Fees, Cheats and 'Gotcha Capitalism'

DATE January 7, 2008 ACCOUNT NUMBER N/A
TIME 12:00 Noon-1:00 PM AUDIENCE N/A
NETWORK NPR
PROGRAM Fresh Air

Interview: Bob Sullivan, author of "Gotcha Capitalism," on hidden
fees from banks, credit cards, etc.
TERRY GROSS, host:

This is FRESH AIR. I'm Terry Gross.

Does it seem to you like the bills for your cell phone, your credit card, your
Internet access, your rental car, your bank and your hotel are loaded with
fees, many of which are incomprehensible, like the regulatory cost recovery
charge on my cell phone bill? According to my guest, Bob Sullivan, Americans
are paying an average of 1,000 a year in sneaky fees. He's written a new book
about these hidden fees and how to protect yourself from fees you shouldn't be
paying. The book is called "Gotcha Capitalism." Sullivan also writes "The Red
Tape Chronicles" for msnbc.com.

Bob Sullivan, welcome to FRESH AIR. What do you mean by "Gotcha Capitalism"?

Mr. BOB SULLIVAN: Well, every day when people open their bills or they turn
on a television set or they get on an airplane or they check into a hotel,
they pay a bill and they pay a price, but then there's often a second price,
these after charges, these tack-on charges, and it's almost impossible to know
what they are. And they come around a corner, a dark corner, it's a surprise,
"gotcha." The next thing you know, what was a $70 hotel is now a $100 hotel.
What was a 39.99 cell phone bill is now a $72 cell phone bill, and it's nearly
impossible to determine the real price of things, and companies are making a
killing by confusing consumers this way.

GROSS: Oh, that is so true. But what I don't understand is, are those fees,
you know, like legitimate costs, and if they're legitimate, why aren't they in
the thing that we sign up for, the price that we sign up for.

Mr. SULLIVAN: In the actual price.

GROSS: And if they're not legitimate, like what are they doing there?

Mr. SULLIVAN: Well, they run the full spectrum, I would say, from being an
outright scam, frankly, to being a real price that probably just should be,
you know, an add-on to the price tag itself. But something really magical
happened in the whole nature of pricing a few decades ago which really came to
fruition thanks to the Internet, and that is companies realized that they
could essentially trick us with low teaser prices and then sneak in these
after charges after the fact and they could separate out--they could do this
in the name of separating out real costs of doing business.

So the phone company, for example, essentially now has tack-on fees for
real-estate taxes, for the price of collecting federal taxes. Not only do
they charge you federal taxes, they charge you extra for collecting them. And
so they--instead of just charging you one price, which is the standard form.
And imagine if you went to a deli and you paid three dollars for a sandwich
and 15 cents for the fact that they had to charge you 30 more cents for sales
tax. And so they're breaking up these costs of doing business and isolating
them, essentially so that that they can charge you more in the end.

GROSS: Well, let's look at my cell phone bill. I was charged a federal
universal service charge of $1.22, a state gross receipts surcharge of $2.21,
and a regulatory cost recovery charge of 96 cents. I have no idea what any of
that means. Do you?

Mr. SULLIVAN: I do, actually. The last one there, that 96 cent charge,
that's the price they're charging you to collect the other taxes that you
mentioned there. So.

GROSS: Oh, great.

Mr. SULLIVAN: I mean, it's literally sort of like if the cashier charged you
extra for taking your money at the store, and, you know, when they break that
out, essentially they can pump up their bottom line, so that money's going
right to the cell phone company, even if it kind of sounds like it's a tax.

GROSS: And the federal universal service charge?

Mr. SULLIVAN: Well, that's the money that's going to the schools and
libraries of America. Supposedly it's helping make the Internet and telephone
service universal to everyone. It's another very controversial federal
program because a lot of--most schools now have Internet access, and there are
some real expensive programs that are being funded by that which aren't
necessarily what you might think. Helping little kids get Internet access is
a great idea. Helping resort communities in Hawaii get fiber-optic access,
which some of that money goes to pay for, is probably not what you were
thinking when you paid your taxes on your cell phone bill.

GROSS: And the state gross receipts surcharge?

Mr. SULLIVAN: That's basically a sales tax.

GROSS: OK.

Mr. SULLIVAN: Just with a funky name

GROSS: They couldn't have just said that?

Mr. SULLIVAN: That would make it easier. And I think, you know, all these
little nits really irritate us day by day, and I like to think--you know,
every month when I open my cell phone bills, my blood pressure goes up because
I feel like I have to get into this defensive posture and scour everything.
And so that's the sort of day-to-day problem of "Gotcha Capitalism."

But there's really a larger problem here, which is, I think, most people just
kind of surrender in the face of all of this confusion, and a confused
consumer is a profitable consumer. It's much easier to make people pay extra
and to have them lose a whole lot of money when they've kind of given up
keeping track of what their real costs are.

GROSS: Who has the time to do this, you know, to keep track of all of this?
There's barely...

Mr. SULLIVAN: Well...

GROSS: ...enough time to pay the bill, let alone analyze things that are
designed to be incomprehensible.

Mr. SULLIVAN: Yeah. It's true. And in fact in the book I have lots of
examples of companies expressly setting out to confuse consumers and how they
do that, and I think that that's a really important thing...

GROSS: Give us an example

Mr. SULLIVAN: ...for people to understand.

GROSS: Give us an example.

Mr. SULLIVAN: Well, AT&T in the latter part of the last decade actually did
market research to figure out how to design an envelope and a notice that
consumers would discard, and they actually sent out samples to people, they
did a study, and they found that certain phrases or bolding certain words,
would convince people that they didn't have to read the notice that was sent
and so they'd throw it in the trash. And the act of throwing it in the trash
was essentially legal consent to let AT&T remove consumers' rights to sue
them. So it was a very momentous event for a consumer to essentially discard
your right to file a lawsuit against AT&T.

GROSS: So in order to retain the right to file a lawsuit, you had to actually
read it, sign it and return it?

Mr. SULLIVAN: You had to read it and object to it, and of course understand
it, but at the very top of the notice it said, you know, you do not have to do
anything. And of course everyone loves to hear that, so they threw the note
out.

GROSS: So that particular contract was voided by a court?

Mr. SULLIVAN: That's right. Because...

GROSS: But...

Mr. SULLIVAN: There was a paper trail...

GROSS: Yeah.

Mr. SULLIVAN: ...that showed that AT&T's intention was exactly that.

GROSS: But you say that other companies have perfected the idea of designing
mail that you throw away, not knowing that you're giving up your right to do
something by throwing it away, so how has it been perfected?

Mr. SULLIVAN: It's been perfected by the fact that no one says this anymore
or puts it in an e-mail or puts it in a memo. But I think we all sort of
implicitly know that when we get one of those 16-page notices from our credit
card company that's essentially printed on tissue paper and in type that's so
small it's almost impossible to read, that no one ever intended for you to
read that, and the proof is in the pudding. The number of people who evoke
their rights in those situations is infinitesimal.

GROSS: And evoking your rights in that situation would be what? Objecting to
the raise in interest that you've just been given by your credit card?

Mr. SULLIVAN: Sure, sure. Some of these absurd notes that go out are
exactly that. A credit card company will send you a note and it will say,
`We're raising our interest rates by 12 percent unless you object.' Now,
everyone would object to that notice if it were written in a certain way,
right? But because very few people take the time to object to that, it seems
clear that no one is actually reading it. And the whole sort of asterisks
culture, I think, is really at play here.

And I have a story in the book of driving by a highway billboard that says,
you know, "Free Internet bill pay" from a local bank, and there's a big
asterisk on it, you know? And how many people can take the time to read an
asterisk on a sign when you're going by at 50 miles an hour? Obviously
there's no intent to really communicate anything there. It's just to try to
communicate as little as possible to get away with as much as possible.

GROSS: What did the asterisk actually say on that billboard?

Mr. SULLIVAN: Oh gosh. I had to actually pull over and get on top of my
truck to read the very small type on the very bottom of the billboard, and
after about a 10-minute episode which irritated my passengers, I read the
asterisk, which said, `See banker for details.'

GROSS: If you're just joining us, my guest is Bob Sullivan. He's the author
of the new book "Gotcha Capitalism: How Hidden Fees Rip You Off Every Day and
What You Can Do About It."

Getting back to cell phones, cell phones often come with contracts and you
have to sign up for a year or longer. What's your advice on these contracts?

Mr. SULLIVAN: Contracts are really terrible because they prevent you from
acting like a consumer would in a free market. Most contracts are now two
year, and inevitably six or seven months in you find out maybe you've been
transferred, there's construction near your office, the phone no longer works.
Maybe you lose the phone. There's lots of--or there's a brand new phone,
maybe the iPhone comes out and you want to buy a new phone. Contracts really
hamstring you, and so however you can avoid them--you can avoid them perhaps
with getting a prepaid phone or you can actually pay for the phone up front,
which for most people is a very hard choice. But the shorter the term the
contract, the better.

And again the larger problem with these contracts is that when companies have
millions of people as guaranteed consumers for a year or two, they have no
incentive to improve their service, and that's one reason why--how many people
do you know who say, `Well, my phone works at home but it doesn't work in the
office,' or `it doesn't work along my commute.' Or they have to go outside to
make a phone call, and in this day and age, that's pretty ridiculous.

GROSS: So you recommend getting the shortest contract possible on your cell
phone?

Mr. SULLIVAN: Yeah. No just in cell phones. In DSL service, cable TV. The
contracts, especially now where services change so quickly, long-term
contracts really are a bad idea.

GROSS: Let's move on to cable and satellite TV fees and contracts to watch
out for. Let's start with the fact that a lot of them have teaser rates.
What do you have to look out for there?

Mr. SULLIVAN: The teaser rates on cable television, in particular, I think
are really abominable. When you get ads that say 29.99 a month, there's often
an asterisk, but almost never does it say what the real price is going to be
when that teaser period is up. It's usually six months or a year, and there
are a lot of folks who can kind of live six months at a time, and continually
get those discounted rates. But you have to keep calling to ask.

But the thing that bothers me most is, again, when you're to trying to compare
and the real decision is `do I get this cable service, this cable service,
satellite TV, maybe something else,' I defy anyone to actually sit down and
write out, like a rational consumer would, `What will the real price of this
service be a year from now so I can actually compare it?' because the prices
are almost impossible to find.

GROSS: Now, you recommend that you not rent DSL or cable model equipment.
Why not?

Mr. SULLIVAN: You can almost always buy equipment like that online at a
deeply discounted rate, and so you want to disconnect the purchase of the
hardware from the purchase of the service, which you can usually get--in the
end you can get it cheaper.

But here's a much more sinister reason why you shouldn't rent equipment from
your cable company or your phone company if you can avoid it. Because when
you want to get out of the contract, that's another barrier to removing
yourself. So if you have to actually return the cable box, you might not
change your service when the time comes to it, and there are endless stories
of cable companies losing the boxes when they're returned and charging $200
for them, some outrageous price, so it's just another hurdle to getting
yourself--to making yourself one of those free actors in the economy like I
think is incredibly important now.

GROSS: Now, what do you have to look out for in terms of Internet access
fees?

Mr. SULLIVAN: Well, the biggest problem with Internet access is that it
doesn't work right now in a lot of cases. I think it's improved a lot over
the last three or four years, and we did a study in the book which shows that
of all the hidden fees that people complain abut, Internet access actually
ranks pretty low. But it's really common that people are paying for service
that they're not getting. Most people have no idea what the real speed
they're receiving at their house is. So you might be paying
essentially--paying for high bandwidth access but getting not much better than
dial-up service. There are lots of really great services online where you can
test your speed. My favorite one is at speakeasy.net. It's right there on
the home page. And it takes about 15 seconds, and it'll tell you exactly the
speed you're receiving and you'll then find out if you're getting what you're
paying for. The biggest scam of Internet access is paying for service that
you're not getting.

GROSS: Gee, I didn't even realize that was a problem in a lot of places.

Mr. SULLIVAN: Everyone just sort of thinks it's their fault and, of course,
if you call for help--this is a company tactic across all industries--they do
everything they can to blame you. `It's your computer, it's your niece, it's
spyware.' It can be all those kinds of things, but if you think about
plumbing, yeah, there can be a lot of reasons your toilet isn't working, but
it's usually the pipe, and that's often the case with Internet access as well.

GROSS: My guest is Bob Sullivan. His new book is called "Gotcha Capitalism."
More sneaky fees after a break. This is FRESH AIR.

(Announcements)

GROSS: If you're just joining us, my guest is Bob Sullivan and he writes the
msnbc.com "Red Tape Chronicles." His new book is called "Gotcha Capitalism:
How Hidden Fees Rip You Off Every Day and What You Can Do About It."

You devote a lot of time in the book to travel and all the fees that you run
into through hotels and rent-a-cars, and I want to ask you a rent-a-car
question. When I'm on the road and I have to rent a car for just like a day
or two and it's not long distances I'm traveling but I absolutely need the
car, there's always this like moment of paralysis at the rental car desk where
I have to decide, am I going to buy the full tank and return it empty or am I
going to fill it up on the way back. And it's just like a losing situation
because if I buy the full tank and return it empty, I know I'm not going to
really return it empty, probably end up returning it half-full so I would have
bought gas that I haven't used. But if I don't buy the full tank and I return
it full, I might be in a real hurry for whatever reason to return the car and
not have time to fill it up, and there might not be a gas station easily
located to where the rental agency is, making it impossible to fill it up. So
I'm just resigned to it being a lose-lose situation. What am I doing wrong
here? How should I be thinking about this?

Mr. SULLIVAN: You are doing it exactly right. I mean, I think that is one
of the classic situations in gotcha capitalism, where you are a captive
consumer with no information in order to make a rational decision, and so you
basically do the best you can and either way the company wins. So you're not
doing anything wrong. I mean, what's happening there is you have a Hobson's
choice, right? If you were to really play this out, what would you do? You
might go onto Google and research gas stations near the rental car agency...

GROSS: Right.

Mr. SULLIVAN: ...so that you could plot out your plan, you know--which could
be foiled. Like, let's say you don't realize you need to take a bus back to
the airport, right? And that 15 minutes you take to fill up the tank makes
you lose your flight and now you've got to pay a change fee to the airline.
So you really can't win, and, I mean, my normal advice to people in that
situation is to pay for the gas up front because you're gambling. Either way
you're playing rental car gas roulette here, right? And so, you know, I think
that the reality for most people is they show up at things late--and you know
who you are. And so, you know, take the fixed expense that you can predict,
rather than taking the risk on the surprise expense later. I think that
that's a pretty good bet. Because the gas, for some reason, the price of gas
doubles if you buy it later from the rental company...

GROSS: That's right.

Mr. SULLIVAN: ...than earlier. And so you're locking in a fixed cost there.
For most people, I think that's a good idea. Of course, the right thing to do
is to take the time to fill up the tank right before you get to the airport.
But you, again, I think you have to know yourself and pick your poison.

GROSS: Right. So cost effectively, if you could actually fill it up before
you get to the airport, that's the way to go?

Mr. SULLIVAN: Yes. That's the cheapest thing to do, but again this is kind
of like the question of how many minutes do you get on your cell phone plan?
If you're the kind of person who's going to check online...

GROSS: Right.

Mr. SULLIVAN: ...every other day, God bless you, then get a cheap plan. But
if you're not, I think it's smarter to pay a little extra and get a bulk plan
so you never have one of those surprise $10,000 phone bills.

GROSS: Any other things to watch out for when you're renting a car?

Mr. SULLIVAN: Oh my gosh. You know, car rentals, some airports, the taxes
and surcharges can be 50 percent above the normal price, so it's really
important for you to get the out-the-door price when you're comparison
shopping. And there's a lot of other things to worry about when you're
renting a car. The condition of the car when you pick it up. I know this
sounds paranoid, but I'll often take a digital camera with me and take a few
pictures of the car before I leave the lot so that there's no dispute when I
return, especially if I see a scratch or anything on the car so they don't try
to sock me for the cost of fixing the car. And, you know, I think the most
important thing of all is using the Internet before you leave to compare the
actual price that you're going to pay before you leave.

The last thing that you might check for, although this is really hard to do,
and in some cases you just can't get the information, is to find out what the
hourly late fee is so that you can plan ahead for if, you know, harder to
leave grandma's house than you expect and you're three or four hours late,
some car rental companies, they may charge you 40 or 50 bucks for that.
Others it's more like eight or nine, so it's good to know that before you go
into it.

GROSS: What about buying the rent-a-car's insurance vs. using your own?

Mr. SULLIVAN: Oh, here's another fear. This is like the paper or plastic
question, right, at the grocery store? And, you know, I'd just like to point
out in this conversation that we could go on like this forever, couldn't we?

GROSS: Yes, we could.

Mr. SULLIVAN: All these--and, again, there's, you know--as a consumer
affairs reporter, people are always asking me for the answer to these
questions, and I like--and everyone wants the answer--but the questions are
formed for us so that they're impossible. So, I mean, I can give you some
suggestions but the truth is, you lose either way. And now I've forgotten the
question that you've asked.

GROSS: Oh, whether you take the company's insurance at the rent-a-car agency
or...

Mr. SULLIVAN: Yeah--no, you don't take the insurance.

GROSS: Oh.

Mr. SULLIVAN: Yeah, call your credit card company and make sure that you
understand the coverage that your credit card company gives you. That's a
phone call that's really worth making, and most credit card companies are
actually very responsive and will answer the phone to a call like that. But
it's almost never a good idea to take that insurance from the rental car
company.

GROSS: Why not?

Mr. SULLIVAN: Because it's overpriced, and you are already covered--you're
often already covered, even by your own personal automobile insurance for most
things, and your credit card will provide you with gap insurance, but I can
only say that's true perhaps 90 percent of the time, so before you go out on a
trip, just call and make sure that that's the case.

GROSS: In keeping with our travel theme, you say, once you get to your hotel,
don't touch the minibar, don't touch the telephone. Why not?

Mr. SULLIVAN: Don't touch the minibar because not only are you charged now
three or four dollars for a bottle of water or a bag of chips, but at some
hotels, like the Wynn Las Vegas Hotel, they figured out a way to charge you
even for just looking at what's in the minibar. If you take out a bottle of
pretzels or a candy bar from one of the minibars there and you have it in your
hand for more than 60 seconds to look at it, maybe to look at the calories,
you put it back in, they're going to charge you for it, so don't even touch.
Don't even open the minibar.

And as far as the telephone, some hotels now charge you even just to call the
room next door. Hotel telephone revenue has gone down dramatically over the
last 10 years because people have cell phones now, so no one needs to make
those $9-a-minute calls from their hotel rooms, so hotels are continually
figuring out ways to generate more revenue so just a call to the neighbor next
door can cost you a dollar or two. So don't use the telephone, don't touch
the minibar.

GROSS: Bob Sullivan will be back to explain more hidden fees in the second
half of the show. His new book is called "Gotcha Capitalism." I'm Terry
Gross, and this is FRESH AIR.

(Announcements)

GROSS: This is FRESH AIR. I'm Terry Gross back with Bob Sullivan, author of
the new book "Gotcha Capitalism." It's about the hidden and often
incomprehensible fees that you're charged by banks, cell phone companies,
hotels, cable TV companies, etc.

Here's something really irritating--as if everything we've been talking about
hasn't already been irritating enough...

Mr. SULLIVAN: This whole conversation is like fingernails scratching, isn't
it?

GROSS: Well, bank fees are really driving me crazy.

Mr. SULLIVAN: Yeah.

GROSS: You basically have to buy your own money at the ATM machines now, and,
as you point out in your book, there's not only the constantly escalating fee
that the ATM machine bank is charging you, then your home bank is charging you
a fee on top of that that the machine isn't even going to tell you about.

Mr. SULLIVAN: If you're not a Bank of America customer and you go to Bank of
America now, it'll probably cost you $5 to get $20, which is crazy. And
what's additionally, perhaps even more crazy to me, is that when you ask for
the money, the machine won't really tell you that it's going to cost you $5.
It'll give you half the fee. It'll give you the Bank of America fee, which is
$3. But for some reason, it cannot figure out how much US Bank is going to
charge you for that money as well, even though US Bank is charging a fixed fee
and has for a couple of years. And of course, it can do all these wonderful
things, like check your PIN number and check your balance and all that sort of
stuff, but it yet cannot figure out what the true price is.

GROSS: So why is this happening? Look, I mean, a lot of banks are open fewer
hours and with fewer tellers because they know we're getting our money and
depositing our money through these ATM machines. So they're saving money on
personnel, and yet every year they're charging us more money to use the ATM
machines. Like why is that happening?

Mr. SULLIVAN: Well, it's happening because they can. They're in the
business of making as much money as they can, and at the moment, if there is
federal regulation of these banks, I don't know where it is. And so as a
result they're just simply escalating--I mean, it's--they're playing with
dials on revenue charts, and the more that they can make, the better. It's
rather--I mean, the promise of ATM machines was that we would have access to
our money all the time and we wouldn't have to go into banks and stand on
line. And for the most part, people like the convenience of ATMs. But we're
saving the bank a tremendous amount of money by not going in and talking to a
person, and for that privilege they're charging us a lot of money.

GROSS: Banks also have a lot of hidden fees that you write about.

Mr. SULLIVAN: Yeah. The bank fees are probably the worst of all here. The
banks are making about a third of their revenues right now from fees. In
fact, some banks make more money from fees than they do from interest, which
should be shocking. I mean, banks are in the business of giving out loans and
charging interest and that's--you know, that's an important function for the
economy. Charging fees from customers, for depositors is not an important
function of the economy, that's just a drag on the economy. And yet, the
biggest offender of all, things like overdraft fees, are incredibly
frustrating for consumers.

And banks have figured out that now our checking accounts are not simple
checking accounts anymore. We use them essentially as cash-flow accounts, so
you're constantly not only writing checks but withdrawing cash, using debit
cards to buy things, electronic transactions online, automatic bill pay. And
while everyone says, `Well, it's your fault if you dip below a $0 balance,' or
a $1000 balance, if that's your minimum, it's really, really hard to keep
track of what's in your account at any given time since this money is moving
in and out all the time, and each time you make a mistake it's 35 or $40.
Banks are making a killing by confusing people about how much is in their
accounts, and as of now there's just no stopping them.

GROSS: Now, here's a fee that's really baffling to me. This happened to me
once, but I don't know how often they do this, that in some places if you pay
a bill by phone you'll be charged a fee for that.

Mr. SULLIVAN: Yeah, isn't that crazy? When--if your credit card company
tells you that you only have another 24 hours to pay your bill, and they say,
`Call up and pay us,' they'll actually charge us five or $10 to make that
payment over the phone for no reason at all. Obviously, you could make it any
other way for free, but it's just because--well, it's for two reasons, and one
is really rather sinister. Who is it that's paying their bill by phone at the
last minute? You know, these are the folks who can least afford to do it, and
these are the folks who are under the most pressure, so when you're on the
phone and the bank says, you know, `If you don't pay this bill right now, all
sorts of terrible things are going to happen to you,' so people are
intimidated into paying, not only paying their bill that way, but getting
dinged this last extra dishonorable charge. And again, you know, there's no
one stopping them, so why wouldn't they?

GROSS: If you're just joining us, my guest is Bob Sullivan and he's the
author of the new book "Gotcha Capitalism: How Hidden Fees Rip You Off Every
Day and What You Can Do About It."

Why are all these hidden fees being hidden now? I mean, it seems like that,
particularly in the last 10 years or so, that we've been seeing many more of
these hidden fees than we used to. I mean, is that an exaggeration?

Mr. SULLIVAN: No, that's absolutely the case, and that's part of why I wrote
the book. I'm a technology reporter, not a personal finance reporter, and the
reason that hidden fees have become this raging industry that they have is
because of technology. That's how I happened on the story, just writing about
people's cell phone bills and cable television and Internet access and why
these things irritate people.

Bait-and-switch has always existed in any economy, but what we have now is
instead of somebody trying to steal thousands of dollars from a few people at
once, what we have are companies stealing a dollar or two from thousands of
people all the time, and that adds up very quickly. They've perfected the
amount they can ding us for one little bit at a time, it's usually about $10 a
month. Most people won't complain about eight or nine extra dollars here or
there, and they've figured out what that pain point is. And they've also
refined their databases and figured out exactly how they can expense things
and parse things out, as we discussed, with cell phone bills and cellular
phone bills, and so it's really the computers, these big giant smart
supercomputers that all these companies have that are constantly honing ways
to get more and more pennies and nickles from us, and in the face of that
information war, us consumers really don't stand a chance.

GROSS: Why isn't there more regulation protecting us consumers?

Mr. SULLIVAN: I don't really know why there isn't any more regulation
protecting us, but I do know this. Whether you're talking about bridges that
are collapsing or levees that are collapsing or America's infrastructure in
general, there isn't a lot of disagreement that there are all sorts of chinks
in our armor here.

And I looked back at the history of the Federal Trade Commission while I was
working on this book, which is these federal agency that's chiefly ordained
with protecting us, along with the Consumer Product Safety Commission and some
other federal agencies, but the Federal Trade Commission would be the one that
most people knew about. And in 1979, the FTC had 1700 full-time employees.
Last year the FTC had about 1,000 full-time employees, so it's nearly half the
size. And during the intervening couple of decades, the FTC added to its list
of things to do--the Internet, the do-not-call list, SPAM, identity
theft--and, by the way, the population is about 75 million larger. So the FTC
has a far bigger job set than it had in the late 1970s and early 1980s, and
it's doing so with half the staff. There just aren't nearly enough people
whose job it is to make sure that companies are being fair with us.

And the end result, which I think is the biggest problem of all for consumers,
is when you get a $500 cell phone bill and it's because your cell phone
company changed your plan and didn't inform you and didn't even send you
anything in writing--which is legal and happens every day in this country--who
do you turn to for help? How do you get justice? And the truth is right now,
there isn't any place to turn for justice, and that's because we haven't
invested in the infrastructure, I think, for our bridges, for our cities, for
our transportation, and in what I would call the infrastructure for our market
economy, which is keeping a fair market. We aren't investing in that, and
this is the result.

GROSS: A lot of people would say, `Well, the market will straighten this out
because the market straightens things out,' but you're very skeptical of that.

Mr. SULLIVAN: I am, because, well--I think, first of all, I can just point
at the way things are and--for all the evidence I really need that the market
is not straightening this out, but what people don't understand about a free
market is that it doesn't mean it's a free-for-all market. There are rules.
I mean, think about when your family pulls out a board game and what happens
if you just start playing without reading the rules. Pretty quickly
somebody's throwing eggnog at somebody else, right? Because if there's no
rules, eventually things descend into chaos, and that's really what we have
here.

And the fundamental rule that's missing right now is: What do things cost?
When you go to a cell phone store or grocery store, why don't the price tags
on those things mean anything? Why can you end up being charged much more
than you think? And, you know, what's happened is we've basically thrown out
all the rules and as a result we don't have a functioning market economy
anymore. We have a broken economy and we need a market fix for that, which
involves setting rules.

GROSS: Well, you point out in your book that now that a lot of companies
charge these hidden fees, other companies have to charge them too to be
competitive.

Mr. SULLIVAN: This is a very important point to me, because I don't want to
sound like all companies are bad and all consumers are good, because we have
all things on all the spectrum of that. Obviously some consumers try to cheat
companies and vice versa, but here's what's important. I think there are lots
of companies out there that would dearly love more regulation, that would
really like to know that when they set a price for things, that all their
competitors won't be able to cheat, either.

I have a story in the book about a hotel company that experimented with up
front pricing and tried to put on the Internet the price consumers would pay
when they left that morning after staying in the hotel, and what happened to
that hotel, they were losing customers like crazy to their competitors who
were lying about what the real price was, so they just couldn't afford to be
honest. I think that's tragic. I think in our economy, you know, we're
losing our way if companies really can't afford to be fair with people, and
there are lots of companies who, if given the opportunity, would really enjoy
competing in a marketplace where everything was aboveboard.

GROSS: My guest is Bob Sullivan. His new book is called "Gotcha Capitalism."
We'll talk more after a break. This is FRESH AIR.

(Announcements)

GROSS: My guest is Bob Sullivan. He's the author of the new book "Gotcha
Capitalism: How Hidden Fees Rip You Off Every Day and What You Can Do About
It."

Now, you're also an expert on Internet fraud, but I want to share with you
some really good news. I've been really lucky in the past few days. Within
just a few days, I have just been honored by the Internet. For example, the
International Awareness Promotion Department of the BMW Auto Company informed
me that my e-mail address had been randomly selected as a star prize winner.
That's worth 500,000 euros, and all I need to do is contact the claim office
with my name, address, country, age, sex, occupation, phone number and fax.

Plus, I'm so lucky, Barrister Williams Moore Law Firm contacted me that the
great philanthropist, the late David Rawlins, made a random selection of
individuals drawn from 250 countries whom he expects to continue in line with
his selfless services to mankind, and I was chosen as one of those people, and
all I need to do is give them my name, address, nationality, age, occupation,
phone, fax, country of residence. What's going on here?

Mr. SULLIVAN: You didn't win the Spanish lottery, El Gordo?

GROSS: No! Oh God, I'm offended!

Mr. SULLIVAN: You probably are the only one. You know, these are all just a
very simple Nigerian scam that everyone's familiar with, but one thing that
you need to understand about scam artists is that they don't sit still, unlike
a lot of American companies. These guys are very innovative and they're
constantly honing their pitch, and the minute that they figure out that
something works, they send it out to the whole world. And every story gets
more and more elaborate. They keep layering stories on.

And the point I like to make when I'm talking to people about Internet scams
is everyone knows when you get an e-mail that says `you have a long-lost
relative in Kenya' that that's a scam. And everyone laughs and says, `Isn't
this silly? I would never fall for that.' Well, I'm here to tell you, people
fall for all the time. I've talked to dozens and dozens of victims who've
sent 10, 20 $30,000 overseas for things like this. Probably not as simple as
the scams that you were just describing, but when they're just a little bit
more complicated, people fall for them. Let me just...

GROSS: But these guys, they want to give me money. They're not asking...

Mr. SULLIVAN: They want to give you money? Sure, well...

GROSS: They want to give me money.

Mr. SULLIVAN: Let me give you an example of something that's just a little
bit more refined than what you described. I have a friend who is a new owner
of a bed and breakfast on the Jersey shore, beautiful place, and she recently
got an e-mail from someone from Africa, but a dignitary, who said that he was
going to work a six-month stint at UNICEF in New York City and needed a place
to stay. And along came a check from UNICEF, drawn off what looked like a
UNICEF bank account. Now, if you deposit that check, the money's going to
go--the money would have gone into her account, because the bank would have
cleared the check, and banks can actually unclear checks, if you will,
discover that they're fraudulent, for weeks later. So they can literally put
the money into your account, and then take the money back out, because they
don't actually do the fraud checking immediately. They just give you the
money.

Now, if you're a business owner and you get a check like that, that's a pretty
good story. And again, it's a check that looks like it's from a big
organization. The money actually goes into your account. So what the scam
is, of course, is eventually the guy will call and say, `I can't actually make
it, can you refund the money?' Or, `Can you refund half the money, because I
can only make it for half the time,' so you send money back across overseas.
So I think it's really important we talk about Internet scams that, while a
lot of them are funny and they sound really unbelievable, the truth is, with
just a little bit more tweaking they're very believable, and anybody can fall
for them.

GROSS: Yeah, and with these, with the ones that I read, I mean, they're not
asking for my credit card number or my Social Security number...

Mr. SULLIVAN: Right

GROSS: ...and those are two of the big indicators that someone's trying to
like steal your identity or somehow falsely get access to your bank account or
your credit card. They're not asking for that.

Mr. SULLIVAN: No, and they've figured out now, enough people like me have
written stories that warn people, if someone asks for your credit card number
up front, you don't give it to them, so they just take it one step removed.
That's a way of creating what sometimes is called "a suckers list" in the
business. They send out 10 million of those notes, and, you know, what, 95
people write back because they say, `You know what? It's probably not real,
but what the heck? What's the risk? They didn't ask for anything personal.'
And the exchange might then go on for a couple of weeks before they actually
pop the question. And by then, you know, they've probably worked on your
defenses a bit.

There are amazing scams involving online dating sites that are very parallel
to what you're describing where people have whole relationships--I've seen
people drag this on for six months--a guy overseas who romances a woman, even
sends her flowers and candy--of course, purchased with stolen credit
cards--and then finally asks for a little bit of money to travel overseas to
go see her. So, again, that's just the same scam, the same core scam, but
just drawn out a little more elaborately.

GROSS: I have a feeling that since I got about four of these within four days
of each other they're all from like the same list...

Mr. SULLIVAN: Yes.

GROSS: You know, that these are all like the same person or like all of these
four groups that were trying to, you know, make me these, quote, "offers" got
my name off the same list at the same time.

Mr. SULLIVAN: That's very likely, and so the fundamental question is there,
how do people find your e-mail address?

GROSS: Yeah.

Mr. SULLIVAN: And there's lots of ways they do that. The most common way
they do is by what they call "scraping the Internet." They just send out these
spiders to find every e-mail address imaginable on any kind of a Web page
anywhere, and I have a feeling that you're a fairly prominent public figure
and there's probably an e-mail address for you somewhere, but if this were a
private e-mail address, then you might start to ask yourself, you know, `If
I've only shared this with some friends and maybe a couple of companies, are
those companies sharing the information?' And I'm here to give you the sad
news that companies share a lot of information that they take about us. Even
when their privacy policies say that they won't and their public relations
people say that they don't, companies frequently sell our information, and
when they do we can't keep track of where it ends up anymore, so it might go
from a legitimate company to maybe a not-so-legitimate company and then end up
in the hands of a scammer.

GROSS: Well, Bob Sullivan, it's been great to talk with you. Thanks for all
your explanations and analysis and advice. Thank you very much.

Mr. SULLIVAN: Oh, thank you for the opportunity. I mean, I really care a
lot about the subject. I think people should be treated fairly, and we're not
doing that right now.

GROSS: Bob Sullivan is the author of the new book "Gotcha Capitalism." He
writes "The Red Tape Chronicles" for msnbc.com.

Coming up, rock historian Ed Ward on the music that came out of San Francisco
between 1965 and 1970. This is FRESH AIR.

* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *

Review: Ed Ward on the four-disc set "Love Is the Song We Sing"
(Soundbite of music)

TERRY GROSS, host:

For all the celebration in the media that occurred around the 40th anniversary
of "the summer of love," there was nobody really questioning whether the San
Francisco sound that was so integral to the summer of love even existed. The
answer has arrived with "Love Is the Song We Sing," a four-disc set from Rhino
Records, compiled by Alec Palao and packaged as a hard-cover book with a
gallery of photographs by Jim Marshall, Herb Green, and others. Rock
historian Ed Ward takes a look and a listen.

Mr. ED WARD: Like many another part of the country, the San Francisco Bay
area in 1965 had its folkies, its Beatles and Stones-inspired bands, and its
surf musicians. A lot of them got played on local radio, too, which is
something else that wasn't too unusual in those days. But starting in late
1965, it appeared that a change was coming, with crowds showing up to dance,
itself illegal, at large dance concerts promoted by local bohemians, featuring
some very odd bands.

(Soundbite of "Number One")

The CHARLATANS: (Singing) Whoa-hoa I think I'm going to die-hie
Whoa-hoa I think I'm going try-hie
Oh, baby, I just know I'm goin' to die-hie-hie-hie-hie-hie-hie
Whoa-hoa, that things you do-hoo
Whoa-hoa, they make me feel so blue
Oh, baby don't you know, that I love you-hoo-hoo-hoo-hoo-hoo
Well, you don't...

(End of soundbite)

Mr. WARD: The Charlatans were a well-dressed quintet who looked like they'd
stepped out of an Edwardian engraving onto the stage. Having spent the summer
getting tight--in more ways than one--at the Red Dog Saloon, Virginia City,
Nevada, they were now ready to take the stage in their hometown with a unique
blend of folk rock and improvisation.

Nor were they alone. Another band had assembled around Marty Balin, a former
artist and dancer who decided to try an electric folk vision of his own and
named his band Blind Lemon Jefferson Airplane, which was too long so they
settled on just the last two words.

(Soundbite of "It's No Secret")

JEFFERSON AIRPLANE: (Singing) It's no secret
How strong my love is for you
It's no secret
When I tell you what I'm going to do
'Cause I love you
Yes, I love you

It's no secret
Everybody knows how I feel
It's no secret
When I say my love is real
'Cause I love you
Yes, I love you

It's no secret...

(End of soundbite)

Mr. WARD: Jefferson Airplane had one advantage over the Charlatans, though:
a record contract with RCA, which was undoubtedly trying to match the top 10
success of another San Francisco folk rock act, We Five.

(Soundbite of "You Were on My Mind")

WE FIVE: (Singing) When I woke up this morning
You were on my mind
And you were on my mind
I got troubles, whoa-oh
I got worries, whoa-oh
I got wounds to bind

And I got a feeling
Down in my shoes
Said, way down in my shoes
Yeah, I got to ramble, whoa-oh
I got to move on, whoa-oh
I got to walk away my blues

When I woke up this morning...

(End of soundbite)

Mr. WARD: We Five faded pretty quickly, but early in 1966 when dances
started being held regularly at the Fillmore Auditorium in San Francisco, a
bewildering number of bands started showing up looking for bookings. Not all
of them were from San Francisco, though.

(Soundbite of "Foolish Woman")

THE OXFORD CIRCLE: (Singing) Foolish woman left me
Tears in my eyes
Tears in my eyes
Tears in my eyes
Tears in my eyes
It didn't take long, baby, 'fore another
Took your place
Took your place
She took your place
Took your place

Now you're alone
All on your own
All on your own, baby
Now you're alone
Foolish woman, hey
Foolish woman

(End of soundbite)

Mr. WARD: The Oxford Circle, for instance, were from Davis in the suburbs of
Sacramento, and although they were never part of the official story, they
appeared at both the Fillmore and Avalon ballrooms frequently and were huge
favorites with the crowds.

So were plenty of other bands from the city's outskirts, like the Frumious
Bandersnatch from Diablo Valley; Quicksilver Messenger Service from Mill
Valley; and The Warlocks from Palo Alto, who changed their name to The
Grateful Dead. In El Cerrito, north of Berkeley, was another band that would
never play the ballrooms. Originally The Golliwogs, they became Creedence
Clearwater Revival.

Very few of these bands sounded like each other. The Fillmore and Avalon,
with rival promoters Bill Graham and Chet Helms, presented three bands per
show most of the time, and although some of them came from Texas and Seattle,
a lot of them were local. This fact wasn't lost on the record companies, who
were mostly based in Los Angeles, and soon, not only Jefferson Airplane but
also The Grateful Dead, Quicksilver Messenger Service and Moby Grape had major
label contracts.

Some of the biggest hopes, though, were tied to a group who came from all
over, their lead singer from Port Arthur, Texas.

(Soundbite of "Down on Me")

Ms. JANIS JOPLIN: (Singing) Down on me, down on me
Looks like everybody in this whole round world
They're down on me

One of these mornings proud and fair
Get on my wings, I'm gonna fly the air
I said it looks like everybody in this whole round world
Hey! Down on me
Hey, they're down on me
Down on me
All right

It looks like everyone in this whole round world
Ohhh, down on me,
Oh, yeah, yeah...

(End of soundbite)

Mr. WARD: In a way, Big Brother & the Holding Company epitomized the rise
and fall of so many of the ballroom bands. After one album on a Chicago
label, they signed for big bucks with Columbia, made one haphazard album for
them, and then lead singer Janis Joplin was enticed away to go solo, but she
never really found success. Of course, a lot of bands never even got that
far, and it's amazing, listening to this collection and looking at the gallery
of contemporary portraits it contains, to contemplate just how much talent
came and went in this place and time, leaving behind nothing but some very odd
sounds on a piece of plastic.

GROSS: Ed Ward lives in Berlin. The music he played is from the new Rhino
box set "Love Is the Song We Sing."

(Credits)

GROSS: I'm Terry Gross.
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