Why the Fine Print Is Even Worse Than You Think
Author of new book on hidden details in consumer contracts says we're being fleeced on everything from phone bills to 401(k)s
Caroline Mayer is a consumer reporter who spent 25 years working for The Washington Post. Follow her on Twitter @consumermayer
Johnston, a Pulitzer Prize-winning reporter formerly at The New York Times, reveals secrets on everything from hidden fees to the ways insurers wiggle out of paying for care. The Fine Print, Johnston told me, “is about how big companies have quietly been getting the laws of competition repealed or thwarted, adding complexity to bills and imposing one-sided contracts” with consumers.
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As a longtime consumer reporter, I thought I knew all about fine-print shenanigans. But Johnston’s eye-opening book provided some unpleasant surprises. So I was eager to connect with him to get and share his advice on how not to get ripped off.
Here are excerpts of our conversation:
Next Avenue: Is fine print getting worse?
David Cay Johnston: Yes. For example, the first general-purpose credit card in 1959 had a half-page contract. Today, some credit card contracts are six pages of small type — and all of it is one-sided in favor of the company. So if anything goes wrong, you will discover you are powerless.
How do companies rob us blind with fine print?
They use the fine print to find ways of raising prices of things you have to buy — like electricity, trash collection, telecommunications and insurance.
The many stories I have uncovered have one thing in common: Corporations are operating with a set of rules that rig the game in their favor. For example, we pay among the highest prices in the world for Internet: 38 times what the Japanese pay. A triple-play service [Internet, TV and telephone] costs an average of $160 a month in the U.S. The French pay just $38; they get free calling to 70 countries and their Internet is 10 times faster.
You say the fine print raises our phone and electric bills. How?
Having a phone or electric bill with many parts makes it easier to raise prices. You raise Line 8 on the bill by a nickel this month and Line 16 a quarter two months later. Pretty soon your local telephone bill is rising at twice the rate of inflation, your cable bill at two and a half times.
In your book, you say the fine print makes 401(k) plans unnecessarily costly. Can you explain?
The 401(k) is an accident of law, one originally intended to help the financial services industry let highly paid workers save more money than the rest of us. As written, though, it applies to all companies and workers.
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For workers, a 401(k) can be extremely costly, but for Wall Street, it is beloved as a way to make easy money.
I have seen retirement plans that cost employees more than 2.4 percent of assets annually, while a large, traditional pension can be run for 0.4 percent of assets. Buried in the fine print are government rules that discourage traditional pension plans, where professionals invest the money at low cost. Instead, these rules encourage very expensive 401(k) plans.
How does the fine print affect the way employees can invest in their 401(k)s?
Workers can be forced to get their employer’s 401(k) match in their company’s stock. Having your retirement and your paycheck concentrated in one place violates every principle of sound investing, but the fine print forces many workers to keep that company stock until age 55.
What can employees do?
If your company matches your 401(k) contribution with company stock, make sure that the day you turn 55 you diversify and get out of that stock.
What can consumers do to fight the growing use of fine print?
Consumers need to tell state regulators that when a utility seeks a rate increase, it matches every dollar it spends seeking that increase and turns that money over to advocates for residential, commercial and industrial customers who can challenge the increase. Rate-making has become a one-sided game.
We can fix this problem. It will not be easy. But if you do nothing, you will be worse and worse off. As the last sentence in my three books says, “Reform begins with you.”