It certainly sounds like an offer that's too good to pass up: "18 Months Same as Cash." It's free money. It's an interest-free loan. And that plasma TV sure would look good in the living room. How can you go wrong?
Here's how: What if that $1,500 same-as-cash loan ended up costing you an extra $472?
That's the prospect that recently faced Steve Monteith, who bought a very flat, very slick LCD TV 18 months ago from Best Buy. He didn't need the loan, but figured he shouldn't look a gift horse in the mouth. So he took the same-as-cash deal. But because of a hidden fee he didn't understand, he could face nearly $500 in additional costs.
If you bought yourself a huge television to watch the Super Bowl, or got the family a new computer at Christmas, and you took one of these unbeatable deals, you better read on, Monteith's story should send you scurrying for your receipt.
"What's a debt cancellation fee?," Monteith thought as he looked at his installment bills every month. On his statement was a line that looked something like this:
"Debt Cancellation - $5.34"
But he didn't think about it much, and kept paying off his television balance in 18 even payments. That is, until he made what he thought was his last payment last month.
Next came a statement which said he owed the firm $168 in unpaid debt cancellation fees.
"I never signed up for anything like that," Monteith said. He had no idea what debt cancellation could be. "I figured it was the interest I would be paying if I didn't pay in full, or something like that."
The catch with "same as cash"
There's quite a gotcha in Monteith's "Same as cash," agreement, and in most such agreements. If he misses a payment, even by one day, even when the loan is down to a few dollars, he gets ambushed with high interest charges. And not just a high rate on his outstanding balance. He would have to pay interest retroactive from day one. So Monteith might have had to pay $304 in accrued interest along with the charge for this debt cancellation phantom fee.
Here's the explanation for this part of the story. Same As Cash deals aren't really free loans. They are more like a suspended sentence. The interest really does rack up, and usually at a very high rate, like 21 percent. But it's suspended, while the consumer lives in "good behavior" under the terms of this credit probation. But one slip-up, and all that interest is immediately due.
That's the game you're playing if you opt for a "same-as-cash" purchase. Obviously, many consumers make a mistake at some point during the 18 months, and suddenly that good deal on a free loan is now a very bad, very expensive loan. But, very responsible consumers can still win the game.
Credit insurance by any other name
What happened to Monteith is that he was signed up for something called debt cancellation, which is very similar to credit insurance -- once commonly offered by credit card issuers. Consumers pay a few dollars a month, based on an outstanding balance of the loan, and if they die or are incapacitated, the loan is forgiven.
But debt cancellation is a relatively new development, slightly different but much preferred by retailers. Debt cancellation doesn't involve a third-party insurance company, so the retailer and its credit partner keep all the revenue. Also, it's been deemed a non-insurance product by federal regulators. That's important, because many state insurance regulators now limit the price of credit insurance, and mandate clear disclosures. Debt cancellation, on the other hand, is hardly regulated at all.
Perhaps that's why Monteith doesn't recall signing up for debt cancellation. It might have been on a form he signed, but he doesn't remember. It might have simply been offered by the store clerk verbally, but he doesn't recall the conversation. Or it might have been added on without his knowledge.
But what Monteith knows for sure is he didn't want it. And what consumer advocates know for sure is it's always a bad deal. Debt cancellation really insures the store, not the consumer, who is generally dead at the rare times the policy is invoked. The store gets paid, even when the consumer is no longer in a position to care. As with credit insurance, consumers should always decline the product, says consumer advocate Birny Birnbaum, from the Center for Economic Justice.
"This does nothing for consumers," says Birnbaum, who is the former chief economist of the Texas Department of Insurance. "It's 99 percent profit for the companies. Just say no, no, no, no."
Is there something you're not telling me?
But Monteith said he never even had the chance to say no. The amount just landed on his bill.
Best Buy passed calls about Monteith's situation along to HSBC Retail Services, which handles the company's retail credit programs. HSBC spokeswoman Anita Black said Monteith must have signed up for the service, because enrollment in the firm's debt cancellation program requires consumers to sign an extra box on credit applications indicating they want the service. She did concede that consumers could accidentally sign the box while filling out the rest of the application, but said the firm has dealt with the problem by telling store sales representatives to be more clear with consumers.
"We are trying to make sure there's better training systems at the point of sale," she said. Applicants also receive confirmation that they've signed up for the service through the mail, Black said.
However it got on his bill, Monteith never wanted it there. And for him, it all ads up to a big caution for same-as-cash deals.
"It appears to be a free loan. But I guess this is their way of saying it's not really free," he said.
After receiving MSNBC.com's inquires into the situation, Black said HSBC decided to forgive Monteith's $168 in unpaid debt cancellation fees.
It's not clear how common Monteith's situation is. Bob Hunter, the insurance specialist at the Consumer Federation of America, said he's received a few similar complaints, but not many. It's offered by retailers in many industries, particularly electronics and furniture stores. There's a smattering of complaints on consumer-oriented Web sites like RipOffReport.com.
In some cases, consumers who get same as cash deals claim they have been told they "have to have" some kind of insurance to get the deal – a tactic sometimes used by auto dealers to trick consumers into extended warrantees. Of course, debt cancellation is not obligatory.
How can you protect yourself from this situation Monteith is in? Read everything, and don't trust the sales rep to tell you everything you need to know. But Hunter suggests consumers go one step farther:
"You have to ask something like, 'Is there something you're going to bill me for that you haven't told me about?" Is there anything I'm not aware of?"
It's a bit like asking the fox if he will guard the chickens well. But as long as you remember you're dealing with a fox that might not tell you what he's not telling you, it's a good question to ask.