Fighting Fees for Canceling a Cell Phone Contract

(MoneyWatch)  Been a loyal cell phone customer for years and years? Watch out: you could still get socked with termination fees if you want to cancel your service. Just ask Matt Brenner. After nine years with Sprint, last summer he decided to switch to an iPhone and Sprint hit him with a $600 bill -- $200 in fees for each of his three canceled lines.

Hotel California -- cellular-style
These days, cell phone companies have created their own version of the Eagles' classic, "Hotel California." You can check in any time you like, but leaving is going to cost you. The phrase they use is "early termination fee" -- and you could owe it even when you didn't sign a new contract, get a new phone or benefit from a word of warning.

It's happening increasingly, despite (or maybe because of) the tough economy.

"We have a situation where people are losing their jobs left and right and need to get out of these contracts so they can save money to feed their families," said Jay Edelson, a class action lawyer with KamberEdelson in Chicago. "The carriers say, 'You want out? Fine. Give us $200.'"

Pro-rating the fees: No bargain

In fairness, several carriers have announced plans to "prorate" early termination fees, largely a reaction to class action suits claiming the fees are illegal. But Sol Carbonell, of the San Francisco advocacy group Consumer Action, told me these deals are rarely all they're cracked up to be.

"In truth, most prorating plans offer very little relief," she said -- particularly in the early months of a contract. "Many consumers still face the full -- or nearly full -- penalty or will be forced to stick with a carrier that they can't afford to dump."

One consumer's story
Brenner illustrates how even smart consumers can get caught. (I was skeptical when Consumer Action's representatives said "early termination fees" might never die. A source there gave me Brenner's contact information to see for myself.) The San Francisco-based legal aid attorney signed his first cell phone deal a decade ago. Since then, he married and added two new phones. Each time he got a discounted phone, he understood that Sprint was adding time to his contract. But when he called to boost the number of minutes on his plan, he got no warning that changing the terms of the agreement would also extend his contract.

Sprint spokeswoman Roni Singleton said she couldn't comment on Brenner's case but noted that her company has since instituted a prorated exit fee, which starts at $200, drops to $50 by the 19th month of the contract and remains there until the agreement ends. (The company has also stopped automatically extending the duration of contracts when a customer changes his service agreement.)

Sprint is party to several lawsuits related to early termination fees, including one demanding the company refund $1.2 billion in these charges. And it's not the only carrier in hot water over the issue, Edelson told me. Dozens of similar cases have been filed against an array of carriers.

As for Brenner, he refused to pay the $600, despite several threatening letters from Sprint's collection agents. After I called Sprint for comment, a Sprint executive called Brenner and explained that the company now believes that just one termination fee applied -- on Brenner's newest phone. The company then waived all the fees as a courtesy for his troubles.