California judge rules early cell phone termination fees illegal

Thu Jul 31, 2008 12:48PM EDT

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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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  • 66 Posted by nfgrls on Thu Sep 3, 2009 7:36PM EDT Report Abuse

    I agree if you sign the contract you should stick with it but for people like me who get a new carrier and it has horrible service at my home and at my job I can now switch instead of waiting another year and a half.

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

    I dont' have a cell phone, but I was screwed pretty recently on my Clearwire Internet access package when it turned out their modem was broken. They wanted me to pay $165 to cancel my account because I have a year left of my two-year contract. Never mind that I've had a horrible wireless signal for the past year, and never mind that their techs admitted they saw that, too, in my user history. If they extend this to Internet carriers as well as cell phones, I won't complain.

  • 68 Posted by reneeolah on Thu Sep 3, 2009 8:36PM EDT Report Abuse

    Cool! Good for competition. No one has to sign a contract for a land line or with an electric company. Consumers get raped by cell phone providers. I rather pay the money for their (cheaply made) phones than be tied into a contract with a company.

  • 69 Posted by jct1967 on Thu Sep 3, 2009 4:31PM EDT Report Abuse

    Good, go ahead and do away with the early termination fee. Hopefully it will price the whiner, dead-beat class of consumner out of the new phone market. They can now carry around a beat-up, 5 year old, out-of-date phone and complain about why it now costs $650.00 for a new one. The common idiot in this country will never understand the benfit of making and honoring a term committment--the same group of morons who are defaulting on mortgages they couldn't afford in the first place. You guys are about as sharp as a box of marbles.

  • 70 Posted by gnispoh on Thu Sep 3, 2009 4:10PM EDT Report Abuse

    I think it's great that someone has stepped on the toes of the all mighty cell phone service industry! It is about time. Just as in the manner of the cell phone industry priorly being able to hold you hostage for your cell phone number. That was utterly ridiculous. Someone should further investigate their past management of over lapping charges and fees pertaining to renewing contracts and contract changes, double charges and company equipment failure that has cost its own consumers great amount of time and money. I am not agreeing with breaking written contracts but there should be something done to help protect the public from costs charged by conglomerate money gluts!.

  • 71 Posted by enunezjr4 on Thu Sep 3, 2009 3:55PM EDT Report Abuse

    It's in the contract how much it will cost if you terminate early. It's not like they try to hide the fact that you will be charged extra. In the case about AT&T and Cingular, I agree that we should have an opt out clause if the company changes ownership. As already stated, the contract allows us to purchase phones at a much cheaper rate than what it would normally cost. Imagine how much it will run you to purchase a phone and then pay to get that same phone wired to work with the company of choice. Frankly, I'd rather just pay the contract for a couple of years.

  • 72 Posted by caliguy_30 on Thu Sep 3, 2009 3:16PM EDT Report Abuse

    It is NOT abusrb as one of the poster said. Yes when you sign your name on a contract you agree of the terms of the contract. But when a cell Co tells you you got 1,000 minutes for 39.99 they don't tell you about the state tax, the federal tax, the 911 surcharge tax the 911 recuperation tax, the inter state tax and finally the sales tax. Yeah your 39.99 is now 50 bucks plus all the roam charge, the over the limit charge, the text message received charge ... yeah it is so unfair to the cell C.o huh? What they sell you is NEVER what they tell you ... same as insurance Co. THEY too need to be taken down.

  • 73 Posted by whtknght32 on Thu Sep 3, 2009 10:45PM EDT Report Abuse

    I love this & hope it sticks. Yes everyone knows about these fee's when they sign a contract but from my experience the company doesnt always honor their end. Not only that, these fee's are extremely high & ridiculous. I had a phone co. not give me the plan i was wanting & was charged fee's i was not expecting so i refused to pay them. They then canceled my service & charged me a sum that was way overflated. Its about time something was done.

  • 76 Posted by sheinsius on Thu Sep 3, 2009 9:18PM EDT Report Abuse

    Why is this all about sprint??? Verizon charged me a fee...Dont I get money back from them??

  • 77 Posted by irishgran316 on Thu Sep 3, 2009 4:25PM EDT Report Abuse

    We had the T-Mobile family plan when my husband died last year. I could no longer afford the plan so I tried to cancel. They wanted $800.00 early termination fee. They drove me crazy constantly calling me on my land line and asking for my husband to try and collect what they called a bad debt. One day a girl called and asked for my husband, I told her he died, she said but I have to talk to him he owes us $800 dollars, I totally lost it. Finally after months and months of this a man in the collection department took care of it. Exactly one year later, the same month my husband had died, I started getting calls again. I wonder if this is ever going to be over.

  • 78 Posted by buffybills22 on Thu Sep 3, 2009 3:15PM EDT Report Abuse

    I think this is great. If the consumer was happy with the product then they wouldn't be ending their contract early. All to often people get in contracts not reading the fine print which many times have hidden stipulations. This ruling helps the consumer to get what they want and encourages the provider to give their customer all that is promised and asked for.

  • 79 Posted by larryadams143 on Thu Sep 3, 2009 4:56PM EDT Report Abuse

    Is this gonna be nation wide? I hope!!! What happen is these companies get you stuck in a plan and keep you there. Even if you switch plans, buy a new phone they extend you for another year or two... I dont wanna mention any specific one...AHEM! T-Mobile. This is really a problem that has needed to be addressed a long time ago.

  • 80 Posted by turfmantommyz on Thu Sep 3, 2009 10:23PM EDT Report Abuse

    It's absolutely amazing how little people in this country understand economics. First of all, there already are many places to buy cellphones off the shelf and buy service without a minimum time commitment. The companies can buy the phones from Nokia, Motorola, LG etc far cheaper in bulk than we consumers can. You chose to get that free phone because you signed the agreement. No one screwed anyone. It's absolutely no wonder people think judges and politicians are going to get them the infamous "free lunch" which even now, in the age of Obama, still does not exist.

  • 81 Posted by aherrtx on Thu Sep 3, 2009 2:47PM EDT Report Abuse

    i dont mind the termination fee, what bothers me is that if i change antything two years get added!!!!!!!!!!! the termination fee helps us i tell u. Sometimes people see that they can save money and they fall in love. Read the fine print people.

  • 82 Posted by cbondswashington on Thu Sep 3, 2009 3:20PM EDT Report Abuse

    I AGREE THAT ONCE A PERSON GETS INTO A CONTRACT WITH A CELL PHONE COMPANY AND THE SERVICE IS LOUSY, THEY SHOULD BE ABLE TO OPT OUT WITHOUT OCCURRING ANY KIND OF FEES OR CHARGES. IT IS NOT THE CONSUMERS FAULT THAT THE COMPANY IS LOUSY OR FALL SHORT OF THEIR EXPECTATIONS. I, TOO, ONCE HAD TO LEAVE A CELL PHONE COMPANY BECAUSE IT PUT MY LIFE IN DANGER WHEN I WAS TRYING TO CALL 911 AND THE CALL KEPT GETTING DROPPED.

  • 83 Posted by carminp14 on Thu Sep 3, 2009 3:18PM EDT Report Abuse

    This is a fantastic decision for consumer's. Hope it could be apply to all the USA territory. Besides this cancellation fees, there are other fees that cell phone companies apply like if you make a payment at their stores to a service representative you have to pay besides your amount due a service charge that goes over $6.00 thru 7:00 dollars extra. Is this fair for the consumer? This means that you pay a fee for make a payment of your balance. I don't understand this.

  • 84 Posted by rpetri on Thu Sep 3, 2009 8:53PM EDT Report Abuse

    Be careful what you wish for...I don't think the phone companies are just going to lie down and say oh well to millions of dollars in fee income. They will get passed onto the consumer and this will only benefit those who do not honor there contract. Any time there is new regulation or rulings about how companies can do business it's the consumer who ultimately pays...

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