When was the last time you scanned your credit card statement or cellphone bill for extra charges? If you're like most consumers, you may not take the time on a regular basis. However, small, unwanted charges can add up if you're not careful. BillGuard, a Web and smartphone app that scans statements for you, reports that these "grey charges" cost credit and debit cardholders more than $14 billion last year.
Grey charges come in a few different flavors and represent a growing problem, says Mary Anne Keegan, BillGuard's chief marketing officer. For instance, many companies offer free trials that require you to enter your credit card information, and then you subsequently get charged if you don't cancel the service at the end of the trial. Free-to-paid charges accounted for $6 billion in transactions last year, according to BillGuard.
Another type of grey charge, a phantom charge, can occur when you're charged for a product or service you don't want and didn't know you agreed to buy – for instance, extra services like ringtones or horoscopes or a reoccurring credit protection service when you thought you were checking your credit report once for free. There are also zombie grey charges, in which you continue getting charged for a gym membership or other service after you've cancelled it.
These grey charges may be partly driven by the move toward digital subscriptions and e-commerce, which often come with lengthy terms of service agreements that few people actually read. "In the day and age of pre-checked boxes and adhesion contracts – a contract that [locks you in] but not the company – you really have to watch out," says Christopher Elliott, consumer advocate and author of "Scammed: How to Save Your Money and Find Better Service in a World of Schemes, Swindles, and Shady Deals." "You can't take anything out or you can't buy the product." For instance, when you book a cruise or download a piece of software, you're agreeing to all the merchant's terms.
Often, these terms of service agreements skew in the merchant's favor. But there are a few things you can do to protect yourself. Here's a look at the steps you can take to prevent grey charges and take action if and when they occur.
[See: 10 Dangers of Mobile Banking.]
Read the fine print. It's tempting to sign up for a free trial subscription so you can get free shipping or test an online dating site before paying a monthly subscription. But unless you're vigilant about cancelling the subscription before it auto-renews, you could wind up paying for it anyway. Elliott advises against "free" subscriptions that require a credit card number or sound too good to be true. But if you must sign up, "read all the fine print beforehand and make sure you're not agreeing to something that you might later regret," he says.
Monitor your statements. If you don't check your statements, you could be paying grey charges for months before realizing anything is amiss. "Most people don't check their credit card statements when they come in each month," says Clark Howard, consumer expert and author of "Clark Howard's Living Large for the Long Haul." "That's the hole you can drive a Mack truck through." Services like BillGuard can help flag questionable transactions, but it's also a good idea to check statements yourself. "The only person who can protect yourself is you," Howard says. You generally have 60 days to dispute credit card transactions, so even checking every other month or every quarter is better than nothing.
Pay with credit. If a gym or other service wants to set up a reoccurring payment, Howard suggests using your credit card. "Never give a gym access to debit your checking account," he says. If there's an issue with a credit card payment, you can dispute it and the money hasn't left your hands. Debit cards do not offer the same dispute process and the money immediately leaves your account.
Get cancellations in writing. When cancelling a free trial or gym membership, get it in writing, because phone cancellations can become a "he said, she said" scenario. Elliott recommends getting a confirmation number or taking a screenshot of the page confirming your cancellation. "You can't just call and say 'I don't want to be a member of your club' or 'I don't want to get my credit report anymore,'" he says. "You have to have hard proof." After you've cancelled, check your statements to make sure the company stops charging you. "I've had these calls where people start getting called by bill collectors saying that they stopped paying for a gym that they were still a member of," Howard says. That's why he suggests keeping a copy of gym cancellation paperwork forever.