Lars Larson on Cell Phone Contracts

How can you call it a contract and then not honor it.

People sign those cell phone contracts because they get an inexpensive phone and of course the cost of the phone is spread out over a couple of years. But, now a judge in California has thrown a monkey wrench into the arrangement.

The judge says it is illegal in California for now, but this could spread across the country. It’s illegal to lock a customer down for one year or two years in a cell phone contract.

I see a problem with that. I kind of like the low price of two years and if I want to go month-to-month I can do that. There are companies that offer that. But, to walk in and say, “There is no contract here”. You’ve signed on the dotted line. You got the cheap phone. You got the low rate. But, now that you’ve been in it for about a year or maybe six months you’ve decided that you don’t want to be bound by it anymore. And a judge says you can simply walk out of the agreement.

That’s not an American way of doing business.

“For more Lars click here”

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Posted by at 09:00 | Posted in Measure 37 | 14 Comments |Email This Post Email This Post |Print This Post Print This Post
  • dian

    As a former agent for our local cellular company, I can tell you the problems with contracts. Sure they get a cheaper phone, Sure the agents and phone companies get shafted.

    Under my agency contract when i signed a customer up for cell service, they had a choice, pay full price for the phone and go on a month to month. Problem with that the phones could cost two to three hundred dollars or more if they wanted a lot of bells and whistles. With the contract they got the phone for free or seriously discounted price. I received a commission for each cell service I signed up. If the customer dropped his service even one day short of six months I had to give my commission back and I was out the cost of the telephone because I had to buy them as an agent. That is unless I could locate the customer and wrestle it away from them. NOT

    I see that as being much more illegal , or stupid on the part of the agent to even get involved, as the contract with the customer.

    Even at that, thankfully there were enough honest people, we did ok on the sales.

    There isn’t really anything wrong with the cell phone contracts, when I first started all customers had to have a credit check which seriously cut down on problems. Later there was no credit check required and the agent took the hit

  • Richard B

    Oh Lord protect me from Myself and Government

    Do we need government to protect everybody from their stupid mistakes. I never had to worry because I am on a pre-paid plan.

  • Jerry

    I say use a phone booth.

  • Joanne Rigutto

    If you can’t afford the contract then don’t sign it. Now, if you could afford the contract and then lost your job or had other unexpected expenses that made it impossible for you to continue your contract, that’s another issue.

    Also, you don’t need a phone with all the bells and whistles, at least most people don’t. I have a cheapy phone, it opperates as a phone. I don’t need to surf the web with it, I don’t need to send and receive email, etc. A camera would be handy, but I don’t need it. My phone cost $30, before the rebate. I signed a contract, and shortly after I found out about Cricket. My contract is with Sprint and still has a year left. When it’s up I’ll check out Cricket to see if they have service in my area, as of a month or so ago they were just outside of Mulino. If they have service in my area when my contract runs out, I will probably change plans because they are cheaper than Sprint and there is no contract. But untill then, I’ll honor the contract I have with Sprint. Like it or not, I did sign it. I don’t need the government to protect me from myself…..

  • Scottiebill

    I’m with Joanne on this one. We are with Verizon under a contract that ends next March. If we choose to bow out now, the penalty would be $300. for ending the contract early. Be assured that next March, Verizon will be history at my house and we will be looking at Cricket very hard.

  • devietro

    I have been burned by signing longer contracts then what fit my needs BUT my first thought was not “Save me government” I took care of it and moved on. I feel confident that the more government gets involved the worse things generally are.

  • dian

    You should check to see if Cricket owns a license as does Verison and Unicel. They could be just a reseller. If they are a reseller, they buy bulk time from the license holders and resell it to the public. Not necessarily bad, but you should check it out.

  • Gullyborg

    One problem with the contracts is the liquidated damages clause (better known as cancellation fees), which may very well be illegal under long held precedent in contract law. The cancellation fee is there to protect the companies involved, and that is fine. A company should expect a customer to live up to contract, and the contract should be able to include a liquidated damages clause to cover the real monetary damages from a cancelled contract.

    However, the liquidated damages amount should not be in excess of the actual monetary damages suffered by the company.

    If you have a two year contract for $50 per month, and if the company has costs of $45 per month in providing you with service, then the company really only “makes” $5 per month from you. Over 24 months, that is $120.

    If, under these hypothetical numbers, you cancel your contract IMMEDIATELY upon signing, the company is out $120 in real money. They should have a right to recover that amount.

    If, on the other hand, you cancel one month before your contract expires, the company is out $5. You should only have to pay $5 to make the company “whole” after your going back on the contract.

    Most of the cell phone contracts I have seen have very large cancellation fees, and they usually aren’t pro-rated over the duration of the contract. If the fee is $200 (a common amount), then it is often $200 on day one and $200 on day 364. If the customer needs to cancel the contract, the customer ends up paying far more than the company is damaged – for no service in return.

    That is, in most cases, an illegal and unenforceable liquidated damages clause under contract law.

    So I am not quick to yell “free market” or “buyer beware.” While I do generally BELIEVE in these principles, they exist within the framework of established law, and companies are bound by laws designed – by our representative government and upheld in courts – to protect consumers.

    So I’ll withhold judgment here and actually read up on the contract in question and look at the real fiscal data involved before saying the judgment is correct or not.

    • Joanne Rigutto

      Those are excelent points. I whish that more people had at least a fundamental understanding of contract law and the concepts it covers.

      As things are, as you say, most cell contracts don’t prorate the cancellation fee, and most people don’t even know that some do – I didn’t untill reading your post.

      As it is, this seems to be, pretty much, and industry standard, that is the flat cancellation fee. And even if a person were to try to take them to court over something like this, it would cost more than it’s worth. So as long as the cell providers keep opperating this way, and the consumers, us, keep accepting this business practice, that’s the way it’s going to be, I’m afraid.

      • Gullyborg

        And while I tend to think “most” consumer protection laws are an unnecessary abrigment of freedom, cases like this make good examples of why SOME laws are needed. The phone companies can easily scam $100 out of customers by relying on their ignorance of the law and inserting a bunch of legalese into a contract – then sending customers angry letters demanding they pay according to the terms of the contract. The customer may be right and the contract may be invalid, but it would cost far more than $100 to litigate the matter. It is cheaper to just pay. Companies know this and use it to bilk customers on a regular basis. So large numbers of customers, known as “voters,” pool their collective resources in the form of a government and together enact laws to stop such things.

        Sometimes it works. Unfortunately, it is far more likely in today’s age for the government solution to create more problems than it solves. And because many conservatives get jaded by constant government failure, we tend to have a knee-jerk reaction that ANYTHING the government does for our own good must be wrong. I just wanted to offer up some additional information here in order to show that, once in a while, laws to protect us really are right.

        Unfortunately, too many libertarian-style “conservatives” have become so anti-government that they border on anarchists. But without some government to maintain law and order, most of us will quickly fall prey to those with more resources and their disposal – making “no” government into de facto government by the ruling class. Without government, we would become the new serfs in a world dominated by the lords of superior marketing.

        • dean

          Did I read that here?

          • Joanne Rigutto

            Will wonders cease to amaze!

            Yes, Dean, do did. 😉

          • dean

            OK…Joanne…you are a witness. Right here on the Oregon Catalyst a self-described conservative said that some laws are needed to protect consumers from predatory capitalists. I’m going to sleep like a baby tonight.

          • Gullyborg

            I don’t think any conservative will disagree. It is just a question of “how far do we go?”

            Some folks might say that walking into a bank with a gun and taking money is just pure capitalism at work: an entrepenuer willing to assume risk reaps a reward; a bank, to avoid risk, may choose to install safes and hire armed guards; no police work is necessary.

            But most of us find that absurd and welcome police and laws to protect our money against theft.

            Now, other folks might say we need to go much further. We need laws to guarantee our accounts up to $100,000 against bank failure. Most conservatives are probably ok with that, even though we SHOULD all be practicing “buyer beware” with our assets.

            But what about a complete bail out when a bank mismanages money and you lose everything in an account worth over a million dollars? Should the government do that?

            How about two million?

            Twenty million?

            A billion?

            And why stop at banks? How about stocks?

            How much money should the government protect for you when you choose to invest it into a risky scheme?

            And then, if the government is going to assume all that risk for us, should the government have more control over how we invest our own money, for our own protection?

            It is all a matter of degrees.

            We need SOME laws, or else we live in an anarchist state where the people with the most gold and biggest guns rule. But do we want to live in a police state where the government takes control of our entire lives for our own safety?

            I happen to think, based on legal precedent more than on policy, that most of these liquidated damages contracts are unenforceable, at least as written. Does that mean I think the government needs to step in? Not really. I just think that proper application of existing law will suffice to solve the problem.

            That’s something I think most conservatives, once they become well versed on all the facts, will probably agree with.

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