One of the ugly realities of the cable industry has been that the advertised price does not reflect what customers actually pay.
Continue Reading Below
Many of the large cable companies use mandatory added fees to push bills higher. They advertise a certain price, but no consumers pay that amount because these extra charges are not optional.
It's a misleading tactic that has angered many people when they receive their first bill and it's not for the amount they thought they agreed to (or that they saw advertised). Now, a group of Comcast (NASDAQ: CMCSA) subscribers in seven states has filed a class action complaint asking for a jury trial, claiming that these fees are "illegal and deceptive."
What does Comcast do?
Continue Reading Below
When people visit Comcast's website to sign up for cable service, they see a clearly advertised price. These prices may vary by market, but currently in West Palm Beach, Florida, where I am, the company shows the "Digital Starter" package at $49.99 per month and "X1 Starter Double Play" at $89.99.
Based on the presentation on the website (which is similar to how the company advertises in other media), these appear to be the actual prices. In reality, however, if you read the fine print labeled "pricing and other info," you see the following:
Equipment, installation, taxes and fees, including regulatory recovery fees, Broadcast TV Fee (up to $5/mo.), Regional Sports Fee (up to $3/mo.) and other applicable charges extra, and subject to change during and after the promo.
So, in the case of both of these packages (and all other Comcast cable offers), the consumer does not pay the advertised price.
What is the complaint alleging?
The proposed class action lawsuit complains that Comcast advertises one price and charges another. It alleges that the company makes over $1 billion a year from "Broadcast TV Fee" and "Regional Sports Fee," about 15% of its total profits:
This proposed class action alleges that Comcast Corporation ... is engaging in a massive illegal scheme of falsely advertising its cable television service plans for much lower prices than it actually charges. Comcast promises to charge customers a fixed monthly price for the service plans, but in fact Comcast charges a much higher rate for those plans via concealed and deceptive "fees" which Comcast intentionally disguises in both its advertising and in its customer bills.
The court filing also alleges that "Comcast's fraud pervades the entire life cycle of the customer," saying that Comcast "commits billing fraud by subtracting the invented fees from the top-line service price in its bills (e.g., from the Total XFINITY Bundled Price) and instead hiding and disguising the charges in the Other Charges & Credits section of the bill."
Last, the proposed lawsuit alleges that staff and agents misrepresent the fees to customers when the latter ask questions about them. "Comcast staff and agents explicitly lie by stating that the Broadcast TV Fee and the Regional Sports Fee are government-related fees or taxes over which Comcast has no control," according to the filing.
What happens next?
The biggest hurdle facing this proposed class action lawsuit may be that Comcast (and all major cable companies) have clauses in their basic agreements that force customers to accept arbitration. In this case, Consumerist reported, the attorneys behind the proposed lawsuit believe that each of the eight defendants has exercised their right to opt out of the Comcast arbitration clause within the 30-day window of opening their accounts. Consumerist said it reached out to Comcast for a comment, but had not heard back by the time it published.
Whether arbitration can be applied or not, this may be a case where shining light on a practice that -- whether legal or not -- involves the company advertising one price then charging another brings about change. Comcast, and every other cable company that does this, could stop doing it if the policy gets enough negative attention.
In the long run, advertising the real, higher price may cost Comcast (and other players) some revenue, but it could also earn them goodwill. This lawsuit faces a long road (and it may be a long shot), but its intent is clear and could ultimatelyforce the company to reverse a practice that appears to be a clear attempt to mislead or confuse customers.
10 stocks we like better than Comcast
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Comcast wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of October 3, 2016
Daniel Kline has no position in any stocks mentioned. He thinks these fees are absurd. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.