In what may be the start of a change in how cell phone carriers do business, Verizon Wireless began its declining early cell phone termination fees last month.
The declining early termination fee is calculated so that the longer you stay in your contract with Verizon, the lower the fee you pay if you cancel your contract before it expires. According to a Verizon press release, the termination fee starts at $175 and then decreases by $5 per month for each full month of a contract that the customer completes.
The declining fee applies to contracts that are signed or renewed on or after November 16, 2006. Verizon had announced in July, 2006 that it would prorate its early termination fee, but did not announce details until November.
Most cell phone companies carry fixed payments for early termination fees, meaning that regardless of whether a contract is cancelled at the beginning or part-way through all customers pay the same fee. Usually that fee ranges from $175 to $250 dollars, depending on the carrier.
Consumer groups have become increasingly critical of early termination fees. Lawsuits charging that early termination fees are illegal have been filed in several states. Furthermore, legislation was introduced in New York which would allow cellular customers to cancel their contract with no termination fee up to the time they receive their first bill. Although no action has been taken so far on this legislation it may be reintroduced at a later date.
Meanwhile a California state appeals court upheld an earlier decision ordering Cingular to refund early termination fees charged between January 2000 and May 2002. The decision was made because the court felt that Cingular did not provide customers with a long enough trial period.
In November, 2006 a lawsuit was filed in Idaho arguing that T-Mobile USA's early termination fees violate consumer protection laws in 13 states. T-Mobile charges a standard $200 fee for early cancellation. The plaintiffs are claiming that consumer protection laws require T-Mobile to figure out damages from a broken contract for individual situations rather than charging one fee for everyone. Plaintiffs are currently seeking class-action status for the lawsuit.