At a public hearing yesterday, FCC Chairman Kevin Martin outlined his plan to regulate the fees wireless carriers charge consumers for ending contracts early. Called early termination fees (ETFs), Martin said the fees, which range from $150 to $225 per contract, are “a significant sum for a subscriber to pay who is dissatisfied with the quality of service,” and that the practice, “can lock people into a service they really want to leave.”
Wireless carriers argue that the fees are necessary to recoup the cost of subsidizing handset prices, but in recent years, consumers have launched several class action suits challenging the fairness of the practice. Martin said that the fees can be “a legitimate means of recovering legitimate costs,” but warned, “they shouldn’t be abused.”
Martin’s plan would have ETFs be directly related to the actual cost of the handset, meaning a cancellation fee for a $500 handset would be considerably more than the fee for a $50 handset. As expected, the commissioner also called for fees to be pro rated based on the time remaining on a contract, and the customers be allowed to see their first bill before they are subjected to fees. Martin also called for contracts to be a “reasonable length of time,” and that extending a contract does not necessarily include renewing the termination fee.
A decision was not yet made as to whether the commission will adopt new regulation over the fees; which body should be allowed to regulate ETFs has been hotly debated, as states currently have some say over contract terms and fees. Should the FCC adopt federally regulated rules for the cancellation fees, states would lose the right to hear class action suits from consumers over such issues.
“I respect the important role states play in protecting consumers,” Martin said. “However, I am skeptical that plaintiff class action lawsuits are the most effective way to guarantee these protections.”
Martin also said he believes it’s important for the commission to discuss “what are reasonable practices as they relate to early termination fees,” as industries such as cable and Internet providers have adopted cancellation fee practices similar to the wireless industry.
The chairman reportedly said that he hopes the commission can arrive at “an initial decision” on how to regulate the fees in July or August.