Communications and Media

ATT Settles Suit Over Early Termination Fees

Do you have a cell phone or another mobile device, like a PDA? Thinking of getting one for you or a family member? If so, you may need to sign a contract with a "carrier,"' a company that provides communication services.

AT&T, a popular telecommunications carrier, recently settled a lawsuit that teaches a good lesson on being careful when signing up for cell phone service.

The Suit

As part of its service contract, AT&T charged its mobile phone customers a hefty fee for canceling their contracts before they expired. For example, if you signed an a two-year service contract and then canceled your service after only six months, AT&T would charge you an "early termination fee," or "ETF."

It's not cheap, either. The typical charge was between $150 and $175.

A group of former AT&T customers in New Jersey filed a class action lawsuit in federal court. The suit claimed AT&T's ETF was illegal because it was a "flat rate" fee. In other words, it was unfair because customers were charged the same fee regardless of how early they canceled service.

The Settlement

Rather than go to trial, AT&T decided to settle the lawsuit out of court. According to the settlement agreement, AT&T will pay $16 million in cash and $2 million in non-cash benefits for customers who file claims by June 14, 2010.

Who's covered? Any current or former customer living in the US who was charged the flat-rate ETF between January 1, 1998 and November 4, 2009. These customers may receive up to $140. It gets better. If you were an AT&T customer between those dates and your service contract contained the flat-rate ETF clause, you can file a claim, too. These customers get non-cash benefits, like pre-paid calling cards and phone accessories.

And the settlement also covers customers who had contracts with the old "AT&T Wireless" and "Cingular" service providers.

Why settle? For one thing, a class action lawsuit is usually very expensive to litigate and may take years to work its way through the courts. AT&T may have wanted to avoid that expense and possible consumer-backlash from the "bad press." AT&T has other good reasons to settle, too.

By settling it doesn't have to explain to a jury why a customer with a two-year contract paid the same ETF when one canceled days after signing the contract and the other 22 months later. And, it doesn't have to tell the whole world how much money it made on ETFs in the past 11 years.

Protect Yourself

AT&T isn't the only carrier charging ETFs. Verizon Wireless, Sprint Nextel, and T-Mobile USA charge them too. In fact, they've all been asked to explain their fees to the Federal Communications Commission (FCC).

To avoid an ETF:

  • Read all of the service contract carefully before you sign it. If it contains an ETF and you don't like it, don't sign the contract. Or, you can try to negotiate with it. For instance, ask for a cell phone upgrade or extra minutes in exchange for your agreement to the ETF. Remember, though, get any deal you make in writing
  • Ask if the ETF can be waived all together, or at least waived for the first 30 days' of service so you have a chance to make sure you're satisfied with the coverage and quality of service
  • Ask the carrier what happens if you keep service for the entire term of the contract and continue service. With some carriers you may pay on a month-to-month basis with no ETF, but with others you may be agreeing to a new contract term with an ETF by continuing service
  • If you're switching to a new carrier, ask it to pay the ETF
  • Be prepared to explain that you canceled early because of poor service. Keep records of dates and times if you start experiencing poor or limited service - dropped calls, bad internet connections, etc.

    Cell phones are great for keeping in touch with family, friends, and co-workers while we're on the go. Try not to get soaked by a big fee for this convenience, and stand up for your rights if you do.

    Questions For Your Attorney

    • My wife and I each had cell phone service from AT&T, but there was only one service contract. Can we both file claims under the AT&T settlement?
    • What are my options if I don't agree to the settlement and file a claim? After all, I was charged and paid a $175 ETF and the most I can get under the settlement is $140?
    • When I switched carriers the new one said it would pay my ETF but it never did. What can I do now?
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