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Five Biggest Legal Ripoffs Ever

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Scam SchoolMy wife and I bought our house five years ago. I remember looking over the list of closing costs and seeing a line for title insurance. Title insurance, which costs in the neighborhood of a few thousand dollars, is something that boggles my mind even to this day. It’s an example of something that is a 100% legal and 99% rip off. There are some things in life that are obvious rip offs, like pay day loans, and then there are others that aren’t so obvious. Today, I wanted to point out a few of the biggest legal ripoffs in the financial world. Some of them are completely avoidable. Others, however, are not.

In this article, we take aim at bank fees, extended warranties, title insurance, college textbooks, and car rental insurance.

Bank Fees

Lincoln Five DollarsBanks make billions a year off the fees they charge, from insufficient funds fees to account maintenance fee. Unfortunately, many of these banks are publicly traded. What this means is that once you collect a dollar in fees, you have to collect that dollar each quarter or your investors complain. Not only do you have to collect that dollar, you need to collect an extra one or your investors will complain. Years ago, I’m sure it took a few dollars to process an insufficient funds fee when the process was manual and the check had to be sent to one of the clearinghouses. Nowadays, with Check 21 and computers, the cost to process a bad check is much lower. It’s not $35, which is the average fee for a bad check. Two cents to the processing, $34.88 for the old income statement.

While government regulation seems to be the direction we’re headed, I think customers should vote with their wallets. Credit unions and community banks typically have more customer-friendly fee schedules. Some banks, like ING Direct, don’t even charge a fee on overdrafts, they charge interest on a small line of credit. Find a bank that doesn’t rip you off and isn’t addicted to income statement cocaine.

Extended Warranties

XBox ControllerIf you buy anything from an electronics store, they will almost always try to sell you add-ons like an extended warranty. There are two parts of this process that are enormous rip offs. First, the extended warranty itself. The manufacturer of the device will always have a warranty. If you buy it with a credit card, the card will usually double the manufacturer’s warranty to at most an additional year (6 month manufacturer’s warranty becomes an extra six months, 2 year warranty becomes an extra year). The extended warranty from the electronics store is almost always redundant, but they’ll try to sell it to you anyway.

Second, since when did we start accepting device failure within a couple of years? We started accepting it when guys in fancy MBA suits began touting “obsolescence” into their product plans. Why make a durable product if we plan on cannibalizing the market in a couple years with a new gadget? I understand that the Nintendo is technologically inferior to an XBox, but the most I ever needed to do was blow into the cartridge to get it to work. We’ve come to accept device failure within a few years because manufacturers never intended for us to use them that long. That’s a scam.

Title Insurance

Not my house...When you buy a home, you will be required to buy title insurance. Title insurance costs a pretty penny. In fact, it’ll cost tens of thousands of pennies. In return, you get the assurance that the title is legitimate and no one has claim on your home. If they do, the title insurance company insures you against those claims. Sounds good right? Except you’ll need to buy it each time you refinance.

In theory, the title insurance premium goes towards research and insurance. They are supposed to research the history of the title and ensure it’s legitimacy. If that’s the case, why is it necessary when you refinance? There is no transfer of ownership because you still own the house. The title will not have changed pre- and post-refi, yet the title insurance company still wants to get paid. They will, essentially, do nothing for what you pay them. Unfortunately, there’s no way around it if you need a mortgage, as the bank has to have protection (and you pay for it).

I was too quick to call title insurance a ripoff. In the original post, I pointed to title insurance on a refinance as the reason why I thought it was a ripoff but there are several good reasons why title insurance is important on a refi – such as a check to see if there are any outstanding liens on the title. So I retract my assertion that title insurance is a ripoff, though at times I think it can be overpriced (title insurance companies don’t necessarily offer a discount on refinances, even if they did the research the first time and only have to review a few years of history).

College Textbooks

Cheap Textbooks!The college textbook market is one hell of a racket. It exists because for a lot of students, the person buying the textbook isn’t the one paying for it. Many people get financial aid, which must be spent on education related materials, so they buy textbooks without considering the cost. Others get financial assistance from their parents, so they care very little too. That leaves everyone else, the people who make the buying decision and work extra hours to pay for it, paying “Brand New” prices for books that should be “Used.”

Why? Textbooks change for no apparent reason. You can’t tell me “Chemistry” needs a new edition each year. I don’t care what’s on the cutting edge of chemistry, an introductory university text on the subject should be the same today as it was in the 1980s. Put all the new developments since 1980 in Chemistry II. I understand there may be some fundamental changes in the last 40 years, Chemistry I will put the lessons in Chemistry II into historical context.

Car Rental Insurance

Maserati - I'd get LDW if I rented one of these...Liability damage waivers… that’s the code word for one of the insurance add-ons a car rental salesman or woman will try to sell you. It’s nothing more than your own car insurance, which covers you for rental cars, so getting it is really being double covered. The only benefit is that if something does happen, you don’t have to deal with it. It’s, however, ridiculously expensive. Just take the rate they charge, multiply it by 365, and compare it to your own insurance.

It’s not worth it unless you’re an absolutely terrible driving and you expect to crash the car. Actually, if you’re like that, ask someone else to drive.

(Photo: Scam School by magerleagues,$5 Bill by, Xbox Controller by schreiblockade, House by Michel Fillon, Maserati by Mdrewe, Textbooks by wfryer)

{ 93 comments, please add your thoughts now! }

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93 Responses to “Five Biggest Legal Ripoffs Ever”

  1. Great list of gripes!

    As a college instructor, the cost of textbooks frosts my cookies. A text that used to cost my students $25 — about what it was worth, come to think of it — suddenly went up to $80. The book used at the community college where I’m now teaching part-time isn’t even worth $25, and it’s also an $80 gouge for the kids. I can understand how some science textbooks, which contain a lot of expensive graphics and require well paid technical editors, could cost a pretty penny. But a freshman comp text? Give me a break! How many ways can you say “write a thesis statement” and “spare us the comma splices”???

    On the other hand, as the author of a textbook (not a composition text), I will say that the campus bookstores’ practice of buying books back from students on the cheap and reselling them for near-new prices is a REAL ripoff for authors and publishers. After two or three years, the only texts sitting on a bookstore’s shelves are used books, on which my publisher makes no profit and I receive no royalties. The reason publishers keep issuing new editions is to address this very serious problem.

    As for having to pay for title insurance when you refinance: How is the bank to know that you didn’t welsh on paying a carpenter or a roofer when you remodeled your house? If he has a contractor’s lien on that house, that bill has to be settled before the house can be refinanced.

    • billsnider says:

      I find it amusing that people think that text book companies are fat and rich. They should first investigate the facts.

      We had some years where we barely hung in there. Many of the reasons are cited above (R&D, teacher copies, support material, manufacturing costs, returns (!!!!), bookstore resales, etc.. It is a highly competitive business. That is why you have such great product for the students.

      • The thing is … the high quality of the books (I’m speaking of the physical aspects) actually works against the students AND the textbook companies.

        I have a lovely Riverside Shakespeare that was used as a textboook in one of my classes. You could probably bludgeon someone to death with it, if you were so inclined.

        As such, students pay top dollar for the book and it stays in circulation year after year after year – because it never wears out.

        On the flip side, if the book were made more cheaply, it would cost the students less to buy and it would wear out sooner – meaning that future students would need to buy new copies, providing the company with future revenue.

        Having a book of very high quality (and price) really just serves the interest of the book store – gaining them repeated revenue.

        I do realize that some of the costs you cite are related to intellectual property rather than the physical book.

    • MikeZ says:

      Sounds like a pretty vicious circle. The reason the bookstore shelves are littered with used books is because the new ones cost $80 bucks.

      I graduated about 15 yrs ago and my textbooks were all in the ~60 dollar range. I either borrowed or bought used and sold every book from every class. If they only costed $25 a pop, I would definitely have kept them, and some new student would be giving you another royalty check.

  2. I went back to college four years ago. My algebra teacher was very grumpy about “new editions,” which he said usually meant that they’d used a newer cultural reference or changed “the 1990 census” to “the 2000 census” in a word problem.
    He wasn’t averse to our using older editions. I bought mine from another student, paying a lot less than the campus bookstore wanted. During the four years I bought almost all of my texts online. Sometimes the “old” books were in as good a shape as the ones my fellow students were using — except they’d paid five times more.
    I kept a few but mostly sold them back to online book-buyers, earning $112.28 (buyers paid the postage).

  3. Greg says:

    Title insurance is needed to protect not just your lender, but yourself. The closer does make about a 70% peofit though – hence, kind of a ripoff.

    • Ron says:

      Actually Greg, title insurance closings are a loss leader for the industry. Money is normally lost on closings because of competition holding down prices.

  4. titleinsurance says:

    I’m a title insurance professional and I came across your post on Google. You are way off base in understanding title insurance. I came across a post on the chartsandcoffee blog responding to your post. You should read it and retract the part of your post on title insurance. You seem to have a nice blog but you need to be more careful before going after an industry.

    • Jim says:

      You are right, I’ve made an amendment to the post. My and my friends’ experiences with title insurance companies has always left us with a feeling that we were overpaying for things, most notably on a refinance. Not being a title insurance professional, I don’t see all the scenarios.

      • Ron says:

        Thanks for amending your article Jim. I think you would find, if you inquired, that there IS a discount for refinances in nearly every state for nearly every title insurer licensed. I cannot think of a state where the company I work for does not have a refinance (or reissue) discount.

        • Jim says:

          I haven’t refinanced but my friends have and the title companies weren’t willing to give a discount. 🙁

  5. lissus says:

    FYI When we bought our house, we did not have to have title insurance if we paid 20% down. We saved a bundle.

  6. Lane-o says:

    Thanks. This blog post is the perfect example of why people shouldn’t take financial advice from someone that doesn’t know what the hell he’s talking about…

  7. Bill LIebler says:

    The biggest legal ripoff right now IMHO is Social Security. You have to pay into it and yet it is bankrupt beyond believe. It is the biggest Ponzi scheme ever perpetrated and it is mandated by those in control. Some of these others certainly can be viewed as ripoffs – some I don’t think are – but in each of these you have the choice to not pay them – if you don’t buy a house for instance – but SS – you have no choice.

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