A California Superior Court judge has ruled that cellphone early termination fees are ILLEGAL and that Sprint must pay $18.2 M as part of a class action lawsuit. Of course, the decision could be appealed, but in the meantime…. (drum roll, please) the judge ordered Sprint to stop trying to collect the fees from customers in California who were refusing to pay them!
According to the lawsuit, this ruling will affect about 2 million Californians, and may affect other, similar lawsuits that are pending in other states, says the San Jose Mercury News.
“We are disappointed,” Sprint Nextel spokesman Matthew Sullivan told the paper.
Consumer’s Union (you know them as the publisher of Consumer Reports) were pleased with the ruling.
“This is a huge victory for consumers,” Chris Murray, senior legal counsel for Consumers Union said in a press release, but expressed concern that the FCC might step in and start regulating the fees.
“Not only did this case generate an extensive record showing that these fees are not really used to subsidize wireless phones, but are instead simply used to lock consumers into contracts. Contract law says that’s illegal. Let’s hope the FCC doesn’t turn around and give the wireless industry a get out of court free card.”
We’re looking forward to seeing how this affects our readers in California, so if you’re battling Sprint over an ETF and you live in CA, send your story to tips@consumerist.com. Let us know how they’re reacting to this ruling!
Sprint loses early termination fee case in California [Consumers Union]
Sprint early termination fees are illegal, judge rules [Mercury News] (Thanks, Gilbert!)
(Photo: smcgee )
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Oh for crying out loud, there is a difference between bulk purchases, and locking a subscriber into a contract to subsidize the cost of the radio handset (which is all a cellular phone really is)
If you don’t understand the basic concepts of finance, or law, go buy a Walmart special.
Once again, The Consumerist just posts crap articles for revenue via hits.
Hey, where are my rights against The Consumerist? Given it’s current background, I should have a case, no?
Correct, I have none.
Quit your bitching, and go look up contract law.
Does anybody here understand the industry of wireless roaming contracts?
Whether you know it or not, your carrier has vendors that lease the lines.
And if you’re roaming on EVDO, that means crap.
Sometimes I roam on EVDO in *Central America,* and sometime I don’t.
If you have no problem hanging out on rooftops, more power to you. The fact remains, your personal experiences with cell phone service with respect to signal strentgh are irrelevant, unless you want a tower in your front/back yard.
@XianZhuXuande: You must have misunderstood. I’m talking about perception- if domestic-market phones rise in price, then imported phones won’t seem so expensive in comparison, not that imported phones will get cheaper.
@acquaroyale: No, the only reason to avoid Verizon/Sprint is because the providers are crap- the technology is quite fine (look where Japan’s taking it).
@balthisar: Actually, you are trying to connect your personal opinion with California law. What’s the connection? None.
Blame the victim types like yourself never quite connect the dots. You can make the same argument for the corporations. Stop whining, big companies. Follow the law and you won’t lose cases. Don’t ask us to solve your business problems if you can’t hire a good lawyer to figure out how to operate without breaking the law.
What’s that, Mr. Blame the Victim? It’s too confusing for the big rich corporations to follow the law? It’s too hard for companies with teams of lawyers to write legal contracts? Whaaaaaaaat? Boooo hoooo, the big corporations are so sad? Booo hoo, we better run to Washington and make it easier for the big rich companies to operate – it’s just so hard for them. Waaaah, big company, waaaaaah.
I mean, you actually mention the mortgage crisis, LOL and forget to mention that the companies knowingly lent money to millions of people who had shoddy credit and no documentation loans? WAAAAAAAH, poor companies who gave out risky loans!! It isn’t fair that their business plan of lending money to morons didn’t work!!!!!
I CRY BITTER TEARS FOR CORPORATE AMERICA.
You blame the consumer for not reading the contract but not the company that wrote it?
It’s the same difference.
@AlexPDL: “The PLaintiff’s lawyers took the risk and invested time and money”
Because they saw this as being potentially rewarding in a fiscal sense.
“On top of it all, whatever fees the plaintiff’s attorneys got have to be approved by the judge.”
Who is in all likelihood, also a lawyer. This is much like the arguments for mandatory binding arbitration.
“It amazes me that no matter how great the outcome is people always have it out for the attorney.”
Then, as a representative of the species, do something about it. Show us stories about lawyers refusing to take their big chunk of a settlement because the CLIENT can better use the money or refusing to pursue ludicrous suits. And explain why PAID attorneys defend the truly guilty?
You will have a difficult time defending lawyers in general as human beings let alone misunderstood victims of misguided public opinion.
I would have submitted this sooner but I wanted my attorney to make sure it would not be construed as a ‘personal attack.’
My post above is not to incite anyone, just to argue that in cases like this, the only ones who make out are the attorneys.
It’s good to see ETFs go, these small hunks of plastic were costing the phone company $20 bucks more than they were offering with the 2 year contract.
Not to mention requiring a 2 year contract with the iphone.. outright profit for them, no subsidizing at all.
ETF-related question:
My Sprint contract has an “expiration date” of August 3rd, 2008. Does this mean if I go to another carrier on August 3rd and port my number, my Sprint account is canceled without an ETF? Or do I have to wait until August 4th?
Do I have to affirmatively tell Sprint that I do not want my contract renewed? They can’t legally renew it without my actual consent, right?
@InfiniTrent: I’d much rather pay the full cost of my phone than get stuck in a two year agreement. Especially an agreement that they like to extend if you make the slightest change to your plan.
Oh, you’d like to add more minutes? We’ll need to extend your plan by another year!
If you can’t afford a $300 phone, then buy the one you CAN afford.
If anything, it might be nice to have a choice in the matter. If someone wants to sign a two year agreement in exchange for $150 off of a phone, let them. If someone would rather pay full retail on the phone, let them.
Win-win, except for the phone company itself, I suppose.
@twophrasebark: balthisar is absolutely correct in this case. Everybody that wants out of their contract is not a “victim.” Those who don’t receive the service the contract stipulated they would receive (as bathisar mentioned) should be able to avoid a termination fee. But, as an adult, if you sign a contract, you should expect to honor that contract. People need to start taking some responsibility for their actions.
I’m a sprint-lover. Sorry. In the area I live in (bfe) they are the best.
I said it before, I’ll say it again… buy a phone on E-bay and activate it. If your phone breaks when still in contract, buy one off of ebay and activate it. NEVER GET A PHONE FROM YOUR COMPANY, EVEN IF IT’S FREE! It’ll come with more hassle than it’s worth, with contract extensions. I’d rather pay $60 out of my pocket right now for a phone than to spend another year locked into a contract.
And P.S.- if you buy one of those cheapie free phones when you start a contract with someone, never mind the insurance. It’s crap, and the deductible costs more than the phone… ON EBAY. (Or any other online buying source)
I wonder how far reaching this goes. ETFs don’t just apply to cellphone contracts. Cable companies, electrical providers, and other services often have contracts with early termination fees as well.
@balthisar:
It should be illegal due to inequity in market power. That’s an established legal precedent.
Geez, so much churn for such a simple concept-
Subsidized phone- OK to have contract with ETF. They need to get their money back. Now, what that ETF should be is another matter (flat fee, remaining unpaid value on phone, etc.)
Non-subsidized phone- or “weak” subsidized phone- small or no termination fee.
Something some have not considered is pricing discounts. If somebody buys something in bulk, you give them a discount because you make up the lost margin by volume. So carriers may have to raise their prices because they don’t have the “annuity” of you two year agreement. Also, they will have a huge problem “booking a sale” under GAAP since we can quit at any time.
@henrygates: I have not seen the decision yet, only the write-up, so don’t take this for more than it’s worth. The law is not new — it just enforces an old law against companies that were ignoring it.
Here’s the deal: “penalty clauses” in contracts are illegal as a matter of public policy — you can’t write a contract that says “you agree to mow my lawn, and if you don’t, you have to pay me $1M.” If somebody breaches a contract, then the other side gets their actual damages–what they lost in the deal–but nothing more. Now, it’s possible for both sides to agree, in advance, on what a good approximation of those damages would be, just to avoid an argument later. This approximation is called “liquidated damages,” and is not considered to be a penalty clause.
In this case, it appears that Sprint was saying “Look, we subsidized the phone and had all these other costs,” but the evidence showed that the average subsidy per phone was $14. Since that’s not a good approximation of actual damages, it wasn’t liquidated damages and was a penalty clause.
I have my doubts that this is correct, because Sprint also lost out on all the future profit from that customer — once somebody subscribes, the marginal cost of supporting them is practically nothing. Over a 2-year agreement, a $50/month service contract would mean $1200 in profit; a $200 ETF actually seems pretty fair.
Anyway, if an ETF is not an approximation of actual damages, then it is probably illegal, whether it comes from your cellphone provider or landscaper. You may need to take them to court to convince them, though.
well in these contracts doesn’t the phone company has a way of breaking them with no repercussions. I remember reading a few stories here that the service provider canceled a subscribers contract due to not making money off the guy… he was free roaming too much. if its a two way street then enforce the ETF however with this in mind, they should provide at least half decent service which in this case sprint sucks…
@Voodoopunk: The problem is that most of the customers didn’t sign a contract after the first one. All they did was pay a bill and that was enough alone to claim the signed another contract. Change your plan, and the same thing.
I paid an early termination fee with sprint 2 years ago when I added a line upgraded and extended my contract another 2 years.
They tried somehow found over $1800 of extra charges to put on my bill! I fought the charges, cancelled the 2nd phone and then gladly paid the $250 termiation fee that I signed on for.
I signed the contract so I paid.
They tried this with my wife on her phone but she never extended her contract. We fought that and did not pay.
@audiochick: I hope they don’t – ETF is about the only way they can offer phones for cheap. I’d rather be locked into a phone contract than pay hundreds of dollars to get a new phone if something happens to mine.
@nequam: Exactly right. Sprint got handed their ass in court and I can’t wait for the ripple effect to hit all of the other companies that have been gouging consumers with exorbitant cancellation fees. Grab your ankles, DirecTV and Dish! The party’s over!
Does anyone know if this ruling is phone-only, or does it also affect cable and satellite service?
$200 to terminate the contract, yet when mine ran out, their offer to extend the contract was a $70 service credit with no new phone.
BTW, I’m on T-mobile pay-as-you-go now. I spent $300 on a really nice phone and my airtime charges have been approximately $5.50 for the each of the last 2 months. That’s compared to $40-45 for a typical month on my sprint plan, the cheapest one they offered. Even if my usage were to mirror the heaviest months with sprint, the t-mo-to-go will cost about $28 where sprint would have charged around $60. The phone will pay for itself inside of a year. And I could have saved a lot more if had opted for a used phone or much less flashy model.
Wireless networks should be run by the population. They are a publicly owned entity, and there should be no corporate control of any public space.
They should be able to cell phones, and that’s it. Everything else handled by a union of the public.
@notque: be careful, lest you be branded a pinko.
I partially agree with you. I think the Bandwidth should be owned by the people and leased, allocated, etc. to phone companies for use. They can compete on phones, service plans, etc.
I feel that way about any service with wires. The people (government should own the wires), the companies can then use the wires to offer competing products. This creates a level playing field where all companies can compete and can’t lock each other out by taking advantage of a monopoly in cables.
.
Problem for the ‘Personal Responsibility’ crowd & the Spring Defenders: It’s not a valid binding contract.
Not every contract a company puts in front of you is a valid one. Just because corporate attorneys write something, it’s not necessarily allowed in the United States. For example, you could not contract to rent your kid to someone. That would be evil. ETF provisions are evil.
This has nothing to do with “personal responsibility,” but it’s always nice to hear from those folks, especially since it’s always done with a whiff of superiority. Love ya. Mean it!
.
“@Alipaps:
“My parents called Sprint the day before their contract ended to tell them they would not be renewing the contract.”
Why did they call to tell Sprint that? Do Sprint plans not automatically go month-to-month when the contract expires?
@doctor_cos:
When referring to a Judge you said… “Who is in all likelihood, also a lawyer. This is much like the arguments for mandatory binding arbitration.”
Yes judges are lawyers. No… judges don’t have unbridled discretion to approve settlements. I have no idea what your argument is on mandatory arbitration. Arbitrators are just lawyers and you are right binding arbitration is not a great consumer protection mechanism.
@doctor_cos: “Then, as a representative of the species, do something about it. Show us stories about lawyers refusing to take their big chunk of a settlement because the CLIENT can better use the money or refusing to pursue ludicrous suits. And explain why PAID attorneys defend the truly guilty?”
Wow! Where to start? Why should lawyers always work for free? Do you see every emergency doctor saying uhmmm look I have a family but what the heck its on me. Ludicrous suits are prevented by law, frivolous suits are tossed out. Do some make it through sure. Stories on pro bono success are everywhere. From civil rights to human rights a lot of legal aid gets put out by lawyers, for free.
Defend the truly guilty? It is not a lawyer’s job to determine who is guilty and who is not. Everyone deserves top representation. That is a fundamental right built into our system. It does not happen all the time but representing everyone is a key goal.
Even the “guilty” need representation.
@doctor_cos: “You will have a difficult time defending lawyers in general as human beings let alone misunderstood victims of misguided public opinion.”
Wow OK. Calling lawyers non human? Ghandi was a lawyer, Lincoln was a lawyer…etc.
Im not going to defend every lawyer. That would be silly. The same way you wouldn’t defend every doctor. But I also wouldn’t make blanket assertions about an entire profession.
@Cranky Customer: “ETF provisions are evil.”
Ok Cranky, I’ll bite. I’m having trouble comparing renting my kids with a fee for phone service. What exactly makes ETFs evil?
I’ll agree that tricking people into signing contracts is evil but I knew signing my contract was me agree to pay them X dollars per month for the next 24 months or I’d be breaking the contract. No one made me do it.
@AlexPDL: “No… judges don’t have unbridled discretion to approve settlements.”
Maybe not unbridled, but certainly the bigger part of discretion.
“I have no idea what your argument is on mandatory arbitration.”
The argument would be that the arbitrators are the biggest proponents of arbitration, much like much of the reason people need lawyers is that the laws and procedures are written by…other lawyers.
“Why should lawyers always work for free?”
Why should lawyers get the lion’s share of these settlements? Where do I say lawyers should get nothing?
“Ludicrous suits are prevented by law, frivolous suits are tossed out.”
This would not seem to be the case in recent history. $54 million for a pair of pants…need I say more?
“From civil rights to human rights a lot of legal aid gets put out by lawyers, for free.”
An excellent point.
“It is not a lawyer’s job to determine who is guilty and who is not.”
I fail to see how in good conscience, you could represent some lowlife whose guilt you had direct knowledge of (i.e., a confessed killer who has second thoughts about facing the consequences of their actions).
@doctor_cos: “You will have a difficult time defending lawyers in general as human beings let alone misunderstood victims of misguided public opinion.”
“Calling lawyers non human?”
Only a lawyer would argue that the statement ‘defending lawyers in general as human beings’ is calling them non human. It is an implication, not a definition. (It depends on your interpretation of the word ‘is’
“Ghandi was a lawyer, Lincoln was a lawyer…etc.”
So were Paul Fitzgerald and Irving Kanarek (who represented Manson) and the guys who defended the Enron criminals. Much like any profession, you have the good and bad.
“But I also wouldn’t make blanket assertions about an entire profession.”
Why not? Insurance companies do. About doctors.
Good and salient points on both sides. Please do not take offense, as I intended none and have enjoyed the discussion. Of course, you being an attorney, I expect this is billable
I’m in CA and with sprint. does this mean I can jump ship without a charge? What’s the actual process to do this? I don’t imagine that sprint stores will actually be allowing this when I walk in.
To everybody complaining about how because of this, phone prices will be jacked up to compensate for this lack of income: wouldn’t this cause phone manufacturers to start pricing phones at a more affordable rate? Right now, they can price them however the heck they want because most consumers don’t ever pay that price. All they see is “Retail Price: $999 Price With Contract: $50″
I was recently talking with a friend, and she told me she got her GSM phone, new, without a contract, for $75 including tax and shipping from an overseas company. That was a pretty decent phone (an LG model, looks sorta like the chocolate, not slider though) for only $75. Last time I checked, if you wanted to join AT&T or any carrier and get their CHEAPEST CRAPPIEST phone, without a contract it would cost you somewhere in the neighborhood of $100-200 (free with a 2 year contract of course).
What I see from this ruling is that, if companies don’t charge ETFs, yes the prices of phones will jump, but those inflated prices are sure to come down.
It enthralls me to hear this. When we were originally with Sprint, we had so
many problems with them that we were literally calling in every month to fix
surcharges (charged for SMS messages when we had blocked the service,
“upgraded” to more minutes without anyone on the account ever speaking to a
rep, charged for data — mobile browser, I assume — when that also was
blocked, and various other things, though those three happened repeatedly).
So eventually we said “screw it, we’re switching to [redacted]” and called
to cancel. We’d had their service for nearly three years by this point, so
we were well beyond the range of cancellation fees… or so we thought.
Apparently, in their book all those fixes we made to their errors counted as
“plan changes”, thereby extending our contract to two years from the time of
any individual change (of course, they never notified us of that as they are
supposed to). After about another month of trying to fix this, bashing heads
with CSRs and generally getting nowhere, we ended up cancelling. Of course,
they slapped us with a $1000 charge, which we did not pay. After about a
year of hourly employees being tasked with attempts to collect this fee, we
finally got a call from a CSR with actual ability to look at the history.
Thankfully my father was in the habit of documenting EVERYthing, so we were
able to show where Sprint was at-fault and the charges (and associated late
fees) were removed and we haven’t heard from them since… well, except
their offer of a free year’s worth of service for our trouble. We looked at
the fine print on that. It would have roped us into another contract. This
one was six years. We politely told them to “f— off”.
So what do we do when they’ve sold our “debt” to a collection agency?
Sprint kept changing my contract without my consent a couple of years back, and reupping my time with them in doing so. So I left. Then they said I owed them money, which I refused to pay.
Fast forward a year or two, and a collections agency is demanding the ETF plus interest.
Will this ruling help me? Because that is eating up my credit report, which didn’t need the ding for something so stupid =(