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WASHINGTON -- The government is quietly negotiating to help cell
phone customers avoid expensive fees when they cancel contracts with
wireless companies, The Associated Press has learned.
Cell phone companies routinely charge customers $175 or more for
quitting their service early. Under a proposal to the Federal
Communications Commission, the wireless industry would give consumers
the opportunity to cancel service without any penalty for up to 30 days
after they sign a cell phone contract or until 10 days after they
receive their first bill.
The proposal also would cap such fees and reduce them month by month
over the course of a contract based on how long customers have left,
according to people familiar with the offer speaking on condition of
anonymity because the FCC has not accepted it. The plan would not
abolish cancellation fees entirely and would not refund such fees to
anyone who paid them.
In exchange for the government's approval, the agreement would let cell
phone companies off the hook in state courts where they are being sued
for billions of dollars by angry customers. If approved by the FCC, the
proposal also would take away the authority of states to regulate the
charges, known as early termination fees.
Lawyers representing customers who are suing over the fees are strongly
opposed.
"It's Christmas in May for the companies," said Pamela Gilbert, an
attorney with Cuneo Gilbert & LaDuca, a Washington D.C.-based law firm
working on one of the class action lawsuits against the industry. She
said if the FCC agreed to the proposal, it would save cell phone
companies hundreds of millions of dollars.
"The people left holding the bag are the millions of people who paid
illegal ETFs (termination fees) and now will never get their money
back," she said.
The nation's No. 2 wireless company, Verizon Wireless, offered the
proposal to the FCC for its review after high-level meetings with senior
FCC officials. It did so in consultation with other leading wireless
companies, whose executives indicated they would not oppose its
provisions, people familiar with the offer told the AP.
The FCC declined to comment.
Consumers who have paid such fees describe them as exorbitant.
"It's ridiculous," said Ric Causey of Allen, Texas, who paid $600 in
termination fees to Sprint on contracts for three cell phones after he
canceled service because of what he said was poor reception around
Dallas.
"I understand the fine print, but I ended up paying $200 per phone just
to switch service," Causey said. He complained to executives to no
avail. "I never got any satisfaction," he said. "I figured I'd deal with
it later, but I never got reimbursed."
Causey, a freelance video producer, said he never imagined refusing to
pay the fees out of fear it would hurt his credit rating.
Wireless companies said the cancellation fees are necessary to recover
the cost of cell phones, which they subsidize under long-term service
contracts, and to defray their costs for
signing up new customers. Consumer groups said the fees are
unreasonable and intended to discourage customers from switching among
providers.
The expensive fees have led to class-action lawsuits in several states
and legislative proposals on Capitol Hill and in state legislatures
around the country.
The industry's proposal would link cancellation fees to actual costs
incurred by a wireless company, and it would require companies to
prorate any fees over the course of the contract. Verizon Wireless
currently reduces such fees but never below $60. Other major providers,
including AT&T Inc., have announced plans to prorate fees.
The proposal also would prohibit a wireless company from imposing a
termination fee on customers who change terms of their contract or end
one contract period and begin another.
Verizon Wireless is a joint venture between Verizon Communications Inc.
and the Vodafone Group PLC of Britain. Verizon Wireless, with about 66
million subscribers, is the second-largest wireless company behind AT&T
Inc., with 70 million customers.
The wireless industry is increasingly worried about a series of
long-running, class-action lawsuits in state courts. One lawsuit against
Sprint Nextel is under way in California, and plaintiffs in a New York
case in arbitration are seeking $1 billion in refunds.
Federal law prohibits states from regulating wireless rates but gives
them authority over some terms and conditions under wireless contracts.
The industry's Washington lobbying group, CTIA, previously asked the FCC
to consider cancellation fees to be rates, which would preclude state
governments and courts from any jurisdiction over them.
In September, Sens. Amy Klobuchar, D-Minn., and Jay Rockefeller,
D-W.Va., introduced the "Cell Phone Consumer Empowerment Act," which
would require prorated fees and a 30-day window for customers to exit a
contract.
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