We Canadians

Unscrupulous companies have perfected the art of ripping-off the unwary consumer. These are not just the fly-by-night operators; many large corporations practise this art and they are getting  really good at it.

The trick, apparently, is to gouge the customer for small amounts but with a large number of  transactions. This way, the individual amounts go almost unnoticed but they really add up really fast for the companies pulling the scams. Hardly anyone complains because hardly anyone notices what is going on.

A perfect example is the rental water heater rip-off that I discussed in an earlier post. With a monthly rental of as little as twelve dollars  the customer ends up paying two or three times the cost of the heater during its lifetime. 

Most consumer scams have some common features; a few are listed below and hopefully, readers will add to the list.

1.A long term contract is generally involved.

2. Customers are encouraged to “lock-in” prices to save money. Guess who benefits from this? Not the customer.

3.There  may be door-door salespersons who desperately try to get the customer’s signature on a piece of paper. This signature then becomes part of a contract.

4. There may be telemarketeers involved; the sales pitch is often disguised as a survey.

5. Complexity is used as a marketing tool by providing too much information . This simply confuses the customer who is rendered unable to make a rational decision.Classic examples are cell phone plans and long distance calling plans. Just try comparing different plans; even Einstein would be baffled.

6.Companies  issue very detailed bills,, with the really important stuff hidden away on page 3 in small type.

If you spot any of the above in a deal, it should send a “scam alert” message to your brain. Or just check out the examples below to see which one applies.

ENERGY RESELLERS

Ellen Roseman of the Toronto Star has written extensively about this topic. Check out her blog at: www.ellenroseman.com. In fact, she wants to ban door-to-door energy sales. Even if this comes to pass, the marketers will find other ways to get you.

Typically, an energy reselling company will approach the unwary customer with a five-year contract that “locks-in” the price; it could also be called a price protection plan. All it does, really, is to lock-in the customer to one company for the next five years. The company never loses money on these deals, so  it is the consumer who pays the price. If the market price for domestic gas is 35 cents/unit, the consumer may be locked in at 45 cents. The consumer doesn’t really know what the market price is; all that is known is the price charged in recent bills which may are already be well above market levels.

The customer should try  saying no to the reseller’s offer. As soon as this happens, the reseller will come back with a better  price and a five-year “lock-in”. This offer, too, is generally not worth accepting. The wary customer should  shop around for the best  deal using the internet, or by contacting other energy resellers in the area.

 The key strategy  is not to be taken in by the reseller’s offer.  Also, avoid locking in the prices in a long-term contract.

WATER HEATER RENTAL

Just check out my earlier post .

THE FIXED RATE MORTGAGE

This is not really be a scam but the example is illustrative of what can happen with long-term contracts.

For many, many years, I locked myself into fixed-interest mortgages with five year terms. Sure, they were risk-free but I didn’t really gain anything. I kept paying interest on the mortgage and the balance hardly declined. As soon as we moved to a variable-rate mortgage tied to the prime rate, the balance started reducing much faster.  Just for safety, I chose a variable-rate mortgage with a cap; this gave most of the benefits without much risk.

It is, essentially, the same principle at work-  avoid a long term contract at a fixed rate; it doesn’t really help in the long run.

LONG DISTANCE CALLING

There are dozens of companies offering long-distance calling plans. Most of the plans are so complex that it is hard to see beyond the cloud of disinformation. A close examination reveals that the calling card is probably the best long distance plan for most users. The calling card is priced competitively because it is sold in a competitive marketplace. Plus, it can be used anywhere, anytime and you know exactly how much you spend on long distance calling.

Cell phone plans are another story; I still haven’t figured them out completely. However, I suspect that a very simple plan with the lowest monthly charge and a fixed rate for calls is probably the best.

The list of scams and rip-offs is endless; this article highlights only a few of the more common ones. Please feel free to add to the list by sending in your own story.