How to fight all those hidden charges

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, you're faced with a bewildering array of vaguely official-looking add-ons: Federal Recovery Fee. Federal E911 Fee. Number Portability Service Charge.

If you've got a vague sense that these charges have been multiplying like bunnies lately, you're 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. That's 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 didn't go into effect until November 2003, and E911 service still isn't 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, they're usually locked into a one- to two-year contract and can't escape without paying an early termination fee of $150 to $200.

Of course, your cell-phone bill isn't the only place your wallet is being picked on the sly. 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 you'll 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 you're 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. Don't worry about your rate-shopping hurting your credit score; as long as you get the quotes within a two-week period, they'll be counted as just one inquiry.

• Don't be lured by low-rate offers. You need good-to-excellent credit to qualify for those 0% deals, and you may find you still can't 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. That's 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.

Continued: Small fees add up

 1 | 2 | next >