Why Hidden Fees Are a Big Deal

If you want more toppings on your pizza, you pay extra. If you need to check a bag on your flight, it costs you more.

Heck, even if you don't need something â€" you'll pay.

I refer, of course, to yesterday's Federal Communications Commission action, in which the agency proposed a total of $11.7 million in fines against four wireless companies that appear to have unlawfully billed tens of thousands of consumers for unauthorized charges â€" a practice known as "cramming."

The proposed penalties were issued against Main Street Telephone ($4.2 million); VoiceNet Telephone ($3 million); Cheap2Dial Telephone ($3 million) and Norristown Telephone ($1.5 million).

"Cramming" is when a company places charges on a consumer's phone bill without authorization. The mystery fees typically range from $1.99 to as much as $19.99 per month, according to the FCC. They're frequently buried in multi-page phone bills and have misleading labels that make it difficult for a consumer to detect them.

The FCC says only about one tenth of one percent used the services for which they were charged.

It all makes you wonder if there's a right way and a wrong way to handle fees. Yes, there is.

Disclosure, disclosure, disclosure. The best surcharges â€" and as a consumer advocate, I use the word "best" loosely â€" are clearly disclosed. That means they're not buried three clicks into a website or at the bottom of a bill. How do you know if your disclosure is adequate? Here's a tip: If your customers complain and the government threatens to regulate disclosure, chances are you need to do some work. Deception isn't a business model. It's lying.

Explain the fees. Vagueness isn't appreciated by your customers and it isn't tolerated by regulators. If you can't explain what a fee is for in a concise way, then maybe it doesn't belong there in the first place. The FCC's actions addressed amorphous surcharges, but in real life, it's not hard to find examples of other undetermined fees. I just heard from a reader who was charged a "facilities" fee at a parking garage, added to the cost of his ticket. Funny, I thought that's what the parking charge covered.

Give customers a choice. All "mandatory" fees should be included in the price of a product. It's just as simple as that. I encounter this problem all the time with hotels that add a mandatory "resort" fee of up to $20 a night to their rooms. No, those fees should be part of the room rate. Otherwise, it just looks as if the hotel is trying to make its accommodations appear to be cheaper than they are. That's dishonest.

Add new fees for new services. One troublesome aspect of the "a la carte" fee revolution is that companies took items that once were included and "unbundled" the price, breaking out items that were previously a part of the product. While this made products appear cheaper, it had the net effect of making most customers pay more in the end. (You can see this with airlines and wireless companies, for example). A better way is to leave the product alone and charge more for new services that didn't exist before, such as Wi-Fi on flights or new messaging services on phones.

Don't lie about customers' motives. The most irritating part of fees is that companies claim their customers asked for them. They say things like, "Our customers don't want to subsidize a service for other customers." That's incredibly disingenuous. No one ever asked to pay a fee. In fact, a vast majority of customers I talk with would rather pay a low price that includes all of the fees, instead of being nickeled and dimed. But do market researchers ever ask those questions? No, they do not.

Fees are a slippery slope for any businesses. Unless you explain the extras, disclose them, offer people a choice and don't play price games, your business could unleash the wrath of its customers.

You don't want to go there.


Christopher Elliott is a consumer advocate, syndicated columnist and curator of the On Your Side wiki. He also covers customer service for the Mint.com blog. You can follow Elliott on Twitter, Facebook or his personal blog, Elliott.org or email him directly.
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