Costco's Membership Policy is a Rip-Off, and They Defend It For Some Reason

Update 8-27-19:
Costco still has the surprisingly customer/membership-unfriendly policy below.  However, I remain a Costco customer and have (reluctantly) just renewed my membership every year because of a few things:

1.  Costco's gas and diesel prices are a great deal, and I use their gas and diesel year-round (I just wish the local Sand City (Monterey) Costco had gas pumps!).

2.  Hmmm, I guess that's the only reason.  Kudos (again, reluctantly) to Costco for giving me and other customers a reason to keep our memberships from year to year; for giving us products that make us want to come back every month rather than once every two to three months.

3.  Whoops -- now I remember.  Costco does not need a receipt if you return items.  They use your membership number and look up your past purchase history when you return items without a receipt. I returned an outdoor canopy a few months ago that I had bought as much as four years ago, without ever using or even taking out of the box.  I finally realized that I was never going to use this canopy, took it to Costco without a receipt, and the Costco agent looked up my purchase history.  He refunded me what I paid (supposedly!).  Now that is a reason to keep my membership going from year to year rather than cancelling it and starting it up again.  Costco -- why not give these reasons to someone who is thinking of cancelling his membership, rather than constantly repeating and shouting out the customer-unfriendly reason that "The Supreme Court says that what we are doing is legal!" 

Here's a summary of the problem that I describe below.

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. 

Here's an example:
Let's say a customer comes in to Costco and starts a membership on May 22, 2014.  Let's assume that customer lets his membership expire on May 22, 2015.  He does not enter or shop at Costco for two months.  Then that customer comes into Costco on July 21, 2015 and wants to renew his membership.

When would you think that new membership would expire?  July 21, 2016, right?  WRONG!!!  With Costco's policy, his new membership will expire on May 31, 2016 -- not July 21, 2016.  Costco effectively robs him of two months of membership.

Costco was sued about 10 years ago for a similar policy that robbed its customers of up to five months of membership dues.  They settled a class action suit and this new policy is a result.  Still a ripoff.  Costco says in justification of this ripoff policy: "The Supreme Court says that what we are doing is legal." 

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I am frankly surprised at Costco and its membership renewal policy, which effectively cheats members out of up to two months, or 16.7%, of their membership dues.  I am surprised because Costco is generally a well-managed operation that seems to try to treat its customers right.  They are fixated on this downright deceptive policy, probably because most members won't even realize that they are being cheated.   This is likely because nearly all of Costco's profit, from a recent Wall Street Journal article, is from membership fees. 

I've been a member of Costco for over ten or fifteen years.  They have some good stuff, and they definitely have a good return policy.  I remember standing in line to return a Verizon modem and seeing the assistant manager agree to allow some guy in front of me return a really banged up paper shredder that must have been 10 years old.  I had trouble returning the Verizon modem and that's another story (I don't see why Costco won't offer its members the best deal in cell phone service and plans -- but none of their cell phone kiosks offer no-contract or prepaid plans or devices!).  I want to like Costco more.  But I don't.  Here's one reason why. 

Other forums on the web have described this problem:

http://www.consumerreports.org/cro/news/2009/07/costco-s-renewal-rip-off/index.htm

The writer describes this situation far more clearly than I have:

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. 

Here's how Costco rips off its members when it comes to membership dues.  A regular member pays $55 for a 12-month membership.  Let's say a customer comes in to Costco and starts a membership on March 22, 2013 (as I did).  Let's assume that customer lets his membership expire on March 22, 2014.  Then that customer comes into Costco on May 22 and wants to renew his membership.

When would you think that new membership would expire?  May 22, 2015, right?  WRONG!!!  With Costco, if you renew your membership up to 2 months and 29 days after your initial membership expired, then your new membership will expire on March 31, 2015 -- robbing you of two months of membership.

Here's the reasoning as I understand it, and which was explained to me by a membership services representative at the Carlsbad, CA store on May 22, 2014.  In the above example, if you started a membership on March 22, 2013, then that membership expired on the last day of March, 2014.  If you renew your membership anytime before 60 days has elapsed from the time of your membership expiration date, then your new membership ONLY LASTS until March 31, 2015.  In this example, the customer would have to wait until AFTER June 1, 2014 to be consider "a new member" and for her to get the full twelve months on her membership.  Renew her membership any sooner, and she is being penalized for being an existing customer.  (I also doubt that Costco would allow you to shop with a membership that technically expired on March 22, 2014 but which they say is "not really" expired until March 31, 2014.  I have a strong feeling that if you shopped in that period, they would have forced you to renew your membership). 

This exact scenario happened to me yesterday.  I enclose my letter to Costco membership services below.  The manager and first clerk at the Carlsbad store were absolutely adamant that if I renewed my membership on May 22, then it would expire on March 31 of the following year -- NOT May 22.  When I argued that this was ridiculous and unfair, and I was being penalized for being an existing customer, they shot back, "The Supreme Court issued a ruling that we can do this!"  It was like talking to robots. 

The manager of the store didn't fully understand the policy either.  She stated that if I renewed my membership ANYTIME after June 1, 2014, then because I was an existing customer, my membership would expire on March 31 of the next year.  That was CLEARLY wrong.  I mention this because even Costco manager don't fully understand this ridiculous policy. 

What would any company that is concerned about its customers and doing the right thing do in this case?   I doubt that any company that truly cares about its customers and doing the right thing would simply say "We can do this because a bunch of customers complained and sued us, and we finally won the case in the Supreme Court."

If customers were aggravated enough by this unfair policy to take it to the Supreme Court, shouldn’t Costco reconsider its policy?

The Carlsbad Costco folks also said that this was perfectly standard with memberships -- that this was like a gym membership.  Folks, I belong to  a fitness club; and they don't do anything this deceptive.  My fitness club bills me each month, and I pay each month.  I did sign up for a year, and my gym expects me to pay each month for a year.  After that, I have no commitment and just pay month to month.   My fitness center doesn't bill me for a year in advance and then penalize me for two months of membership fees if I leave for 45 days and come back.  They would start me up on a new annual membership starting on the date I came back! 

Here's what I wrote Costco Membership Services at their Corporate Offices.  I received a lukewarm reply from a Brian D. there, also below. 


Dear Sirs:

My Costco membership number is xxxx.  I have been a member for perhaps 10 to 15 years.  My mailing address is xxxx. 

I do have a blog at norbertwu.blogspot.com that has received well over 67,000 hits.  I would love to post an item on my blog and other social media sites documenting a successful resolution of this experience with Costco that shows Costco is responsive to member’s complaints. 

I pay attention to things like membership expiration dates.  This year, my wife and I decided to let our Costco membership expire.  We called your membership department, and they told us that our membership would expire on March 22, 2014.  We were also told that if we renewed in the two months after our membership expired, our renewal date would be considered to be March 22, 2014.  We therefore purposely did not patronize Costco starting on that date and for two months after. 

Today, May 22, 2014, I went into your Carlsbad store to start up a new membership.  I asked the membership services desk to confirm that if I started up a new membership today, that my membership would extend an entire year, from today, May 22, 2014 until May 22, 2015.  The Costco agent stated that my membership would not last a full year – that because “I was already in the system” that my membership would only last until March 31, 2015.

I find this outrageous, and I told the clerk this.  She called a manager, who refused to do anything.  This manager actually contradicted the first agent, saying that even if I waited until after June 1 to become a member again, my membership would still expire on March 31, 2015.  Even your own employees do not understand this policy…and we were given misinformation by Costco staff in the first place, when we were told that our membership expired on March 22 (rather than the end of the month as is policy). 

I had planned a dinner party for May 23, 2014, and I had planned to shop at Costco for the dinner supplies.  I therefore reluctantly renewed my membership.  I am not at all happy about this or with Costco’s policy.  I see that other people on the web have complained about this same policy. 

I find it outrageous that a member who keeps track of his membership is penalized for being an existing member.  I kept track of Costco’s policy as explained to me.  Yet I am being defrauded of two months of what should be a 12-month membership. 

I ask Costco to do one of three things to resolve this issue:

1.  Cancel my membership immediately, and refund me the $55 that I paid today in membership fees.  You will see that I have not shopped at Costco since March 22, 2014 and before then – on purpose. 

2.  Extend my membership that I “renewed” today for two months or more.  My membership should expire on May 22, 2015, or later – NOT March 31, 2015. 

3.  Refund me the prorated amount that the loss of two months of membership is worth.  This should be about $9.17. 

Once again, I have a blog at norbertwu.blogspot.com that has received well over 67,000 hits.  I would love to post an item on my blog and other social media sites documenting a successful resolution of this experience with Costco that shows Costco is responsive to member’s complaints. 

Signed,

Norbert Wu

Here's the tepid response from Costco: 

Subject: Re: Membership Information or Changes [#xx]
From: "service@contactcostco.com"
Date: 5/23/14 9:47 AM

Dear Norbert,
We appreciate you taking the time to email Costco Wholesale.
Due to the frustrations you experienced and the incorrect information provided to you originally, we have
extended your membership through 5/31/15 as a one time courtesy.
We apologize for the unfortunate circumstances regarding your experience.
Thank you,
Matt B
Member Service Center
Costco Wholesale Corporation

Hey Costco -- you are ripping off your existing members, and doing the right thing should be just that -- not a begrudging "one time courtesy."