Californian Judge Rules Early Termination Fees Illegal

In one fell swoop, Judge Bonnie Sabraw of the Alameda County Superior Court has added $72.9 million to Sprint-Nextel’s loss column, and declared early termination fees illegal. Ruling against the service provider in a class-action lawsuit, the judge ordered the company to pay $18.2 million to the plaintiffs, and say goodbye to over $54.7 million, the total amount charged to reportedly over 2 million Californians when they terminated their post-paid plans early.

Next Legal Steps

The ruling provides a precedent for other lawsuits, mostly related to extra fees assessed towards customers, currently ongoing. No doubt, an appeal is forthcoming. The final decision may end up literally changing the relationship between service providers and its customers. Locking-in customers into a two-year contract, ensuring revenue for the same period, allows service providers to subsidize the cost of certain cell phones, selling them at a loss. Service providers also rely on early termination fees to make sure that they will never lose money on these subsidized units.

A Reasonable Compromise

The FCC has stayed on the sidelines, simply coming out with proposals to institute a federal-wide system of regulating extra fees. Of interest is chairman Kevin Martin’s plan to pro-rate the cancellation fee based on how long the contract will last. Near the end of a two-year contract for instance, the fee will be significantly lower.

Personally, this seems like a reasonable compromise. It’s understandable why service providers would want to charge extra termination (not discounting horror stories of customers getting charged for extra fees without merit): it let’s them make money while offering popular models at lower-than-market prices. But we also don’t want to see customers get slapped with steep and unreasonable bills, right? Yet at the same time, people who duck out of a multi-year commitment shouldn’t get away scot-free.

(image courtesy of scotttaylor.wordpress.com)