designed to extract the most profits possible in the form of “sneaky fees.” These are the fees, penalties, undisclosed charges and other heavy-handed ways of taking your money that large banks and corporations have come up with over the years, in essentially a legal (and sometimes not-so-legal) means to pick your pocket.

Mr. Sullivan’s book is not only chock-full of illustrative examples of these new tactics, but he also gives specific advice on what to look for and how to avoid these sneaky fees. For those wishing to contest and fight fees they believe are unfair, he also provides specific advice, in the form of telephone scripts to use when calling sneaky corporations as well as template letters to send when you want to put your concerns and outrage into writing.

Here are things Mr. Sullivan says you should do or look out for, by industry. For more on Bob Sullivan, and to follow his consumer-oriented blog which is updated daily, go to: bobsullivan.net.

(Disclaimer: Much of what is written below is directly quoted from Mr. Sullivan’s book. For the sake of a cleaner presentation, we are not using quotation marks to show what has been quoted, but most of this is directly from the last page or two of each chapter where he summarizes steps you can take.)

Credit Card Issuers:

  • Always pay your bill in full, and a few days early.
  • Always look at the bill’s due date to make sure they haven’t changed it since your last bill (so they can sock you with an unexpected late charge.)
  • Use online bill pay and automatically send $50 or $100 early every month to ensure you never get hit with a late fee.
  • If you do “fall from grace” and experience a late payment or unpaid balance situation, stop using that credit card immediately and switch your purchasing over to one that doesn’t have a balance; otherwise you will continue to rack up interest charges.
  • If you have “fallen from grace,” don’t wait for your next month’s bill to arrive; pay your balance off as soon as possible to avoid expensive and unnecessary interest charges.
  • Don’t fall for the “same-as-cash” no-interest loans from retailers (often provided toward large purchases like big-screen TVs and appliances); but if you do take one, make sure you pay the balance off very early to avoid huge fees. (If your payment is a minute late or a penny short, they have the right to sock you with potentially hundreds of dollars in interest you’d have paid from the time you bought the item.)
  • Always have one credit card with no balance on it. If you run into a temporary financial glitch and can’t pay your bills one month, you will still have “grace” you can use on the unused card.
  • Don’t be shy about negotiating with your bank over fees. In a survey Mr. Sullivan conducted, he found that credit card firms were much more inclined to issue refunds to complaining customers than other large corporations.
  • If your bank will not work with you, threaten to move your business to another bank. Banks know that it is cheaper to keep an existing client than to find a new one, so they’ll often give concessions at the last minute if they think they’re about to lose a customer.

Banks:

  • Opt out of courtesy overdraft protection. (Although the banks will tell you it’s to your advantage to not bounce a check, they use this as a way to charge you very expensive interest rates on the funds they lend you in those situations.)
  • If possible, link your savings account or credit card to your checking account, so that if you happen to bounce a check they’ll take the money from an account you own which will for sure have a much lower interest rate than the money they would lend you otherwise.
  • Use online banking and keep track of your balance.
  • Consider banking at a credit union, because they tend to charge lower fees than the larger banks. (Plus, they tend to be local firms and you’ll be aiding your local economy in the process.)
  • Find a bank that will refund foreign ATM fees, for those times that you are abroad and need access to cash.
  • Maintain a minimum balance to avoid monthly service fees.
  • If you do overdraw an account, replace the money as soon as possible to avoid per-day charges.
  • Although online bill payment and check settlement speeds are much faster than when Mr. Sullivan wrote this book in 2007, it still doesn’t hurt to assume that any deposit will take several days to clear, even your paycheck, and assume that any checks you write will be deducted almost instantaneously. Have a buffer! Don’t count on having “float” on your funds.

Retirement Brokers and 401(k) Firms:

  • Meet whoever it is in your firm’s human resources department responsible for retirement benefits and discuss hidden fees and expense ratios regarding the plan options you have.
  • Ask about the last time your plan was “put out to bid.” If it’s been awhile, encourage your HR department to ask for bids again. The industry is getting more competitive, and a new third-party administrator might offer cheaper funds.
  • Find expense ratios for the plan options you have by looking them up at independent investing sites. Consider dumping or avoiding funds which have expense ratios greater than 1%.
  • If your HR department is not helpful or transparent enough for you, consider joining with other employees and hiring an independent consultant to assess the expenses of your current 401(k) plan.
  • Avoid company stock, even if the fees are low. Never use more than 10 percent of your 401(k) money to buy company stock.
  • Invest in your 401(k) anyway, at least enough to get any matching funds your employer might provide.
  • Apply the same principles to 403(b) plans and IRAs. Mutual funds in both should be scrutinized for high fees.
  • Annuities should be handled with extreme care. The promise of a steady check is reassuring, but because they are so confusing, they can be easily packed with high up-front fees that eat away at your principal. And in the end, your principal is all you have.
  • Reverse mortgages are like annuities; inspect the terms carefully. The income from them can be a solid alternative for elderly folks who have significant equity in their homes, but the contracts can be complex and enable banks to walk away with as much as 10 percent of a home’s value after day one, in the form of up-front fees.

Mortgages and Rentals:

(Note from the Reviewer: Since Mr. Sullivan wrote this book in 2007, it appears the mortgage industry has changed and the HUD-1 Form and Truth in Lending Act disclosure forms may have been replaced with other documents, such as the Closing Disclosure and Loan Estimate forms. Regardless of the current name of the forms, Mr. Sullivan’s advice would still be to do your research, get informed, and inspect all documents carefully.)

  • Before you start talking with a broker or lender, review a sample HUD-1 form. This will give you a good idea for the various fees and expenses you’ll end up paying when you buy or sell your home or condo. When you get your HUD-1 Settlement Statement, look for “overlap” in fees to make sure you’re not paying for more than one appraisal, origination fee or courier fees.
  • Get several Good Faith Estimates from different lenders, to ensure you’re getting the best deal possible. Make sure you’re comparing very similar mortgage terms, so you can have an accurate apples-to-apples comparison. For peace of mind, go with a firm that guarantees Good Faith Estimates, called an “upfront broker” or “upfront lender.”
  • Shop around. Get several bids for title insurance, which is often the single largest cost associated with your closing.
  • Ask your mortgage broker about yield-spread premiums, which will help you investigate whether they might be steering you toward higher-interest mortgages that benefit them financially. Upfront brokers that guarantee their commissions in writing will give you peace of mind that everything is fully disclosed.
  • Be aware that real estate agents and mortgage brokers aren’t legally required to act in your interest in many cases, and they may be profiting from you in ways that you don’t understand. Always keep them at arm’s length and know that their suggestions to you could be for their own financial benefit.
  • Visit the Internet for helpful advice, including Jack Guttentag’s website, “The Mortgage Professor” at www.mtgprofessor.com/home.aspx. He provides very good general mortgage information and provides a list of upfront brokers and upfront lenders.
  • If you still need assistance, there may be consumer-oriented agencies that, perhaps for a reasonable fee, would be willing to review your closing statement documents, before closing, to call out fees they consider too large or unreasonable. Use the Internet to find such services.

Cellular Service Providers:

  • Negotiate your way out of termination fees and upgrade fees. If you can’t, swap your phone and your plan online using a trading site like CellTradeUSA.com.
  • Use “unlocking software” that will enable you to use your existing phone with other carriers (if and when you decide to switch carriers.)
  • Make sure you aren’t overpaying taxes because you’ve moved but the taxes on your cell plan are based on the area code you no longer live in.
  • Having certainty in your bill rather than surprises might make you want to sign up with a service plan that has slightly more minutes or text messages per month than you’re really likely to use. But, if you are very disciplined, you might consider plans that offer low-minute, free-weekend, low-cost plans.
  • Ask your cellular service provider about their cheapest plans. They may have plans that will save you money that they don’t advertise, for obvious reasons.
  • Use your cellular service provider’s website to monitor your voice, text and data usage limits, to be sure you don’t go over your plan’s amounts and get hit with extra-usage charges. If your provider offers them, sign up for text-message warnings that will warn you that you are approaching or near your limits.
  • Before buying your plan and phone, ask about return policies. After signing up, as soon as possible, test your phone and plan in all of the places you plan to use your phone regularly (home, work, school, etc.) If you don’t receive acceptable service there, return your phone and plan within the prescribed period.
  • Don’t leave the store without getting an answer to the question “How much will my first bill be?” Get their response in writing.
  • Always keep an eye out for better plans from competitors. Even if you can’t switch, you can use these plans as a negotiating tactic with your carrier.

(Note from the Reviewer: Since Mr. Sullivan wrote this book, many cellular service providers have introduced programs where they will pay any termination and switching fees you have to pay to cancel your old contract and switch to their network. But, as with everything else, I’m sure Mr. Sullivan would advise you to read the fine print and ask a lot of questions about these promised refunds, before you make the switch.)

  • Resist extending your contract for a trivial upgrade, such as fifty more free minutes per month. Being flexible to switch cell phone plans will enable you to capture better deals as they arise.
  • Each time you call your cellular service provider, for any reason, they will probably try to get you to extend your agreement. Don’t take the bait and while you are on the phone with them, take the opportunity to confirm the contract expiration date to ensure they haven’t “accidentally” extended your agreement anyways.
  • Just like with banks, threaten to take your business elsewhere if you’re not getting the treatment you deserve. Cellular service providers, like other corporations, have “retention specialists” that you will inevitable have to talk to in order to cancel an agreement or service plan, and they will suddenly find new flexibility when confronted with the likelihood that you are finally quitting them. Also, retention specialists are often empowered to make concessions, rebates and adjustments that other customer service reps are not able to do.

Home Phone Services:

(Note from the reviewer: In the decade that has transpired since Mr. Sullivan wrote Gotcha Capitalism, fewer Americans than ever, including a significant portion of the Millennial generation, are bothering to have a home phone line in addition to cell phones. In light of this decline, I’ll keep this section very short.)

  • Look for unwanted services crammed onto your bill.
  • Verify that your long-distance carrier hasn’t been changed without your consent.
  • Include monthly fees when comparing all-you-can-eat discount calling plans.
  • Always assume there are errors on your bill. Studies show that up to 20 percent of bills have them.
  • When you cancel a phone service, double check that the local phone company has also discontinued the long-distance service portion of your plan. Otherwise, you are still liable for those monthly fees even though you don’t have a working phone to use them.

Pay TV (Satellite and Cable):

  • Some of the most fraudulent and deceptive marketing these days is done by cable and satellite service providers who offer an introductory rate for a limited time (such as three months) only to jump dramatically and without warning the following billing cycle. Look very carefully at the fine print (which often doesn’t even disclose what the post-introductory rates will be) and ask for, in writing, what your monthly fee will be, including taxes and other charges, before signing up for service.
  • Avoid long-term contracts like the plague, and don’t pay for extra TVs you don’t have.
  • Say no to upgrades and upgrade fees, and watch out for phantom upgrades you didn’t approve.
  • Keep an eye on what the competitors are offering and threaten to jump ship for a better offer in order to gain extra negotiating leverage with your current provider.
  • Due to a settlement between DirecTV and state attorneys general in 2005, you should have 60-days from the date of purchase to return satellite equipment if there is a problem with satellite signal strength. Be aware of this right and exercise it (directly with DirecTV) if necessary.
  • Make sure the sporting events you want to watch are available in your neighborhood before signing up for that sports package. Availability can vary by neighborhood.

Internet Service:

  • Check your bill for charges disguised as taxes but which really are not.
  • Check to make sure you’re getting the upload/download speed you are paying for.
  • Avoid long-term contracts, especially since technologies are constantly improving and you might want to change to a better Internet service option.
  • Beware of cable-modem rebates, which sometimes aren’t rebates at all but are instead future-service credits.
  • Make sure “free installation” is really free.
  • Don’t rent DSL or cable modem equipment. You can buy the same equipment yourself and save money.
  • Understand the high cost of quitting satellite broadband before you sign up.

Travel

Hotels:

  • Call ahead and ask the hotel about extra fees (parking fees, resort fees, housekeeping fees, etc.) Inquire about as many as you can think of while you have them on the phone.
  • Don’t touch the mini-bar. Ever. Not even out of curiosity. Some mini-bars have sensors that if an item is picked up and put back into place, you are charged for simply having handling it.
  • Similarly, don’t touch the room phone, either. Even if you don’t use it, watch your bill for extra charges per day relating to the phone you didn’t use.

Airlines:

  • Make sure the price you are quoted includes airport charges and the 9/11-related TSA charges. You may have to click through multiple screens to get that bottom-line price.
  • Don’t be surprised if you have to pay for a meal, baggage service or a premium seat.

Rental Cars:

  • Use websites that provide full-fee pricing while shopping, so you aren’t surprised at the final checkout webpage.
  • Do the math on hotel parking fees before you book your rental car. It may cost less in the end to take taxis and trains than pay high per-day parking fees. Also, consider renting the car for only the day(s) you need it, rather than your entire trip.

Traveling Abroad:

  • Check on credit-card currency-conversion fees before you leave.
  • Plan ahead to withdraw from ATMs that are in your bank’s network.

Groceries:

  • Sign up for loyalty cards if they provide you with savings, but consider swapping those cards with friends or other people so that your purchasing history isn’t tied to you.
  • Look on the highest and lowest shelves. The better deals for consumers usually are not at eye-level. Also, walk the store, since the better deals for consumers are usually furthest from the cash registers.
  • Before you conclude that purchasing more volume is a better deal, use your cell phone’s calculator to divide the price by the volume (ounces, pounds, etc.) to determine what you would be paying on a per-unit basis. Buying in bulk isn’t always a better deal, or may not be enough savings to justify buying more of something you may not ultimately use.
  • Bring a notebook and jot down the prices of items you routinely buy. Have that in your car or purse so that you can more accurately and efficiently comparison shop at other stores.
  • Don’t shop for groceries on an empty stomach. Studies have shown that people buy more when they’re hungry.

Gift Cards:

  • When you buy a gift card, you are entering into a contract with the issuer that gives it (the retailer or bank) the right to charge fees against the gift card balance, if it is not used within a certain period of time. Rather than expose your gift’s recipient to sneaky fees, avoid the cards altogether and give cash.
  • If you decide to give a gift card, understand the “dormancy” fees that will be assessed before buying the card. Retailer gift cards usually have much better dormancy fees than bank gift cards, so opt for the former.
  • Consider taking your business from retailers that have onerous dormancy charges built into their gift card contacts.
  • Carefully consider the recipient of your intended gift card gift, and if they are likely to lose the plastic or forget it in a drawer, think twice before you give a gift that will likely become free profits to the retailer and unused by the recipient.

Rebates:

  • Don’t play the rebate game, and be lured into the hassle of having to mail in a form and proof of purchase in order to get a portion of the purchase price back. For one thing, you many never receive the rebate. For another, you’ll likely be added to some company’s marketing list in the process. Instead, look to see if you can find the same product at another retailer at a price close to the rebated price.
  • If you do decide to take the rebate offer, make sure the price of the product is reasonable before the rebate is factored in. That way, if you ultimately don’t receive the rebate, you still bought something you needed at an acceptable price.
  • Read the rebate terms carefully before buying the product, so you know what is expected of you to receive the money you’re counting on.
  • If you’re buying a rebate-backed product from a store you’ve never shopped at before, you need to do your research not only on the rebate terms itself but on the store you’re buying from. Search on consumer complaint boards to see if other customers have had bad experiences with the unfamiliar store.
  • Be aware that the retailer most likely will not be the one processing your rebate and mailing you a check. These tasks are usually undertaken by third-party fulfillment firms. If something goes wrong, you will most likely be put in touch with this other firm who doesn’t have the same motivations or desires to ensure you are a happy customer of the retailer. They do, however, have to follow the law.
  • Some retailers, like Staples, have worked hard to make their rebate process very simple. Often, this entails a customer simply going to a certain website and typing in a number printed on their sales receipt. If you’re into rebates consider supporting retailers that have made the rebate process easy for you.
  • Ask for the rebated price up front, and avoid going through the rebate process altogether. Some stores may honor the rebate price if you ask, but you won’t know until you ask. Consider walking toward the door if they say “no,” as that could also encourage them to find more flexibility.
  • When you fill out the rebate form:
    • Copy all your paperwork before mailing it in, in case something goes wrong and you need to document your claim later.
    • Fill out the rebate forms and prepare your claim as soon as you get home from the retailer. The longer you wait, the more likely you won’t do it, or something will happen to the forms or proof of purchase that prevents you from following through.
    • Consider including with your rebate claim submission the instruction form for the claim process. Put check marks next to each step that you’ve completed. This will make it harder for the rebate processing company to say you missed a step or forgot to include something, so they can deny your claim.
    • If it’s a particularly large rebate amount, consider sending the claim by an overnight carrier (with package tracking) or with proof of delivery from USPS. This will prove you mailed in a rebate claim, should you need to go that route.
    • Mark your calendar with the date you are supposed to have received the rebate check. Complain to the retailer if your rebate doesn’t arrive by then. If you don’t know when you’re supposed to receive the rebate, it will be very easy to forget about it, and the retailer or fulfillment firm will have succeeded in cheating you out of your rebate.
    • Use the Internet to track the progress of your rebate, if that service if provided with the rebate claim.
    • Don’t overlook the check when it arrives. Many rebate checks come in unmarked envelopes that look like junk-mail from the outside and are discarded as such. Others may come in the form of a postcard that can get stuck inside a magazines and never seen. Having your expected ETA date on a calendar will help you inspect your snail-mail more carefully around the time it is supposed to arrive.
    • If you receive your rebate in the form of a bank card, rather than a check, (which is becoming more common), beware. These bank cards will begin to lose their value if not used within a period of time, sometimes as little as four months from when they were issued. If you receive a bank card, try to use it right away, and be forewarned that these rebate bank cards may not be accepted by merchant card processors as easily as credit cards are. You might have to try more than once before you find a retailer that accepts them for payment.
  • If you have to confront the retailer or rebate processor because your claim was not properly processed:
    • Be proactive, know that your rebate is late or missing (because you’ve tracked it on your calendar) and call or email. Oftentimes a single call will be sufficient. These companies rely on you being forgetful or lethargic, so don’t be.
    • If calling doesn’t work, write a sternly worded demand letter. Start first with the fulfillment house that is responsible for processing the rebate.
    • If you don’t achieve results with the fulfillment center, escalate your complaints to the retailer where you bought the product and the manufacturer who ultimately provided the rebate in the first place. Retailers will often tell you they’re just the middleman and it is the faraway and harder-to-reach manufacturer that is responsible for the rebate. But, know that an important lawsuit settled in March 2005 against retailer CompUSA established that the retailer is responsible for rebates that a manufacturer refused to pay. So, don’t let the retailer off the hook because they claim they’re not responsible.
    • If you still haven’t received your money, write an even testier letter, threatening to file a formal complaint or take legal action. For extra impact, do an Internet search and reference your state’s consumer protection statute that you claim they are afoul of. Consider asking your state’s attorney general consumer affairs office for help, too.
    • As a final straw, you might consider complaining to your state legislator. Over the years, more state legislation has been passed to make the consumer rebate process more transparent and fair, so you might find a legislator willing to help you out.

Student Loans

  • If you make an extra payment intended to reduce your principal balance, make sure to include a note or letter indicating that you want the extra amount to apply toward your principal. Otherwise, you just might end up prepaying interest, which you were trying to avoid doing in the first place.
  • Don’t use student loans to feed bad credit-card spending habits. Be diligent and thoughtful about your debt, and consider using a home equity line of credit, if possible, for debt consolidation purposes instead.
  • If you need to consolidate your debt, try to do so before the in-school, variable rate grace period expires. The lower rate will be used when the new consolidated rate is calculated.
  • You cannot consolidate all of your loans twice. If you think you might need to consolidate a second time, leave one of your loans out of the first consolidation process, and know that you will need to make a minimum number of payments toward the first consolidated loan before you are eligible to consolidate a second time.
  • Exhaust all of your federally-backed student loan options before opting for a student loan from the private banking markets. If you do take out such a loan, take on as little as possible and pay it off as quickly as possible.
  • When shopping for private loans, get rate quotes from at least three lenders. Laws are in force to prevent schools from forcing you to go with a lender that is on their approved lender list.
  • Don’t believe the interest rate you are quoted on private student loans. The actual rate you will pay may be much higher after the bank considers your credit score.
  • Information on penalty fees on student loans is notoriously difficult to find, but can be harsh to endure. These fees end up “capitalized” on the back end of the loan, meaning that you will pay ongoing interest on each fine. Some lenders charge continuous penalty fees, even if you only missed a single payment, by declaring your account delinquent each month. This questionable act is called “pyramiding.” If you ever miss a payment, bring your account current as quickly as possible to avoid repeated penalty fees.
  • When shopping for student loans, ask about penalty fees, origination fees and prepayment fees before selecting a lender.

Finally, for all of the industries listed above, you also have the option of taking (or threatening to take) your complaints to companies like the Better Business Bureau and to agencies like the State Attorney General’s Consumer Affairs Office. In addition, with financial institutions, you can take (or threatening to take) your concerns to the Board of Governors of the Federal Reserve System and the Office of the Comptroller of the Currency.

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