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California Supreme Court OKs T-Mobile Class Action

Another chink in the Early Termination Fee armor

By Mark Huffman
ConsumerAffairs.com

October 11, 2007 

T-Mobile had appealed to the California Supreme Court to dismiss a lawsuit that challenged the company’s early termination fees. The lawsuit also seeks to block T-Mobile’s practice of “locking” its phones, so that they only work on its network.

Two lower courts had dismissed T-Mobile’s arguments, saying the lawsuit should be allowed to proceed. Without comment this week, the California high court agreed that the case should be heard.

Last year, Verizon Wireless agreed to pro rate its early termination fees and last week it agreed to allow customers to make changes in their service plan without extending the contract.

But other companies haven't followed Verizon's lead and, under pressure from consumers, both the Federal Communications Commission and Congress have raised the issue this year, warning that new rules and legislation may follow.

A 2005 study found that nearly half of U.S. cell phone customers would switch or consider switching cell phone service carriers to get a lower rate and better service if they didn't have to pay an early termination fee to dump their current provider.

In the T-Mobile case, the plaintiffs have asked the court to prevent T-Mobile from imposing the hefty early termination fee, saying it is levied against consumers who are seeking to end the contract just a few weeks early.

The same suit would also force T-Mobile to make transparent its software locks that prevent consumers from using the same phone if they switch to a new carrier.

Both consumers and industry groups will be watching closely as the case proceeds, since most major carriers have similar policies. At stake for the industry are lucrative licensing agreements between handset manufacturers and cell phone carriers.

A court ruling striking down, or at least modifying early termination agreements, could lead to consumers switching providers on a more active basis. It could continue a trend of a balance of power shift to consumers, which started with court-mandated rules that allow consumers to keep their same telephone number when they switch cell phone providers.

Same argument, different outcome

Perhaps most significant, T-Mobile found a formerly reliable argument this time fell on deaf ears.

In attacking the lawsuit, T-Mobile relied on the binding arbitration clause in its terms of service agreement, arguing its customers waived their right to sue when they signed the contract. A rejection or weakening of the use of binding arbitration clause could strengthen consumer clout in transactions ranging from cell phone contracts to automobile purchases.

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