Company will pay $400,000 and establish practices on cancellation fees.
DES MOINES. United States Cellular Corporation has agreed to a limit of $150 on "break fees" charged to customers who cancel their cell phone contracts, and to reduce break fees in proportion to the time customers have remaining in contracts. [See June 2004 amendment/update at end -- US Cellular is not required to prorate reduced break fees if it has met certain conditions listed at end, below. However, the Attorney General's Office has authority to waive any default charge (break free) if, upon the consumer's written complaint, the Office determines that US Cellular violated the Consent Judgment, failed to meet conditions for imposing the break fee, or violated another provision of law in connection with the sale of cellular phones to the consumer.] U.S. Cellular also will pay $400,000 to the State to be used for reimbursing consumers for actions the Attorney General believes violated Iowa's consumer protection or consumer credit laws, and for other consumer protection efforts.
Attorney General Tom Miller filed a lawsuit in April 2000 alleging that U.S. Cellular sometimes used misleading advertising to entice consumers into cell phone contracts, and then made it difficult for consumers to cancel the contracts by imposing "break fees" up to $300, even if a customer was near the end of the contract period.
Miller said a Consent Judgment settling the lawsuit was approved by a District Court Judge today and filed in Polk County District Court.
"This is a good resolution for consumers," Miller said. "It will benefit future customers, and it will provide a practical reimbursement process for consumers with complaints about the break fees. We appreciate U.S. Cellular's willingness to reach a good result for consumers past, present, and future," he said.
The main terms of the settlement include:
- U.S. Cellular may charge a customer up to $150 if a contract is terminated, but the charge must be prorated less than $150 according to how much time is left on the contract. [See update below. Break fees do not need to be prorated, if conditions are met.] For example, a customer with one-third of the contract period remaining could be charged only $50, a customer with two-thirds remaining could be charged $100, and so forth. Terms in the settlement will apply to current customers even if contracts specify a higher break fee.
- U.S. Cellular advertising and contracts must include a disclaimer clearly disclosing all details of any customer charges for termination of contracts. Contracts must not exceed 24 months.
- U.S. Cellular will pay $400,000 to the State of Iowa for consumer reimbursement, and for other costs of the case and consumer protection and education. Persons who entered into contracts since July 1, 1996, and who have filed complaints with the Attorney General or file complaints within the next 60 days may be eligible for reimbursement from the fund. See more details below on consumer reimbursement.
- U.S. Cellular agreed to take all reasonable steps to correct or remove negative credit
reports made by the company regarding charges imposed on consumers by the company for early termination of a contract up to the date of the settlement on May 9. Consumers must notify U.S. Cellular or the Attorney General if their credit report was affected adversely. Any fees required to remove such negative credit information will be paid by U.S. Cellular.
- U.S. Cellular must use clear disclosure of all key terms and conditions if it offers "free" goods or services, such as free phones or free calls.
- U.S. Cellular does not admit violations of Iowa law, and the settlement does not finally resolve whether "break fees" (cancellation fees) are legal in Iowa. The parties have litigated intensively in several federal courts since federal and state lawsuits were filed in 2000, but this issue had not been resolved. The Consent Judgment said the settlement was reached in order to resolve a good faith disagreement over construction and application of Iowa law.
The settlement does not bind other companies.
Information for Consumers on Possible Reimbursement
The Consumer Protection Division of the Attorney General's Office will handle complaints for reimbursement. Under the consent decree, reimbursement can be made for consumer losses "caused by any act or omission" by U.S. Cellular which the Attorney General believes violated Iowa consumer protection or consumer credit laws. The settlement covers contracts since July 1, 1996. Consumers must file a complaint with the Attorney General within 60 days (by July 8) if they haven't done so already.
Miller said complaints could include, for example, situations in which consumers wanted to cancel their contract when they learned U.S. Cellular coverage was ineffective for their area, when they had to move to another state with no U.S. Cellular service, or when U.S. Cellular changed its free weekend minutes plans, but United States Cellular required the consumers to pay a break fee.
For more information or a form to file a complaint or claim for reimbursement, consumers should contact the Consumer Protection Division, Hoover Bldg., Des Moines, Iowa 50319. The phone is 515-281-5807, and the email address is email@example.com. The Attorney General's web site is www.IowaAttorneyGeneral.org.
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Update: The settlement was amended 6-8-04. (Click here for Amendment to Consent Judgment. (PDF format))
US Cellular may charge a "break fee" up to $150, as long as it follows certain conditions: All terms and conditions relating to a consumer's potential liability must be set forth clearly and conspicuously in the contract; US Cellular must have complied with terms of the contract and not violated applicable law to the consumer's detriment prior to the consumer's default; and the contract must not exceed two years in length. The break fee does not need to be prorated depending on how much time is left on a contract that is terminated.
However, the Attorney General's Office has authority to waive any default charge (break free) if, upon the consumer's written complaint, the Office determines that US Cellular violated the Consent Judgment, failed to meet conditions for imposing the break fee, or violated another provision of law in connection with the sale of cellular phones to the consumer.
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