6 Rip-Off Tip-Offs
Stop right there. Put your money away. A lot of people are after your cash, and you, quite understand_ably, would
Stop right there. Put your money away. A lot of people are after your cash, and you, quite understand_ably, would like to hold on to as much of it as you can. It won’t be easy: Last year, Americans frittered away more than $1.2 billion on dubious deals, an average of $2,057 for every consumer, according to the Federal Trade Commission. How do you tell the bargains from the boondoggles? Here’s a look at seven offers that often don’t pay off, plus smart ways to save your hard-earned money.
1. Travel Discount Clubs
Vincent and Linda Schreckenberg were vacationing in Branson, Missouri, when they were offered an enticing deal: free tickets to a show in exchange for attending Travel More Now’s 90-minute sales presentation. “We had no intention of joining a travel club,” admits Linda, 58, “but the sales reps told us we could go anywhere we wanted and that everything-restaurants, cruises, hotels, airfare-would be drastically discounted.”
The Schreckenbergs balked at the $8,000 membership fee until the salesperson got it down to $2,604. The couple paid with their MasterCard and signed a receipt for gift cards, for a free celebratory dinner at Red Lobster.
That night, 60-year-old Vincent, who suffers from high blood pressure, was rushed to the hospital with a nosebleed. Worried about medical bills, he and Linda regretted having spent so much. They checked their contract, which had a cancellation period of three business days, as required by Missouri law. Following the instructions, they mailed a notarized cancellation letter to Travel More Now and returned the membership packet.
So why did the club refuse to refund their money? “They said we’d accessed the membership benefits by eating at Red Lobster,” says Linda.
Their story didn’t surprise Missouri Attorney General Jay Nixon. He had sued the club in 2003 for allegedly “failing to give consumers clear and conspicuous notice of their right to cancel … and, in fact, [advising] consumers that they could not cancel.” But a judge ruled against Nixon; he could do nothing for the Schreckenbergs.
“It’s outrageous that this club found some loophole to get around the law and nobody can do anything about it,” says Linda. Travel More Now spokesman Travis Dunnahoe says, “Anyone who accesses benefits, in any way, at the time they acquire a membership signs a form that is titled in all caps ‘Member Benefits Access Form.'”
Consumers have filed thousands of complaints about travel clubs with the Better Business Bureau in the past three years. “The clubs promise insider deals, but people can often get better prices on their own,” says Travis Ford, consumer educator at the Missouri Attorney General’s office.
The best advice: In general, clubs that charge more than a few hundred dollars are likely to be rip-offs. Avoid going to an in-person sales pitch. “You may think, No way am I going to buy anything, but the salespeople have answers to your every objection,” says Susan Grant, director of consumer protection at the Consumer Federation of America. “The deal is good for only one day, or the price keeps going down if you say you can’t afford it-those are hallmarks of a scam.”
2. Cell Phone Replacement Insurance
When Tessa Lewis’s pink Motorola SLVR cell phone broke, she expected Asurion, her insurance carrier, to replace it with an exact duplicate. “They charged a $50 deductible, then sent an ugly, used black flip phone,” says Lewis, 45, a nursing assistant in Lexington, Kentucky. “It wasn’t even close in value to what I had.”
Lewis, who admits she hadn’t read her contract, was even angrier when she realized how much she’d wasted on premiums. “I’d been paying $5 a month for two years. Tack on the deductible, and I was out $170 to cover a $99 phone,” says Lewis. After she found the same pink phone on eBay for $50, she canceled the insurance.
David Wood, a telecommunications expert at consumeraffairs.com, has received numerous complaints about cell phone insurance. “Very few consumers read their policy,” says Wood, “which typically says the phone only has to be ‘comparable.’ It could be a totally different model, so you may have to buy a new headset, charger, and other accessories because the old ones aren’t compatible. Or it may lack the bells and whistles you value, such as a camera or an MP3 player.” What’s more, you’ll usually receive a refurbished phone, not a new one.
In response to consumer complaints, Maryland’s attorney general announced an agreement in April requiring Asurion and the major wireless companies to clearly disclose key provisions in the insurance contract. (Asurion has not replied to Reader’s Digest’s request for a response.)
The best advice: Skip the cell phone insurance unless you have a high-end device like a BlackBerry or Treo or your teens tend to lose their own expensive phones. Most insurance plans give you up to 14 days to enroll after you buy a cell phone, so take the contract home and read it carefully.
3. Mail-in Rebates
Dane Madsen loves a bargain, so when he spotted a $100 rebate offer on $699 Lenovo laptops at Office Depot, he bought two. The cashier scanned the product codes, prompting the store’s computer to spit out the rebate form for that model. But when Madsen, 50, mailed in the forms along with the required proofs of purchase, the rebate center told him that the laptops didn’t qualify for the rebate. That’s not unusual: The centers typically reject 33 percent of claims.
“The rebate company blamed it on Office Depot, and Office Depot claimed the rebate company had goofed,” says Madsen, a clothing-store owner in Las Vegas. “I never got the $200, and one of the laptops failed soon afterward. Because I didn’t have the box label-the one I’d sent in for the rebate-I was also denied warranty coverage.” After Reader’s Digest contacted Office Depot, the company notified Madsen that it had resolved the matter and would be sending the rebate.
“It’s a ridiculous system,” says Ed Mierzwinski, consumer program director of the U.S. Public Interest Research Groups, an advocacy organization in Boston. “Consumers are put through a rat maze of requirements that they have to complete perfectly in order to get their rebate.”
The best advice: Even if you do collect, a mail-in rebate may not always be the best deal. Shop around to see if you can get a lower price without the hassle. Some companies, including Staples, Costco, and Rite Aid, offer paperless rebates. Just log on to the store’s website to enter the required information. The advantages: You don’t have to bother with proofs of purchase, you can track the status of your claim online, and you’ll get your check sooner.
Watch out for rebate checks that are designed to resemble junk mail; some consumers have tossed them by accident. Companies no doubt count on that.
4. Extended Warranties
Gene Retske, a telecommunications consultant in Ballentine, South Carolina, spent $1,000 on an extended-service contract for his $15,000 Bayliner motorboat, then tried to collect when the starter blew. “The woman on the phone listed one reason after another why they wouldn’t pay. I’d read the contract and kept telling her she was wrong. Then she claimed I’d put the boat in a ‘hostile environment.’ What-water?” Retske, 61, got the firm to cover the $300 engine repair only after he threatened to go to consumer-protection agencies.
Increasingly, car owners are getting urgent-sounding notifications claiming that the manufacturer’s warranty is about to expire. Some have paid over $1,500 for an extended service contract even though their factory warranty is still in effect. Often the phony notices come from firms with the word dealer or warranty in their name, to create the illusion that they work for the car’s manufacturer or dealer.
Even when they’re legitimate, “extended warranties are almost always a sucker’s bet,” says Tod Marks, a senior editor at Consumer Reports. You’re gambling that the product will malfunction or break after the manufacturer’s one- or two-year warranty ends but before the one-year extended coverage expires. And you’ll usually lose: 65 percent of car owners who ante up the $1,000 or so for an extended-service contract recoup only $700 on repairs, says Consumer Reports.
The best advice: Retailers profit by as much as 80 percent on these contracts. Bank the money you would have spent on an extended warranty. “Everything you own isn’t going to fall apart at the same time,” says Travis Ford, “but if one thing does, you’re covered.”
5. Rent-To-Own Merchandise
The $6.8 billion rent-to-own industry offers TVs, computers, appliances, jewelry, and furniture for “low, easy payments” with no money down. But many of the three million people who shop in chain stores like Rent-A-Center end up buying over time-and paying exorbitant rates.
A 37-inch LG flat-screen TV that retails for $1,300 can be rented for about $36 a week. After 142 weeks, you own the TV but are out $5,100. That’s an interest rate of 142 percent. Rent-A-Center’s Gus Whitcomb says, “You have to add in delivery and in-home service to any comparison costs before you do an apples-to-apples comparison.”
The industry contends that it doesn’t really sell merchandise-it mainly rents it. This allows stores to avoid violating state usury laws-which regulate the highest rate that can be charged legally-despite true annual percentage rates (APR) of 75 percent to 350 percent, says Ed Mierzwinski of the U.S. Public Interest Research Groups. “They promote the dream of ownership to poor people who are grossly overcharged for what is often used or low-quality merchandise.”
People with bad credit or low incomes may feel they have no other options. That was certainly true of Traci Barker, 30, who rented furniture, TVs, and a used computer. At the time, the single mom from Sicklerville, New Jersey, earned $10 an hour as a customer-service representative. “It got to the point where I was making $150 a week in payments to Rent-A-Center,” says Barker, who had to return most of her rentals when she lost her job.
She joined a class action lawsuit against Rent-A-Center. After the New Jersey Supreme Court ruled that interest rates of 80 percent or more were in violation of state law, the rent-to-own giant settled the case for $109 million. Barker, who had spent $10,000, got a $6,000 refund.
The best advice: Spending $35 to rent a big-screen TV for a Super Bowl party might be a good deal. But over the long term, rent-to-own contracts are like subprime mortgages for washing machines and pullout sofas. If you miss a payment, the merchandise may be repossessed and you’ll lose the money you’ve paid.
6. Payday Loans
After her divorce, Gail Meyers, 36, had a daughter to support. Even working two jobs didn’t bring in enough to cover her expenses, so she borrowed $300 against her next paycheck. Getting the money at Check Into Cash, a payday loan store, was easy. “I wrote a check for $345, and they told me to come back in two weeks with the cash, or they’d deposit the check to cover the loan plus $45 in interest.”
When payday arrived, however, she was again short on cash. “I got into a vicious cycle of renewing the loan and paying an additional $45 every two weeks,” says Meyers, a social worker from Columbus, Ohio. “Before I knew it, I was trapped.” She eventually used a tax refund to pay off the $2,500 loan.
According to the Center for Responsible Lending, payday lenders rake in $4.2 billion a year by charging a whopping 391 percent to 500 percent in interest. Only 15 states and the District of Columbia ban payday loans or cap interest at 36 percent. “The industry justifies this by saying the loans are for short-term emergencies,” says CRL’s Uriah King. “For most people, they’re like financial quicksand-you get in deeper and deeper.” A CRL study found that the average borrower flips the debt five or more times, repaying $793 on a $325 loan.
The best advice: If you’re really in a pinch, opt for a cash advance on your credit card (about 28 percent in interest, plus transaction fees). If you belong to a credit union, you can usually get up to 18 percent interest on small unsecured loans. As an alternative to payday borrowing, the FDIC launched a pilot program in February in which 550 bank branches in 27 states will offer loans of up to $1,000 at an APR of up to 36 percent. That’s high, but it beats 500 percent.
- Claims that you’ve won a “free” prize, or a fee to collect your “winnings”-for a contest you haven’t entered.
- Companies that offer freebies to entice you into attending a high-pressure sales presentation, where there may be more incentives. You could lose sight of just how much this “free” deal could cost you.
- Promises of insider discounts, special deals, or secret information offered exclusively by a firm. Often you can find better offers on your own.
- Salespeople who pressure you to make an immediate financial commitment or to sign a contract you haven’t read.
- Contracts or forms that are hard to understand. Even minor mistakes in filling out the form may be used as an excuse to avoid honoring the agreement.
- Companies that won’t put their prices or promises in writing. A legitimate firm stands behind its deals and wants to give you what you need to make a smart decision.
- Firms that do not provide contact information or that provide only an e-mail address or a post office box. After all, if you can locate them, authorities can too.
What to Do If You’ve Been Had
Send the company a written complaint, asking for a refund. Detail the problem and include any relevant documentation. If you paid by credit card, you can dispute the charge in cases of fraud and nondelivery of a product or service. If it’s a local business, consider suing in small-claims court.
- To help prevent others from getting scammed, contact:
- Your state’s attorney general (naag.org). If the company that victim_ized you operates in another state, notify that attorney general as well. If there are many complaints against the company, an attorney general may file a suit, which could win financial judgments for consumers or put the operation out of business.
- The Federal Trade Commission (ftc.gov). You’ll find extensive information about common rip-offs and scams, plus an online complaint form.
- The Better Business Bureau (bbb.org). It will contact companies about consumer complaints and issue fraud alerts to the public, media, and government agencies. It also has an online complaint form.