California judge rules early cell phone termination fees illegal

Thu Jul 31, 2008 12:48PM EDT

See Comments (1599)

In one of the most significant legal rulings in the tech industry this year, a Superior Court judge in California has ruled that the practice of charging consumers a fee for ending their cell phone contract early is illegal and violates state law.

The preliminary, tentative judgment orders Sprint Nextel to pay customers $18.2 million in reimbursements and, more importantly, orders Sprint to stop trying to collect another $54.7 million from California customers (some 2 million customers total) who have canceled their contracts but refused or failed to pay the termination fee.

While an appeal is inevitable, the ruling could have massive fallout throughout the industry. Without the threat of levying early termination fees, the cellular carriers lose the power that's enabled them to lock customers into contracts for multiple years at a time. And while those contracts can be heinously long, they also let the carriers offer cell phone hardware at reduced (subsidized) prices. AT&T's two-year contract is the only reason the iPhone 3G costs $199. If subsidies vanish, what happens to hardware lock-in? Could an era of expensive, but unlocked, hardware be just around the corner? It's highly probable.

Of course, the carriers aren't going to take this lying down. Early termination fees are seen as critical to business, so carriers are expected to look for ways to reclassify the fees (such as by calling them "rates," part of the arcane set of laws that covers the telecommunications industry). The industry is also pushing for the federal government to step in and claim oversight over the early termination fee issue, which would invalidate any state ruling. The FCC is generally more tolerant of such fees, though Chairman Kevin Martin has proposed a plan whereby the fees are decreased the closer you are to the end of your contract.

The FCC may also buy the argument that, since carriers are nationally based (and consumers can use their phones anywhere in the country), that a single policy should apply across the nation, rather than creating a patchwork of legislation that could lead to confusion and chaos caused by having 50 different policies.

Is the early termination fee dead? Not yet, but it's looking a little haggard.

LINK: Sprint early termination fees are illegal, judge rules

Comments on California judge rules early cell phone termination fees illegal

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  • 1586 Posted by karajian11 on Thu Sep 3, 2009 4:46PM EDT Report Abuse

    i think if your service is so bad that you are unsatisfied, then sure. i would say you should def. be able to cancel your service without a penalty. besides.these companies make enough money as it is. why make us pay because you suck at customer service or better yet.....RECEPTION

  • 1587 Posted by alcamien@sbcglobal.net on Thu Sep 3, 2009 2:49PM EDT Report Abuse

    many of these arguments about phone prices going up are the same old arguments att used when they were forced to let people buy the phone(s) of their choice. back when i was a kid, we "rented" our phone. of course every year or so we bought the same phone again. people can buy phones off the shelf now--they just have to use a particular carrier. truth be told probably all one needs to do is switch the sim card from one phone to another. a phone sold one carrier will not hurt the lines of a different carrier--this is just another argument used by att in the old days. i think this is a ruling that is long overdue. question is when will the fcc fix things or will the fcc leave it up to the states to take care of business. perhaps things will improve all around for consumer in this area and others when Mr. Obama takes office.

  • 1588 Posted by orchveve on Thu Sep 3, 2009 7:46PM EDT Report Abuse

    Early termination fees should die a quick death. You're better off paying more for hardware but being able to switch providers at your leisure. Currently, AT&T wants me to pay early termination fees when I was virtually forced to switch when I couldn't get a signal in my home. Mind you, this is after going back and forth with customer and tech support for several months. I'm with "karajian11". If you can't provide the service, don't charge an early termination fee otherwise you're just fleecing the consumer.

  • 1589 Posted by courtneyc2712 on Thu Sep 3, 2009 3:30PM EDT Report Abuse

    All cell phones comp. need to get rid of that early fee that is BS... I have t-Mobile and i want to cancel but they told me that i have to pay $200.00 that is crazy! The reason that i want to cancel is becasue they have ----- y service and my phone is always serching for service! So now i have to pay 65$ a month for a phone that works part time! BS No one should go with TMOBILE!!!!!

  • 1590 Posted by bandit810 on Thu Sep 3, 2009 3:02PM EDT Report Abuse

    I think the federal government needs to step in and stop this rip off nationwide I have gotten bit about 3 times now Nextel/Sprint 200.00 plus tax per line to terminate the lines over and over I was charged plus the taxes, they said if I did not pay I would be put in the credit bureau so, for poor service I ended up paying 600 plus tax for to get out of the contract. They say the give the phone at a low price to start, they give nothing phones are cheap and what they give off for contract is 50.00 this crap of a judge ruling in California should be all states period is this we the people and United States HELLO

  • 1591 Posted by abgershaw on Thu Sep 3, 2009 2:44PM EDT Report Abuse

    This is why I do prepaid only and will never do a contract. Until these exorbitant rates and early termination fees disappear, I will not do such a thing. Buyer beware. Read those contracts carefully. If it sounds objectionable, don't do it. And if the contract is so darn complicated that you have a difficult time understanding it, then that's probably not a good sign either. Cell phones are very expensive in the US. Part of the reason is that the real estate to put the cell phone towers is apparently very expensive. I hear that in Europe and especially in Africa, cell phone service is comparatively cheap and prepaid deals are more competitive.

  • 1592 Posted by softwareautomation on Thu Sep 3, 2009 9:31PM EDT Report Abuse

    When your contract is up, Im ready to sell you a cell phone and plan. Jaccard.ACNRep.com The termination Fee makes it hard to sell people a phone they want as technology changes so fast.

  • 1593 Posted by heavnsntmi on Thu Sep 3, 2009 4:17PM EDT Report Abuse

    Ok,GREAT!, early cell phone contracts are illegal BUT what about the phone,cable,and internet contracts. They ALL have early termination fees also and let's face it, more and more people are not being able to keep these services and now they have to choose between food on the table or early termination fees because there's not enough money to go around. Shouldn't these companies be penalized too? How do we go about using this result to stop these other companies from charging these fees?

  • 1594 Posted by e.lieb89 on Tue Aug 11, 2009 12:16PM EDT Report Abuse

    ummm... if the early termination fee is written into the contract it isnt a violation of law. you signed thus you are liable... as much as i dont like it that ruling WILL be overturned by the fed(remember that the government is in the pockets of the central banking system. whats good for at&t is good for them.)

  • 1595 Posted by maddiepsd on Wed Aug 12, 2009 12:07PM EDT Report Abuse

    Does this only apply to phone carriers in California?

  • 1596 Posted by smithbrawncs on Sat Aug 29, 2009 3:21AM EDT Report Abuse

    You visit cellswapper.com they provide facilities to Swap out of your cell phone plan without paying the termination fees. Sell your phone contract and save your contract termination fee. Get latest phones with exclusive short-term contracts.

  • 1597 Posted by lorelei.ranney on Wed Sep 9, 2009 5:07PM EDT Report Abuse

    this is not stupid..if one has been a loyal customer paying on time. the phone co. should graciously let them terminate after so many months. many times i have ran out of money to pay and needed to terminate, only to be charged heinously for trying. life isnt always smooth, and money doesnt flow all the time, regardless of what one tries to fool the masses into believing. thank you for passing this bill...squash the other hidden fees that will pop up to make up for this ruling...lorelei ranney

  • 1598 Posted by bballking765 on Sat Sep 26, 2009 8:11PM EDT Report Abuse

    For all those in disagreement with the judges ruling, let me ask you a question. If i terminate my contract with Verizon and I get charge $175.00 and go and buy and I-phone 3G for $200, thats already $400, which is what it would cost to buy an open hardware phone anyways. I personally believe the whole cell phone industry needs to be rebuilt because it is not ETF that are illegal. I mean the ETF cause a customer to be in a contract for ever!!! Broke phone, get a replacement, new contract for 2 years, that should be illegal. And if your on a family plan, forget about it you'll never get out of it w/o paying the ETF.

  • 1599 Posted by sutercarolyn on Wed Sep 30, 2009 10:38PM EDT Report Abuse

    the law is great but they still demand and they put it on your credit report and you sent them the notice and they say so that ruling is fake so what do i do now?

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