SPRINT CELL PHONES HANG UP EARLY TERMINATION PENALTIES

Automatic renewal clauses are sometimes called “negative option” or “evergreen clause” provisions. They are found in consumer contracts such as magazine subscriptions, telecommunications, security, online services, cable services, bank products, trash hauling, and the like. The provisions often state that a contract will automatically renew for the same period of time as the original contract unless the consumer states in writing on the anniversary date that they want to cancel.

Many states regulate these contracts. The common thread in the legislation is to require companies to make the automatic renewal clause conspicuous, require that the consumer receive separate prominent notice of the automatic renewal option before the renewal date, and/or to require that the consumer give affirmative consent for the contract to renew.

Approximately one half of the states have enacted legislation to regulate automatic renewal clauses in consumer contracts. Although such legislation has been repeatedly introduced in Minnesota, it was never adopted.

Attorney General Swanson was sworn into office in January of 2007. After being sworn in, Swanson filed a lawsuit against the cell phone carrier Sprint Nextel, asserting that the company used deceptive practices to extend cell phone contracts beyond their original termination date and imposing hefty termination penalties if they tried to cancel. At the time, Sprint (which has since merged with T-Mobile) serviced approximately 450,000 cell phone contracts in the State of Minnesota. Swanson labelled such provisions “Hotel California” contracts, pointing out that, like the song of the same name, the contracts let you check in but don’t let you leave.

The lawsuit was heavily litigated. Swanson argued that, even without an automatic renewal statute, the contracts violated the consumer protection laws because the consumer did not have adequate notice of the contract extensions and early termination fees. Swanson noted that, if the customer terminated the contract after the renewal date, they had to pay an additional $200 fee, an expense she argued was not adequately disclosed in the contract.

The litigation included many court motions and affidavits. After two years of hotly contested litigation, in November of 2009 the matter was settled with Sprint agreeing to pay a refund of fees for consumers who did not affirmatively consent to renewal of the contract.

After the lawsuit there were several unsuccessful attempts to enact legislation in Minnesota to regulate automatic renewal contracts and in Congress to regulate cell phones. Swanson testified before the Congress about unfair practices by wireless companies.

References:

“Swanson goes after Sprint,” St. Cloud Times, September 28, 2007.
“Sprint Nextel settles Minn. Lawsuit over cell contracts,” St. Cloud Times,” November 17, 2009
Swanson v. Sprint Nextel Corporation, Hennepin County District Court, File # 27-CV-07-20108 (2007)
Sprint Nextel settles Minn. lawsuit over contracts, MPR News
“Sprint to pay $17.5 million to settle fee suit,” Associated Press, August 12, 2009.
Sprint Nextel settles Minn. lawsuit over contracts, Twin Cities