Try this, it sounds a lot more plausible, especially with the lovely agents out of AUS:

The agents in AUS were wanting to be proactive regarding a route that normally runs out of bin space. They started (perhaps, a little too early), checking bags at no charge. And yes, they were gate checking them. That's what it is when you check a bag at the gate, and unless you are on Express or Connection, it always goes to your final destination, unless you request that it go to Houston, where you will have to leave security, go to baggage claim, and then back through security for your connecting flight. Thought it isn't always done like this, especially at out stations - all gate checked bags are supposed to have actual bag tags, not just the blue ones. No one was having to pay extra, that's an assumption you incorrectly made.

So yes, it was unfortunate that they were tagging bags too early - but that's it. No one was paying extra (again, all gate checked bags are supposed to get the actual bag tags, though this is rarely the case), and they were, in fact, being "gate checked".