FCC Mulls Deep-Sixing Cell Phone Termination Fees

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The proposal would give cellular phone users a break on the fees carriers charge when users end service before the contract is up. The catch, however, is that the same proposal would also free wireless carriers from being hammered by lawsuits in state court by peeved customers fed up with the excessive charges.

According to the proposal, which is under review by the FCC, the wireless industry would give cell phone users the opportunity to cancel service without any financial penalty for up to 30 days after they sign a contract or until 10 days after the first bill arrives, the Associated Press reported.

The same proposal would also require companies to reduce fees month by month over the course of a contract based on how long the customers have left before the contract expires, the AP reported, quoting an unnamed source. The proposal would not get rid of cancellation fees altogether and would not refund the fees to anyone who paid them already.

And, if the FCC approves the proposal, it would take away the authority of states to regulate early termination fee charges.

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Jack Gold, principal and founder of J. Gold Associates, a Northborough, Mass.-based wireless and mobility consulting firm, said on the surface, the proposal sounds good, but the FCC has it backward. Gold said the FCC should be working with cellular carriers to implement a customer bill of rights, similar to the Lemon Law for automobiles that would allow them to ditch the service without further financial obligation if it doesn't work as expected.

"If I buy the phone, get it home and the service is awful, I should have a right to take it back and get my money back," Gold said, saying that a cellular contract should go both ways: "You're signing the contract, but what is their contract to you?"

While the proposal appears to have the consumer's best interest in mind, consumer advocates have spoken out against the plan.

"If this plan goes through, the nation's largest cell phone carriers get a get-out-of-court-free card," Chris Murray, senior counsel for Consumers Union, the nonprofit publisher of Consumer Reports magazine told the AP. "We have long opposed limiting consumers' rights to sue, and that seems to be what we're doing here."

Gold disagreed. He said if a proposal like the one before the FCC were to pass, it would give customers an edge. He said the ability to cancel service without being slapped with a hefty fee could come as an eye opener to the carriers that they need to make their service better and could open up the market to more competition. Essentially, he said, a mass exodus of customers not worried about fees could help "sort out who the good service providers and the bad service providers are."

"Allowing people to move on is fair and open competition," he said. "That's the way it should be."

The FCC has declined to comment on the proposal, which was offered by Verizon Wireless for review in concert with other leading wireless companies.

Massive termination fees have been a bone of contention to consumers for years. Wireless giants contend such fees are necessary for them to recoup costs of cell phones they offer at a deep discount and to defray costs for adding new customers and offering competitive service plans. Consumers, however, have said early termination fees, which can sometimes exceed $200, are exorbitant and only in place to bully users out of switching between carriers.

In recent years, consumers have banded together to file several class-action lawsuits, most recently in New York and California, some of which $1 billion or more in refunds.

According to the AP, the proposal would link cancellation fees to actual costs incurred by a wireless company and companies would be required to pro-rate any fees over the course of the contract. It would also prohibit a wireless company from imposing a termination fee on customers who change their contract's terms or end one contract period to start another.

Pro-rating termination fees is nothing new. Starting on May 25, AT&T said it will begin pro-rating early termination fees for customers with one- or two-year contracts. Under that plan, AT&T has said that $5 will be taken off of the termination fee for each month the contract was active before it is severed.

Verizon Wireless also has a program in place where it can pro-rate early termination fees down to $60. Sprint has also discussed pre-rating termination fees, but has yet to put a plan in action.