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
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47 Posted by longtocreate on Thu Sep 3, 2009 6:56PM EDT Report Abuse
They need to completely do away with those fees. They catch you when get a free or discounted phone. You sign a two year plan but the phones are not designed or built to last two years and you have to buy a new phone prior to the contract ending, this way they try to make you a perpetual customer: get another new phone with a two year contract. It is crap. If they make this illegal the bottom line is you may have to pay more for a phone but it will force the industry to build better and longer lasting hardware, Otherwise consumers will go with the cheaper, easliy disposable phones.
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48 Posted by damonmail on Thu Sep 3, 2009 3:34PM EDT Report Abuse
It is about time. I can understand the carrier charging an early termination fee if the they subsidize your phone. However, for customers like me who buy their GSM phones unlocked the early termination fee should never apply. Whenever I make any change to my service (get an unlimited data plan or unlimited messaging plan) my carrier always tells me that I have to sign up for an additional 2 -year contract to get the special offer (an offer so special that all of the other carriers offer it) even though I bought my own phone and did not receive a subsidy. Fortunately I have not done so but If I ever do you can bet that I will NEVER pay the termination fee.
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49 Posted by rlombo7 on Thu Sep 3, 2009 8:43PM EDT Report Abuse
This is a little concerning to me though. Don't you think that if the phone companies lose their leverage on the contract, they will figure out someway to get their revenue back? Look at what some of the airlines are doing by charging for luggage. How would you like to go from paying $39.99/month for 250 minutes (just an example) to $49 or 59 per month for the same service? I'd rather pay the more reasonable monthly rate. We are adults and we know what we're getting into when we sign a contract. I'm a little worried.
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50 Posted by eywriter on Thu Sep 3, 2009 3:57PM EDT Report Abuse
When the issue was a land line and the choice was what long distance carrier to use, consumers could change carriers as often as they wanted with no hassle and no charge. Current home phone service allows non-fee changes also--none of this locked-in-two-year agreements. Why not allow the cellular consumer a similar freedom of choice without fees from the cellular companies?
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51 Posted by guidedbyhislight on Thu Sep 3, 2009 4:14PM EDT Report Abuse
I also signed on when it was cingular and I just recently canceled my plan and wa----- with a bill of over 1000 dollars, because I had a final bill and 4 phones on my plan. I signed with cinguliar not ATT they will not get any money from me other then the final bill amount. I will disput the fees. I could see a small cancelation fee but not 175 dollars per phone. come on get real I'm glad they are beginning to rule it illegal.
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52 Posted by nk_kimjong on Thu Sep 3, 2009 7:39PM EDT Report Abuse
I have no issue with termination fees if I accept a subsidized phone in return, but in theory the fee should diminish over the contract term. Basically, as such, you buy the phone on credit and pay it off over the life of the contract, but if you terminate the contract you still owe the balance due. What gets me is that now if I want to switch companies but I have my own phone, the new company wants me to sign up for 2 years and pay a fee even when I dont want their equipment, so basically I just stay month to month with Cingular/ATT even though they suck.
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53 Posted by esper_v on Thu Sep 3, 2009 3:56PM EDT Report Abuse
Yes they are a business and want to make money any way they can, thats to be expected, it doesn't mean consumers are not to blame... What do people expect when you sign a contract and don't read it first or don't care... I bought my phone full price and buy minuets as I need them and never have to worry about any hidden fees or contracts.
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54 Posted by tomsronly on Thu Sep 3, 2009 10:16PM EDT Report Abuse
I think this is great for the consumer. We have been held hostage by these phone contracts for too long. It's about time someone has the guts to do something about it. The only time I would agree with the two year contract is the initial sign up. After that we should be on our own to change and choose. This automatic renewal at contract end is just railroading us into another contract. That's bull. This is the United States of America, where freedom is not always free. The judge gets an "Atta Boy" from me. Lets hope it happens.
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55 Posted by mixpac72 on Thu Sep 3, 2009 7:22PM EDT Report Abuse
Would the same ruling have an eventual fallout on early cancellation fees for terminating internet and TV satellite service? If so I'm all for it, Give the consumer the choice of locking in a contract for a lower rate, or paying a little more for the freedom to cancel. Perhaps it'll inspire better service in the long run.
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56 Posted by dmcerqua on Thu Sep 3, 2009 3:45PM EDT Report Abuse
I'm on both sides of this fence. I think that an early termination fee is acceptable because the consumers get the phones at a discounted rate. On the other hand I think it is a bit shady for carriers to tack on additional years to a contract when you add/remove a feature. What does adding texting have to do with the amount of time you have a contract? And they aren't always up front about when another year or two get tacked on.I think that the Early Termination Fee amount should decrease the closer you are the the end of your contract. Only makes sense right?
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57 Posted by csomgr on Thu Sep 3, 2009 3:31PM EDT Report Abuse
This will never happen. Once you sign a contract, ANY contract, it's binding. If you don't want to sign a contract, then go to the nearest drug store and buy a TRAC phone. But just keep in mind....you get what you pay for.
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58 Posted by k8tdyd on Thu Sep 3, 2009 4:46PM EDT Report Abuse
1st. wmtyrnacz- I'm from California, and moved up to Canada when I married a Canadian. Those cancellation fees happen up here too. 2nd. keybowvio- I think a judgment like this means that by CA law a cancellation fee can't be included in the contract, and because the contract violates the law it becomes null and void. Why a decision like this took so long I don't know, but I'm happy about it.
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59 Posted by hrynutsac on Thu Sep 3, 2009 4:21PM EDT Report Abuse
This is great why should I be stuck in a contrcat with a carrier such as SPRINT who has horrible customer service, lies to me once a month and can't keep my bill straight. I didnt sign on for that, listen to my youtube recording of them admitting they do not have to provide customer service as part of a service agreerment. It will put pressure on providers to do a better job or customers can go elsewhere without a penalty. I would like to shake the judges hand and thank him for looking out for someone other than big businesses.
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60 Posted by pro_internet on Thu Sep 3, 2009 8:20PM EDT Report Abuse
The phone companies want US to honor the term of service contract with them. But our complaints fall on unsympathetic ears when we tell them service doesn't work in our area. Maybe this action will force the phone companies to take some responsiblity for their crappy service and actually provide what they promise.. maybe show one less commercial and put up an extra transmission tower. Can You Hear Me Now? - translation- hello....? hello...?
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61 Posted by winterman93 on Thu Sep 3, 2009 10:47PM EDT Report Abuse
ABSURD! If you sign your name on the contract you agree to the early termination fee. so what goes on in a bedroom is not the matter of the state, but what goes into a private contract is? Not that I'm for the early termination fees, I def. think the us will head the direction of the rest of the world in terms of unlocked hardware, but this is not right. blah blah blah waah waah waah...so...are you an ATT or Spring cell phone salesman? hahaha...deal with it!
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62 Posted by christinecuozzo on Thu Sep 3, 2009 3:24PM EDT Report Abuse
If when your contract ends you dont take the subsidized new phone, you can go month to month and not subject yourself to this anyway.
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63 Posted by mywebgrocer on Thu Sep 3, 2009 7:32PM EDT Report Abuse
To the guy who said "if you sign the contract ..." i agree with that to a certain extent but not even the carrier agrees to follow the terms of the contract. I you actually read it, the contract says that they reserve the right to change anything in the contract at any time without any notice. Does that seem fair to you? Thank god someone has finally ruled in favor of the consumer, maybe now we'll started to be treated like people instead of dollar signs!
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64 Posted by andraisr on Thu Sep 3, 2009 2:53PM EDT Report Abuse
Yea!! Does this mean I will eventually get my $500.00 back from Verizon, that they robbed me of for service for 2 cell phones that had lousy service for in my area? Those crooks!!!!
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65 Posted by kikcope on Thu Sep 3, 2009 4:50PM EDT Report Abuse
Another example of the breakdown of American values. When you sign a contract, you are giving your word that you will fulfill the contract. If you don't like the services, don't sign a contract. More and more people are refusing to take responsibility for their actions these days. Its the movement from personal responsibility to blame-the-other-guy thinking that is causing the degeneration of American society.
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46 Posted by bjwarshaw2 on Thu Sep 3, 2009 3:08PM EDT Report Abuse
I hate the early term fees, too, but honestly--is it that unfair of them to charge them when they tell you up-front and subsidize expensive hardware? If the cell company gives you a $200 bargain, why shouldn't they want something in return? If there's something that needs to be regulated in regards to early termination, it's consumer rights when it comes to poor service. The comm companies have way too much power in the arena.