July 6, 2006 – After winning the prerogative to take their cell-phone numbers with them when they switch wireless companies, public-interest groups are challenging another obstacle to consumer choice.
Consumer advocates like the AARP and US Public Interest Research Group say that even though it’s common practice throughout the cell-phone industry, forcing customers to sign one- or two-year contracts and then financially penalizing them if they terminate their service early is illegal under California state consumer protection laws.
Though lawmakers have been slow to pass cell-phone consumer-protection legislation, groups are applauding a recent California superior court’s decision to certify a class-action lawsuit against telecommunications companies for imposing high fees to cancel service.
"It's a very strong case. We strongly believe that the carriers are charging illegal penalties in these early termination fees," AARP attorney Stacy Canan told Inside Bay Area. "We are very encouraged by the fact the court has granted class certification; it could indeed have an impact on this practice."
According to the San Francisco Chronicle, Alameda County Superior Court Judge Ronald Sabraw ruled last month that any consumer who terminated his or her contract with Verizon or Sprint between July 23, 1999 and June 9, 2006 could join the pending lawsuits filed by plaintiffs who were forced to pay $150-200 in penalties after canceling their service.
Lawyers say industry-wide early termination fees unfairly lock consumers into lengthy contracts, discouraging them from moving to another cell-phone service provider.
Plaintiffs allege the companies violated state consumer-protection laws. The national law firm representing the plaintiffs, Lerach Coughlin, said the early termination fees are designed to lock consumers into lengthy contracts that discourage them from moving to another cell-phone service provider.
The AARP is one of several public-interest organizations lobbying for more rights for cell-phone users, vigorously pushing legislation in New York State that would force companies to disclose all hidden fees, provide more accurate coverage maps and permit cancellation of contracts without penalties.
"The California case highlights exactly what we are urging our legislators to do in New York: pass a new law to protect consumers from getting locked into long-term contracts," said Lois Aronstein, AARP New York State director, in a press statement.
According to the Better Business Bureau, the cell-phone industry continues to rank in the top five for consumer grievances, coming in at Number One in 2005 with 31,671 complaints. These included inaccuracy of bills, inadequate customer service and deceptive communication about contract terms.
The Federal Communications Commission also recorded nearly 26,000 complaints about wireless phone companies in 2005, including those questioning practices concerning billing rates, surcharges and taxes, false advertising and companies’ right to terminate service before the end of a contract.
A coalition of 35 state attorneys general filed an amicus brief this spring asking the US Supreme Court to review the right of states to protect consumers from unfair cell phone contracts.
AARP says that it wants better protections for seniors who often purchase cell phones to use in emergencies. "Many people on fixed incomes are finding themselves locked into unaffordable contracts because the amount billed is frequently higher than the advertised price," Aronstein said. "Something's got to be done to protect consumers."
But the consumer-protection groups face an uphill battle. Last month, the New York State Senate failed to vote on the Wireless Telephone Consumer Protection Act, instead passing legislation to merely study the issue, earning criticism from consumer groups that accused the lawmakers of bowing to industry pressure.
The state assembly, however, passed a comprehensive bill in June by a near-unanimous vote that would permit consumers to cancel their contract without penalty after the first monthly bill, in addition to establishing wireless fair-practices and disclosure requirements. Groups say the legislation would constitute the strongest cell-phone consumer protections in the country.
Joining consumer advocates in the fight to protect cell-phone users is a coalition of 35 state attorneys general who filed an amicus brief this spring asking the US Supreme Court to review the right of states to protect consumers from unfair cell phone contracts.
The request follows an Eighth Circuit Court of Appeals ruling that overturned a Minnesota statute establishing consumer protections for cell-phone users. The court said the statute effectively regulated the rates of cell-phone service, a violation of federal law. The Minnesota law had been passed in the wake of consumer complaints that Verizon changed consumers’ cell-phone agreements without their knowledge or consent, then charged them $150 when they attempted to terminate the contract.
Some California lawmakers have also been pushing a Telecommunications Consumers Bill of Rights to establish basic rules to protect consumers; however, wireless companies have successfully blocked passage of this measure so far, arguing that state regulation will hurt the wireless industry and cost consumers.
"Competition means that if you don't do the right thing by consumers, you lose them," Verizon spokesperson Michael Bagley told the LA Times in 2004. "So in our view, there is no reason for these rules. They don't solve anything and they don't make the market more efficient."
But Verizon may be beginning to bow slightly to public pressure about service contracts. Last week, the company announced it would prorate termination fees so that a customer toward the end of his or her contract would not have to pay the same price -- $175 – as someone canceling service just weeks into the deal.
Consumer advocates hope other companies will follow.
"Early-termination fees are anti-competitive and a big barrier for people who want to switch carriers because they want better or cheaper service," Jeannine Kenney, a policy analyst for Consumers Union told the Charlotte Observer. "This move is being very responsive to consumers' demands."