ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Sunday, May 25, 2008

Regulating Early Termination Fees

0507phone_x6001Terminating a cell phone service contract can be cost prohibitive because of the early termination fees charged by most carriers -- that is, the $175 or more the carriers charge if you cancel your service contract early. I have always wondered whether this fee is unconscionable or an unenforceable penalty. Well, the New York Times reports that the FCC chairman wants to regulate early termination fees, and take the matter out of the hands of state contract law (and a speckling of state class actions lawsuits). From the article:

Cellphone companies routinely charge customers $175 or more for quitting their service early. Under the wireless industry proposal, consumers would have the opportunity to cancel service without any penalty for up to 30 days after they sign a cellphone contract or 10 days after they receive their first bill.

The sticking point for consumer groups is that the proposal would take away states’ authority to regulate the charges. Consumers Union called the provision a “get-out-of-court-free card.”

Wireless companies say cancellation fees are necessary to recover the cost of cellphones, which they subsidize under long-term service contracts, and to defray their costs for signing up new customers. Consumer groups said the fees were unreasonable and intended to discourage customers from switching among providers.

[Meredith R. Miller]

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