Cell Phone Termination Fees Hold Customers Hostage

Portland, ORIf you've ever felt locked in to your cell phone contract because of ridiculous termination fees, you're not alone. Many people are complaining about the cost of canceling their cell phone contracts even when they are suffering through poor service, dropped calls, and errors on their bills.

When you consider that the Better Business Bureau consistently ranks cell phones as the number one area of complaint a lot of people are putting up with substandard service.

A report released in 2005 showed that consumers feel the termination fee prevents them from switching cell phone carriers in order to get a lower rate or better service. The report, done by the U.S. Public Interest Research Group (U.S. PIRG), found that termination fees allow cell phone companies to ignore promises to its customers because those customers cannot cancel their contracts without paying large fees.

The report, titled "Locked in a Cell: How Cell Phone Early Termination Fees Hurt Consumers" (found at Consumer Affairs) found that 47 percent of cell phone customers would at least consider switching cell phone companies (if not switch altogether) if there were no early termination fees. Additionally, 36 percent said that the fee had already prevented them from changing cell phone carriers, and 89 percent said that the termination fee "is a penalty to discourage switching cell phone companies."

Consumers Union (publishers of Consumer Reports) believes that customers would be greatly aided by two simple, but important, changes in cell phone contracts. The first is a prorated termination fee and the second is a free trial period.

Prorating

Prorating means that people who cancel their contracts at different stages of their contracts will pay a different termination fee, depending on how far into their contracts they are. Verizon Wireless now offers a prorated termination fee that starts at $175 and drops by $5 for each month of the contract a customer completes. However, most cell phone companies do not have a prorated termination fee, meaning that everyone, no matter when they cancel their service, pays the same amount. In some cases those fees are $200 per phone.

Trial Period

A trial period would give customers a certain amount of time to test out their new phones and determine whether or not the phone is actually for them without having to pay a termination fee. Some companies allow a 14-day trial period, but that may not be long enough for the customer to really determine whether the phone works when and where they need it to. Consumers Union says that the trial period should be the equivalent of one billing cycle, meaning that customers should be able to cancel their contract upon receipt of their first bill.

Other Fees

It is not only cell phone termination fees that have people up in arms. Cell phone companies have been accused of a variety of misleading practices. On February 5, 2007, the state of Texas filed a lawsuit against Sprint accusing the cell phone carrier of deceiving customers. The lawsuit was filed over Sprint's labeling of a surcharge, called the "Texas Margin Fee Reimbursement."

The state argues that is illegal because Sprint is charging the one percent surcharge to reimburse the company for a tax imposed by the state. However, the tax does not go into effect until 2008 and the rate of the tax has not yet been set.

The attorney general is seeking penalties of $20,000 per violation as well as credit to the accounts of customers who have paid the surcharge and an injunction forcing Sprint to change the name of the surcharge.

Meanwhile, there are features on phones that customers may not have asked for but they get, and are charged for, nonetheless. These features include text messaging and internet access. They come on the phone regardless of whether or not customers ask for them and are then charged on a "per-use" basis. In the case of text messaging, customers can be charged for messages they receive, even if they choose not to read those messages.

One complainant at Consumer Affairs notes that T-Mobile bills him for text messaging, even for messages that T-Mobile sends him. When he called to complain, the cell phone carrier refused to remove text messaging from his account.

If you have been charged outrageous termination fees despite canceling your phone because of poor service, you may be eligible for compensation.