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No escape from early termination fees

Yon-Paul and Chris Siebeneck
Yon-Paul and Chris Siebeneck

Quick quiz: Do you know when your cell phone contract expires? The question isn't as easy as you'd think -- and getting it wrong could cost you hundreds of dollars.

Yon-Paul Siebeneck, of Salt Lake City, Utah, went shopping in a Sprint store last fall and said he was told that both his family cell phone contracts would expire on Nov. 30, 2006. His wife, Chris, even called Sprint to double-check, he said. Believing they were both cell phone free agents, on Dec. 14, he purchased two new phones from a rival cell phone firm and canceled his Sprint phones.

But in January, a Sprint bill arrived for more than $300. Siebeneck's two contracts, Sprint now said, were in force until the end of January. So after paying for nearly 23 months on two two-year contracts, Siebeneck was now stuck two early termination fees of $150 each. Adding insult to injury, taxes were applied to early termination fees, so the total bill was almost $340.

"We would have waited until the expiration dates to renew or change service, being only a month away," Siebeneck said. The monthly bill was only $35 per phone. "It would be irrational to cancel a contract with early termination fees a mere month prior to that date."

Siebeneck dug up his paperwork and found that the original Sprint contract he signed indicated it expired in August 2006. He says he doesn't remember doing anything that would have extended it six months.

So Siebeneck, 38, dug in his heels and refused to pay the bill. Sprint took a hard line, too, transferring the debt to a collection agency, which is calling and writing demand letters. Meantime, with interest and penalties, the debt has swelled to about $450.

Sprint says it's done nothing wrong and is simply following the terms of the contract.

"We reviewed (the situation) and our records show that all the appropriate procedures were followed," said Sprint spokeswoman Roni Singleton. She said the firm couldn't provide additional details, citing privacy rules.

Siebeneck is likely to lose the dispute even with paperwork indicating his contract should have ended last August, consumer attorneys say. It may not seem fair, but cell phone companies can extend consumer contracts with a simple verbal exchange, which can take place during virtually any telephone conversation with customer service.

Yon-Paul and Chris Siebeneck
Yon-Paul and Chris Siebeneck

Consumers who change their monthly minute plan, add text message service or even call to dispute a late fee sometimes find they've made new two-year commitments to their cell phone provider, said Ed Mierzwinski, program director of the consumer advocacy organization Public Interest Research Group.

Operators are supposed to clearly explain the contract extension, but that doesn't always happen.

Extensions can be applied "based on any communication with consumer where any supposed change is made," he said.

Siebeneck never received written confirmation of the contract extension. Sprint's Singleton said written confirmation notices are not required, but added that "I'm sure there was a verbal agreement."

FCC didn't help

Siebeneck has complained to the FCC, which opened an inquiry. But Singleton said Sprint has satisfactorily proved to the agency that Siebeneck terminated his contract early and the fee is legitimate.

But even though Siebeneck is getting calls from debt collectors, and his credit score is suffering, for now, he's not budging.

"It's not about the money," he said. "It's the fact that they misled us into thinking we were clear. I shouldn't have to pay."

Siebeneck is hardly the only consumer frustrated with early termination fees. In 2005, PIRG released a study showing that about half of all cell phone consumers would switch providers if they didn't have to pay early termination fees.

'A rogue industry'

"This industry is virtually a rogue industry," said Mierzwinski, who helped write the report, titled "Locked in a Cell." "Their business model is to see how much of this they can get away with."

The practice has not gone unchallenged. Sprint, Verizon and Nextel all are facing a class-action lawsuit in a California state court over early-termination fees.

In many cases, "People are clueless that their contract has been extended, they just don't understand," said Stacy Canan, a consumer lawyer for the AARP who is co-counsel on the class-action suit. "Wireless companies use any event to as a mechanism for locking customers in for another two years."

Cell phone companies often defend the fees as compensation for subsidized cell phone handsets. Consumers get cheap phones in exchange for service commitments, they say, so they are entitled to compensation if a customer quits early.

But that theory falls apart in the case of extended contracts, said Jacqui Mottek, the lead attorney in the California lawsuit. A consumer whose two-year contract becomes a three-year deal would have already paid his debt to the cell phone company, she said.

Mottek is arguing that the fee is really a penalty, and under California law penalties must bear a connection to an actual cost incurred by the company.

The California case was certified as a class-action case last summer, and it includes any California consumer who has ever paid an early-termination fee. The cell phone firms have filed a motion for summary judgment, which the plaintiffs will answer shortly, Mottek said. Still, any relief from the lawsuit is several years away.

And it wouldn't help Siebeneck anyway, since he doesn't live in California. In fact, Mierzwinski didn't have much good news for him.

"It is difficult for individual consumers to get satisfaction," he said, adding that Siebeneck will almost certainly have to pay the bill to preserve his credit score.

Rather than fight a losing battle against the cell phone companies, consumers who feel they've faced unfair early-termination fees should complain to the FCC and their congressional representatives.

"Only meaningful action by the FCC or a legislative change will ultimately make a difference," he said.

RED TAPE WRESTLING STRATEGIES

There are a couple of things Siebeneck can do. The Fair Debt Collection Practices Act offers several helpful provisions. Consumers can contact the debt collector in writing and instruct it to cease all contact. After that, other than specific notices of legal action, the collector must stop harassing the consumer. More detail on how that law works are offered at the FTC's Web site. The letter should also tell the debt collector that the bill is in dispute and ask for any evidence the firm has of the debt.

He also can contact the credit bureaus and dispute the negative entry in his credit report and ask for a "reinvestigation." That begins a legal process which can at least stall the negative impact of the unpaid bill. Reinvestigations can be initiated online with Experian, Equifax, and Trans Union.

Third, Siebeneck should ask Sprint for evidence that he agreed to a contract extension, including copies of telephone call recordings. Sprint may not be able to produce the evidence, which would bolster any potential legal case; or the company may decide producing the paperwork is too much trouble, and abandon the case.

But for now, consumer lawyers agree, if Sprint sticks to its guns, Siebeneck will either have to pay up or find another lawsuit to join.