When I came to the US about 20 years ago, capitalistic life was still in good order. At least in my universe. I saw transparent pricing, few oligopolies, and not too many legal or other traps to fall into. Of course, there was never paradise here or anywhere else, but by and large, healthcare and college seemed affordable, and when renting a car, taking a flight, or hiring a realtor there were no big issues to worry about. Now, it’s a Gotcha Economy detrimental to the well-being of the citizens of the US.
The “gotcha” is worse than rent-seeking
Fast forward 20 years. We not only have a Rent-Seeking Economy (witness the discussion around prescription costs, healthcare providers insane pricing, or college tuition and associated student debt), but also something worse, something I label the Gotcha Economy. In pure rent-seeking, pricing is still transparent, though reflecting oligopolistic industrial patterns. Exorbitant prices of drugs in the US (sometimes 100x of what Europeans pay), of college (having gone up way above inflation rates for decades), or costs of flights to Europe (roughly doubled in a few years) after the airline mergers – might be annoying but at least they are not hidden. What we are witnessing now, however, is a trend to make money through the back door, by trapping consumers into contracts they don’t understand or have no time to read, by exploiting loopholes like never before and trying to double-dip in hidden ways. It’s the worst side of capitalism, and it’s spreading like cancer.
Are you ready for some examples?
Real-estate agents
Instead of being compensated for time spent on your listing, the industry has always favored and established the universal standard of asking for payment based on commission, usually 6%, after a sale has occurred. In other words, agent and seller (and buyer) were in the same boat – no sale, no commission. Look at contracts from your realtor now; you will find the attempt to fleece you. From trying to take a cut of the Earnest Money to demand full commission if the buyer does not close the deal towards the end of the buying process – unsuspecting sellers might pay up for nothing. Check your contract for legalese terms like “earned commission” vs. “paid commission” and other traps, then strike the relevant sections out. My agent was fine with my changes. She knew that what her broker’s standard contract contained was ethically not defensible.
Rental car companies
You can bet that these companies are spending significant time trying to take advantage of you instead of making an honest living. A few years back, there was the game of trying to charge you for damage you did not cause. This has stopped as people wised up and are now taking pictures before driving the car off the lot. Then came the con game of charging you gas despite you having visibly returned the gas tank full; the rental company demanded that you show a receipt from a gas station within a 5 miles radius or so. Now, they warn you that if you decline their insurance that you are not only liable for damage caused (no issue here) but for unspecified rental losses the company occurs during the time the car is damaged – as if the car company would be fully booked all the time and be capacity constrained. Luckily, your regular car insurance carrier might now offer a rider to cover this. What’s next? No idea.
Healthcare providers – multiple bills
Getting a colonoscopy? As a good consumer, you will check with your doctor whether she takes your insurance… She does, or that is what you think. Nobody told you that you will get three bills. One from the doctor, one from the facility where the procedure will take place, and then the third one from an anesthesiologist…who, magically, might not accept any insurance. On top of that, the facility might give you unnecessary medication or care. Bingo, a procedure that costs less than $800 abroad, might be $4000. Of course, insurance might only cover part of it. But it gets better. In many policies, your insurance might cover your colonoscopy for men over the age of 50. The caveat – they only pay if you never had any issues before. If you ever had an issue (e.g., a harmless polyp), the colonoscopy is not covered.
Healthcare providers – urgent care vs. emergency centers
Got that? And let’s not talk about so-called Emergency Centers in your close-by shopping center that consumers mistake for Urgent Care Clinics. Use one and the center will present you a $1000 bill for a ten-minute walk-in visit. They welcomed you but, of course, without telling you their minimum facility fee upfront.
Healthcare providers – last minute signatures
There is no reason in the age of Internet and email not to send you all the documents that you have to sign before a procedure. In reality, the medical care provider will present you some additional papers for you to sign right before your procedure, basically putting maximum pressure on you to sign whatever they give you. Common last-minute docs do not contain questions about your health anymore, but might be allowing the doctor’s office, its affiliates (whoever that might be) to use your data for ‘medical research and marketing’ or “balance billing”, or other nasty things that could hurt you. You sign, sometimes electronically at the counter. They don’t even give you copy unless you ask for it. Insane.
Here is what I do: First of all, for whatever I sign, I demand a copy. Second, I amend docs or cross out certain sentences. Third, I never give out my SSN to any medical provider – they only need it to go after your credit, in case you don’t pay whatever they might charge you; there is no other reason, since your ID and insurance card is all they need to treat you.
Miami restaurants
Food and drink prices listed on the menu, sales tax added, and then you tip. This is the way you are familiar with. Not so in some greedy places in Miami. No, I am not talking about the suggested tip based on the after-tax amount (instead of the pre-tax amount) or the fleecing of foreign tourists by adding a tip and still leaving room on the credit card slip suggesting another 18%. No, we are talking about a cool 5% “service charge” that they added to your bill before taxes. Nowhere on the menu had you seen a service charge. But what is it? Ask the waiter and he shrugs, as he has never seen such a thing before either. He still begs to please, please, still tip me the full amount. No way, Jose! I am deducting 5% from 18%. If you work in such dishonest joint, you got to pay the price as well.
But how many consumers truly revolt?
Resort Fees
Like the undisclosed Miami surcharge, resort fees would be illegal in other countries. There is no such thing as a resort fee; it’s just an arbitrary split of the total price with the sole goal of appearing cheaper in the search engines and reservation portals than in reality. Gotcha! Yes, we advertised the room for $99, but on site, you need to pay another $35 per day.
Self-publishing platforms, teaching platforms, auction houses, and other market places
Everybody likes to protect himself from liability. So far, so good. But what most users of the above platforms don’t know is that they hold the platform provider harmless against any claim of virtually anything somebody brings forward related to whatever the users do on the platform. Appearing customer-friendly and being on your side, these platforms are anything but.
Take a look at the fine print, and you will find legal clauses in which you warrant a) not only to accept full liability for any breach of contract or law (e.g., liability for a libel suit against you or any copyright infringement), which makes sense, but also to b) hold the platform harmless against any claim of breach related to you. This means that if a lunatic sues the platform for your work/service/post, the platform can hire lawyers and defend itself while sending you the bills – even if in the end you did nothing wrong, the claim was baseless and is thrown out of court. Yes, you got to pay their bills without limitations (on top of your own, of course). In other words, instead of insuring their users against third-party claims (something loosely similar to AirBnB’s umbrella insurance policy to protect its landlords from vandalism) and having “skin in the game” for what’s on their platform, they go legally against their users by not only not insuring them but laying off their own risk on them.
When I went to a conference of a fast-growing publishing platform in the educational space, I confronted the CEO about this point. He claimed innocence and blamed the lawyers. Talking to some participants of the conference, most of them were unaware of this legal trap, some had noticed it but did not care (“I am not rich anyway”), some shrugged as “you cannot eliminate all risks”. One auction house I dealt with recently gladly changed the wording based on my input (and no, I am not a lawyer, just using experience and judgment, which carries its own risks, of course).
Subscription services
They are the Holy Grail for any gym, meal delivery service, dating app, anti-virus program, consumer product mail order company, paid-for loyalty cards, donation seeking non-profit, and aspiring start-up. First, there is the game of the auto-renewal feature – if you don’t cancel on time, they will bill you another cycle. Some companies are honest and send you a reminder, some don’t. Some companies are part of the Gotcha Economy and “forget” your cancellation and make you fight them through your credit card company, which you might not do for smaller amounts. Either way – Gotcha!
But wait, there is more…
I could continue with the global tech companies that play profitable games with your data behind your back. Airlines that refuse to pay up for delays under their watch. I could list other industries as well, but let’s stop here. The Gotcha Economy is maddening. Young people seem to dream more and more about socialism. Having never experienced an honest capitalistic system, we should forgive them.
Do you have other examples of the Gotcha Economy? What about examples outside the US? Or do you disagree with me and believe that every consumer is at her own fault for not protecting herself by doing due diligence before any commercial transaction?
© 2019 Michael Froehls – All Rights Reserved
