Tuesday, July 29, 2008

USA - contract termination penalties unlawful

Sprint Ordered to Pay Millions in Early Termination Fee Flap

A judge is ordering Sprint Nextel to refund $18.25 million to California customers who paid early termination fees to get out of their mobile-phone contracts. The tentative decision also requires the company to forgo $54.75 million in early termination fees it levied but went unpaid by California consumers.

A California judge late Monday ruled (.pdf) that the fees, which range as high as $200 a line, were an unlawful penalty under California law and were "implemented primarily as a means to discourage customers from leaving" their contracts.

The decision comes as major wireless carriers -- T-Mobile, Verizon and AT&T -- have recast their early termination fee schedules and pro-rated them, in part to avoid or settle lawsuits. Verizon agreed two weeks ago to pay $21 million to settle a similar class action.

A pro-rated fee means a customer pays less to break a contract the longer one continues the contract. Contracts usually vary from one to two years.

The Federal Communications Commission is considering regulating early termination fees on a nationwide basis. The FCC is also weighing whether to block class action lawsuits like the Sprint case. No timetable for a decision has been set.

Sprint and other carriers said they charged the fees to subsidize handsets and monthly rates.

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