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Widespread scams rely on you not reading your card statements

by Peter Andrew

Some people never open their monthly credit card statements. Many more barely glance at them. In today's time-poor society, that's understandable. But this widespread reluctance to carefully check these bills has created a whole industry of unscrupulous players who milk ordinary Americans' plastic with small but usually regular charges. And one recent study suggested the practice cost us $14.3 billion in 2012.

Credit card milking

That extraordinary figure emerged in a recent report commissioned by BillGuard and conducted by Aite Group. The report contained a number of similarly scary statistics for last year surrounding gray charges:

  • More than one in three cardholders in this country were affected.
  • The practice cost banks $562 million.
  • There were some 233 million gray-charge transactions.

11 shades of gray

The report identifies 11 distinct forms of gray charges, defined as "deceptive and unwanted credit and debit card charges…that occur as a result of misleading sales and billing practices that are not properly disclosed to consumers."

Gray charges rarely fall foul of the criminal law. If they were truly fraudulent, credit card companies would normally have to reimburse you your losses. What usually happens is that you think you're signing up for one deal, but miss something in the terms and conditions that means you're committing to more. This is particularly easy to do online, where clicking the "I accept" box without first reading the small print is routine for many consumers.

Dubious practices

By far, "free-to-paid" gray charges are most common, accounting last year for $6 billion and 115 million transactions. Most of us have encountered free-to-paid deals -- you sign up for a free trial for a product or service, and are then, unless you remember to cancel, charged automatically when the introductory period ends. As well as being legal, these can be perfectly ethical, providing you're given all the information you need (and not just in the small print) when you agree to the offer.

Some other gray charges include:

  • Phantom: You think you're buying something, and don't realize you've also signed up for an additional product or service. This is the second most common type of gray charge, accounting for nearly 43 million transactions in 2012.
  • Zombie: You spot a gray charge, and cancel it. But it keeps appearing on your statements. Think "Night of the Living Debit." These cost American cardholders $827 million last year.
  • Unintended subscription: You believe you've bought just one thing, but have actually subscribed to a series.
  • Misleading advertising: An ad contains false promises or makes other misleading claims. This one could be fraudulent.
  • Hidden fees: You're charged fees that weren't clearly and prominently disclosed.
  • Unwanted auto-renewal: You think you've signed up for one year or month, and don't realize your subscription is going to be automatically renewed if you don't cancel it.

Don't be a victim

Aite calculates that 35 percent of all cardholders had one or more gray charges on their accounts last year. Of those who did, some were suffering big time. A whopping 19 percent had six or more such charges (10 percent had more than 10), and 9 percent were suffering annual losses related to gray charges of $500 or more.

How can you protect yourself? The most obvious way is to check your credit card statements line-by-line, and then challenge any gray charges you find. By all means take it up with the organization directly, but you can also call your card issuer.

Aite reckons that 2012's $562 million in gray-charge costs to credit card companies were customer service expenses. In other words, people like you called them to complain. If more people do that, the cost will rise, and card issuers may be more incentivized to stop these dubious practices -- or, at least, to let customers know when iffy transactions occur.

You can potentially reduce your exposure to gray charges by closely monitoring your accounts, and by taking special care when agreeing to terms and conditions in transactions that require you to hand over your card details. Before you sign or click to accept, why not check out the company online by typing its name and the word "complaints" into a search engine? You can also carry out a Better Business Bureau check.

Published 08/27/13 (Modified 11/18/13)


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