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Legislation would limit cell phone companies' early termination fees

Three U.S. senators, including Amy Klobuchar, D-Minnesota, introduced the Cell Phone Early Termination Fee, Transparency and Fairness Act this week.

The legislation follows Verizon Wireless' decision to double its early termination fees from $175 to $350 for certain subscribers who end their contracts early. The bill would set limits on early termination fees (ETFs). It would also require wireless providers to pro-rate ETFs and clearly notify customers about the fee, not only at the time of purchase, but for the duration of their contracts.

Early termination fees are budget-busters, according to Klobuchar. In the wireless phone business, the combination of long term contracts and substantial early termination fees - that range from $150 to $350 - have the effect of keeping customers from switching providers, even when those customers are dissatisfied with their service or move their work or home to areas with inadequate service, she said.

"Changing your wireless provider shouldn't break the bank," said Klobuchar. "Forcing consumers to pay outrageous fees bearing little to no relation to the cost of their handset devices is anti-consumer and anti-competitive."

The bill would:

Prevent wireless carriers from charging an ETF that is higher than the discount on the cell phone that the wireless company offers consumers for entering into a multi-year contract. For example, if a wireless consumer enters into a 2-year contract and receives a $150 discount with the contract, the ETF cannot exceed $150.

Require wireless carriers to pro-rate their ETFs for consumers who leave their contracts early so that the ETF for a two-year contract would be reduced by half after one year and pro-rated down to zero by the end of a contract term.

Require wireless carriers to provide "clear and conspicuous disclosure" of the ETF at the time of purchase.

Require monthly billing statements to clearly state the pro-rated fee customers would be charged if they terminate their contracts before the end of the next billing cycle.

Verizon Wireless is the nation's largest cell phone service provider. On November 15, Verizon doubled its ETFs from $175 to $350 for customers purchasing an Advanced Device (smart phone) with a one or two year service agreement. The $350 ETF will decrease $10 for each month of service.

In November, Klobuchar, a member of the Senate Commerce Subcommittee on Communications, Technology, and the Internet, sent a letter to the Verizon Wireless President and CEO, Lowell C. McAdam, criticizing the company's decision to double ETFs for certain customers. Klobuchar also urged Julius Genachowski, the Chairman of the Federal Communications Commission (FCC), to review the Verizon Wireless decision to raise these fees.