Consumers beware: Overbilling is common

As hidden fees spread, customers pay billions in erroneous charges.

Americans accustomed to paying bills after a quick glance should perhaps be approaching the task with a calculator and customer-service number at their side.

Consumers' monthly statements are riddled with errors, hidden fees, and even fabricated charges, experts say. Companies are increasingly disguising extra costs - tacked on to the bottom of the invoice - in terminology as cryptic as Sanskrit.

The exact scope of the problem isn't known, but consumer groups estimate that Americans now lose billions of dollars each year to needless and unjust charges.

Deceptive or erroneous billing practices are most common among industries that handle a large volume of customer accounts. This includes cable-TV and credit-card firms, electric utilities, and local and long-distance telephone companies. It doesn't help that bills have become as ubiquitous as fliers for free rug shampoos.

"These errors have certainly become more common since telecom reform" in 1996, says Mark Cooper, director of research at the Consumer Federation of America in Washington.

Possible explanations for bad billing range from a growing emphasis on speed in processing accounts to companies' increasingly brazen efforts to boost profits.

Yet many advocates also place responsibility for the continued abuse with customers themselves. They point to a psychology of trust in corporations, left over from an era when one company, like AT&T, set the lone standard for prices and services.

It's a risky mentality, consumer advocates argue, at a time when even the most trusted companies now fix advertisements to invoices, and consistently solicit new business in letters sprinkled with asterisks and fine print.

Linda Schutz of St. Marys, Pa., believes her credit-card company intentionally waited weeks to mail out her first bill, so it could charge her a late fee.

Later, the company said it would cost her $18 to get a copy of her statement. "The statements say: 'Please call this number.' And then there's no number on the paper," says Ms. Schutz, who has been trying without success to terminate the account.

Serious billing problems come in many flavors, including:

• Hidden fees not included in advertised rates, but often written in fine print.

• Unitemized bills that list the balance due without breaking apart the fees.

• Human error, in which a customer-service agent inputs incorrect data or places an order for the wrong customer.

Sometimes, as companies grow, computer-based billing systems that may be 10 years old have trouble keeping up with demand.

Meanwhile, many utilities have cut their workforces to shave costs. Today, it's rare for more than one service agent to look over customer orders, while 20 years ago the numbers were likely checked twice, according to Kathryn Dunham, vice president of The Billing College, a Teaneck, N.J.-based billing consultancy.

But human error provokes only a fraction of billing problems, experts say. More than ever, companies are employing small print and bewildering verbiage to prompt customers to unwittingly sign up for new services.

"There are legitimate ways to trick people into buying things they don't need," says Peter Laws, owner of Teleguard, a Plano, Texas, firm that reviews corporate phone bills for errors.

And among industries, he says telephone companies may be the most duplicitous. Common tactics include selling Internet and 1-800 services they describe as free, but that cost about $20 after the first 10 days of service. Others send consumers checks in the mail, which, when cashed, automatically switch their long-distance service to a new carrier.

Such billing issues spawned more more than half of the consumer complaints to the Federal Communications Commission between April and June.

The Federal Trade Commission, too, is taking notice. Earlier this month, the FTC settled a lawsuit with two local telephone billing companies, arguing that they crammed bills with phantom "activation" and calling-card fees for services they had not ordered.

Most experts agree that corporate standards in handling customer accounts have degraded considerably in the past decade.

Local telephone and cable-TV operators have become more audacious with additional fees, especially when they hold near-monopolies, experts say.

Some trace the uptick in complexity to 1996, when Congress deregulated the telecommunications industry.

The law was intended to invite competition among local telephone, long distance, and cable providers. One consequence: Each industry is attempting to shirk certain shared costs.

As that gets sorted out, the companies have broken out some of these fees from their advertised rates. But the charges still show up at the bottom of bills.

Then there's the processing fee - a bill some firms charge to cover the cost of billing.

"You have to pay $8 even if you don't make a single call," says Mr. Cooper of the consumer federation.

Seven dollars of add-ons surprised Cody Utzman when he received his first local phone bills in the mail.

"There turned out to be a line-service fee and a number of other taxes," says Mr. Utzman. "They don't tell you that it will cost $46.95 when you sign up for $39.95."

Watchdogging by regulators and consumer advocates can only go so far, however, because of consumers' tendency to ignore all corporate mail - such as fine print about billing.

"We're cognitive misers," says Fredric Kropp, a professor of marketing at the Monterey Institute of International Studies. "We can't devote attention to all these details in our lives."

Many consumers, he says, have an unreasonable faith that large organizations always do the right thing. "It's an authority figure," Kropp says. "If AT&T does it, the logic goes, it must be OK."

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