How to avoid grey charges on your credit card

The last thing you want is to pay for services you don't really need, but plenty of people do just that. So many, in fact, that there's a name for such transactions on a credit card statement: grey charges.

Grey charges are fees paid by cardholders for unwanted subscriptions billed on a regular basis. Although these charges are technically legal, they're morally ambiguous. grey-charges

Grey charges often are hidden in the fine print when you're signing up for a service, stating that you agree to be billed on a recurring basis unless you provide written notice you'd like to cancel the agreement. Companies hope that you forget about these recurring charges, and if you do, you could end up paying hundreds.

Millions of U.S. cardholders fall victim to grey charges each year, according to a study by Aite Group. There are an estimated 233 million grey charges there annually, adding up to an astounding U.S.$14.3 billion each year. The average grey charge amounts to $61 per credit card statement.

"I suspect there are a similar number of grey charges in Canada," Jason Heath, managing director at Objective Financial Partners, said in an emailed response to questions.

Part of the reason for grey charges is automated payment services. This technology - which goes by myriad other names, such as autopay or recurring billing - can be extremely helpful when it comes to paying on time and not forgetting a bill payment.

However, it can cause you to overlook charges for services you don't need, since it's out of sight, out of mind. If you're paying $20 a month extra in services you don't use, that's $240 a year you're unnecessarily spending.

"I think grey charges are so much easier to miss these days, given the volume of transactions that people are doing on their credit cards," said Heath.

Types of grey charges
A regular grey charge is, say, signing up for a free, one-month trial membership with a streaming service. After the month is over, you may forget to call and cancel the subscription, or not realize that the membership won't automatically cancel after that first month.

Or, perhaps you sign up for a year-long gym membership and don't realize that your contract states that your credit card will automatically be charged for another year-long subscription once your 12 months are up.

There are also "phantom charges" and "zombie charges." A phantom charge occurs when extra items or services are tacked onto your order. Zombie charges are charges that occur even after you cancel an agreement. While grey charges are legal, zombie charges aren't.

 "I can tell you I've personally had a couple of small, obscure ‘zombie' charges for companies I've never done business with in the past," Heath said. "These are particularly concerning, because it's not just a case of signing up for a free trial or forgetting about a gym membership - it's outright fraudulent."

Fighting - and avoiding - grey charges
The most obvious way to avoid grey charges is to not sign up for anything you don't really need. Will you use a gym membership enough to even warrant the free or discounted first month? Do you really need accounts for Netflix, Hulu and Amazon Prime?

If you do sign up for a free trial membership, write down a reminder in your phone, planner or calendar to call and cancel when the free period is over.

If you do sign up for a membership that you're prepared to pay for, be sure to read the fine print. Will the gym renew your membership automatically after the first year?

"Consumers should always be cautious when they use their credit card - especially for trial memberships and ‘free' transactions that might come back to bite them," said Heath.

Review your credit card statement regularly. You should be doing this anyway, to check for signs of fraud, but you also can check for any recurring payments that you forgot about or erroneous charges. There are also smartphone apps, such as TrackMySub, that make spotting grey charges and recurring bills easier.

Budgeting is another way to spot grey charges, as you are more likely to notice missing money or pick up on grey charges that you can then cut from your budget, said Heath.

If you come across any charges you didn't agree to, take immediate action to remove those charges. Start by going to the merchant charging the recurring amount. The merchant may be able to stop the charges for the next billing cycle (although if you signed up for a contract, there may be cancellation fees involved).

If you weren't aware of the grey charges, it's worth asking the merchant if you can be reimbursed for any previous months you were billed.

If you're not having any luck with the merchant, approach your credit card issuer. Even if your issuer can't reimburse you for prior months, at least they should be able to stop the grey charges going forward.

If you're having issues with phantom and zombie charges, you can take steps to stop them, as well.

"It's probably not worth taking legal action, or even necessary for that matter," said Heath. "My experience has been that credit card companies take these zombie charges seriously and will immediately initiate an investigation and cancel the charges unless the vendor can substantiate them."

Keep in mind this often means cancelling your credit card and issuing a new card and card number as a protection, he said.

See related: Expensive apps and game charges could land you in debt, How to win a chargeback dispute
Updated November 30, 2016

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