4 reasons we get ripped off (with video)
For starters, we're not always smart or careful consumers. But let's not take all the blame. Sometimes, the odds really are stacked against us.
A law office is advertising its mortgage 
Here's the problem: There's no way to get a mortgage modification with a single phone call. The process takes months, and you have to submit tons of paperwork. The most a single phone call can do is get you started with an application -- and that you can do, on your own, for free.
Yet this advertisement has been repeating on the station for weeks and doubtless is raking in business from desperate homeowners.
That makes me wonder: "Why are people so gullible?" And equally important: "Why are companies allowed to take advantage like this?"
Bob Sullivan thinks he may have some answers.
Sullivan is an award-winning columnist who writes "The Red Tape Chronicles" for MSNBC.com, which documents the many, many ways people get ripped off today, not just by outright scams but by loans that cost too much, products that don't work as they should and hidden fees that drain our wallets.
In his first book, "Gotcha Capitalism," Sullivan documented that the typical household pays $946 a year in sneaky, hidden charges from credit card
In his follow-up book, "Stop Getting Ripped Off," Sullivan delves into the reasons we're so likely to get fleeced. Among them are these four:
1. Americans stink at math
We've all seen the statistics about how our students trail those in other developed nations in mathematical ability. But you may not realize the depth of our numerical dysfunction.
Here's one horrifying example from a U.S. Department of
hink about that: A majority couldn't add two numbers and then move a decimal point one position to the left.
That leaves many people at a huge disadvantage in any financial transaction, Sullivan said. They're easily duped into focusing on a loan's monthly payments rather than its overall cost, for example.
"Somebody who can't figure a tip can't buy a car, can't buy a home, can barely compare products in a grocery store," Sullivan said.
If you're good at math, don't just feel sorry for those who aren't. You should feel sorry for yourself because the market is being distorted by your math-deficient peers. A prime example is real estate, which was goosed skyward by unsustainable mortgages and then gutted by foreclosures when those mortgages exploded. For more, read "Foreclosure nearby? It's your problem."
Indeed, a cornerstone of free-market capitalism is the concept of fair market value, which is the price agreed to by willing and knowledgeable buyers and sellers. If the seller is the only one who knows the score, the system falls apart.
"Our economy can't function if there isn't price pressure at both ends of the transaction," Sullivan said.
2. We don't recognize sociopaths
The economy also requires some level of trust to function, or people would never part with their money. But too often we trust people we shouldn't, including salespeople who disguise themselves as trustworthy advisers.
How many mortgage brokers talked people into higher-rate, riskier loans just to get a kickback from the lenders? How many insurance salespeople are out there right now talking people into buying annuities under the guise of advising them about Roth IRA conversions?
What we don't realize, Sullivan said, is that the most effective salespeople are the ones who persuade us to let down our guard. They're charming, convincing and often devoid of conscience -- able to lie without remorse. They don't care if a transaction is good for you as long it's good for them.
They are, in other words, sociopaths, and they're surprisingly common, according to author and psychologist Martha Stout, who estimated in her book "The Sociopath Next Door" that up to 4% of the population is sociopathic.
We normal folks are at a distinct disadvantage when dealing with sociopaths, Sullivan said.
"We just don't expect other people to be baldfaced liars," he said.
3. Bait-and-switch capitalism is now the norm
Instead of competing transparently on price and service, too many companies advertise one price and then slam you with hidden fees and costs once you're a customer. Anyone who's ever signed up for a cell phone plan, paid for television service or rented a car is intimately familiar with hidden fees.
If companies were upfront about their prices and fees, consumers could make intelligent, informed decisions. When deception is rampant, the free market no longer works efficiently, Sullivan said.
4. Half the police force has disappeared
Twenty years ago, the Federal Trade Commission had 2,000 full-time employees to help with its mission of protecting consumers. Today, despite a vast expansion of its duties -- including policing the Internet and fighting identity theft -- the FTC has about 1,000 full-time workers, Sullivan said.
Other agencies with consumer-protection duties -- the Federal Communications Commission, which polices the airwaves; the Securities and Exchange Commission, which protects investors; even the Consumer Product Safety Commission -- have been similarly gutted.
So what's the solution? Obviously, we need to get better at math and be less trusting of those who would advise us, Sullivan said. We must be savvier about managing our money and more defensive about the way we use banking, investment and credit services.
But, Sullivan said, we also need more cops on the beat. Companies know they can cheat and mislead consumers with impunity, and that needs to stop.
This isn't a political, big-government-versus-small-government issue, Sullivan said. It's an enforcement issue.
"We've got the laws on the books against unfair and deceptive trade practices," Sullivan said. "But no one is going after the people who lie, cheat and steal."
Liz Pulliam Weston is the Web's most-read personal-finance writer. She is the author of several books, most recently "Your Credit Score: Your Money & What's at Stake." Weston's award-winning columns appear every Monday and Thursday, exclusively on MSN Money. She also answers reader questions on the Your Money message board and helps middle-classfamilies cope atBuilding a Brighter Future.
Published Feb. 5, 2010