In Moneyland, companies find a million ways of nipping a little extra cash out of your pocket. Today's example: a telephone company, selling an extended-payment plan. The company's sales reps have made the plan sound cheaper than it really is.
My story starts with Bridgett Baron, a Chicago accountant, who wanted a second phone line in her home. She called SBC Ameritech and learned that the total cost would come to more than $150.
Ameritech's phone rep offered to let her stretch her payments over two to 12 months, at "only a 1.5 percent finance charge." That sounded cheap, so she agreed.
But then Baron started to rethink. A 1.5 percent charge came to around $1.23 (as calculated on her Quicken program). How come Ameritech was offering financing at so low a rate?
So she called back, got another phone rep named Dave, and asked for clarification. Asked Bridgett: "Is that 1.5 percent for the whole year, or 1.5 percent per month? Answered Dave: "Yes, for the whole year per month."
Luckily, Baron isn't someone who just fell off a turnip truck. She asked Dave point-blank: "Does that mean 18 percent per year?" Well, yes, Dave finally conceded - the cost of extending payments comes to an annualized 18 percent.
Well, gosh. I thought that, by law, creditors had to disclose the true, annual interest rate, when customers paid in installments. How can Ameritech get away with claiming that their financing costs just 1.5 percent?
But finding the answer led me deep into the Big Muddy. After a long slog, I learned something that may surprise you: Ameritech (and other utilities) can disclose whatever they want.
Under the federal Truth in Lending Act, lenders have to tell you the annual percentage rate (APR) on any loan. That lets you compare one lender's rate with another's.
But public utilities, such as phone companies, are generally exempt from Truth in Lending, said attorney Kyung Cho-Miller of the Federal Reserve, which administers the law.
A utility has to disclose the annual finance charge only if it's selling a "durable good or home improvement." Public services are exempt.
After checking with the state of Illinois, Cho-Miller concluded that installing a second phone line is a public service. So Truth in Lending rules don't apply.
My next port of call was the Illinois Commerce Commission. The commission administers what's left of local phone-company regulation.
Illinois maintains price caps on the cost of installing both basic dial-tone service and a second line, said attorney Matt Harvey in the commission's office of general counsel. But there's no requirement to disclose the annualized rate charged for installment payments.
The Commerce Commission was surprised to hear that SBC Ameritech was financing the cost of second lines. "They aren't authorized to do that," said spokeswoman Beth Bosch said.
Bosch talked to Ameritech and cleared everything up. Ameritech is not "financing" the cost of its second lines, Bosch said. Instead, it's offering customers a "deferred payment plan."
Get it? When customers pay 1.5 percent, they're not paying interest. That's merely a "late payment charge," for people who don't pay up front.
"It does seem like a relatively harsh result for this consumer," Harvey said. "But we're not aware of significant complaints."
Selim Bingol, spokesman for SBC Communications in San Antonio, said, "We train our reps to fully disclose all monthly payments and charges."
OK, but what about disclosing the true annual rate?
So he said again, "If it's 1.5 percent a month interest, they are to say that." (Selim is starting to sound like Dave - a bunch of Stepford phone pals.)
Finally, here's what I heard from an Ameritech spokesman in Chicago: "If the customer asks, the reps will tell them it's 18 percent annually."
So that's what passes for "disclosure." The full truth is reserved for those who know enough to ask.