Last Updated March 14, 2008
By Tara Kimura CBC news
Grey in colour, shrunken in size, squeezed to the bottom or back of the page, add-on fees, small surcharges and penalties are easy to overlook until it's too late. But buyers should beware: these days, hidden fees are proving to be across-the-board big business.
However, hidden fees don't have to be a bad thing depending on what kind of consumer you are, says David Laibson, an economics professor at Harvard University. A sophisticated consumer will both sidestep surcharges and take advantage of special deals, he says. All it takes is a bit of shrewd savvy and an understanding how the game is played.
"Wherever you look in the marketplace, if there's a long-term relationship between a firm and a consumer, that relationship is often characterized by upfront benefits flowing to the consumer followed by hidden costs or shrouded costs. That's the way increasingly the world works," said Laibson.
"The relationship begins with some kind of free gift from the firm to the consumer, and over time, the firm takes back that free gift through fees and other charges, not all of which were easy to anticipate at the beginning of the relationship."
Laibson cites the current subprime meltdown as a cautionary tale of what can happen to consumers who skip the fine print. It's not that the homebuyers understood and took risks that they understood, he said. In many cases, consumers were lured by what seemed to be a safe proposal on the surface and were later burned by pre-payment penalties and rising interest rates.
So, what's a consumer to do? It's not enough to just avoid the pricey can of peanuts in the hotel mini-bar anymore. These days, consumers are forking over big bucks for small service charges attached to a range of what appear at first glance to be bargain-priced goods and services. Here are some tips to help you avoid unnecessary hidden costs and unravel special offers that seem too good to be true.
Early rental returns, airline luggage limits hike up final tab
Most consumers expect to pay insurance, mileage and refueling fees when renting cars, but some drivers might be surprised when faced with charges such as early return fees or extra charges for accepting frequent flyer miles from the rental agency.
Booking a flight and picky about having an aisle seat? It'll cost you with some airlines. Consumers should also be mindful of new booking fees being levied for services such as booking by phone, paying with a credit card, paying with a credit card from a foreign country and checking luggage and sports equipment. Some airlines offer bargain-basement prices but have strict luggage limits and charge hefty fees should you exceed their restrictions.
Many consumers figure the charges are so insignificant that it's not worth fighting over a $2 or $3 surcharge. But over the course of a holiday, all these little add-ons can put pressure on a tightly managed budget.
Check out surcharges before checking in
Take for example, checking into a hotel where nightly rates sometimes don't reflect the final price. Aside from the charges guests come to expect — such as telephone, mini-bar and Wi-Fi access fees — consumers may be surprised to find a host of additional costs added to their final tabs.In the early 1990s, some resorts introduced resort fees as a means to offset expenses, according to Mark Bonn, a professor at the Dedman School of Hospitality at Florida State University. Consumers rebelled and complained that the additional fees were not explained when they checked in.
"Guest word of mouth soon spread about how to beat the system with respect to 'resort tax' by declining services such as beach chairs and towels, shuttle service, turn-down service etc.," he said. "It became confrontational in the late 90s and early 2000s as consumers began booking reservations online and failed to notice the extremely small font used to explain the resort-tax program — predominantly … in ads created by online travel companies."Today, some hotels charge resort fees of about $10 to $20 per night to cover tips, activities offered through the hotel or housekeeping services. The collective fees add up, according to Bjorn Hanson, lodging analyst with PricewaterhouseCoopers, who estimated the U.S. lodging industry collected $1.75 billion in hotel fees and surcharges in 2006.
In 2006, disgruntled U.S. consumers challenged resort fees being issued at the Starwood Resorts in a class action lawsuit. Plaintiffs said the hotel chain was not up front about the additional fees — allegations the hotel chain denied. The parties agreed to a settlement, and the hotel said it would modify its disclosure policy and would make clear additional charges when accepting reservations. Similarly, Florida Attorney General Charlie Crist in 2006 reached a $2.3-million settlement with Wyndham International over undisclosed surcharges added onto guests' bills in four hotels.Consumers are best advised to inquire about all additional charges when booking their rooms, asking specifically about the following fees:
Resort fees.
Housekeeping charges.
Business centre fees.
Cancellation and early departure fees.
Internet access fees.
Energy fees — applied in some hotel chains to cover rising energy costs. In December, the Jamaica Hotel and Tourist Association said it was advising its members to consider adding on a $10 nightly energy fee.Pool and gym fees.
Destination marketing fees, collected to promote tourism in the area. In some cases, the fees are optional.
Safe fees, even if the units are not used.
If additional fees are added to your bill that you have not agreed to when checking out, be vocal about it. If the front desk refuses to remove the charges, write the hotel's head office and complain.
Other fees to watch for:
When shopping in a foreign country, consumers should also be mindful that they may be subject to an additional 2.5 per cent charge tacked on to every transaction if they use a credit card issued by TD Canada Trust, RBC, Scotiabank, Bank of Montreal and CIBC. The Canadian Bankers Association says the banks charge the fee as they would for any other service.
Shoppers buying goods from other countries online should also be mindful of fees that will be added to the final costs. PayPal, for instance, charges a 2.5 per cent currency-conversion fee to change funds from Canadian to U.S. dollars. High brokerage fees to bring goods across the border may apply depending on which carrier ships the goods.
Givers of prepaid debit cards and credit cards should also be mindful of activation fees, monthly fees, transmittal fees and helpline service fees that might be deducted from a card's balance.
When hiring a mover, be sure to ask about any additional fees such as packing materials, storage, gas charges, processing fees, etc.
Consumers signing up for a credit card, should also inquire about charges for late payments, cash advances and annual fees.
Likewise, consumers travelling on cruise ships should inquire about any additional fees, including fuel charges, food and beverage fees, daycare charges, port fees, excursion costs and fees for equipment rentals and laundry and internet services.
Ignorant consumers subsidize those in the know
Smart consumers will seek out companies that feature high add-on prices, says Laibson, because they recognize how to avoid paying the additional fees all the while taking advantage of special deals.
For instance, a traveller who checks into a hotel advertised for $80 a night and is careful to avoid all overpriced surcharges will benefit from the low nightly rate. On the other hand, a hotel that does not tack on additional fees to bills but maintains a consistent nightly rate of $100 would not appeal to the savvy traveller, Laibson noted in a 2006 paper published in the Quarterly Journal of Economics.
"People who see and recognize all of those surcharges are less likely to be in the market; they're more likely to withdraw," Laibson said, noting that they might back out of a holiday or a new car purchase.
"[They'll think], I don't need to buy a car now because I recognize they're advertising it's an $18,000 car, but by the time I get out of that place and actually put tires on the thing and have a steering wheel and an engine that works, it's not going to be $18,000. It's going to be $23,000. The sophisticates anticipate all of this and reduce their willingness to buy, or at least they act on their knowledge that the real cost isn't the advertised cost."
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