The Fine Print: How Big Companies Use Plain English to Rob You Blind

by David Cay Johnston

  One of the fastest-growing items Kushnick found on his aunt’s bill was labeled “FCC Subscriber Line Charge.” Other phone companies call this “FCC Charge for Network Access” or “Federal Line Cost Charge” or “Interstate Access Charge.” Variations include “Federal Access Charge,” “Interstate Single Line Charge,” “Customer Line Charge,” “FCC-Approved Customer Line Charge” and even “End User Fee.”

  These may sound like government fees, or perhaps a disguised tax on telephone users that goes into federal coffers. Not so. Each of those labels identifies the charge for connection to the long-distance network. The government does not collect a penny from that charge. All the money goes to the phone companies.

  According to Federal Communications Commission rules, phone bills are supposed to be easy to understand. The FCC truth-in-billing policy supposedly “improve[s] consumers’ understanding of their telephone bills.” According to the FCC:

  Section 64.2401 of the rules requires that a telephone company’s bill must: (1) be accompanied by a brief, clear, non-misleading, plain language description of the service or services rendered; (2) identify the service provider associated with each charge; (3) clearly and conspicuously identify any change in service provider; (4) contain full and non-misleading descriptions of charges; (5) identify those charges….

  Despite the misleading labeling of the network “line charge,” the FCC has approved it for years, officially helping confuse consumers. Among the honest descriptions the FCC might have required would be “long-distance system access” and “telephone company network charge.”

  Inspired by his study of the evolution of the phone bill, Bruce Kushnick decided to find out how many people were misled by terms like “FCC Subscriber Line Charge.” In a survey of one thousand Americans, he found three people who understood their phone bill, which means 99.7 percent did not. Round to the nearest whole number, and Kushnick’s finding was that 100 percent of those surveyed did not understand their phone bill. In effect, no one understands his or her telephone bill, which amounts to a powerful rebuke to FCC policies that clearly harm consumers and benefit the telephone companies. In the years since that survey, however, the FCC has made no meaningful changes to rules that allow phone companies to confuse people. Don’t blame the FCC staff for that. As with all government agencies, the bureaucrats do what the politicians tell them to do.

  PROMISES, PROMISES

  What Leipzig and Kushnick encountered were early signs that the lower prices made possible by competition and digital technology were just empty promises. This involved more than money, since the telephone industry, together with the cable television industry, quietly saw to it that written into the fine print were laws and regulations that made it easier for them to minimize their investments in new technology and to serve only the customers the companies wanted.

  Since 1913 Americans had enjoyed a legal right to a landline telephone at any address, but by 2012 that right had been legislated away so quietly that my Reuters columns were the first to report this trend. The right to a landline was taken away without any news coverage in Alabama, Florida, North Carolina, Texas and Wisconsin. In Kentucky and New Jersey enough attention was aroused that consumer groups fought the changes, but they faced powerful obstacles. AT&T hired thirty-six lobbyists to work the Kentucky state legislature. In California the consumer group The Utility Rate Network (TURN) counted 120 AT&T lobbyists, one for each member of the Golden State legislature.

  The telecommunications companies wanted to build the most profitable electronic toll road possible. Their aim was, first, to spend as little as possible on technology, which ultimately meant slow Internet service for many customers. Second, they wanted to serve areas where lots of customers could and would buy a monthly pass to get on this electronic highway; potential customers in sparsely populated areas were at best incidental to such plans. Third, they wanted to set prices as high as the market would bear, even if it meant many people could never afford to access this electronic roadway.

  Lost in the rush to profitability was the crucial fact that the federal government had established an underlying policy to make telecommunications services available to all at reasonable prices. Compared to the rest of the modern world, American phone companies, along with cable television companies, have done a spectacular job of building only what and where they wanted while shoving the cost on to their captive customers.

  Instead of increased competition between the telephone and cable companies, a new cartel emerged in the first decade of the twenty-first century. While telephone and cable companies posed in public as rivals, Verizon made a deal to sell its branded services over cable company Comcast’s lines, and vice versa. The only risk of real competition arose when some local governments favored the idea of building a municipal telephone, cable television and Internet access system that would be faster and cheaper. The industry responded like sharks, determined to do in the opposition and protect their predatory position. Later in the book, we’ll see how those and other efforts to kill competition fared (see chapter 5, “In Twenty-ninth Place and Fading Fast,” page 50).

  READING BETWEEN THE LINES

  How the promise of cheap, competitive and unlimited telecommunications service has been turned into a reality of expensive, monopolistic and limited service is just one part of the larger transformation in the American economy since the late 1970s. A host of large industries, including banks, credit card lenders, electric utilities, health care, oil pipelines, Hollywood studios, property insurance, railroads and water companies, all have worked quietly to rewrite America’s economic playbook in their favor.

  In the chapters that follow, we’ll look at how legislatures have rewritten basic business laws, some whose principles date back thousands of years. Too often the goal has been to thwart competition, artificially inflate prices, hold down wages by decimating unions, reduce worker benefits and then restrict or bar access to the courts by those aggrieved. Businesses have gotten policies adopted that have allowed some managers to run corporations as, effectively, criminal enterprises, something modern management and economic theory regard as outside their fields of expertise (and at best implausible) but that criminologists have a name for: control fraud. That means, in short, that those in control run the fraud, as we shall see.

  While schoolchildren are taught about heroic figures who raised the capital to build new factories and fill offices, these days large companies rely on taxpayers for that money. Almost every brand-name company is in on these deals; state and local governments alone spend at least $70 billion a year of taxpayers’ money to subsidize factories, office buildings and the like, according to Professor Kenneth Thomas, a University of Missouri–St. Louis political scientist. That burden comes to $900 per year for a family of four. My only criticism of Thomas’s work is that I believe he understates the cost by an unknown but considerable sum.

  The worst of these are laws in nineteen states that let companies pocket the state income taxes withheld from their workers’ paychecks for up to twenty-five years. Hard as it is to believe such laws exist, they do, and they are spreading fast. General Electric, Goldman Sachs, Procter & Gamble and more than 2,700 other big companies have these deals. It is not just American companies, either. Siemens, the big German computer maker, the Swedish appliance maker Electrolux and a host of Japanese, Canadian and European banks have similar arrangements with states from New Jersey to Oregon. In many of these subsidy programs, no jobs are created. Instead the state income taxes are given to companies that agree to move jobs from one state across the border to another, as AMC Theatres agreed to do in moving its headquarters from Kansas City, Missouri, to Leawood, Kansas, just ten miles away. AMC will get to pocket $47 million withheld from its workers, a boon to its major owners: J. P. Morgan, Apollo Management, the Carlyle Group and the firm Mitt Romney cofounded in 1984, Bain Capital Management.

  From the corporations’ point of view, the best part is that the workers are left in the dark
. None of these states requires that workers be told that their state income taxes go to their employers—that they are in effect being taxed by their bosses. GE says that it did tell its Ohio workers about how it updated its operations there, investing $126 million and pocketing $115.3 million of tax monies. GE shareholders paid just eight cents on the dollar for the investment.

  Legislatures passed these laws, presidents and governors signed them and the courts have endorsed them. In many cases they effectively gut state constitutional provisions and laws banning gifts to business.

  In New York, lawyer James Ostrowski filed a lawsuit on behalf of more than fifty citizens, ranging from serious libertarians to liberal Democrats, challenging a gift of at least $1.4 billion of state taxpayer funds to a company controlled by Abu Dhabi’s hereditary ruler, Sheikh Khalifa bin Zayed Al Nahyan, one of the wealthiest people in the world. The sheikh’s company, GlobalFoundries, is building a microchip factory in the Hudson River Valley near Albany. Back in 1846, the New York State constitution banned gifts to corporations or other business entities, a provision that the voters reaffirmed in 1874, 1938 and again in 1967. In each case the vote was by a margin of two to one, which would seem to make the desires of voters clear.

  In deciding Ostrowski’s suit, two justices said such gifts were plainly illegal. But the court majority found a way around this. They reasoned that while the state government could not make such gifts, the legislature could create an economic development agency, give it the money and, in turn, the agency could give it away to the sheikh and any other business owner. If parallel reasoning were applied to drug deals, the kingpins who finance the drug trade could never be convicted of a crime as long as they do not touch the drugs.

  The court also showed its contempt for those who challenge giveaways in its final order in the case, which ordered Ostrowski to pay $100 because he asked for a rehearing to show the factual errors in the court ruling.

  You’ll learn in this book how other courts, including the United States Supreme Court, have diminished the rights of consumers, voters and workers while enhancing corporate power. One instance was the Lilly Ledbetter case, which demonstrated the willingness of the court majority to favor corporations over people. Ledbetter retired in 1998 after almost two decades at a Goodyear Tire & Rubber plant in Gadsden, Alabama. Only when she was leaving did she learn that the men holding the same job she had held all earned significantly more—as much as $18,000 a year more. Paying men 40 percent more than women for the same work looks like an easy case of discrimination. But the Supreme Court said that Ledbetter’s legal right to sue ended 180 days after the discrimination first took place, which was so many years earlier that the court ruled she had lost her right to sue. But how would Ledbetter have known she was being discriminated against? Only by a tortured reading of the statute could the majority rule against Ledbetter.

  Bits and pieces of the complex story of business gaming government and gaining unfair advantage over consumers have been reported in the press, most often on the business pages. That coverage, however, tends to be narrow, typically portraying what are fundamental issues as disputes between competing industries, say, telephone companies versus cable companies or truckers versus railroads. Looked at from a larger perspective, these disputes were really about how to raise prices, limit competition, and diminish consumer protections. But the forest was often lost in the trees.

  Similarly, banking gets lots of news coverage, but usually from the point of view of the bankers or bank investors, not customers. This seems odd for mass media given that bank owners are few and bank customers abound. An exception to this focus on bank owners came in the intense coverage in 2011 of Bank of America’s plan to impose a $5 monthly fee on some debit card users, a plan it withdrew in the face of popular criticism. To corporate publicists this fiasco was a reminder of why they are employed—to make sure the news media stays focused on what the companies want, not on customers, lest they demand reforms.

  That meant you didn’t read how Bank of America treated customers who deposited a check that bounced. BofA hits customers with a $12 “chargeback” fee for each bounced deposit. Suppose you waited for your bank to advise that the deposit had cleared and only then wrote checks. In New York the courts say the bank can still unclear the deposit and hit you with overdrafts fees, which at BofA are $35 per check.

  What does it cost banks to deal with a bounced check? Back in the late 1970s, when checks were still processed by a person and a machine rather than digitally, Crocker Bank (now part of Wells Fargo) was forced to reveal in a California court case that its cost was thirty cents. At that time, the bank was charging customers $6 for bounced checks, a markup of 2,000 percent. The California Supreme Court held that charging twenty times cost was not necessarily unconscionable. Adjusted for inflation, that $6 fee would now be $21, less than half what BofA charges.

  What are today’s bank costs for processing a bounced check? BofA won’t tell customers, but research papers on costs in the digital era suggest it could be less than a penny, making the markup by BofA in the neighborhood of 470,000 percent. But corporate values now so infuse our society that price gouging is easily brushed off as a function of competition, regardless of whether that’s the truth or an ideological fantasy.

  No other modern country gives corporations the unfettered power found in America to gouge customers, shortchange workers and erect barriers to fair play. A big reason is that so little of the news, which informs us about the world around us, addresses the private, government-approved mechanisms by which price gouging is employed to redistribute income upward. When news breaks about one company buying another, the focus is almost always on the bottom line and how shareholders will benefit from higher prices and less competition; much less is said about added costs for customers as competition wanes. This powerful yet subtle bias appeals to advertisers such as mutual funds and other financial services companies who wish to address investors.

  On arrival at the Philadelphia Inquirer in 1988, I sought to chronicle the coming spread of gambling. Part of the job was to report the monthly results from Atlantic City. Most papers reported how much the casinos won, but on the theory that there was just a handful of casino owners and millions of players, I looked at the story from the players’ point of view, reporting the sum of all player losses at the slots and table games.

  That first month, I wrote that Atlantic City gamblers lost a record amount of money in the seaside temples of chance. When I left Philadelphia for the New York Times, however, the Inquirer went back to reporting the casino winnings, just like every other news organization, once again seeing the story from the corporate point of view.

  I believe people want news about the issues that concern them, but the slant, whether it’s on corporate takeovers, consumer price levels or gambling outcomes, is typically reported in ways that address the interests of investors, not customers. Such investor-oriented reporting is one reason why fewer people pay to have a newspaper delivered at home.

  In The Fine Print, the corporate point of view is secondary to that of customers, workers and taxpayers. Much of what is reported in these pages will be new to you; even specialty industry publications don’t cover this ground. You will read about the machinations used to inflate profits through a regulation that imposes a tax that does not exist and how, in one case, I got this legalized theft stopped, a result that demonstrates that foul practices can be ended if readers simply act on what they learn and speak up at public hearings.

  You will read about why your retirement funds are not safe and why you and your children are endangered because of little-known government rules that give safety waivers to deadly industrial facilities underneath schools and playgrounds whose locations are kept secret by the federal Department of Transportation.

  You will even read about an insurance company owned by one of America’s most admired billionaires that asked a paralyzed man to die because the cost of keeping him alive was cutting into the insurer�
�s profits.

  I invite you to read, to see these and other awful stories in context, and to learn how business has been regulated throughout history. I will try to offer a sense of how, in the past four decades, we have forgotten the tried and tested (and therefore profoundly conservative) principles of business developed over thousands of years. Allowing corporate values to overwhelm us is not necessary—I will close with some suggestions and solutions—but, in the meantime, our wealth, our well-being and our freedom are being diminished daily.

  2…

  Corporate Power Unlimited

  [A] corporation is a legal person created by state statute that can be used as a fall guy, a servant, a good friend or a decoy…a person you control…yet cannot be held accountable for its actions. Imagine the possibilities!

  —Wyoming Corporate Services, Inc.

  2. Just a few blocks from the Wyoming state capitol sits a modest brick house with a neatly manicured lawn at 2710 Thomas Avenue. As my Reuters colleague Brian Grow revealed in 2011, this unimposing building in Cheyenne is the headquarters of more than two thousand companies.

  This is the home of Wyoming Corporate Services, which, for a fee, will create a company, set up a bank account, appoint officers and directors (including a chief executive officer) and even provide a lawyer as a corporate director so the company can invoke attorney–client privilege. Wyoming Corporate Services will also make any required regulatory filings. It can do all of this without anyone being able to ascertain, without a court order, who is behind any corporation it creates. As the Wyoming Corporate Services Web site notes, “Imagine the possibilities!”