Why We Live in a Lawless, Gotcha Capitalism Economy
If you want to know why corporations can thrive on their ability to trick consumers, I can explain it to you in four words: No material financial impact.
Recently, 45 state attorneys general thought enough about complaints filed against satellite radio firm Sirius XM (SIRI) that they bothered to initiate legal action against the firm. Plenty of customers (myself included) complained that they were surprised by credit card charges from the firm, which engaged in the old automatic renewal game.
When Sirius decided to settle, it paid some spare change. When asked by a consumer reporter (me) for a statement about the settlement, the firm was quick to stress how little it was. "We agreed to make a payment of approximately $4 million to the states that has no material financial effect on the company," the firm said in its statement.
Yes, I know that's specific language intended for Wall Street. The payment won't affect earnings guidance, etc., etc. But how can an intelligent person also not read that as a thumb to the nose (being polite here) at 45 states' top legal authority? Sure, you came after us, and we paid, but it didn't hurt. Nah Nah Nah. You can't hurt me! How can it not feel like a Bronx cheer to you?
Bad (Yet Familiar) Corporate Behavior
A little more background about the allegations against Sirius: Here's what Ohio Attorney General Mike DeWine said consumers complained about when he announced the settlement: "Difficulty canceling contracts; cancellation requests that were not honored; misrepresentations that the consumer's Sirius XM service would be canceled and not renewed; contracts that were automatically renewed without consumers' notice or consent; unauthorized fees; higher, unanticipated rates after a low introductory rate; and Sirius XM failing to provide timely refunds."
That list might sound bad, but I'll bet it also sounds awfully familiar. Plenty of companies make it incredibly easy to sign up and incredibly hard to stop paying them money. And why not? They know that their worst-case scenario is usually announcing a settlement that has no material impact. Sirius, by the way, agreed to a list of changes demanded by state attorneys general. It also agreed to compensate affected consumers, but they must ask for refunds by visiting this website.
Here is the company's full statement about the settlement: "We are pleased to have reached agreements that resolve this investigation. The changes to our consumer practices that we agreed to are practices we have already implemented at SiriusXM. Under the terms of the settlements, we have agreed to provide, upon the request of the states, additional information about our consumer practices and to participate in a process designed to address any previously unresolved consumer complaints. In addition, we agreed to make a payment of approximately $4 million to the states that has no material financial effect on the company."
We No Longer Have a Free Market
But here's the point: Companies routinely invent bad business practices, inflict them on consumers, get caught, use the legal system to delay, eventually admit guilt without admitting guilt, and make a token payment that's considered the cost of doing business.
This is why we don't have a free market anymore. We have a lawless economy that I call Gotcha Capitalism, and I've written a book about this. Free markets require perfect information on all sides of a transaction. They require clear price tags. In Gotcha Capitalism, we have little idea what things cost.
Maybe they cost $10 a month, until they cost $25 a month at some point in the future. Or maybe $35. Who knows? If I'm a company, I don't want intelligent consumers who appreciate the value of the product they get. I want suckers who are too busy to check their credit card bills and too worn down to file official complaints, which is the only way you'll get a refund from Sirius.
Sure, this is annoying. But it's more than that. Gotcha Capitalism rewards bad behavior. It turns the normal reward function of capitalism on its head. Instead of good companies with good products and creative innovation rising to the top, we have companies that refine their gotcha mechanisms rising to the top.
They create just enough surprise to walk the thin line of the law -- or slip over it, but not enough to do something that might have a material impact on the bottom line. But for now, know this: Until bad behavior starts resulting in material impact, companies won't stop. And we'll remain stuck in the sucker economy.