Those two-year mobile phone contracts we all signed for so long became a relic of the past pretty quickly over the last two years, with national providers all abandoning ship. T-Mobile moved to “contract freedom” almost two years ago now, and has since then continued to make a big deal over the fact that their users are neither locked into time-locked agreements nor face old-school high data overage fees.
But all that “freedom” still comes with a pretty hefty price, a group of consumer advocates now argue, and isn’t exactly freedom at all.
That group of organizations has filed complaints with the New York Attorney General’s office, as well as with the Consumer Financial Protection Bureau. The advocates — including the Consumer Federation of California; Change to Win, a group of labor unions that together represent more than 5 million workers; and several organizations that work to support the interests of minority groups — say that T-Mobile’s ads are misleading and that the carrier is, effectively, locking consumers in.
In the complaint to the CFPB (PDF), the groups accuse T-Mobile’s “no contract” marketing of being “misleading because a customer’s cancellation of his wireless service before two years makes the amount remaining on the [Equipment Installment Plan] immediately due,” and because that fee is even larger than the early termination fees that old-style contracts would usually charge.
Here’s the thing: mobile companies used to sell you an expensive phone, like a new iPhone or Samsung Galaxy model, up front for a steeply discounted, subsidized fee. You’d pay something like $200 out of pocket for a $700 phone, and it was yours… but you were locked into a two-year service contract with your carrier, and faced a hefty early termination fee for jumping ship before the contract expired.
Now, technically, you don’t sign any service contracts. But with most providers you do still buy that expensive new phone without paying $600 or $700 up front. You just do it in a two-year installment plan, paying $20 or $25 per month over two years until the full cost of the device is paid off. And while you are free to jump from your carrier at any time without incurring an ETF, you do have to pay off the full balance of the phone price should you do so. Which can, depending at which point you go, still be on the order of several hundred dollars.
According to a research report (PDF) the groups published, a whopping 91% of T-Mobile customers participate in the company’s installment purchase plan. While you can bring your own compatible device with you to T-Mobile instead of buying one on their installment plan, that’s clearly not the norm.
Worse, the groups contend: not only do many consumers not necessarily realize that they are responsible for the balance on the EIP if they cancel, but also T-Mobile’s debt collection practices are abusive. The organizations collected nearly 1,300 consumer complaints, from 2013 to 2015, saying that T-Mobile gave little or no notice before referring debts to collections or that incorrect information was sent to those collections agencies.
All of these things T-Mobile does add up to functionally the same effect as a two-year contract would, the complainants claim. Given that, they argue, T-Mobile’s advertising — which repeatedly repeats claims like “no annual service contract” and “no more 2-year service contract” — is misleading.
The complaint to the CFPB argues that T-Mobile’s advertising is deceptive under the terms of the 2010 Dodd-Frank act because the EIP is a financial product of the type covered by that rule. New York Attorney General Eric Schneiderman’s office is also investigating the complaints.
In a statement, Susan Harley, a deputy director for Public Citizen, said that the report, “raises serious questions and should be seen by government agencies like the U.S. Consumer Financial Protection Bureau, the mission of which is to shield consumers from unfair, deceptive or abusive practices.”
“These questions should not be ignored by government watchdog agencies,” Harley added. “This report should be a wake-up call to regulators and customers alike. It’s time to dig into these charges to make sure that T-Mobile’s more than 61 million cell customers are not being taken advantage of.”
When USA Today reported about the complaint, T-Mobile CEO John Legere — never lacking in personality — fired back a tweet that “we stand by our ads,” and “we haven’t been accused of false advertising by any regulatory body.”
CORRECTION: An earlier version of this story incorrectly named Public Citizen as one of the signers of the complaints to the CFPB and NY state attorney general. While Public Citizen commented in support of the groups, they did not participate in the complaint.