May 8, 2012 at 5:11 AM ET
Buying a smart phone from a third-party, discount online retailer might seem like a shrewd move, but a $50 discount could cost you $400 later if something goes wrong, in addition to any early termination fees charged by the carrier. That means consumers who buy from big-name third-party retailers like Target or Radio Shack could end up facing up to $750 if they prematurely cancel service. It also means consumers might be hit with a big bill from an unexpected place.
Ohio consumer Chris Eash found this out the hard way when an innocent mistake involving a handset return to a RadioShack retail store led to weeks of pestering by a company named Simplexity, which powers online cellphone sales at some of the nation's largest retailers, including RadioShack.com and Target.com.
Simplexity's proposition might sound simple: Consumers accept a discount in exchange for promising to pay a hefty fine if they cancel or change service within the first 181 days. But a glance online shows many complaints from consumers who are confused when hit by the fee.
Simplexity does disclose the fee prior to purchase, but it takes some work to find it. On RadioShack's mobile sales Website, for example, the fee is revealed via a link labeled "instant savings terms and terms of purchase," on the final page of the cellphone checkout procedure. Users must click on that link and read through a pop-up window to learn that their credit cards will be charged $400 if the carrier indicates service is changed within 181 days.Essentially, Simplexity is forcing consumers to cover the commission that would have been paid by carriers had the consumer maintained service. And it might be a fair deal for cellphone buyers to take a discount now and risk a fee later. For example, visitors to RadioShack.com on Monday were offered a chance to buy a 16 GB Droid Bionic with a Verizon contract for $49 -- $50 less than the $99 price advertised at VerizonWireless.com.
But as Eash learned, Simplexity can be very aggressive about getting its bounty from consumers when anything goes wrong. He visited RadioShack.com in March and decided to buy a 4G Motorola phone, then went to his local store to actually make the purchase. When he got home, he realized that the salesman had given him the wrong handset -- the 3G version -- and he went back to the store the next day to return it. At the store, he was told the 4G phone was only available at the Radio Shack Website. He was also told by Verizon that if he returned the 3G phone before buying the 4G phone online, he would lose his phone number. So within about 48 hours, he ordered the 4G online, ported his number to it, then returned the 3G at the store.
Within days, Simplexity -- the retailer behind RadioShack.com -- contacted Eash and said he owed $400 because he'd changed the number associated with the 4G phone when it was sold. He hadn’t done anything wrong; he only had one phone handset, and he was honoring his contract. But no amount of pleading could deter the collectors, he said. The saga dragged on, with each firm blaming the other.
"I got a notice from Simplexity ... (saying) that since I haven't paid the $400, they are going to charge the debit card I used for my purchase," he said. He canceled his debit card to avoid the charge, but Simplexity then threatened his credit report. "I have spent hours on the phone with both Verizon and Simplexity trying to get them to work it out with no luck. Both say the resolution is up to the other company. It's come down to ‘Give us $400 or we crap on your credit record.'"
Operators told him that, essentially, if Verizon didn't pay Simplexity its bounty for getting him to sign up as a new customer, he'd have to pay it.
At the end of his rope, he contacted msnbc.com. We contacted Verizon, which escalated his problem with Simplexity. Eash was then contacted by a Simplexity official who apologized and promised to fix the mix-up. The official indicated there was honest confusion because the number associated with the phone purchased from Simplexity had been changed, and that resulted in a “charge-back” from VerizonWireless.
The e-mail also explained that Simplexity must charge a hefty fee when phones are deactivated to avoid consumers simply purchasing their discounted phones and then canceling service and using a different provider.
Eash was satisfied, but the experience left him with serious reservations about using online discount cellphone retailers.
"Without some serious string pulling, I would have never talked to (the final Simplexity official) and would still be fighting with Simplexity,” he said. “I told him he had a company that with the exception of one person ... shows very little regard for their customers. I would strongly urge anyone considering buying a cellphone online to make sure this company is not the one behind the curtain pulling the levers. They operate many store brand cellphone web sites that have absolutely no connection to the store on the page."
Simplexity did not respond to questions about Eash’s complaint or about its business model, which also involves selling phones directly to consumers through its WireFly.com Website.
Tom Pica, a spokesman for Verizon, said he couldn't comment on an individual consumer's account, but added that the firm has not received many complaints from consumers who purchased their devices from Simplexity.
"We have high standards for our authorized agents and the service they provide to our customers," he said.
Neither Target nor Radio Shack responded to requests for comment by press time.
If you’ve never shopped at a third-party online cell phone retailer, dual fees for prematurely ending a cell phone contract may be new to you. But they are common. Amazon, for example, offers deep phone discounts but charges $250 if the service is disconnected or canceled before 181 days have passed, in addition to any carrier fees. Letstalk.com, which operates Walmart’s online cellphone sales, also charges $250, describing the charge as an “equipment subsidy recovery fee.” Such fees first caught the attention of the public – and regulators – in 2010, when Google added a hefty early termination fee to initial buyers of its pricey Nexus One phone. After inquiries from the FCC, the fee was reduced from $350 to $150.
(ShopNBC.com also uses Simplexity to fulfill cell phone orders. Msnbc.com is a joint venture of Microsoft and NBC News)
Still, some consumers are apparently confused by Simplexity’s charges, and have lodged numerous complaints on Websites. Nearly all of them are accompanied by a note from a Simplexity official offering to clear up the matter.
One writer on ComplaintsBoard.com sounded desperate in a post titled, "I want my $600 back." That consumer said he or she had purchased two Droid phones and returned them, only to be hit with a $600 charge. A writer named "WireflyKSCorpHQ" wrote back and offered to help and later posted a note saying the matter was resolved. Another writer added, " I just received a text message (Alert) stating a withdrawal of 600.00 from Simplexity. I don't even know who they are or how they have my account number! Were you able to solve this issue? Is there any way I can receive my money back?" WireflyKSCorpHQ again offered to help.
Simplexity acknowledges questions about its discounts at a page on the Wirefly Website titled "How can Wirefly offer such great deals" Is it a scam? What's the catch?"
On the page, Simplexity explains that it passes commissions it receives from cellphone network operators on to consumers and why it must recover the commissions if consumers cancel service. It also brags about the price clarity it offers consumers.
"Cellphone rebates can be confusing and most people don’t like them. That’s why Wirefly has not offered rebates on any products since 2007," the page says.
The page doesn't to mention that in 2006, Wirefly.com, under previous ownership while named InPhonic Inc., was sued by the Washington, D.C., attorney general's office after more than 2,000 complaints about unpaid rebates were received by the local Better Business Bureau office. The complaints were also the focus of an msnbc.com story. At the time, the firm was accused of creating near-impossible rebate terms, such as requiring consumers to file for rebates 180 days after service started, but no later than 210 days.
InPhonic, which at the time claimed to be the largest independent online cell phone retailer, settled that case in late 2006, agreeing to pay the rebates. The following year, the firm filed for bankruptcy. WireFly.com and other assets of the company were purchased by the Philadelphia-based private equity firm Versa Capital Management, which created a new firm named Simplexity. A spokesperson at the time told the Washington Post that the new company would not engage in any rebate programs in a story titled, "Rebates for customers of InPhonic in peril, again." Also at that time, InPhonic CEO David Steinberg said he would step aside.
But several members of the current Simplexity "Leadership Team" also worked at InPhonic, according to the Simplexity website. On that page, InPhonic is described only as "a publicly traded Internet retailer."
Simplexity maintains an A rating at the Better Business Bureau, though that agency's site says there have been 662 complaints filed against the firm in the past three years -- all of them "closed." That generally means the firm has responded, though it does not guarantee that consumers are satisfied with that response.
The only direct connection between Simplexity's current business model and InPhonic's troubled rebate model is the magic 180-day mark at which authorized resellers get to keep their bounty from mobile providers for signing up new customers. What Simplexity is doing now is in some ways the reverse of a rebate program – rather than making consumers wait 180 days to receive a $100 or $200 check, the firm is crediting the consumer immediately and grabbing back that money in the event that the deal goes sour before 180 days. As long as consumers understand the risk they are taking by accepting Simplexity/Wirefly's discount, bargains can be had. Things do happen, however, and it’s worth considering if $50 today is worth a possible $400 bill tomorrow.
Eash was so scarred by his experience, and the hidden traps he landed in, that he says he would never do it again.
"My advice: Buy directly from the service provider and NEVER from a third party. In the long run it may be a LOT less expensive," he said.
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