It Pays to Question Those Bill Surcharges
Like many people who have had plumbing work done, Willard Rose, manager of a West Los Angeles apartment building, was surprised by the bill. The surprise, however, wasn’t the $58 an hour: It was Clark Plumbing’s 5% “insurance surcharge,” to which he had to agree in advance, “or the guy was going to leave.”
Whatever the cost, liability insurance seemed to Rose as much a part of general overhead as staff and office rent, and it didn’t seem right to bill customers separately. He even wondered if it might be illegal.
Not necessarily, but perhaps ill advised and unjustified. Furthermore, lots of people don’t like it, says one of the plumber’s office staff (the owner returned no calls), but it’s not illegal.
The charge isn’t even common. For all plumbers in California and probably elsewhere, “insurance rates increased considerably, perhaps 6% to 7% last year,” says Roger Lighthart, a Los Angeles general contractor sitting on the Contractor’s State Licensing Board, “but normally you calculate it into your service charge.”
By contrast, there are special costs, billed only when applicable: equipment rental, subcontract fees (tile work, for instance), or sewer cleaning, which takes two workers. But a plumber’s insurance, like the cost of maintaining his vehicles, covers all jobs equally. “We consider it part of the cost of doing business,” says another Los Angeles plumber: “The consumer wants to hear how much it’s going to cost, so it’s better just to raise your hourly rate a couple of bucks.”
Add-on charges appear in many places these days. On some bills, they account for half the space: Telephone bills, for example, may have charges for monthly service and long distance and as many as seven “mandated” surcharges, local, interstate, and “universal.” On rental car contracts, they may account for almost half the cost, with quoted daily rates supplemented by insurance charges, refueling fees, airport access fees--phrases often sounding like something imposed by an outside authority.
“Surcharges” have an inherent ring of authority, although the word is “not a legal term of art,” says Richard Elbrecht, head of legal services for California’s consumer affairs department. By definition simply a charge above and in addition to usual and normal charges, “surcharge” is often used for charges officially imposed, often by a government entity. Perhaps a regulated industry is permitted by its assigned regulators to burden its customers further; perhaps some regulation puts an extra burden on an otherwise unregulated industry.
Some telephone surcharges make up for money newly “independent” local companies used to make on long distance, and some fund services for the poor or handicapped. Georgia’s legislature recently considered a 25-cent surcharge on insurance policies to fund a state insurance consumer advocate. Surcharges on court-ordered fines in some California counties already fund construction of new courtrooms and jails.
Surcharges--again, the official kind--may be authorized for certain industries during a temporary crisis. Surcharges have been sought and often won by taxicab owners, airlines, gas and power companies to offset increases in fuel costs at various times. Water and power companies have put surcharges on customer consumption of water during droughts and water shortages.
Other surcharges are just marketing tools, putting a fake ring of authority on a price increase. But the gambit, though “devious” in Lighthart’s view, isn’t necessarily illegal. Businesses, says Los Angeles lawyer George Schulman, formerly with the Federal Trade Commission, “can charge whatever they want, as long as it’s disclosed.”
Indeed, rental car companies got into trouble less for making insurance an extra expense or for piling onto the basic price mandatory surcharges for fuel and bus rides and “airport access,” but for not disclosing them up front. The FTC took action against Alamo, for example, because its agents often gave people reserving by phone no more than the daily rate. They didn’t hear about the extras until they picked up the car, too late to change agencies.
At the same time, car dealers have for years posted price stickers that include a variety of extra charges (up to $500 extra) with mysterious initials--ADM, ADP, MVA As Consumer Reports reveals every year, these are just “profit padding,” standing for “Additional Dealer Mark Up,” or “Additional Dealer Profit, or “Market Value Added.” As disclosure goes, such initialed references seem minimal, but they’re there to be questioned.
Furthermore, the written sales contract may include document fees, conveyance fees or other charges for doing standard paper work, or maybe “dealer prep” and advertising charges that have already been paid by the manufacturer. “All kinds of stuff is added,” says Elbrecht, “but you are given it all up front, including the total.”
As for the plumber (or hotel or lawyer or doctor) who wants to add a surcharge for insurance or advertising or paper work or even common courtesy, fine, as long as the customer knows in advance. There’s some question, of course, whether the actual time of arrival is sufficiently “in advance”: It’s as hard to switch plumbers at that point as to switch rental car agencies at the pickup counter.
Even then, the consumer has some choice, along with the inconvenience. He may have to read the contract fast and “if not adept, he will be hurt,” says Elbrecht. “But it is a contract, and he has the ability to change things”--if only by refusing to sign. “If 20% of customers, or 5%, or only 3% challenge that charge, it would be dropped.”
