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Costco's renewal rip-off

Consumer Reports News: July 06, 2009 11:01 AM

If you’re a Costco member like me, sometimes you don’t shop at the big box store for months at a stretch. If your membership happens to expire during such a sabbatical, guess what happens when you renew a month or two later?

Answer: Costco automatically backdates your membership to renew on the date it expired, not on the actual date you renewed. That means you pay for membership you didn’t and couldn’t have used, because you can’t get your discount-price purchases past the cashier without a current membership.

This happened to me twice in recent years. For some reason, I let my Costco membership lapse each August in 2005 and 2006. But, like clockwork, my need for three-football-field lengths of paper towels and gallon jugs of mayonnaise eventually pressured me to renew in November. I thus retroactively paid for four unused months, a $33 waste.

Last year, I wised up, and when I renewed in November I asked that my renewal be dated as of the actual date of renewal. The counter clerk at Costco customer service was happy to accommodate me, and I patted myself on the back for being a shrewd consumer.

As it turns out, Rhonda Dupler and Tempe Evans were shrewder still. When those two residents of New York and California encountered the same backdating pick-pocket, they sued, and their cases became a class action, which has now reached the proposed settlement stage in U.S. District Court for the Eastern District of New York. Costco disputes the alleged claims and does not admit any liability or wrongdoing whatsoever, but wants to settle anyway.

Costco currently has over 53 million members. Close to 12 million former and current members were beaten out of some $40 million worth of back-dated renewals between March 1, 2001 and March 31, 2009. If you were one of them, you probably got a postcard or e-mail notice about the proposed settlement.

Terms of the deal: Your current membership will be automatically extended one to three months, a $4 to $25 value, depending on how much you got gypped and the type of membership. Former members will receive similar reparations in the form of a temporary membership. You don’t have to do anything to collect, unless you object or want to opt-out of the settlement. To find more details, check the notice of proposed settlement on Costco’s web site.

We think that’s a good deal. Class action settlements have typically awarded victims coupons that often go unused. By contrast; this settlement provides real economic value—months of Costco membership—that automatically go to victims identified by Costco’s membership renewal and payments database.

One piece of the settlement falls short, however. Prior to March, 2009, Costco automatically back-dated renewals that occurred up to five months after expiration. In the settlement, Costco agreed to shrink that to renewals of up to only two months. In other words, Costco will backdate only if you’re renewing less than two months after your membership expired. If, say, your membership expired February 1 and you renewed a month-and-a-half later on March 15, Costco will automatically backdate the renewal to February 1; but if you renew two and a half months later on April 15, that will be dated April 15.

Michael Berg, an attorney from the White Plains, N.Y. firm of Meiselman, Denlea, Packman, Carton & Eberz, estimates that Costco’s shortened renewal backdating will save members $87 million over the next seven years.

Great! But why should Costco members risk even a two-month fleecing?

The $70 billion in revenues wholesaling giant wouldn’t answer that directly, but told me that customers renewing expired memberships can ask that the back-dating policy be waived. “Because of the membership-based nature of the Company, our local warehouse managers are vested with substantial discretion to accommodate member requests in a wide variety of contexts, based on the facts and circumstances.  Our policies help guide the exercise of that discretion but do not strictly dictate all outcomes,” said John Sullivan, Costco’s associate general counsel, in an e-mail.

I think Costco should stop slapping customers in the face this way if they don’t know that they need to ask. Instead, Costco should automatically date all renewals as of the actual renewal date. If you agree, let Costco know by commenting below.

In the meantime, here’s how you can get around this rip-off when you need to renew an expired membership: Go to the customer service desk and ask that your renewal be dated as of the actual date of renewal. That worked for me.–Jeff Blyskal

   

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