My SEO Company Want To Charge To remove Their Own Spammy Links?

Hi there,

I have an ecommerce website and have had an SEO company working on content and links for me.

I think I have been hit by a penguin update though this effected me in July. My rankings for my main keywords have fallen from page 2 to page 8 on google also my page rank went from 3 to 2.

As well as directory submissions and article writing submissions they were providing PR1 and PR2 links for the last 4 months) these I can see are clearly from made up sites that are only created for outward bound links.

I have asked them to remove these links and told them that they dont comply with Googles Webmaster Guidelines and they have got back to me saying that;

1. The links are acceptable
2. They will not or are not doing the site any harm
3. They will charge for removing

I cant believe that they expect me to pay for this as I made it clear from the start I didnt want links from fake sites. (Also when I check these sites and look to see when google last cashed them there is a 404 error) I am wondering if the reason penguin didnt effect me back in April was because the problem links came later??

Am I right in my thinking that these links do need removing to help my site recover? Also is it reasonable to expect the links - theres about 30 of them, to be removed without charge?

If anyone can offer me some guidance I would really appreciate your advice on how to move forward.

Thanks you!