Published in News

Cell phone Contract Termination Fees to be reduced

by on22 May 2008


FCC offers help for consumers

The Associated Press has reported that the Federal Communications Commission (FCC) is negotiating with cell phone carriers to help eliminate costly early termination fees that are charged when a consumer cancels a contract with a U.S. wireless company.

Mobile phone companies frequently charge a termination penalty fee of $175 (and sometimes more) when consumers elect to terminate their service contracts with a mobile phone carrier. The FCC has crafted a proposal where the wireless carriers would allow consumers to cancel their service contract without a penalty during the first 30 days after they have entered into the service contract or up to 10 days from when they receive their initial cell phone bill.

The AP also reported that the FCC proposal caps termination fees and reduces them on a pro rata basis, based on the term of the initial contract and the length of the contract amount remaining. The FCC plan mitigates the severity of the termination fees, but does not eliminate them entirely, according to insiders wishing to remain anonymous. As a trade-off for the FCC proposal the cell phone carriers will be let “off the hook” for liability in State courts where they are being sued by angry consumers for billions of dollars.

The authority of the States to regulate such charges would be taken away. The wireless industry is worried about a number of long-running, class-action lawsuits in various State courts. One lawsuit against Sprint Nextel in California is in progress, and plaintiffs in a New York case sent to arbitration are asking for $1 billion in refunds.

Consumers who have been required to pay early termination fees have sounded off.  "It's ridiculous," said Ric Causey of Allen, Texas, who paid $600 in termination fees to Sprint on contracts for three cell phones after he canceled service because he complained of poor reception around Dallas, Texas.

He went on, "I understand the fine print, but I ended up paying $200 per phone just to switch service to another carrier. Causey said he complained, but got nowhere. He was afraid not to pay the fees because of the effect it might have on his credit rating.  "I never got any satisfaction," he said. "I figured I'd deal with it later, but I never got reimbursed."

Wireless companies argue that the cancellation fees are needed to help defray the cost of cell phones, which are actually paid for by customers entering into long-term service contracts. Consumer groups counter this, saying the fees are unreasonable and punitive and are really meant to discourage customers from switching wireless providers.

U.S. Senators, Amy Klobuchar, D-Minn., and Jay Rockefeller, D-W.Va., are co-sponsoring the "Cell Phone Consumer Empowerment Act," a bill that would require prorated fees and a 30-day window for customers to exit a contract. The wireless industry’s proposed response links termination fees to the actual costs incurred by the wireless carrier, but would require the fees to be prorated over the term of the contract. The proposal also would bar wireless companies from charging a termination fee for consumers who change the terms of their contract or simply end on contract period and enter into another.

Last modified on 22 May 2008
Rate this item
(0 votes)