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Update: Lawmaker to introduce bill on cancellation fees after Verizon's increase

Sen. Amy Klobuchar (D-Minn.) said Monday she plans to introduce legislation to keep wireless carriers from unfairly raising penalties on consumers who cancel their contracts early.

The decision comes after Verizon Wireless said last week it plans to double the early termination fees it assesses smart phone owners who ask to get out of their two-year service contracts. The new fees, which would total $350, are scheduled to go into effect Nov. 15.

Klobuchar wrote a letter to Verizon Wireless CEO Lowell McAdam Monday, telling him that the decision was "anti-consumer" and "anti-competitive." She said more and more households are relying on wireless services as they cut the cord on landline phones. Charging hundreds of dollars for leaving a contract, even if a customer moves to an area that no longer has service by their provider, hurts consumers, she said.

Wireless carriers responded last year to Klobuchar's criticism of the fees by pro-rating their penalties by the number of months served in a contract. The carriers say they try to keep customers in long-term contracts because they need to make up the costs they incur by selling phones at a steep discount.

Klobuchar also wrote a letter to Federal Communications Commission Chairman Julius Genachowski asking that the agency also investigate Verizon's move.

"Verizon Wireless’ decision shows us once again that the wireless industry cannot police itself and will not, on its own, make its practices more competitive and consumer-friendly," Klobuchar wrote. "To that end, I urge the FCC to review the recent Verizon Wireless decision as well as the competitive and economic impact of ETFs on wireless consumers."

As reported last week, Verizon Wireless, the nation's largest wireless service provider, said it has decided to raise its early termination fees on smart phone users because of the rising cost of discounting new "advanced devices" and netbooks.

Jim Gerace, a spokesman for Verizon, said the early termination fees would be prorated $10 a month. That means, if you've made it halfway through your two-year contract, the $350 penalty will be reduced $120 to $230.

He said consumers can buy any of the phones that work on Verizon's network without signing a contract. So if you want to buy a Blackberry Storm 2, you could get the device for $180 with a two-year contract or pay $539 to use the phone without any obligation for your term of service.

Gerace said he had not seen the letter when I called this afternoon so could not immediately respond.

In an interview, Klobuchar said she will likely introduce a portion of a wireless consumer protection bill that deals with the termination fees.

It would be similar to the legislation she introduced last year that didn't make it out of committee. The bill would require wireless carriers to pro-rate their early termination fees so that, at a minimum, a consumer exiting a two-year contract after the end of the first year would have to pay only half the termination fee.

In Klobuchar's letter to McAdam, the senator said Verizon's action will "unfairly penalize consumers" and "bear little to no relationship to the cost of the handset device."

"More and more, the wireless phone is becoming the phone of choice for people," Klobuchar said. "This is no longer the business guy on Wall Street buying smart phones, for many this is their only phone."

By Cecilia Kang  |  November 9, 2009; 5:35 PM ET
Categories:  Early Termination Fees , Mobile , Verizon  
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Comments

Cecilia, nice article. I wanted to respond by addressing those Verizon subscribers who would be affected by this increase of ETF because they are considering changing to another provider due to a high Verizon plan cost. We tend to think of wireless costs as fixed, but you can tinker with your current Verizon Wireless plan to optimize its features to best suit your usage and often generate significant savings in the process. I know this firsthand because I work in the consumer advocacy division of the company Validas, where we electronically audit and subsequently reduce the average cell bill by 22 percent through our website, http://www.fixmycellbill.com (and I'll add that 22 percent equates to over $450 per year for the average user). Put simply, Validas guards against frivolous and unnecessary charges that over-inflate a cell bill.

You can find out for free if fixmycellbill.com can modify your plan to better suit your individual needs by going to the website. For more info, check out Validas in the national news media, most recently on Fox News at http://www.myfoxtampabay.com/dpp/consumer/conlaw/lower_cell_phone_bills_072409 .

Good luck to everyone reading on cutting the wireless costs, especially in light of this unforgiving economy.

Dylan
Consumer Advocacy, fixmycellbill.com

Posted by: dbb10001 | November 13, 2009 11:52 AM | Report abuse

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