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Any time you pay in advance, you run the risk that the provider will underdeliver, leaving you in a weak position to argue about what you actually got, or will go out of business and not be able to complete his part of the deal. In some areas of life, the powers that be have taken steps to protect hapless citizens, or at least ones with enough means to matter. For instance, New York passed a law in 1999 to protect health club members against the loss of pre-paid memberships. The health clubs must post a performance bond which is used to compensate members in the event the gym closes or is sold.
However, in most walks of life, in our wonderful world of neoliberal markets, consumers are on their own and are supposed to be able to make informed decisions about who to trust when.
But in addition to facing routine credit risk, consumers who use prepaid services are also exposed to the risk of the provider setting up their services so as to increase the odds that they get to keep your money without providing the actual service in full or on a timely basis. In other words, the prepayment is set up to be gamed against the buyer.
There are times when that risk is made explicit. For instance, in the last few years, car rental companies have started offer the option of prepay for a full tank of gas. You can then return the car with a less than full tank and not pay any penalty in the form of having them top it up at gas prices set at punitive levels. The rental company offers a meaningful break on the gas price. Why? One obvious target is business customers who would rather not have the hassle of refilling the car close to the airport, so this is really a way of the rental companies increasing their profits by gaming the employee valuing his time more than saving a few bucks for his employer. Perhaps some readers will disagree, but I don’t regard it as attractive to those renting cars for personal use. Having used this option once when on vacation, I found it increased stress, since I was trying to optimize my last few gas buys before I turned the car in so as to be able to return the car with close to an empty tank. I didn’t come out ahead financially either, since I lost patience having to keep revising my guesstimates of how much more driving I’d do versus how full the gas tank was, with the result that I did a pretty decent refill and returned the car with a half a tank of gas in it.
Another example is when you buy a phone card while overseas to call home cheaply or have a prepaid phone and buy minutes that expire in ninety days (cell phone providers often allow you to get a package with no expiration if you buy a lot of minutes). Some users may burn through minutes quickly enough that there’s no risk of stranded payments. But the people most likely to be caught are low income individuals who can’t afford to buy a premium package and can’t even afford to make all that many calls.
But there are examples where stranding the customers’ money seems to be more central to the product design, to the degree that the hassle seems like a scheme to make the service difficult and therefore deter use. Consider this mini-rant by Josh Barro in Business Insider, in a story about why the GOP’s healthcare reform is probably doomed:
One of the stupidest aspects of Republican healthcare rhetoric is the idea that consumers want to take charge of their own care by paying routine expenses from special, tax-advantaged accounts.
These accounts have been gradually foisted on Americans over the decades. Your employer most likely asks you whether you want a health savings account or a flexible spending account. I’ve resisted using one because they are such a pain, but I broke down and set up an FSA this year through Business Insider because I decided it was stupid to forgo the tax savings.
So I put $2,600 in the account and ADP sent me a debit card. I started using it at the doctor’s office, at the pharmacy, at the physical therapist. (I threw out my back this spring, which is a reason I’ve been a little crankier than usual.)
Then, after a few months, I got a letter in the mail from ADP saying it needed my receipts. Receipts? I thought ADP got those straight from the providers. It seems it does get them from CVS, but not from the medical providers. I was supposed to be uploading those receipts through a website. Instead, I threw them away.
If I had to upload the receipts, then what was the point of the debit card? If the system requires that much paperwork, I might as well be submitting claim forms and getting checks in the mail.
Anyway, now I have to call those providers’ offices and get duplicate receipts and upload them and allow seven to 10 days for processing. Until I do that, I have been cut off from access to the money in the account — my own money — that got in the account only because Congress chose to offer a tax preference that I could get only by using such an account.
Who wants to deal with this crap?
Now I do have a buddy who is a top tax lawyer who has mentioned in passing using a HSA and never complained about it. But tax lawyers live and breathe complexity, so that’s probably not a good example. I’d be curious to hear from readers if they became less annoyed with the unnecessary bureaucracy of HSAs over time.
But one has to wonder who came up with this ludicrous debit card system. Here you could have had some streamlining of the payment system, with the added benefit of providers getting money faster, since an HSA participant would already have the provider name, address, and registration number in the system, and the date of service and dollar amount would be part of any transaction processing. All they’d need to add would be the diagnosis and procedure codes and everything would be in one record. Instead, the chump consumer has to submit the paperwork, and the bank/processor then has to match up the documentation with the charge previously paid.
It’s not clear at all what the donkey work is meant to accomplish. Perhaps the sometimes stranded money is a bug and not a feature. HSA accounts are meant to encourage “savings,” which any balances rolled over into the next year. And the accounts pay interest that is tax exempt.
Although the side effects are to increase hassle, one design priority may be to make clear that the tax risk sits with the HSA account user. From a Wells Fargo description of its HSA accounts:
The HSA debit card does not differentiate which purchases are qualified medical expenses, and Wells Fargo does not check to make sure that you are using your HSA for qualified medical expenses. It is your responsibility to understand what items are eligible. Remember, income taxes and a 20% penalty may apply to purchases that are not for qualified medical expenses. Consult your tax advisor with questions.
In other words, making sure the patient handles the paperwork may be intended to prevent the taxpayer from claiming down the road that the medical provider coded something to make the service appear to be not “qualified” when it was. Plus it may also be intended to remind the taxpayer to keep copies of the documents submitted to the bank/processor in the event of an audit.
A more clear-cut example of stranded funds are MTA/New York City Metrocards. Users can buy 7 or 30 day unlimited versions (great for commuters and tourists). The other version is “Pay Per Ride” where you load funds onto the card. If you prepay bigger amounts, you get a bonus…which now come in increments that don’t add up to the amount of typical ride. On top of that, the cards expire after about a year, with a fee of $1 to buy a new card. Now why, pray tell, do the cards expire after one year? Are they so cheap that the mag strips may become unreliable (as in this is pre-emptive so as to forestall consumer complaints), or is this penny-ante rentierism?
In theory, you can transfer the funds on your old card to a new card. But get a load of how it works:
If your Pay-Per-Ride MetroCard expires, you have two years from the expiration date to transfer any remaining money to a new card. Within the first year after expiration, bring your expired card to any subway station and ask the agent to make the transfer. After that time, the expired MetroCard must be sent to MetroCard customer claims. Ask the station agent for a postage-paid Business Reply Envelope.
MetroCard Customer Claims
130 Livingston Street
Brooklyn, NY 11201
Why is this not as nice as it seems? Just about no stations have agents these days. There are none even at an express stop like 86th Street on the Lexington Avenue line, which is one of the busiest routes (measured by the frequency of service). I dimly recall seeing an agent in recent times in one of the Grand Central ticket booths that no longer sell tickets, although this may be a misplaced memory. So basically, you have to find a scarce-as-hens-teeth agent, or send two cards to Brooklyn and hope you get one back with more money on it than you started out with.
Can readers provide other examples? It would be useful to indicate whether the stranded funds phenomenon appears to be a vehicle to nudge users into buying a bigger ticket/more profitable service (the prepaid phone service example), simple bad process design (as in the result of making what ought to be a provider problem into a user problem) or “we just can’t help ourselves” grifting?
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The mobile (cell) phone company Three (at least, their UK arm) have offered a pre-pay SIM card deal for many years now that have a ‘feel at home’ feature – basically no roaming charges in any of a list of countries they’ve negotiated deals with. It’s actually been a more useful list than you might expect, including most European countries, and, crucially, the USA – try getting pre-pay data-access SIM deals as a visitor – worst experiences ever.
I used to use it a lot when based in Australia but travelling, creating a wifi hotspot from my tablet as my main Aussie phone, my UK phone and laptop all needed internet in various places (and without the issues of wifi insecurity in various public hotspots). Three cottoned on to people doing this and via software upgrades got much better at identifying such behaviour and now disallow tethering when abroad (though using a mobile router can often get round this, but that just returns me to 2010 with another gizmo to carry around). The result was that I often just exceeded their smaller data-allowance card and ended up buying a much larger allowance that mostly wasn’t used by the end of the 30-day validity period. And topping up with another smaller-allowance card required internet access you no longer had if you ran out whilst on the move. Not the biggest example, granted, but annoying.
Pre-paying almost anything is a bad idea, but HSA has worked well for me. I save about $2500.00 per year on taxes and using the card is just like a credit card. Unless you are audited you don’t have to prove that you used it for medical expenses.
Actually it’s hard to call an HSA pre-payment. The money is not going to the provider until after the procedure is done.
Now all I need is 2% cash back on my HSA card!
The post conflates some aspects of FSAs (Flexible Spending accounts) and HSAs (Health Savings Accounts). FSAs are funded by your own money that has not been subject to tax. (In some cases, employers may contribute as well). You guess at an amount and then must keep receipts or have documentation as noted. The big catch is you must use it all or lose it. It does not roll over to another year. So if you said you wanted $2600 taken out of your paycheck before taxes and during the year you only have $2000 of allowable expenses you have used, you lose the $600, unless your employer allows a grace period (2 1/2 months) or allows you to carry over no more than $500. I am unclear on where that extra $100 goes if your employer allows the option. I’m guessing that your employer gets it (especially if they helped fund the FSA). HSA accounts are funded the same way by yourself and employer, pre tax subject to $ limits per year, but they are yours and do rollover. But if you are employed and have an HSA and then enroll in Medicare, there is a 6 month look back to any funds placed into an HSA plan and you must declare that amount as income for the tax year and pay taxes on it. For example you have funded $4000 from yourself and employer in your HSA for 2016 and file for Medicare in January 2017. All contributions from July-December must be reported on your 2016 tax return and you must pay tax (even if you used the entire amount on medical expenses). I worked for a large university that in employee retirement planning advised putting as much as you could into your HSA as an investment tool as it would be yours and grow if you did not use it. Then use it later for expenses. This might be fine for those highly paid employees with no health issues, but for lower paid staff ($7/hour to start!) or those with high health expenses, it is worthless advice. Yet Republicans love to tout HSAs as putting choice into consumers’ hands and “skin in the game” There is essentially a monopoly on health providers in my area, one conglomerate has bought out numerous practices and reportedly threatened some docs that they would be denied privileges at the local hospital if they did not join. Yeah, choice is great!
Yes, the article does discuss both, and I probably should have made more of a distinction. But the point wasn’t the savings/rollover feature (although we did mention that) but that both have the bizarre debit card that still requires you to file documents and you have to retain those submissions as backup in the case of audit.
I have an HSA with a debit card, but I don’t have to file receipts for expenses paid with the card. I do download the monthly HSA statements for backup and keep a record of my prescriptions in case of audit. So far, so good (no audit). And after you’re on Medicare you can’t contribute to an HSA, but on the other hand you can spend the money on anything you want without penalty (though the amounts would be included in taxable income). If you spend the money on qualifying medical expenses, the payments aren’t taxable, so the HSA money deposits and medical expenses and growth of the HSA money are all tax-free. Better than a Roth, even. All IIRC.
But I like it much better than an FSA for the reasons so well explained by leslie A. In fact, my main gripe is that the limitations on deposit and the few years it was available to me prevented me from building up much of a cushion for future medical expenses.
We successfully use an FSA with a debit card. The benefits management company we have had appears to be the exception in that it is focused on customers and rarely requires documentation as it appears to get what it needs from the types of transactions and the paces where they occur. The only times that we have to supply documentation is where we are on the edges of allowable things. We calculate how much we think we need based on past experience or known upcoming events.
It is of benefit for us because we are in a relatively high tax bracket so there is serious savings. For anybody in the first tier of marginal tax brackets, there is probably no value. So another great deal for the top 20% and of no value to anyone else.
BTW – the benefits management company was a local privately-held firm and the people who owned it are retiring. They have sold the firm to United Healthcare with all of the usual announced “guarantees” of no big changes and retention of employees. I expect crapification will occur over the next several years so that our past very good service will slowly revert to the national mean of insurance hell. Pleasant, seamless transactions will probably fade into a distant memory.
All gift cards.
Yes! This!
FSAs are annoying for precisely the features that you describe. HSAs are useful to service existing balances to keep the proivder billing dept off your back.
Very true, some time ago I read that 8% of gift cards are never redeemed, so they are a great gimmick.
I tell people that gift cards are a way of converting very useful cash that can be used anywhere into an equivalent amount that can be used at only one business.
Gift cards should be sold to consumers at a discount to reflect this loss of utility.
I wonder what the sales commission/margin is for those gift cards one sees at the supermarket checkout lines?
The stores must be paid to sell these cards, which one could view at as a fee charged to steer newly captured customers to these other retailers.
It is too bad the actual customers don’t get this as a gift card discount.
Sometimes gift cards can be used to advantage, for example, if one has a department store credit card payment due and one has a Visa/MC credit card that pays a percentage rebate, one can buy the store’s gift card with the rebated credit card for the amount of your bill and then apply the gift card against the store’s credit card bill.
This way you get a % back from the other credit card AND you don’t have a gift card with any residual balance.
So pre-paid gift cards CAN have some consumer value in this case.
They are often used to launder cash or hide identities. My VPN provider accepts just about any gift card as payment.
Are these retail branded gift cards that your VPN accepts?
I remember seeing notes from Radio Shack and Sport Chalet (two USA retail businesses that went bankrupt) about the timing when they would stop honoring gift cards.
This implies there is not a reserved pool of money safe from other creditors, but is carried as a liability on the retailer’s books.
Here is a Boston Federal Reserve article on the subject of bankrupt retailers and gift cards.
https://www.bostonfed.org/-/media/Documents/cb/PDF/Frederick_gift_cards_and_bankruptcy.pdf
Check out the dropdown list of cards they accept on this page:
https://secure.paygarden.com/pay/site/ltm/privateinternet/start
My son is far more paranoid that I am. He bought a starbucks card, then signed up at the starbucks.
What business would not want to have 8% of their business running at 100% margins. Caveat emptor.
Pre-paid cards for merchants generally become worthless if they go bankrupt and liquidate. If you get one, it needs to be something like a VISA pre-paid card or a major solvent company. Too many retailers are going bankrupt these days to get their pre-paid gift cards unless you do a credit check on them first (reversing the normal process where the stores do credit checks on customers).
Thanks for the reminder! I was given a $50.00 gift card several weeks ago, and I promptly used about $30.00. Since then, I keep forgetting to use the remainder, even though the thing is in my wallet. Thanks to this article and your comment, Max, I might actually remember to use it!
I used up the gift card! I still had to use a little less than 50 ¢ in real money, but I could afford to spend that money! Thanks again for the reminder.
Three issues with prepaid anything:
1. Prepaid card at local eyeglasses shop … not chain. Wife bought so I could get new glasses. Visited shop where I saw sign telling me that my prepaid card had to be used within a certain time limit or funds would be conficated. It was like 30 days! Shop had tons of legal notice type signs … told owner he needed to stop letting his lawyer run his shop. Told him his time limit was probably illegal and that I would not shop his store anymore due to this policy. He went out of business no long afterward.
2. Getting “cash back” for major purchases. I am pro photographer and a Canon shooter. Often wait for sales as gear is very expensive. Most often I pay full price and have to send in copy of sales receipt, Barcode from box and refund form. Get money back as prepaid Amex card. Not terribly secure as you don’t have to activate before using. But you need to use quickly as Amex charges monthly percentage for unused balances. Think it’s 1 1/2 per month. Can drain card real fast. Also Canon has time limit to apply for refund. Bought new lens while out of country and was too late when I finally got back to states. Lost $200 on that deal.
3. Had HSN at major corp. Put $300 early in year to buy new glasses. Was laid off a few weeks after using card. Asked about it anyway and was informed by HR guy that any balance would be kept by the company. Wonder if layoff decisions could be influenced by how much money someone has in their company HSA.
Number 3 is interesting, and might be illegal. From:
https://en.wikipedia.org/wiki/Health_savings_account
One other problem with gift cards is the rate at which stores are going out of business.
I gave my daughter in law a gift card to a store and then read a few weeks later it was getting into financial difficulty. I told her to redeem it immediately.
If they declare bankruptcy the cards are not redeemable
I never lose out on them though I have one for a book store that has 5cents left on it and I will use on my next visit.
Also gift certificates.
Last summer I was at restaurant dinner where the host wanted to pay using a $100 gift certificate from some years ago.
They were told that the restaurant “was under new ownership” and the gift certificate would not be honored.
The restaurant kept the same name, implying some sense of continuity..
But continuity did not extend to the gift certificates issued by the previous owner.
I’ve had zero problems with several HSA’s. They have required no effort on my part except making sure there is sufficient money in the account for the current bills. Granted, I have not been audited by the IRS.
I’ve had several through employers, I don’t remember which financial institution issued them. Being under employed right now our current one is personal via Key bank. This makes it very easy to keep tabs on how much is in it and to transfer money when needed.
Of course, having a fairly low income this year negates much of the advantage. If you have significant taxes, the cards provide a tax deduction. It’s always been simple and worked well.
It depends on the HSA vendor. Until last year I never got asked for receipts (of course all my purchases were pretty obviously eligible — doctor copays, etc.
My employer’s new HSA vendor asks for receipts for practically everything that they want you to upload through an app. Huge hassle and I am setting aside much less money in my HSA for that reason. Now I’ll only use it for a couple of foreseen big expenses like a pair of glasses.
>having a fairly low income this year negates much of the advantage
Yeah we only subsidize the upper middle class and above. What do you think this is, France?
Oh it’s the UPPER middle class that is being subsidized there make no mistake – 6 figure incomes and up. Ok some people with big healthcare expenses might get a subsidy (though sicker people would probably just be better off on a non high deductible plan, as remember HSA generally only come with high deductible plans, but U.S. healthcare being as confusing as it is who knows).
But one of the main things HSA are used for is tax free saving AFTER one has maxed out the 401k (plus possibly an IRA etc.). BECAUSE people with enough money to do that (very few), somehow need another tax break. This is often how they are used in the real world though. They are for mid and upper management who earn that kind of dough, not so appealing to the worker bees who don’t and just go with a more standard HMO/PPO/EPO choice if it’s offered.
Flexible Savings Accounts (FSA) are an annual amount that doesn’t roll over and are offered by most employers. Health Savings Accounts (HSA) roll over, but at least with my family’s benefit package are only available with high deductible plans, which with three kids and two adults we aren’t touching with a ten foot pole.
I’ve used FSA’s for years and I submit all claims off EOB’s or receipts through the online claim system. I don’t use the debit card for the exact reason in the article – they still come back at me for receipts! We hit the Max amount every year with three kids, as someone’s always gets sick or injured. However, the whole system is just another absurd administrative layer that largely benefits upper income people in a high tax bracket. And I’m an accountant so I’m great at paperwork. Most people aren’t! I’ve handled FSA administration from the employer accounting side and lots of people leave a balance at year end, which then reverts to the employer.
FSA’s suck.
Unless your expenses are predictable every year (ours aren’t), you never know how much money to put in the account. We stranded a bunch of money last year – being healthy should not be penalized by FSAs!
And yes, the paperwork is too much. The workers who are checking receipts, just so someone else can get a tax break, are not generating new wealth for the economy as a whole.
Finally, the potential for tax fraud is quite large, and the penalties apparently are not that great. IF you get audited, then you MIGHT have to pay back taxes and a 20% penalty? What are the odds of being audited?
Oh FSAs for healthcare suck no doubt especially if one is just paying for small stuff (if one was getting lasik and timed it just right or something, maybe not, but generally). But lots of people do use the FSAs that can pay for daycare etc. (the childcare not healthcare FSAs) and it can be big savings there it seems.
Also for some reason FSAs reduce the Social Security tax you pay, I want to pay as much as possible to hopefully get back as much as possible someday (I know noone gets rich on SS, just hoping I stay out of catfood in my old age mostly, and no I don’t earn the max), so no thanks.
About 20 years ago, I had something like an HSA that simply seized any money left over in your account that you had not spent in that year. The tax savings for people with big ticket medical bills seemed to be huge, but one person planning for a surgery was very stressed about getting the right amount put away and not having a potential $1k or $2k seized at the end of the year. I really could not understand how any sane person could possibly think this was good policy. And, of course, the system did not work at all for emergency medical expenses, which, by definition you cannot foresee. Every time I saw the small, minimal deduction on my paycheck report, I cursed Republicans for this stupid idea. And, of course, it came to pass that I lost over $100 of MY MONEY one year. The prospect have putting in too much money and losing it induced a lot of stress for me. I also wonder if Barro has any clue how unlikely — because difficult — it is for most people to prepay nearly $3 thousand.
I think you’re talking about Flexible Spending Accounts? Back in the 1980’s I thought I was right on the verge of needing a crown, so 2-3 years in a row I socked away an extra $300 into my FSA, only to be left scrambling at the end of each year to try to use up that money. After that I was very conservative about how much money I’d put in and I finally stopped using FSA’s altogether about 10 years ago.
I found out from my years of lurking around HR people that there were 2 different philosophies for administering FSA accounts. One was that the employee was responsible for maintaining all of their records, and all the employer or FSA administrator wanted was the employee to give them the dollar amount that they wanted reimbursed. The other philosophy was that the FSA administrator wanted all of the accompanying paperwork and the employer would absorb the potential liabilities in case there was an audit. I also vaguely heard that the plan could be disqualified by the IRS if the employer was caught paying out unallowable expenses, with whatever tax consequences that would occur. As I was hearing this, I wondered, why would any employer in their right mind take on this liability? But I’m sure I didn’t hear or understand the whole story.
In spite of this I never had any real problems with my FSA’s – I just got tired of them. i always thought HSA’s sounded way too complicated, so I’m interested in NC reader comments about them.
Parking using kiosks. You pay in advance for an amount of time which is usually a guesstimate
(How long will lunch take? How long will I need to stand in line at the IRS office? …)
The kiosk prints a slip of paper which you tuck onto the dashboard of your car and which has no further value when you leave. In the old days, at least some lucky ducky
could take over your paid-for parking place if you left early.
On the street and in small cities, the increments are small, but for an off-street parking lot
(unmanned, of course, because robots) in the business district of a big city,
this often involves leaving a lot of money on the table.
+1
At 15 minutes for 25 cents here in NYC (most places), it makes no sense at all to risk a parking ticket by not buying an extra quarter of time…
They expire quickly but I’ve been able to both give and receive unused parking stubs on several occasions. We’re all in this together…
Some cities (at least here in Italy) are catching on to this, and require you to key in your license plate number, which is printed on the stub along with the expiration time so you can’t pass it on to the car waiting to take your spot!
In Orlando, FL they have smart meters downtown and your time is non-transferrable. When you drive off the city/private company get to keep whatever your leftover balance is. It’s obvious enough theft/rent extraction that it actually made the Orlando Sentinel I think.
They tried that in our town, making people add their license plate number when getting the ticket stub. There was such a public outcry that it was rescinded within 2 weeks.
I was glad as I had often been the recipient of tickets…and given them away.
Our STATE income tax allows up to $3,000 tax-benefitted savings in a state-medical savings account. Works out to being around $500 in tax savings. We simply move $3,0000. x 2 into the accounts in mid-December, document the annual deposit, and move it out the next day. The savings covers a bit of our accountants annual bill.
We do NOT have federally-benefitted HSA.
We itemize on schedule A and have significantly more in annual health CARE expenses than the $6,000. We keep every receipt and have painstakingly maintained ledgers. Annual reminder of how much of our lives go the gubmint, and FIRE. . Maybe FIRE should become FIREMI (medical industry)?
Self employed sole proprietors of a few base-hit, non Grand Slam micro businesses- multiple strands of meager income.
We are in the ‘sweet spot’ of earning too much to be able to get an ACA subsidized plan.
The premiums for the least-cost bronze plan for our age and zip code exceed 8% of our adjusted gross – last year were 12.8% of AGI. Frankly a unaffordable household budget buster … lets see— house payment and food, or health insurance premium to greedy execs at United Health…. let me think….)
It’s funny– I have never had the brazen gall to ask my clients to pay me in advance, and provide them a debit card to click off for my units of service. Instead, I operate in the standard manner-net 30. Occasionally have the sweaty experience of having to chase down my few dusty dollars, usually from the most well-heeled. It that where the term heel comes from ?
The advanced pay / stranded dollar is just one more example of how much the FIRE folks seem to need every penny of the populations holdings. I have a vision of one of those flexible tough thin plastic cutting board sheets , rolled into a conical funnel, small end inserted into the mouth of a sleek silver haired Wall Street banker, coins cascading down his gullet, while he grunts pig-like for MOAR.
So, we are riding nekkid, unafraid, treading water in 3 foot seas, one nostril up, admittedly one hair’s breadth from financial ruin. What a country!
American Express Travelers Checks.. BB’s of $$ in sock drawers, jacket pockets and washing machines..
OMG, I had totally forgotten about those.
On the London Underground, you can pass through the barrier using a credit or debit card. The cost of the trip is deducted at the lowest ticket price, and if you take multiple trips in a day, the cost is set at the lowest day-trip ticket price. All of this is to encourage the abandoning of ticketing and all of its attendant hassles and costs by the publically owned Transport for London corporation which owns the tube.
Non-refundable airfares is one the business traveler has been living with for decades now. To have even a little flexibility in travel plans usually involves massive penalties.
Unless you’re the airline.
Many is the time I’ve purchased a nonrefundable, changeable only subject to large fees ticket
months in advance and then received a Dear Valued Customer™ message informing of a change to the airline’s schedule, resulting in either a much longer connection time than in the original ticket,
or an unrealistically short one.
All the time spent being a web-empowered consumer, comparison shopping across multiple airline and travel sites to find that Pareto optimal ticket is flushed down the drain.
The all-for-nought tax on time is a kind of stranded value.
And “change fees” seem to have shot quickly from $50 to $200 and apply everywhere (e.g., regardless of “reward status”) unless you buy your ticket with miles or buy a flex ticket for easily double or triple the cost…..
Airfare (like the car rental example) is geared toward corporate travelers, whose employers (or more often clients) absorb the outrageous fees/costs for flexibility or “amenities” like a bit of extra leg room (or more often, business class, which some frequent flyers might wedge into with miles, but only high-end customers can afford the full fare).
Plus, the airline employees or airport security personnel get to beat you up when they drag you off the airplane.
Not exactly a prepaid abuse … but last week at two gas stations — one in Az and the other in Cali — a notably low posted price led to the discovery that using a debit or credit card at the pump (as nearly everyone does) incurs a FEE — surprise!.
One fee was $0.30, the other $0.35, adding about 3 cents a gallon to a 10-gallon purchase. The
scammersowners accurately worked out that after expending the time to stop, open the tank cap, insert card, enter data, etc, few will decline the unposted little nick and go to the now-cheaper station across the street (assuming it doesn’t have the same policy, which again is merely a guess without empirical verification).Crapification .. it’s the American way. Confronted with gross dishonesty in institutions — gov, media, religion, etc — looks like entrepreneurs have decided to grab everything they can get before the whole deal goes down. :-)
Oh yeah. A word up before “off to work” I trundle, what, I do not know, but something, but I digress; Dollar General Stores around these parts add a “service fee” to all cash withdrawals performed at their check out card readers. Again, this “service fee” is not out in the open, but melded into the “experience.” Rent extractors, mining at its’ most subtle.
Actually, is there *any* transaction where “money” changes hands (including dispensing from an account) without a bank or credit card extracting a fee? Paying cash directly, I suppose (of course, to be able to do so, you likely already paid someone for the “service” of giving you your own money in the form of cash). Demonetization will take care of this last fee/value loss for financial services …. and in the meantime, charging a lot for people to get their own “money” in the form of cash is a twofer — a fee opportunity, and a deterrent/penalty for the grave sin of wanting to use cash at all (hence a “nudge” toward demonetization….).
Here in NYC there are a lot of ATMs that belong to Actor’s Equity Credit Union (and others) that don’t charge any fees on cash withdrawals– for people who have a debit card from an U.S. bank or credit union that belongs to the AllPoint network. They are mostly located in pharmacies, McDonald’s, etc., and NOT in a bank.
A couple of weeks ago an upstate friend, in town for a brief visit, was grousing to me about the fees charged by Manhattan banks for her to withdraw cash with her credit union debit account. I had her follow me into a nearby CVS, and she was amazed to discover this cost-free alternative. I’m sure that banks rake in millions every year from people who don’t know about this.
Arco has done this for years. $ .45 is the cost today in CA. Debit or cash only, screw the big banks and their higher interchange fees for credit cards. They are usually cheaper than the competing brand across the street, but not always. My CU debit card gives me 2% interest on up to $25,000 in my checking account if I spend $300 on debit purchases each month. Trade offs…
As an INC single person employer, I have used an HSA for about 20 years. Saved me a lot of payroll taxes and receipts are just part of business. I use my airline credit card for medical expenses and reimburse myself.
To be fair to the merchant, they may have imposed the fee in order to keep from selling at a loss when people make small purchases with a credit or debit card.
The credit card companies impose both a set transaction fee and another fee that’s a percentage of the purchase on the merchant. If you buy a small amount of something that is sold on low margins, the merchant often makes no money or could even lose some on the transaction. The convenience store across from my house will no longer allow any purchases of under $5 with a card because the merchant fees, particularly the transaction fee, eat away all the profit.
So it’s not surprising that merchants might chose to pass the fee to the customer rather than simply not allowing you to use a card.
It’s the credit card companies who need to be reeled in here. They conjure $$$ out of thin air and then charge both the cardholder and merchants rather exorbitant fees, supposedly for the risk they are taking on by extending credit. They have no qualms about turning around and selling the unpaid debt for pennies on the dollar however, so they can’t be hurting too badly.
“Deposits” for routine services like power or water, irrespective of past pay history and even if just moving account to a new residence, often $100 or more, that are held with some confusing explanation about when it will be “returned” (if service discontinued or moved) or otherwise eventually applied to a bill. Looking for a check in the mail years later that you then have to cash or deposit is a pain and apt to slip through cracks (we get so much junk mail that tries to look important or relevant, who opens it anyway?).
On the topic of deposits — not exactly the same thing, but I think exorbitant pet deposits and monthly pet fees charged by corporate landlords fall into a similar category. I get the rationale for charging something to cover potential extra damage — but BOTH an extra deposit, often as much as $500, AND extra rent of $50 or so a month (per pet) just takes advantage, and is extra shameful for preventing and deterring pet adoptions (caring for a pet is expensive enough, and I’ve seen at adoption events how well-meaning, would-be owners struggle over this senseless monthly rent bump….).
You accurately describes the pet fee structure at my building. Rather than discouraging pets, the landlord makes a killing by being the only rental within probably a mile that even takes pets. So the landlord just sits back and collects rents…
The maintenance guys who clean the pee off the walkways don’t see a penny
National Trust properties in the UK have a price tag for entrance, and another price tag for the car park 1/2 a mile down the road that you have to hike in from. You put the ticket on the windshield. The validity of parking is often several hours longer than it takes to tour the property. This leads to a lively social trade at the car park entrance in people who are exiting the lot ‘re-gifting’ their partially used tickets to the next random arrival – just to defeat the system.
Last time I visited Hadrian’s Wall at Birdoswald I was able to turn this into a three-fer :>.
The Romans, thanks Hadrian, and Antoninus too, had a method to solve the legions of similar problems; Decimation. Oh wait, England went on a decimation monetary system. So that’s where so much of the money went.
Ave Lucre!
Decimation is where they kill one out of ten. If only that were all that inflation did to money in the past century.
We need to reverse the description so that decimation is what remains.
Thank you, EFS.
Punters do the same at my local Waitrose. I have also observed / facilitated at other places.
When I lived in England most of the major museums were free. When an admission charge was imposed by some (was it the Tate that started this?), people leaving would often leave their admission badge on a nearby post for others to use. I don’t see that done here in the NYC area, where the cost of being culturally satisfied can be insane.
The only HSA I use is funded by my employer on a use or lose basis, so I don’t have to worry about stranded funds but the complexity you describe is spot on. We get debit cards to supposedly make point of sale payments, but you still have to complete the claim paperwork or the card gets shut off. So I pay my docs by credit card and take the 1% cash back… There’s no doubt in my mind that these procedures are set up to discourage people from actually seeking reimbursement (which I am guilty of when it comes to small purchases like generic precriptions).
Re: NYC MTA – this simply has to be intended as a revenue generator. I live in Queens but travel by subway intermittently, so I always have a card in my wallet and add $40 when I run low. The “bonus” that comes with a $40 card is not much, but I inevitably end up with small amounts on my card, that can’t be used. Even if you add value you always end up with money on it.
Am I really going to find a ticket office with a person in it when my card is about to expire and I need to get someplace? No. I buy a new one. And maybe I’ll remember to combine them when I’m near a ticket office. But usually I don’t. I guess I’m just a bad consumer…
This is all a major tax on time and probably relates to the automated teller/kiosk phenomenon that Lambert has been on about (replacing ticket machines for booths with workers). Lots of neoliberal rentseeking synergism here…
The EasyPay Metrocard will automatically refill *and* send you a replacement card before the first one expires: http://web.mta.info/metrocard/EasyPayXpress.htm. My recollection is that the balance is transferred to the new card as soon as you use it (which also makes your old card invalid), but my memory isn’t crystal clear on that.
My gripe: I have a reduced-fare Metrocard (for those over 62 and a major reason for retiring to NYC, as you don’t need a car and each trip is about $1.35). Works great – except for the JFK Airtrain. That is, I have to use a regular Metrocard to pay for the Airtrain – my reduced-fare card can’t be billed the full Airtrain fare. instead, it just doesn’t work – and of course there’s a $1 fee for buying a regular Metrocard if you don’t have one. So I have to keep a regular Metrocard for my extremely infrequent trips to JFK to visit kids and grandkids or pay $1 extra each way. Not a horrifying decision, as so many others are, but quite annoying.
On a recent visit to Illinois I rented a car. I was given the option of paying a flat amount in exchange for the rental car company paying all tolls incurred.
Like Yves’ example with the pre-paid gas, I had to try to estimate in my head, while I was standing at the counter of the rental car company, how much in tolls I would likely be incurring on the trip.
This wasn’t a problem in Houston, c. 2014…….. because the rental car company’s daily charge for electronic toll passes was so exorbitant no calculation was needed; it was simply a “no way, jack”. The reason why they had such high daily fees was, toll highways in Houston did not take cash at most entry points. If you wanted on them, you needed a transponder of some kind, period.
From what I’ve seen, Texans have become very savvy at avoiding their beloved-of-right-winger toll highways. I last drove through Dallas in June 2016. The toll highways were….. very empty. But lumpy, construction-choked I-35 was bustling with cars.
My credit card was billed a couple of years ago for unpaid tolls incurred in a rental car. The person had a similar name to mine and it was the same vehicle that I had rented a couple of weeks earlier, so obviously the charges should go to me.
I complained to Hertz but those toll transactions go through a third-party vendor based in Arizona, I believe. They have perfected customer service by creating absolutely no way to communicate with them except through a “Contact Us” e-mail address that they don’t respond to. Even google searches didn’t uncover anything as simple as a phone number that had a human being answering it.
Eventually I gave up on the $35 because it would likely have taken days of time to penetrate through the haze of the “Customer Relations” departments at both Hertz and this other company (can’t recall the name offhand). The obvious logic was that the servicing company relied on Hertz for rental records while Hertz relied on the servicing company for the toll services, so nobody is actually responsible for anything. Shit just happens.
And what about deliberate crapification of bandwidth that becomes an up-charge opportunity for higher speeds (meaning charge a premium for the possibility of maybe sometimes having a higher speed — but no promises!).
Providing bad and unreliable services (airlines, ISPs) is always a good opportunity to charge fees for maybe a slightly better experience (as Yves always says — a feature not a bug!).
(Realize I’m straying from the original “stranded money” concept with garden-variety rent-seeking … the examples just start to flow though when you think about how profitable crapification has become…)
Then join the campaign for net neutrality (and against the FCC’s efforts to overturn it). Many petitions are available; I picked this one because it was one of the highest DuckDuckGo entries: https://www.savetheinternet.com/sti-home. You might even consider donating.
I think eliminating net neutrality, coupled with the push to eliminate as “fake news” all sources other than MSM, threatens NC and other independent content producers. Scary, to say the least.
How about the crapification of the garbage collectors? Advanced Disposal is now the trash collecting monopoly here in my part of Alabama. I’m a rural customer (only one on my street so not profitable for them) so they are doing everything they can to get rid of me.
I pay for weekly service but they come once a month or sometimes only when I call and complain. I’m up to five complaints now, and each time they make me go through an interrogation by the rep and am expected to provide proof that they didn’t pick up the trash that week. My housekeeper said they did the same to her until she gave up and cancelled service. I intend to continue to be a squeaky wheel though.
You think Advanced Disposal offers recycling here? Not a chance (they’re a monopoly remember?) Its fraud in my opinion to charge for a weekly service that only gets performed monthly at best so I’m trying to go legal on them. No lawyer in Alabama will return my emails on this so far though.
I suspect that for < $100 you can buy a battery-powered video recorder that will only record "when something happens". I think they also time-stamp the videos too. To gather evidence for your non-performance contract claim against the waste company, you might consider setting one up with a good view of the place where you put your trash for collection. Make it obvious when the bin is full (and waiting for collection) and then let the camera roll!
why don’t you separate recyclables, start a compost bin and reduce your trash? Then you can take the bag or two of trash to the collection center and save $$ and tell the trash hauler to take a hike. That’s what I do. I also make sure I buy unpackaged groceries (bulk) so I reduce the wasteful packaging and plastic bags/wrapping.
>car rental companies have started offer the option of prepay for a full tank of gas.
It’s been a long time since I’ve been there, and it was well before the “prepay” option, but is Sacramento Airport still like 1000 miles away from a gas station? I remember the first time, business trip so at least it wasn’t my money, driving towards it thinking “OK when I get within 10 miles I’ll get gas” and discovering to my horror that there was nothing, nothing anywhere near it. Now normally I like to look out the window and see farms and fields, but not in that particular situation!
What Hertz charged me to fill up was comical.
There is an Arco at the airport, but nothing in either direction for a ways.
After the first year or so, I never used an HSA again. I decided that I wasn’t going to play this silly game with the government. The silly game being trying to guess how much non-insured medical expenses my family would have every year. The hassle was just not worth it.
My example: the AT&T GoPhone plan. I don’t use a smartphone enough for it to be worth paying for a plan (really only for emergencies), so I bought the cheapest android phone I could & pay $25 every three months (no data) — every time I make a call it costs me 10 cents a minute, but like I said, I use it almost never. Of that $25 / three months, the unused money only rolls over if you throw another $25 into the system at the end of three months. So here I am, three years after getting the phone with a few hundred dollars in my GoPhone account that I will never use unless I find a phone buddy. I would be upset but when you compare the $25 / three months vs the $45+ / month for a full plan, I come out ahead. Yeah this is stranded money, but it is also a concession to the times so I don’t know how cranky I feel about it.
Anyone here remember those days of landlines when if you wanted to call your long distance girlfriend you had to wait until late at night for the rates to go down, and then you called each other during Letterman & watched that simultaneously while talking on the phone? I never felt that I was cheated by such a system, rather I shrugged & said “those are the rules” — but keep in mind how strange a regulatory system the phone companies once were, where long-distance daytime business calls cost a lot of money, but that money was intended to keep the rural & marginal customers connected. Nothing like today of course.
I remember my phone bill being $5/mo (w/o long distance) and AT&T supplied the phone and wired extensions for a minimal charge. Oh what a country tis now! Minimum no frills phone bill is at least $25.
MAIL-IN REBATES
Can you imagine the first guy at a board meeting who suggested that customers be required to mail in a form in order to redeem an advertised rebate?
“Research shows that 10% of these schmoes won’t even return the form. They’ll forget, or it’ll get lost during a move or something. Maybe it’ll fly out of their car window! Who cares? More for us!”
It’s sad to see banana republic practices creeping into the civilized world. Here in Poland it’s so common method of doing business thanks to perpetually crappy civil courts system that it doesn’t even merit its own moniker. You want to do business in this comfy post-socialist country? Just collect money from people and fail to deliver whatever it is they have paid you for, buy something on credit or contract some service. When they demand their cash simply decline. Before they get a court order you have several years to use these free funds and many of them will give up, especially if you believably fake almost-insolvency and/or the amount per person is low (so it’s always better to fleece more suckers from smaller amounts at a time). Congratulations, you have now become a rich person in Poland. And it’s all perfectly legal as long as you don’t spell out the scheme openly.
And it’s not only some shady small companies that get into this racket. In 2015 the government banned stored-value cards and banks protested. No, of course they weren’t concerned with financial privacy or customer convenience, it was about these cards being a cash cow thanks to people leaving some funds on them, apparently it adds up. In 2016 our creative legislators gave us a ban on unregistered prepaid SIM cards and telecom companies didn’t object, openly stating that since many people will fail to register these cards before deadline there is a free profit to be made from unused minutes.
Just my two cents. Honestly, when reading NC I sometimes think it’s the US copying practices from the developing world and not the other way around.
Thames Water in London. I moved flats, and the bill dropped a lot (most London flats don’t have metered water, but pay based on council tax. Which is stupid in itself, but different story). Instead of paying me back, TW applied it against my NEXT YEAR’s bill. Yes, not this year’s bill (which I already paid when I moved), but the next one. In other words, getting a full year of use of a few hundred quid for free.. I wrote to the regulator, but as per usual, they just said “so what?”. (the story to describe UK regulators is my experience with the personal data one in the UK. A travel agency wanted a copy of my passport to send to a hotel somewhere in a third world country. I said no, and they said “so tough luck”. I went to the regulator, saying that this was illegal – the law requires that any passing out of personal information can go only into regime as strong as the UK, and they said “well, but it’s a normal practice with travel agencies, right?” So what’s the point of the law/regulator FFS?)
With the MTA card, the system designers kicked the exceptions out to a human. Then the managers eliminated the humans! Nice!
“If you prepay bigger amounts, you get a bonus…which now come in increments that don’t add up to the amount of typical ride.”
Probably worse in Los Angeles, I noticed it one day and was appalled at how sneaky it was. 1) prepaid amounts don’t divide evenly into rides 2) machines do not take coins 3) machines will not refund coins. You can see the problem. I don’t know, maybe I was just particularly dumb that day and math brain cells weren’t working, and there is an obvious solution I’m not seeing, but I couldn’t see any way to get the payment to come out even.
It occurred to me even though we have subways and trains now and this is what I was paying for and so it’s not all the lumpenproles taking public transit or anything, that this is taking of advantage of people who are on average LESS able to pay it (preferred means of transit for most who can afford it is still the car). F’ing the poor pretty much.
Contractors for home maintenance and repair work often require substantial deposits. I had my home painted recently and this required a $500 “scheduling” fee and then 1/3 of the price of the job paid prior to starting. I can certainly see why the painter would want this as they’re buying supplies and paying for time etc, so the customer might bilk them as well. But it made me leery of going with anything other than a company with a long history and established track record. Massachusetts has some provisions to cover consumers if licensed contractors don’t deliver their work, but imagine the headaches involved if the painter went out of business or failed to do an adequate job?
Beware of contractor deposits and other work, and know the counter-parties. Mechanics and material-men’s lien laws vary by state and there are nuances. Here is my example. I checked out the concrete contractor, made sure his completion bond was in place at the State, and hired him to build and pour a patio and sidewalk. California has a 21 day notice period that came in handy for me on that work. The contractor did the work, but had to pay bail on a DUI so his $600 check bounced to the concrete company that provided the product. The vendor came after me, but was 2 days late. That saved me from double-paying for the concrete, for which I would have been liable if they had provided notice before 21 days of delivery. No word on whether they ever got their money from him, and they could go through the District Attorney to press charges.
I went back to the State and they told me that the contractor’s completion bond had been cancelled late in the day that I had called originally for verification, so I could’ve been out of luck on any bond recourse. My neighbor suffered more, as one of his contractors took a deposit, did a little work leaving his yard all dug up, and left the state. Due diligence takes on new meaning. As part of the crapification theme, how many times does the average citizen get confronted with new and arcane business practices? All those regulations from the protective past seemed to have some basis in experience.
I used to do HSA , but, much like maximizing the chance of returning a rental car with an empty gas tank, I found the stress/tax-on-my-time outweighed the tax benefits.
It would have made more sense back then if I could have included my weekly (mental) therapist payments of $100/week through the HSA, but my research showed that that kind of expense did NOT qualify.
Oh, what I wouldn’t give to get back those 4 (or so) years of $100/week (mental) therapy. Did nothing for me. YMMV
Gold’s Gym here was offering discounts for renewing a one year membership in advance of expiration. I did so four months in advance. Within two months they announced our branch was closing and that memberships would not be refundable because we could drive across town to another Gold’s. The rest of the story is in the fine print.
Cash machines that don’t make change. At one job, we had a vending machine that only took cash, wouldn’t make change above 50 cents and rejected ~50% of the $1 bills fed to it. Ka-ching on multiple purchases. (This is a two-fer because it works as propaganda in the war on cash, too.)
In fact, I saw this combined with the parking time scam mentioned already. Last fall in San Antonio, my wife and I pulled into a parking lot about a block from the Alamo. Parking was $13-$14 for 3-4 hours (way longer than most people stay there)–then no one could get their CC to work in the parking pass machine. It would take $20 bills–but gave no change {I was one of he fortunate few to get their CC to work}
A California legislator ran into this problem and wrote legislation that prohibits parking citations in parking lots that have malfunctioning dispensers. The legislation passed. (I imagine many other legislators had similar experience.)
This “stranded funds” dilemma is a feature, not a bug.
Yes, grifting the general public is now standard operating procedure (SOP) for any business enterprise with reasonably large clientele. It’s an anticipated “profit center”. (Pennies x a million is real money.)
As for health accounts, their websites are usually poorly designed and make finding the appropriate action “button”a time consuming search. My health reserve account only accepts uploaded receipts in PDF format (online bank digital check pics are JPEG’s). More tax on my time.
Caveat Emptor has now replaced In God We Trust on the US dollar.
Personally, the prepaid gas on the car rental strikes me as appealing, because it saves hunting for a gas station near the airport and also saves time at the rental agency if you’re running a little late – the norm, for us.
I suspect Yves is a better-organized traveler than I am. While I’ve been flying for a very long time, I don’t do it so much any more. She is also, after all, a financial advisor, and inclined to obsess over getting the best deal. Given a small amount, I’m more concerned with a smooth experience – and I’ve had a major run-in with a car rental agency (make sure you get a verified copy of the contract back, no matter what the agent says or how rushed you are.)
I’m really with Yves on avoiding this. For one, I’ve never found rental checkout people at all tough on gauging how full your tank is. You don’t get busted for filling up 5 or even 10 miles away. Unlike the airlines, it’s likely there’s too much competition among car rental firms to incentivize screwing customers in this way.
I think that has to do with how well you top off the tank. I rent in Maine, and we always gas up at a gas station that is 30 miles from the airport. I get every drop into the tank I can. The gauges always show full when we turn them in. I do that only because the gas stations near the airport are all on the wrong side of the street relative to our route and hard to access.
My experience with prepade was for my wife’s pregancy. I knew it was coming, threw 5k in the pot, handed over the debit card to the hospital, they charged it and were paid. Later the company responsible for managing the service requested receipts, I said the payment went to a hospital!, long story short, I never provided a receipt, I had paid in tax free, and the hospital was paid. Everybody was happy about it except the company offering the service, who’s only leverage was to shut down my card (I’d already spent the money anyways).
The only thing I ever worried about would be the IRS coming for me beause I never provided the receipt, but time limitations for the IRS have passed, not that I did anything wrong, I used the money at a hospital for my wifes birth.
Still I won’t ever use it again, too cumbersome. I totally agree with the premise of this article.
Nobody mentioned time-shares, where today it is more like buying airline miles that can be used on any “available” unit managed by the property management company, but not to cover the annual maintenance fees and other charges. Good luck trying to find value for your “purchase”.
The content mills and the portion of the gig economy that is entirely internet-based usually has payout minimums. If you are a prospective worker with no independent way to analyze the thing other than make an account, “try it once” and learn about it from the inside out, some will make an account. The ones who make an account may generate a few pennies in labor just in the time it takes to get their bearings and conclude that this is counterproductive. They are either never going to reach the minimum, or have better things to do. If the threshhold is $10, maybe they earned $1. They leave, abandon their account, and the site pockets the $1.
Cue all of the ancillary stuff and rhetoric that surrounds this operation. There will be testimonials, positive-thinking spirituality, and framing as “a little extra money on the side.” You want to lure in a large number of people who will strand a tiny amount each. T&C with mandatory arbitration clauses are also part of it.
I long for the days in NYC when one could buy a few subway tokens and keep them on hand for emergencies or simply if one spent all one’s money at a bar one night and needed to get home.
Now there are these damned Metrocards… I am in NY only rarely now and bought one with $10 or so which has surely expired after only one ride. If one buys the “one ride” card it is only valid for a few hours (I believe) and costs more per ride.
Truly the crapification of life. In the Paris metro they still have the quaint “Carnet” of little cardboard tickets but I don’t expect them to last much longer. Of course with a lot of these systems (e.g. London’s Oyster cards) they have the ability to track all one’s journeys in the master database.
As it happens I was just listening to our friend Harry Shearer’s Le Show from June 11th (I am a bit behind on podcasts right now). A direct quote: “Cash is your friend.” The problem is they are making it the enemy in public transport and other systems.
My FSA funds last until 3/31 of the next year, and the card is fully funded on 1/1 for the new year. No receipts required so far. My wife and I use it for acupuncture, for us a routine and predictable expense. Were it not this easy I would not do it.
Other stranded funds ideas:
Price suppression of gold
High speed trading