U.S. PIRG Consumer Blog: Verizon "lowers" cell plan penalty fees

In what is likely a calculated move designed to convince the FCC into granting an industry petition to preempt state laws regulating cell phone early termination fees (ETFs) as penalties, Verizon has announced (Washington Post) that it will reduce ETFs over the term of a two year cell plan contract. The gradual reduction doesn't solve the essential problem: ETFs prevent consumers from shopping for the best deals. This allows cell phone carriers to use a variety of unfair practices, knowing that their customers cannot afford to switch plans because they are essentially locked in a cell. MORE:

The PIRG report Locked In A Cell found that:

Nearly half (47%) of all 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 average penalty of $170 to cancel their service contract. The report also found that consumers have paid $4.6 billion over the last 3 years due to the penalties-- that's $2.5 billion in actual penalties paid and $2.1 billion in lost benefits from consumers who either couldn't afford the penalty or didn't think it was worth paying.

We filed the report to the FCC as a comment in its proceeding, and also filed joint comments with the National Consumer Law Center and Consumers Union in the same docket. The industry hopes that the FCC will classify the punitive ETF fees as rates, which would not be subject to state regulation. In a related docket, the FCC has issued a rule which is being challenged in court, that would treat other state regulation (truth in billing rules) as rates. We link to comments in both dockets here. Yesterday's Senate Commerce action on telecom deregulation -- if it becomes law -- would further limit state authority to protect consumers from unfair cell phone practices.