I’m reviewing the book Gotcha Capitalism today. I first heard about the book on public radio. The author Bob Sullivan was interviewed on Fresh Air by Terry Gross and on Marketplace by Tess Vigeland.
This book is about the annoying fees and the disingenuous pricing and marketing schemes we face every day from many places. You know those fees. They are everywhere. I also wrote about a few of them in the past: ATM surcharges, bank overdraft or NSF fees, credit card late fees, 12-month-same-as-cash deferred interests, finance charge in insurance payment plans, 401(k) plan admin fees, and numerous fees in VUL policies. There are also many more I haven’t touched on: airline excess baggage fees, cell phone early termination fees, hotel parking fees, many mysterious line items on rental car contracts and telephone bills, etc. etc.
Some of these fees are more of a nuisance while some (like 401(k) plan admin fees and VUL fees) are more serious. The author puts it very elegantly:
“Sneaky fees peck away at us like a swarm of mosquitoes that ruin an otherwise beautiful summer evening. And like mosquitoes, an individual bite might seem trivial, barely more than a nuisance, but repeated bites can actually change the way you live. They chase you inside, make you build a screened porch, and in extreme cases make you sick.” (p. 4)
The book primarily serves two purposes: (1) expose the various fees; and (2) provide tips and strategies for fighting back on these fees. It’s not a surprise that most of the fees the book talks about are from services, not physical products, because when you buy physical products, if you don’t like the final amount, you can return them (most of the time, except when you buy a car). A lot of the services involved are also sold by a monopoly or an oligopoly, for example land line telephone and cable TV.
Why are there so many fees and what should we do about them? The author says there are a lot of fees because businesses engage in “shrouding” which attempts to make the true cost of their service look lower than it actually is. They put in these fee traps to catch the “myopes.”
Myopes are customers who are drawn to the headline sticker price — “free checking” or “$39.99 a month” — but who can’t understand the total cost before they sign up or who are not able to navigate through the minefields of fees and after-charges. People are usually overconfident. They think they won’t bounce a check or they will always be able to refill the gas tank before they return the rental car. But for all consumers as a whole, some people eventually fall prey to those gotchas.
The art and science of complaining are a big emphasis of this book. In the author’s own words,
“This book is designed to make you an expert complainer. Not a whiney complainer, not a bitchy person, and not a penny-wise and pound-foolish consumer. A well-informed, successful, efficient complainer.” (p. 31)
The book provides estimated rate of success on reversing different fees so you can pick your battles. It also provides sample call scripts, letters and information on regulatory agencies for different industries.
This small paperback (selling for $10.46 on Amazon) is packed with good information. It is very worthwhile reading. If you can’t get hold of the book yet, you can at least listen to the interviews I linked at the beginning of this post.
If I have to criticize it, I have to say the author didn’t emphasize enough a very important weapon consumers have. That is voting by your wallet. Don’t buy the service if you think the pricing is unfair or too complex. Favor businesses that have more transparent and straight forward pricing.
For example I don’t subscribe to cable TV. I have no appetite for signing up for a promo rate for 6 months and calling the retention department every 6 months for a lower rate. I simply refuse to play their game. Netflix is much more straight forward.
I also don’t subscribe to any cell phone contract. I use a prepaid service. The per-minute cost is higher but I pay for what I use. There’s never any surprise. I fly Southwest Airlines, which doesn’t charge a change fee, even if their fare isn’t always the lowest.
Most of the time, there are alternatives to tricky prices. If banks are evil, use a credit union. Burn me once, shame on you. Burn me twice, shame on me. If you stay away from businesses with unfair or complex pricing schemes, you are less likely to be charged those fees in the first place and you won’t have to worry about how to stage your complaint and get your fees refunded.
Also, because it was written by a journalist, the examples in the book are sometimes on the sensational side.
Take credit card fees for example. The book told a story about a Mr. Wesley Wannemacher, who charged $3,200 for his wedding on a credit card and never used the card again. Because he went over the card’s $3,000 credit limit, he was charged an over-the-limit fee. And because he didn’t make enough payment to bring the balance below the credit limit, he was charged an over-the-limit fee again in the next month, and the next month.
All told, he was charged the over-the-limit fee 47 times. Because he was also consistently late in making the payments, he was also charged a late fee more than 30 times. I mean, come on, if it stings, stop doing that. Pay it down, ask for a credit limit increase, or transfer the balance to another card with a higher credit limit. If nobody is willing to offer you a higher limit, that tells you something, doesn’t it?
- Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets by Xavier Gabaix and David Laibson – A research paper by MIT and Harvard professors which forms the theoretical foundation for the book.
See All Your Accounts In One Place
Track your net worth, asset allocation, and portfolio performance with free financial tools from Personal Capital.