Reporter's Secrets To Smart Consumption 2.0

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Reporter's Secrets To Smart Consumption 2.0

DAVID BIANCULLI, host:

This is FRESH AIR. I'm David Bianculli of tvworthwatching.com, sitting in for
Terry Gross, who's a little under the weather today.

Well, the holidays are over, and you know what comes next: the credit card
bills for all the spending and overspending you did over the past few weeks.

But the purchases themselves aren't the only way you may have spent too much
money. According to today's guest, author Bob Sullivan, the credit card
companies may be eating into your wallets and purses with all their hidden fees
and charges, and that goes for the car dealerships and the cell phone service
providers, too.

Bob Sullivan is a reporter for msnbc.com, covering computer crime and consumer
affairs. He appears regularly on the "NBC Nightly News," the "Today Show" and
the MSNBC cable network. He's the author of the bestseller, "Gotcha
Capitalism," and his new book is called "Stop Getting Ripped Off: Why Consumers
Get Screwed and How You Can Always Get a Fair Deal."

Terry spoke with Bob Sullivan recently, to ask about some of these hidden
consumer traps and how to avoid them.

TERRY GROSS, host:

Bob Sullivan, welcome back to FRESH AIR. The credit card bills for the
Christmas gifts are on the way. So let's start there. For people who have spent
more than they can pay off in full, what suggestions do you have about how to
handle your credit card?

Mr. BOB SULLIVAN (Author, "Stop Getting Ripped Off: Why Consumers Get Screwed
and How You Can Always Get a Fair Deal"): You know, the sticker shock for
Christmas really comes right about now. This is the unwrapping that's very
unpleasant.

It's a good time to talk about this, though, because there are really three
different kinds of credit card users, as I see it. There's users who always pay
their bill off every month, on time, in full. There's users who owe a lot and
are revolvers, and they get a lot of attention, too. But in between are people
who occasionally spend more than they can afford in a particular month. I call
them Christmas card users, and that's what we have here.

So people who generally pay their bill on time and don't really know about this
complicated world of revolving debt and late fees and over-limit fees, this
will all be a surprise to them.

The most important thing is even though there's the dreaded click you just
don't want to do today, you don't want to see what your balance is on that
credit card, go ahead and do it. It's always better to know. It's like when you
see the doctor, you always feel better when there's a diagnosis. Click on that
link, see what the balance is, and deal with it.

And if it's something you can't pay in full this month, that's okay. But what I
want you to do - and most folks don't do this - is whatever card you have
that's now beyond what you can pay this month, stop using that immediately
because you will start - you will continue to incur interest charges into
February and into March as long as you don't pay that bill off. Most folks just
keep ringing and ringing and ringing.

Use a second card. If you don't have a second card - hopefully you've planned
ahead for this - use a card with no balance. I call this the clean card
strategy. And begin using only that card, a card that you know you will pay
off.

So now you might have one card with a balance, and I'll call that your line-of-
credit card, where you're paying interest, but you're going to pay it down.
You'll know exactly what the debt is. Then the other side is a card where you
still have that free loan from the credit card company. You won't be paying any
interest on your day-to-day purchases, and keep those separate. That's the best
way to attack this big mountain of debt you might have incurred during
December.

GROSS: And you also suggest that if you owe money, pay some in the middle of
the billing cycle. Don't wait for the bill to come. Will you be paying less
interest if you pay off some of it midway through the cycle?

Mr. SULLIVAN: A lot of folks miss this point. Once you get to that different
universe where you haven't paid your bill and the interest comes, credit card
companies often charge on what's called the average daily balance. Every single
day, they add to your interest pile. People, by instinct, just wait for another
bill to come to pay.

You don't have to do that. If you can't pay your bill at the end of January,
but your next paycheck comes on February 12th, go ahead and pay it then. You'll
save yourself half the interest you would have paid. Doing that as a regular
habit can save someone who spends an average amount of money on Christmas a
good 60 or $70 in interest. So just don't wait for the bill. Pay it as soon as
you have the money.

GROSS: Okay, in keeping with this theme that people are maxed out financially
because of holiday spending, let's get to checking accounts and debit cards. A
lot of people might have overextended their debit cards and their checking
accounts, and you have a lot to say about this. Let's start with debit cards.
You really recommend against debit cards.

Mr. SULLIVAN: I think it's a terrible idea to spend money with debit cards for
a lot of reasons. The biggest one is that once upon a time, debit cards were
considered safer than credit cards because you were spending your own money.
But the banks that issued these cards realized they were losing money that way,
and so they added all these fees - the most significant being this overdraft
fee, which you've heard so much about.

It's very, very easy to overdraw your checking account using a debit card. And
once you do that, it's very easy to ring up six, seven, eight of these charges.
So that hamburger could cost you two or $300 dollars. And especially if you've
already spent a lot and now you're kind of near the edge of your checking
account once you pay your bills this month - you don't want to be close. You
don't even want to give yourself the near occasion of ending up with an
overdraft fee, because they almost always cascade. That's a big headache.

But in a larger sense, what I'm really against is people using their main
checking account, the place where their paychecks are deposited once or twice a
month, and they write the big checks in their lives - the mortgage, the car
payment. I'm really against people swiping their debit card and getting money
from an ATM and cluttering up those accounts with 30 or 40 transactions every
month.

You're just bound to trip up when you do that. This is called velocity in the
banking world, and the more velocity you have, the more opportunities there are
for mistakes. So I believe in separating your accounts out.

You want to have an account that you use just for those big things, I call this
the staging account, where you deposit your paychecks, you write the big
checks. So you always have a grasp of what's in there.

Again, I'm a really big fan of people having a good, general grasp of their
financial picture all the time. So that's one account.

And the second account is an allowance account, and that's the one you use for
everyday, petty-cash purchases, if you will, if you really need to use a debit
card. And again, I'm not for that, but people do it. So separate all those
ticky-tack transactions. Make sure that's a card with no overdraft fee on it.
You can call the bank now and you can say don't allow me to overspend this
account. So when the money's gone, it's gone, and you'll know that. And by
doing this, you'll really simplify your financial life.

That checking account right now has become a do-everything account, and that's
a problem for a lot of people.

GROSS: So on a checking account, you'll definitely get slapped with a fee if
you overdraw on it, whereas on a debit card, you can say if I'm out of money,
just don't let the transaction go through and you won't be charged any kind of
fee. But you have to ask for that because otherwise, they give you the
overdraft protection, make it seem like it's a big favor to you.

Mr. SULLIVAN: Right, yeah, the courtesy overdraft protection is automatic on
most checking accounts in America today. That's going to change. There's been a
lot of new regulations about overdraft, and we're still in the middle of
sorting all that out.

For the time being, assume you have it, and even if you don't know it, you're
already automatically set up to get a loan from your debit card just by swiping
it at a store or sometimes even at an ATM. You'll get cash from a machine, even
if you don't have any.

So you've got to ask the bank directly to remove what's called courtesy
overdraft protection, and then you'll be in much - you're going to be in a much
more solid foundation.

GROSS: So, just to clarify, there are times I think when the courtesy overdraft
protection is very useful, like if your checking account is linked to your
savings account and your savings account has enough money to cover any
overdraft from your checking account. It prevents a check from bouncing. And
you still will get slapped with, like, a $10 transfer fee, maybe, but it's
better than the larger fee that you'd get for bouncing a check, and also you
don't want to bounce a check.

Mr. SULLIVAN: You know, sadly, we've gotten into a nomenclature problem here,
which is exactly what the banks want.

So courtesy overdraft protection refers exclusively to this automatic
protection that you get, whether you want it or not, that's going to cost you
$35 a pop. The best alternative, after you've figured out this - not to do
that, is to link your accounts, as you're suggesting. You can link a savings
account or even a line of credit to your debit card. The fee will be much less
for that.

That usually goes by another name, just simply overdraft protection or some
other name at the bank.

GROSS: I see.

Mr. SULLIVAN: So - but the confusion is intentional on the bank's part, but the
rule of thumb is if you're borrowing your own money, it's relatively cheap. If
you're borrowing the bank's money, it's very expensive.

GROSS: So if you have a debit card and you have that courtesy overdraft
protection, they're basically giving you a loan, and you're paying interest on
the money they're giving you.

Mr. SULLIVAN: Well, that's a big debate. The banks don't describe it that way.
They see it as just a fee-based service, and because it's only a fee-based
service, they don't have to do things like publish what the annual percentage
rate would really be.

All the consumer groups argue that it is a loan service and, in fact, was
invented directly to compete with things like payday loans. And again, at $35
for a $3 overcharge, the interest rate can be four digits.

GROSS: Right, right. It's so hard to keep track of all of this. Like, you have
to just be a full-time student in order to understand your bills and your
banking system.

Mr. SULLIVAN: Yeah, that's my concern. I mean, people who are good at this,
people who think this is kind of a game - and I'll confess I'm one of them -
usually do okay in this world. But, you know, regular people out there, they're
busy raising kids, taking care of parents, trying to get by at work, trying to
find a job. This should not be - this should not require top-of-mind concern
every day.

Unfortunately, it does. There are a lot of books out there. There are a lot of
people who discuss how to get rich quickly, and I don't do any of that. But
what I'm convinced of is that if what you do in life now, in your financial
life, is you just don't get screwed by a bank when you're buying a house or,
you know, get screwed by a financial advisor, you know, you're not going to get
rich, but you're actually going to be pretty okay. And that boils right down to
this topic. If you're not losing $35 every couple of weeks to one of these
fees, you'll make it through the year pretty okay, and that's what I want for
people.

BIANCULLI: Bob Sullivan, speaking with Terry Gross. More after a break. This is
FRESH AIR.

(Soundbite of music)

BIANCULLI: Let's get back to Terry's interview with MSNBC.com reporter Bob
Sullivan. His new book is called "Stop Getting Ripped Off."

GROSS: Bob, you say the idea of a free checking account is largely a charade
now.

Mr. SULLIVAN: A free checking account is a charade, and actually, it'll be very
interesting to see what happens over the next 12 months.

If I could just backtrack a little bit to credit cards, when that Credit Card
Protection Act was passed earlier this year, we saw an incredible chain
reaction. There were all these new consumer protections, but on came all these
bullets fired by the banks.

They raised people's interest rates. Half of America saw their rates either go
up or their credit limits go down, the banks say as a result of a loss of
revenue from the new credit card protections.

Well, new checking account protections are going to come in this year, and the
big, ominous threat we've heard from banks is that free checking quite
literally will disappear. They will start having to charge annual fees - which
happened long ago - for checking accounts.

Now, what I would say to that is that exposes the sham all along, because what
we've had is a system where a third of the country or so who paid overdraft
fees last year, they pay a lot for checking accounts. They might pay $200,
$300, $400 a year in fees when it's all added up, and those people subsidize
other people who, at least this year, didn't make a mistake and they're not
slipping up.

Now, that's more like a parlor game to me than a product. And that's what we've
been going through. You know, when all those fees are taken away, if there is a
$5 annual fee or something like that that comes from checking accounts, that'll
be really unfortunate, but at least the banks will have to honestly price their
products. And now we'll actually be competing with each other on price, and
consumers can see for themselves what the real cost of their account is.

GROSS: How much of those checking account fees will be taken away with the new
legislation?

Mr. SULLIVAN: Well, some of the overdraft fees will be taken away. They'll be -
some of them will be capped. The courtesy overdraft protection will be - the
ability to remove it will be much easier, and in some cases, they won't be able
to add it all to accounts. And there are some pretty dire predictions from the
banking industry.

I saw one lobbyist say he expects hundreds of banks to fail just because
overdraft fees have been eliminated. Once again, my response to that would be
if your business can't survive without these punishment fees, well, you
probably don't have much of a business.

GROSS: Why is the banking system in a position where it's getting its money
from fees?

Mr. SULLIVAN: This is a story that has a very sad ending at the moment. The
product of banks is loaning money. That's their business. They loan money. They
borrow money from the federal government. They loan it out at a slightly higher
rate, and that's how they make money.

That was how they made money. But over the past 15 years, banks have slowly
realized that, in bank terminology, they wanted to diversify their revenue
streams. The margins on interest rates have gotten lower and lower, the margins
on loans have gotten lower, and they went into this world of fees.

But one real benefit to that is there are far fewer regulations on fees than on
interest. When credit cards in particular moved into this world of fees, there
actually was a Supreme Court decision that allowed banks to add fees and to
charge rates that were unregulated by any of the state authorities and largely
unregulated by federal authorities, as well.

So fees are a much easier way for them to make money than complicated interest
products where they had to disclose information. And now there are many banks
that make more than half of their income from fees instead of interest, which a
lot of folks - I'd be at the top of the list - argue means banking is no longer
serving the function for the American consumers that it's designed to do, which
is to help create this multiplier effect on the economy. All they're doing is
sucking money out of the economy without a multiplier, and that's really bad
business.

GROSS: Because I remember the days when you actually got rewarded. You got
interest for having money in the bank. Now they charge you. They charge you to
get your own money out.

Mr. SULLIVAN: Yeah, well, you know, this is a key issue I would like to
address. It almost never gets brought up. The Fed has kept interest rates
incredibly low for a very long time now, and this is the second time we've done
this in the last decade. And in general, the stock market loves that. Banks
like it because they can loan money cheaply. And if you're in the market for a
house, it's probably good for you.

But if you are a saver, if you're conservative financially with your money, a
lot of older folks, what they do in order to provide income to themselves, is
they have CDs that they roll over every month or every three months. It's
killing people like that.

Savings accounts are almost worthless in America right now, and we have this
long stretch where interest earnings are basically gone. And we have
essentially picked winners and losers in the marketplace. By having these low
interest rates, we're trying to make winners out of people who want to invest
in houses and invest in stocks. But we're making(ph) now losers out of people
who saved a lot of money, who you think should be getting gold stars right now,
given what's happened with the economy.

GROSS: So you mentioned legislation that's going to affect the fees that banks
can charge consumers.

Mr. SULLIVAN: Yes.

GROSS: What law is that?

Mr. SULLIVAN: Well, there are two things happening at once. The Federal Reserve
is actually issuing new regulations. It's in the process of doing that, as we
speak. And Congress is considering overdraft protections that will go into law,
which will prevent banks from automatically charging people fees and
automatically giving people this tool that they never wanted in the first
place. And it will provide a few other containers on how many fees banks can
charge, even if you do opt to have that protection. The number of fees that can
be charged in a single day, for example, will be limited.

And all those are good protections. It remains to be seen how banks will react
to that and whether they will follow through on a threat of adding other fees
instead. I can bet they'll try, and that's where I think consumers really need
to pay attention in the first couple of months of this year because their
checking accounts may change substantially.

GROSS: So keep an eye open for new fees?

Mr. SULLIVAN: Absolutely. One of the things to really keep an eye open for with
all these mergers, a lot of folks who had an account that was free with one
bank, after they were acquired by another bank and the logos changed on their
bills and on their credit cards, suddenly noticed the free account they had is
now a fee account with the new bank because the minimum balance with the old
bank was $1,000, but now their new minimum balance is $2,000. And those things
change, and it's very easy to miss them if you don't look.

So if you've gone through a merger or just, you know, as you're listening to
what's happening with the Federal Reserve and its new rules, make sure you look
at that bank statement for new fees.

GROSS: Let's look some more at credit cards. New legislation has been taking
effect over a period of time, slowly getting implemented, that regulates what
credit card companies can do in terms of fees and other ways of getting money
out of you.

So what are some of the things that we should be looking out for now in our
credit card bills, now that the law has changed and is continuing to change?
There are some tricks that the companies can't use anymore. Are there new
tricks that they're substituting?

Mr. SULLIVAN: Yeah. There's two really important new tricks which have already
hurt a lot of people. One is to raise the minimum payment requirements. Some
banks have raised that payment from two to five percent, which might not sound
like a lot, but there are plenty of folks out there who took credit cards or
transferred balances to credit cards with the expectation that they would be
able to get by by paying two, $300 a month for the next five or six years to
get out of a loan.

Well, all of a sudden, that $300-a-month bill is now a $750-a-month bill.
That's killing people, and the credit card legislation said nothing about
minimum payments. I think, frankly, Congress didn't even think of that as a
potential consequence.

GROSS: Can I stop you right there for a second?

Mr. SULLIVAN: Yeah.

GROSS: So the problem with that is if you can't meet the minimum payment, then
you're paying interest on a lot more money than - no, no, that's not it.
What...

Mr. SULLIVAN: That's an even a bigger problem. Go ahead.

GROSS: No, you.

(Soundbite of laughter)

Mr. SULLIVAN: There's a lot of - if - here's what I think is going on with the
minimum payment thing. A lot of banks gave these very aggressive transfer
offers to consumers. So they might say, you know, we'll give you a five percent
interest rate for 10 years on any balances that you transfer in.

Well, now they have these terrible loans on their books, and they're raising
the minimum payment to smoke out these consumers, basically. So if a person who
was paying $300 a month now has a $750-a-month bill and they can't pay it,
well, now they call the credit card company up and they get some really bad
options.

We'll lower your minimum payment down if you let us raise your rate. Or we're
going to just put you into default so we can raise your rate to the default
rate, so that 3.9 percent rate suddenly goes to 30 percent. I have talked to
people who have had this happen. It's devastating. And these are people who
haven't done anything wrong, who've paid their bills as described for sometimes
years, but just by changing those terms, the banks can create all of these
effects. So changing the minimum payment balance has really hurt a certain set
of consumers.

But the other thing is lowering the credit limits. And again, I think folks who
don't normally spend up to their credit limits, which is better than half of
America, they might not think of this as a terrible consequence, but it really
can be.

A large part of your credit score is based on what's called your credit usage
formula. And so if you're a kind of consumer, you have a couple of credit cards
with a $5,000 limit, and you never get anywhere near that, that's considered
you having $10,000 in available credit.

Well, let's say that's cut by three-quarters, which could happen. Now you've
only got $2,500 in available credit, and maybe you do spend up to that. So when
some company pulls your credit report, it looks like you're using all your
credit. Now you look like a big risk.

So it can hurt your credit score a lot: 30, 40, 50 points, just having a credit
card company lower your credit limit. And in turn, that kind of score, that can
put you from having a prime loan to a sub-prime loan. That can have you at the
car dealership getting a nine percent interest rate rather than a five or six
percent interest rate. So lowering your credit limits is actually - can
actually be a really big problem. And if consumers have had that happen to
them, they've got to address it in one way or another.

The best way is to get another credit card, which sounds like crazy advice from
someone who's not so hot on credit cards, but you have to really replace that
missing credit that you had. So if companies have lowered your credit limit,
you should start shopping around for another credit card or two that will you
give you back that money so you have that limit from that credit back in your
life.

BIANCULLI: Bob Sullivan, speaking to Terry Gross. We'll have more of Terry's
conversation with the author of "Stop Getting Ripped Off" in the second half of
the show. I'm David Bianculli, and this is FRESH AIR.

(Soundbite of music)

BIANCULLI: This is FRESH AIR. I'm David Bianculli, in for Terry Gross. We're
back with more of Terry's conversation with MSNBC.com reporter Bob Sullivan.
His new book is called "Stop Getting Ripped Off: Why Consumers Get Screwed and
How You Can Always Get a Fair Deal."

GROSS: Let's move on to cell phones. And I love an expression you use in your
book. You describe cell phone owners as prisoners of their cell phone company.

(Soundbite of laughter)

GROSS: Why do you say that?

Mr. SULLIVAN: Well, almost everybody who uses a cell phone is in some kind of a
long-term contract. And it's really hard to find a parallel in your life,
although, the cable folks and the satellite TV folks are starting to catch on
to this business model. But it's hard to find a parallel in your life where you
might have this product that you use and you're stuck with it for two years.
Especially at a time now where there are all these great new cell phones and
these great new technologies coming out and there's a lot of real competition
in the high end of smartphones that can do all of these amazing things and get
email and get you online from anywhere.

But most folks are stuck in a contract that they don't want and they can't shop
for those new phones, they can't shop for new prices. One good thing about
competition is that the price for things like all-you-can-eat cell phone
calling and texting continues to get lower, so new customers can enjoy those
things. But if you're in contract, you're really out of luck. There's been a
little bit of return from the cell phone companies in that now they don't
charge you the full fee if you get out of your contract. They charge what they
call a prorated fee, although it's not quite that.

But recently, Verizon's early termination fees exploded on some phones to $350.
So if you sign up with Verizon for a service and you want to get out of it
because something happens, including by the way, if your service isn't working,
they'll charge you $350 to return that phone and for you to be a free agent
again. That's a crazy business model. It just doesn't allow people to shop
around and get the best deal.

GROSS: Sometimes the way you end up getting into one of those long-term
contracts is that you get a great deal on the telephone itself.

Mr. SULLIVAN: Mm-hmm.

GROSS: If you sign for the, you know, two-year contract. So it seems like,
yeah, you know, you're saving me a lot of money on a phone? Sure.

Mr. SULLIVAN: You know, the model that where the cell phone companies give you
something at a discounted price and then expect to make that money back from
you over time, there's nothing wrong with that. That's essentially a loan,
right? They're going to charge you over time to pay them back for their
subsidy. And if that's what they were doing, and if that was declared clearly,
well, I think that'd be great. But that's not how it works. All these fees are
arbitrary. They don't have any relationship to the amount of subsidy that you
got when you bought that phone.

The amount of the proratedness(ph) doesn't decline or anything near the same as
the amortization of the gadget itself. And so they're really just kind of
gaming the system. But the most important thing to me here is that they are
distorting the actual price of the gadget.

Verizon right now has incredibly low prices on their smartphones because they
have these incredibly high early termination fees. And once again, instead of
charging people the real price for the gadget, they're hiding the real price
and making a few people subsidize that very low price. It's a distorted
strategy that doesn't allow for true competition in the marketplace.

I would be much happier if all these companies just charged the real price for
the phone or charged some price and then said, over the next two years you're
going to pay us back for the rest of this phone, and everybody knew what they
cost, then we could really compare and compete. When we can't compare and
compete directly, everybody loses, including in my opinion, not just the
consumers but the companies, too. Companies that want to be clear about the
price for their things, they can't compete if somebody else is subsidizing
their price by charging these high backend fees on other customers. It's not a
fair marketplace.

GROSS: Is Verizon alone in doing that? Are all the companies doing that?

Mr. SULLIVAN: Oh, no. No, all the cell phone companies do but some of the fees
aren't as high, but I suspect other companies will follow Verizon's lead on
those expensive smartphones. They'll almost certainly have to if Verizon can
get away with it for a long time. But all the companies have these early
termination fees and none of them are particularly clear.

GROSS: So we've been talking about credit card fees and bank fees. Cell phones
have fees that you have to be careful of in your bill. And I suppose it's
worthwhile to sometimes really study the bill...

(Soundbite of laughter)

GROSS: Before you pay it.

Mr. SULLIVAN: Before...

GROSS: Yeah. What are some of the things you think we should watch out for in
our cell phone bills?

Mr. SULLIVAN: You know, it's very worthwhile studying your cell phone bills. I
have never met a person whose cell phone bill was the same one month to the
next. There's something always different on the bill. Things to look for is how
much you're paying for the ad-on services like text messaging, whether or not
you might've accidentally used a Web site service that you don't normally use.

Premium text messaging is a really sinister problem, especially with kids.
There are certain kind of texts that cost a lot more than others. Premium texts
can cost a dollar or two a piece. You sign up with a special ringtone service
or maybe a dating service, the next thing you know - I talked to a dad whose
daughter had rung up $10,000 in premium text message fees in one month.

GROSS: Wow.

Mr. SULLIVAN: And, you know, again, you just have to ask the question, how can
you put something in the hand of a child that could end up ringing up a $10,000
bill? How could there not be a bell that goes off?

GROSS: How do you avoid doing that? Like, what recommendations would you have
to parents who have children with cell phones?

Mr. SULLIVAN: You know, we live in a time where a lot of folks feel very
comfortable with their kids having cell phones and I understand why. The age
where you give a kid a cell phone is a very personal decision, I think, for
parents. There are very good limited cell phone products which I wish more
parents would consider, where you can give a phone that only calls a few
numbers.

A lot of phone companies have plans they don't advertise a lot where you can
get a regular phone and limit their options, limit their number of minutes so
the phone stops working except for mom's number at a certain time in the month.
Those kinds of caps are a great idea. Parents really should look into that. I
don't think it makes any sense to give a child who's not even old enough to
earn any kind of a paycheck yet a device where they can ring up thousands of
dollars in bills.

GROSS: Now, another thing you recommend is that if you renew your contract,
look out on your bill for upgrade fees.

Mr. SULLIVAN: Yes.

GROSS: What kind of fees should you be looking out for?

Mr. SULLIVAN: Well, everybody knows that if you break your contract you're
going to have to pay a fee. But what a lot of folks don't know is that if you
renew your contract, if you're loyal to your cell phone company you'll almost
certainly also have to pay a fee, so you really can't win there.

These are called upgrade fees and if you get a new phone, even if the phone is
free, almost all the carriers will charge you an upgrade fee and it can be $36.
And it often doesn't arrive until a good two months after you've gotten the new
phone, so you have to look line by line on the phone to see this. This is a
fee, by the way, for attaching that new phone to the network. That should be
part of the phone. When you buy the phone and you get a contract, the price of
putting you on the network certainly should be included and could be included
in the handset. But again, they're just trying to distort the price to reel you
in.

BIANCULLI: Bob Sullivan, speaking with Terry Gross. More after a break. This is
FRESH AIR.

(Soundbite of music)

BIANCULLI: And now for the conclusion of Terry's interview with MSNBC.com
reporter Bob Sullivan, whose new book is called "Stop Getting Ripped Off."

GROSS: One of the chapters in your new book is about buying a car. And buying a
car has really changed in the Internet era, and you suggest price shopping
through emailing dealerships before actually going out and meeting people and,
you know, sitting in the office and making up the deal. So how do you shop
effectively by email when you're looking for a car?

Mr. SULLIVAN: Well, let me make a distinction first between the new car and the
used car market. The new car market is actually a nearly perfect market
nowadays for consumers - perfectly functioning market. Because the good news
is, if you really want a new Jeep Liberty, the Jeep Liberty you'll buy at
dealer A will be identical to the one you'll buy at dealer B and C, and so you
can have them all compete with each other.

Now that's great for you, really bad for the dealership. But nevertheless, they
want your business. Now I would never recommend simply buying it online, but I
- go to a dealer, drive one, pick out the car you want and leave. The most
important thing is to leave because they're going to do everything they can to
keep you from going out the door. But get a price, leave, and then call or the
best thing to do is really to email four or five different dealers.

And it's really critical that you go out of your immediate area. A lot of folks
never consider that they can go buy a car 60 miles away. But you certainly can
and when it's a once every five-year purchase, it's sure worth it to at least
investigate that. Prices do vary by market. I mean, you just send a simple
email that says, I'm in the market for this car, these options, this is the
price I have. Can you beat it?

So that's a really good start. However, a really critical part of what happens
in the car buying process, because obviously the competition is now intense, is
after you've got a deal, that's when the wheels really start spinning in the
finance office. If you're going to try to finance the car directly with the
dealer there's all sorts of expenses that can be added at that point.

The things like license and tags can be far too expensive and over - that's how
they make a lot of profit. There's fees that are cropping up on bills of sale
now for cars that we never saw before. In addition to advertising fees and
dealer holdbacks, there's all sorts of other things that they're adding just to
try to get money. So understand that there's a big difference between the price
and what sometimes is known as the OTD price or the out the door price that the
dealer - got to get that out the door price. That's the one that matters.

GROSS: Now you said, like, shop out of your area if you're getting a cheap
price. Drive an hour a way. The problem I always see with that is that they
always tell you when you buy a car that while the car is under warranty you
should really have it - you should really bring it to a dealership. Now I
suppose you could bring it to a different dealer than you brought it at, but
what are your thoughts on servicing the car while it's under the warranty?

Mr. SULLIVAN: There's no reason to bring the car to the dealership during the
warranty. A lot of dealers will imply that the warranty is void if you have it
serviced outside of a dealership. That's not true.

GROSS: I mean they will just come out and say that...

Mr. SULLIVAN: Yeah.

GROSS: ...if it's not at a dealership there's no way of really proving that the
work that was done on your car is adequate and they could just say the dealer
who serviced your car didn't do a good job, so we're not honoring your
warranty.

Mr. SULLIVAN: That's not legally true. They cannot discriminate over who fixes
your car. They can certainly encourage you. And I've heard it said even more
forcefully when people finance their cars through dealers, where they will
intimate you have to do your warranty work - I've heard outright lies where not
only do you have to have the warranty work done here but you have to buy an
extended warranty because you're financing the car with us because the
financing extends beyond the normal warranty price, and that's not true. This
is where dealers make all their money in these after-charges.

Now it often is a good idea to have the work done by the dealer. It can be done
by any dealer. There's no reason not to do that and I don't necessarily
discourage people from doing that. But it's always important in any
transaction, and I think cars more than anywhere, whenever somebody says to
you, you have to do this, you can't negotiate this price, that's the price
well, that's a trap. That's not true. And you always want to have some kind of
price for all of these things we're talking about. And the dealer says to you,
you know, you've got to come back here to have the work done. Well, not true.

GROSS: Now you advise, never negotiate over the monthly payments. Negotiate
over the total price.

Mr. SULLIVAN: Yeah. This is a really critical element. The first thing almost
any car salesperson will ask you when you walk in is, what can you afford a
month? And just don't answer. That's the biggest trap that they have because
the way that they pack your car loan with all sorts of extra fees is because
it's going to be very, very confusing at the end exactly what you're paying
for. What you want is a price. You want the bottom line, out the door price.
That's the only tool you have to make sure you're paying the right amount.

The one thing that I really like to talk about connected with this book and all
transactions - cars is a really good example of it - is when you're sitting
down at the dealer and you think you're paying $300 a month and then they come
back with, well, we added sales tax and so on, and now it's $369 a month. Most
consumers at that point are overwhelmed. It's an emotional decision. For a lot
of people it really is a once in a lifetime or two or three times in a lifetime
transaction, so you're all worked up. You can't do the numbers very well in
your head. And you better believe it, the guy on the other side of the desk or
the woman on the other side of the desk, they know the numbers much better than
you do.

GROSS: Mm-hmm.

(Soundbite of laughter)

Mr. SULLIVAN: And they're probably going to pack them. And it's much, much
easier when you're dealing with a monthly payment, which is almost abstract for
them to pack that with something that you don't know. I'll tell you what
happened to me last time I bought a car. I often put myself into these perilous
transactions just to see what happens.

(Soundbite of laughter)

Mr. SULLIVAN: Things that people dread, I do for fun. It's a disease, I think.
But I walked in, like exactly what happened. It should've been about 330 a
month and it was 370 a month, and I question the number and they sort of
shrugged and said the numbers all added up. Well, what had happened was there
was a $2,000 rebate on the car which they had mathematically forgotten to
subtract from the price when they did the calculation.

Now let me tell you that I've bought four new cars in the last - since I've
been an adult. There has been a mathematical error in every single transaction.

(Soundbite of laughter)

Mr. SULLIVAN: I know this is a small sample size, but I believe this...

GROSS: I get the quotation marks around the word error.

(Soundbite of laughter)

Mr. SULLIVAN: That's right. These are intentional errors and in the book I
create an actual mythical transaction just to give people the sense of what
it's like. But again, if you're sitting there, it's easy to tell - wait a
minute, the price should be 22,000. It's really 24,000. But if we're talking
about, you know, 330 a month versus 355 a month, you could easily miss that.
That's why you just don't want to have that conversation.

The best way to get around that is to show up with a check from your bank.
Banks will give you these, you already are approved for a loan for this amount,
and you can sign that check over to the dealer so it's essentially a cash deal.
It's as if you brought your own money, which, of course, sometimes can be best
to buy the car. So you just cut out all of those negotiations. That's the best
way.

GROSS: Are you likelier to get a better interest rate from the bank than you
are from the car dealer?

Mr. SULLIVAN: You know, you can often get a better interest rate from the car
dealer. They might have special deals with the bank. So, it's okay to ask.
Understand when you get into dealer financing that you're in a danger zone.
But, you know, we're – we can handle that, just do the math ahead of time, so
you know what you're getting into.

I also - I know this sounds aggressive, but it's a good way to do things - last
time I bought a car, I brought in a laptop computer and it had a spreadsheet in
it with all the numbers already figured out. The guy gave me a new hick up like
they often do, oh, the sales tax is really this, or – so I just added that in
my spreadsheet to double check his work and, you know, he understood what I was
doing.

GROSS: I'm sure he loved it.

Mr. SULLIVAN: Yeah.

(Soundbite of laughter)

Mr. SULLIVAN: I'm often not popular once I leave these places. But come with a
loan already in your back pocket. That puts you in a much stronger negotiating
point. And then, after all this is done and after you've got a piece of paper
with a price on it, go ahead and say, here is what I have, can you beat it? And
the dealer will want to because they get a cut out of those loans, of course.
So, they will do their best to beat the loan and it's worth asking. But again,
do so with your eyes wide open, knowing it could be a trap.

GROSS: Let me ask you, you are like Mr. Excellent Consumer, like you really
know your way around. And you're really good at math and you bring your laptop
computer when you need to, to do the calculations, so you can keep up with the
person on the other end of the desk, or the other end of the phone. Do you get
taken advantage of anyway?

Mr. SULLIVAN: All the time. You know, I'm actually not Mr. Excellent Consumer.
I hate confrontation. That's why I became a journalist. There are people and I
think we all know them, who are - just have a big booming voice or they just
have a way about them that makes them intimidate other folks and rarely get
ripped off because folks just don't want to do it to them.

I'm a pretty mild mannered guy. And I - just like a lot of other folks, I think
people see me as an easy mark when I start. I actually like – I think that
actually helps my reporting a lot because I'm soft spoken and probably on the
gentle side of the spectrum. Immediately, car dealers and whatnot see me as a
potential victim. But the thing that always works and I would really urge this
for consumers, I actually don't know all the consumer - I don't have a law of
degree. I wish I did in this area. It's actually very hard to get a consumer
law degree. There aren't consumer law textbooks. But what I do know is that
when I throw out one or two facts about this transaction, I don't have to know
everything, but if I know one or two laws, I know there is a regulation E which
governs banking and means the bank has to give me a refund, if I didn't
actually withdraw the money. And I know there's laws, if you pay for an
extended warranty and you don't – on a car and you don't want it within – most
states, within three days, you can show up with a letter and get an instant
refund. You show you know a little bit, most sales people back off.

So, a little bit of knowledge, you know, throw that out at the very beginning.
It usually tells people that you're on one side of the spectrum rather than the
other. You're a smart consumer, not a victim. Get that message across and
you'll probably do pretty well.

GROSS: I want to just close with one last piece of advice that you give in your
book and you say call your cable company at least every six months and ask for
a lower rate.

(Soundbite of laughter)

GROSS: Is that – is that actually effective?

Mr. SULLIVAN: Yeah, it's incredibly effective. It might be the most effective
thing consumers can do right now. Thank the lord – thank whoever you want to
thank, competition in pay television is here, now. For a lot of folks for
years, all they could do was subscribe to one cable provider and put up with
whatever they were charged. Nowadays, not only is there satellite and FiOS, but
there is also the Internet. And all of these programs that are free on Hulu and
if you haven't tried it yet, do - sometime this month, unplug your cable box or
your satellite from your TV and let your TV work off an antenna, those new HD
signals we talked so much about and that conversion which was such a crisis,
well, the picture is great, let me tell you. There's a lot of good programs
that you can get for free. I'm not telling anyone they should cancel their
cable tomorrow, although there is a great Web site called cancelcable.com which
offers people a great TV guide for how to see almost everything you normally
watch on TV on the Internet.

The fact that there is alternatives gives you great bargaining power. So, yeah,
you need to call your cable company or your satellite provider, whoever you
pay, every six to 12 months with an ad in hand from a competitor and say what
can you do for me? I hear people every day who saved $50, $60, $70 a month just
for making one phone call. That's probably the most valuable call consumers can
make right now.

GROSS: Well, Bob Sullivan, thank you so much. It's been great to talk with you.
Thank you and I wish you a very good 2010.

Mr. SULLIVAN: Thank you very much.

BIANCULLI: Bob Sullivan, speaking to Terry Gross. His new book is called "Stop
Getting Ripped Off: Why Consumers Get Screwed And How You Can Always Get A Fair
Deal."
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Wadada Leo Smith: Old And New 'Dimensions'

DAVID BIANCULLI, host:

The music of trumpeter and composer Wadada Leo Smith ranges from solo recitals
to works for chamber orchestra, and for various small improvising units. Smith
has three recent albums: two reissues and a new set of live concert recordings
by two of his bands.

Jazz Critic Kevin Whitehead says Smith's music can be highly abstract, but
often carries a whiff of the blues.

(Soundbite of music)

KEVIN WHITEHEAD: Trumpeter Wadada Leo Smith from his reissued 1979 album,
"Spirit Catcher." With his wide leaps between long tones and a sometimes
generous use of space, Smith nods occasionally to 20th century European concert
music. But he's also one of the modern improvisers most grounded in African-
American vernaculars. He's the stepson of Mississippi bluesman Alex Wallace,
and played for a spell in Little Milton's blues band. Smith's projects are all
over the map, but often have this much in common with the blues: the byplay
between a strong voice — his horn, in this case - and percussive strings.
Elsewhere on "Spirit Catcher," those strings are three concert harps, played by
the simpatico Emanuel sisters.

(Soundbite of music)

WHITEHEAD: Wadada Leo Smith abstracts from the blues. There are echoes of
Japanese kotos and Gambian koras in those harps. But I can't think of any other
music that sounds quite like that. Smith makes it all personal. On his other
new reissue on the Nessa label, 1985's "Procession of the Great Ancestry," he
and vibist Bobby Naughton play in a quartet plus guests. On two numbers,
they're joined by Chicago blues guitarist Louis Myers. Smith puts down his
trumpet to sing "Who Killed David Walker," in the great tradition of mumbling
Mississippi bluesmen.

(Soundbite of song, "Who Killed David Walker")

Mr. WADADA LEO SMITH (Musician): (Singing) I say who, who killed David Walker?
I say, who, who killed David Walker? I say there was a sad old day and they
walk him out bay. (Unintelligible). Ah ha, hey, hey…

WHITEHEAD: In the 20-some years since then, Wadada Leo Smith has expanded his
audience by reviving electric Miles Davis music with guitarist Henry Kaiser. On
half of the new Smith double-disc, "Spiritual Dimensions," he's surrounded by
strings. His band Organic has two basses, a cello, and a gaggle of electric
guitarists, including Wilco's Nels Cline. The band can recreate Miles Davis's
'70s funk with eerie fidelity, but they also put their own spin on the idiom.

(Soundbite of music)

WHITEHEAD: That's powerhouse drummer and longtime Smith ally Pheeroan akLaff.
Pheeroan is also on the other half of Wadada Leo Smith's "Spiritual
Dimensions," in his "Golden Quintet" with Vijay Iyer on piano and John Lindberg
on bass. This band can evoke Miles too, but the reggae beat is their own twist.

(Soundbite of music)

WHITEHEAD: In most of these settings, Leo Smith's trumpet is the calm eye of
the storm. His sound is raw but lyrical, full of big gestures but intimate
somehow. He's not the most technical player, but he's very expressive. In all
that, Smith recalls the late Don Cherry. That trumpeter had a very different
sound, but was also a musical nomad at home in all sorts of situations. When it
comes to making music with the right ideals, Wadada Leo Smith couldn't be in
better company.

(Soundbite of music)

BIANCULLI: Kevin Whitehead is a jazz columnist for emusic.com. You can download
podcasts of our show on our Web site, freshair.npr.org, and you can follow us
on Twitter at nprfreshair.

For Terry Gross, I'm David Bianculli.
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