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Judge Rules Sprint Early Termination Fees Illegal
Antiglobalism writes to tell us that an Alameda County Judge has ruled against Sprint Nextel in a class-action lawsuit, awarding customers $18.2 million in restitution for early termination fees. "Though the decision could be appealed, it's the first in the country to declare the fees illegal in a state and could affect other similar lawsuits, with broad implications for the nation's fast-growing legions of cell phone users. The judge - who is overseeing several other suits against telecommunications companies that involve similar fees - also told the company to stop trying to collect $54.7 million from other customers who haven't yet paid the charges they were assessed. The suit said about 2 million Californians were assessed the fee."
Prorated termination costs seem reasonable, especially given the subsidies on the hardware. I was surprised to see that Sprint is the only company that doesn't prorate. I figured the wireless companies would avoid any change that makes it easier for customers to change providers. When selling a commodity it's essential to avoid the profit-killing, competing-on-price, race to the bottom.
This will be appealed, so I don't see anything changing in the short term. The figures on the $55 million in uncollected fees is impressive. It would be interesting to know how much of that would be profit after subtracting the depreciated cost of subsidized hardware.
The disappearance of the 1-year contract bugs me, but at least it's easier to move up and down in rate plans once you've signed up.
And yes, it would be nice to have the option to buy unlocked phones from any vendor and use them with any provider, but I'd bet that less than a quarter of the customer base would make use of this on a regular basis. TMobile comes closest to supporting this now, but I left them when I got an IPhone and really do miss dealing with them. Their customer service web site is far superior to AT&T's.
If this goes through without appeal, other suits will follow and that will certainly impact plan pricing, since a large number of users don't want to leave their current provider because of those early termination fees.
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The article was light on details.. why did they decide that fees that are clearly stated in a contract before people entered the contract are now illegal?
I hate cell companies as much as anybody, but that's how they subsidise those cheap phone prices.
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This sounds like a good time to get one of those $199 subsidized iPhones and walk away from the contract.
But isn't the whole mortgage crisis based on the same principle? People walking away from their contracts?
No, the mortgage crisis was caused by a combination of irresponsible lending practices by lenders and people attempting to live beyond their means. People walking away from the contracts was an effect, not a cause.
Surely EULAs are even less enforceable than signed contracts?
because this is america and people only make decisions on the number they see. you can charge more but then someone will charge less and have a termination fee and this company will get all the business because everyone will say they are cheaper and go with them
Lendee: My boss is a dick and I have no proof of employment! Morgtage Broker: We get commissions anyway so we'll get you a "Liar's loan" for the downpayment and the bigger the morgtage the bigger the commish! you just have to pay interest on the loan at market rates. Lendee: Awsome, so the government will subsidize my american dream? Morgtage Broker: Exactly.
Incredibly, I'm going to have to pay back my student loans while these "classic" parasites get a free ride.
"They were pure niggers." – Noam Chomsky
ARM5-1 isn't a stupid loan. Its a low rate for 5 years. The idea is that before the 5 years are up you either sell, or refinance to avoid the higher rate (possibly to another 5-1, possibly not). It's actually a smart idea if you don't plan on living there 30 years. Now if you want a bad loan, look at interest only, 3 month ARMs, and negative amortization loans.
I still have more fans than freaks. WTF is wrong with you people?
I don't see where the "free ride" comes in. They lost the home, wiped out their savings, probably increased their debt, and (almost certainly) killed their credit rating. It will be a long time before they can attempt to own a home again, even if we assume they've learned from the experience.
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Nope that's not what is being said. They said the cell phone companies were screwing customers and that the termination fee didn't accurately reflect the cost of a broken contract.
The ruling was in favor of the class action plaintiffs because cell phone companies have operated in collusion in regard to early termination fees. Whether that collusion was orchestrated, or merely a in indirectly agreed upon measure to weasel more money from clients, the result is the same.
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It's a stupid loan if you do not foresee a collapse in property prices in your area due to near-future restrictions on easy credit. This is what happened to many tens of thousands of people, and why so many people are hammered by a negative equity situation. They cannot sell, because they owe more than the vlaue of their home and do not have cash reserves... and theycannot afford their ballooned payments.
Sure, the lender will (if they are smart) renegotiate with the borrower... but many borrowers find it a better proposition to walk away and declare bankruptcy.
Yes, IO 3 month ARMs are REALLY bad... unless you're just flipping the property. Negative amortisation loans, same deal. Either case, you better know what's going on in the housing market locally before you jump in.
"Trolls they were, but filled with the evil will of their master: a fell race..." -- J.R.R. Tolkien on Olog-hai
They had six months living in a house they knew they couldn't afford. And if they didn't know, they should have known. Sadly, the lenders knew they were going to get their fix of government bailout crack regardless, and more than likely rubber-stamped the application without thinking twice.
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That actually sounds very equitable. If phone companies switched to a more reasonable termination penalty, perhaps pro-rata fee where you basically bought out your subsidised phone (which is an outstanding debt you owe to the company) then this decision would not affect them.
No kidding!!! What do you say at this point?
These people weren't given a loan, they applied for it. Now you can say that the lending institution shouldn't have given it to them, but they should have also known that they couldn't afford it. $5,000 net monthly would seem to be around $75,000 anually, $3,500 in monthly mortgage payments would be about a $600,000 mortgage. No rational set of human beings could begin to think that they could afford that. Undoubtedly they thought they could tough it out for a few years, make a huge return and move on. I feel absolutely no pity for them. They were idiotic and got exactly what they deserved. It shouldn't be the place of society to protect people from themselves.
I'm not not licking toads.
It looks like it's going to be a long time before I can "attempt to own a home" in the first place, so my sympathy there is guarded.
I didn't say that nothing bad has happened to them; just that we seem to heavily subsidize (if not reward) people who take absurd efforts to appear affluently-middle-class, as well as the system of accomplishing this. It's an artificial sustenance of a lifestyle which is increasingly at odds with actual productivity.
"They were pure niggers." – Noam Chomsky
You think that's a free ride? Let's go over this again:
1. They have no home. Back to apartments for them.
2. They lost their savings.
3. They probably took on more debt.
4. Their ability to get new credit or make large purchases (e.g. a vehicle) is now stunted.
5. They have no hope of seeing another house for several years into the future.
6. Any long term plans they made are probably shot.
So how exactly is that a free ride? It sounds to me like they'll be paying a hefty price for quite a long time!
OK, I'll play too:
1. They didn't pay for the home so it wasn't theirs.
2. These are normally zero down loans, no savings invested.
3. Took on more debt... Huh? While probably true (if you can't handle credit in one situation, likely enough you can't handle it elsewhere) - it really isn't relevant to the free ride.
4. Bad credit - that's a consequence, but it doesn't benefit the person that loaned them the money, so still not involved in the free ride argument.
5. Yep, goes with 4.
6. Plans built on quicksand... still not relevant to the free ride.
The exact way that it is a free ride is that they agreed to pay X dollars to live in a house, then they didn't pay X dollars and continued living in the house. The entity that made the loan did not get paid what they were promised. They also get no benefit from any of the negative financial consequences that happen to the buyer. That is a free ride.
Now, outside of that transactions they may have had a lot of bad things happen to them financially. That doesn't really enter into the calculation. Maybe it would be simpler if we were not talking about a house. What about a nice silk dress instead? Let's say they promised a dressmaker $50 per month for a year for a nice custom made dress. The dressmaker delivers the dress as promised. The buyer accepts delivery and has a nice time wearing the dress to parties and gets lots of great compliments. The buyer never makes the promised payments. After about 6 months the dressmaker repossesses the dress. Can you see how that would be a free ride? Can you see how it is the dressmaker who is the aggrieved party?
Even if the party-goer has horrible financial luck and wound up in a tough situation and so couldn't afford the 50 bucks, it really doesn't change the calculus. She took advantage of the dressmaker for 6 months, and now the dressmaker is stuck with a dress that cannot be sold for anywhere close to the promised sum.
Perhaps it's not the place of society to protect idiots from themselves, but it the place of society-at-large to protect itself from the idiots.
Let's say Couple A and Couple B are both bidding on a house. Both couples make roughly the same amount of money, have roughly the same amount of savings, and so forth. Couple A is sensible, and not willing to spend more than they can afford. Couple B, on the other hand, is more willing to take the risk, and bids up the house to a level they really can't afford. It only takes a couple of iterations of this sort of bidding war to inflate home prices to the point where sensible couple A has to choose: either join the fray and pay a little more than they can afford, or stay out and either rent or buy less house. This pattern escalates higher and higher, and sooner or later, all of this ends up in the kind of collapse we are now seeing, all of which could easily have been prevented had the proper checks been in place.
So I ask, wouldn't it be to the benefit of society (read - all of us who might someday like to buy a home) to ensure that these checks are in place and properly enforced?
I haven't finished paying for my home either. Obviously it's not truly mine. It's the bank's by way of lien until I finish paying it off. However, I do get to live there as long as I continue to make good on my loan. Welcome to mortgage 101.
The original poster explicitly said: "Needless to say within 6 months of blowing through their saving is came down to deciding to sell the house or starve to death."
Whether they got a zero down loan or not, they lost their savings in a futile attempt to be responsible after the fact.
My presumption is based on the fact that they actually made a serious attempt to pay for that home. If they managed to blow through all their savings in an attempt to pay for it, I can practically guarantee they also took on further debt as a direct result. Whether it be from putting groceries and goods on credit cards that didn't get paid off, or from borrowing to pay off bills they couldn't afford, there's a good chance they are now saddled with additional debt.
Well, I'm glad we can agree on something. :-P
Not necessarily. If they had gone through a better decision making process, there's a good chance they could have found a home that met their needs just as well and still be living in it today. i.e. The plan itself isn't always flawed. Sometimes it's just the execution. Which seems like a fairly likely situation if they foolishly obtained a house that had a $3500/mo mortgage on a $5000/mo income. As a home owner in a major city, I can tell you there are more affordable places to live.
I can see that the dressmaker would be a moron. Dresses lose most of their value as soon as they're worn. They don't make very good collateral against a loan. A house, on the other hand, usually gains value rather than losing it. Which means that the bank can repossess the home and resell it for what is left on the loan. The bank ends up getting their money, plus whatever profits they made off the borrowers while they were borrowing. A win-win deal for banks.
The only reason why things have gotten bad is NOT because people are defaulting on their mortgages. The banks hedged their bets and thought they would be fine in any situation. The reason why things have gotten bad was that banks got greedy and lent a massive number of loans they knew were unreasonable. The result was that the market flooded with repossessed property and the banks starting taking a loss.
So I guess your analogy does work. The banks were as foolish as that dress maker! :-P
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Except his job is not to work with numbers all day. His job is to make you feel good about your purchase and borrowing decision, since he's the last person you spend significant time with before you take delivery. It helps compensate for the slimey feeling you get after dealing with the sales slob and the sales manager.
YMMV. My experience is pretty much limited to central NJ and (a little bit) eastern PA car dealerships.
"Trolls they were, but filled with the evil will of their master: a fell race..." -- J.R.R. Tolkien on Olog-hai
Ah yes, the old "it's the Fed!" canard. It has nothing to do whatsoever with relaxation of regulatory controls on the bankig industry that are not within the scope of the Fed. Right.
Hmm, seems to me that the Fed policy of moderate ((unspoken)~4% cost inflation) and (spoken) low wage inflation will correct the issue, since it will bring the money supply more in line with GDP.
"Trolls they were, but filled with the evil will of their master: a fell race..." -- J.R.R. Tolkien on Olog-hai
I'll add my spin on this one. I'll even go with your silly dress analogy (how on earth did you come up with this anyway?).
Let's say they promised a dressmaker $100 per month for a year for the dress, and then $1000 per month for the next 5 years afterwards (some more realistic numbers, since custom dresses usually cost many thousands of dollars, judging by what I've heard about bridal gowns). The dressmaker does a credit check, and finds that the buyer makes $15k/year working in fast food. The buyer can afford the $100/month, barely, but no way can she afford the $1000/month. The dressmaker decides to approve this financing for the buyer, knowing there's no way she can afford it after the first year. For the first year, the buyer pays the $100/month. Then, when the payments go up to 1k, she defaults. Dressmaker is outraged!
Who's the aggrieved party here? The one who stupidly made the loan, or the one who took advantage of the stupidity (ruining her credit in the process)? Personally, I think the blame falls on the lender, for making such a stupid decision. There's definitely times when people should be punished for taking advantage of the system, but this isn't one of those times. These lenders were absolutely corrupt and stupid for approving these loans, and they deserve to lose their businesses over them. The bad buyers are already getting punished, in a way; their credit is ruined, and they won't be buying a house again soon. That's punishment enough.
Also remember, the lenders never actually lost anything. The people borrowed money to buy these houses, and they used the houses as collateral. Remember that word? This means that the lenders agreed that these houses were worth what they were lending for them. When the buyers defaulted, the lenders repossessed the houses, and even kept all the mortgage payments already made. If the lenders can't get the same amount for those houses, that's their problem: they should have though about that first, instead of assuming that realty values always rise.
If you're going to lend money to people, it's up to you to make sure they're worthy of lending to. This is especially true for large financial institutions, who can easily afford to do all the necessary credit checks. The whole concept of the ARM is rooted in greed, and the lenders deserve to go out of business for making so many bad loans.
They were idiotic and got exactly what they deserved.
Since you're here, you're most likely an intelligent person who would never sign a contract without reading and understanding it. That's not normal. Unfortunately, normal is sign without reading. I'm not saying it's smart or right, just what most people do. Most people have no idea what's in their mortgage contract. Instead, they listen to the (dishonest) sales pitch from their broker and believed them. It's no wonder so many people are surprised when their mortgages reset. These are people who have no idea what amortization is, or how the math behind their loan made a reset inevitable. Most people can't calculate how or weather a bank is making money form their loan.
But you can do all those things. So to you, they're stupid and deserve it. I'll agree with the first part, but not the second. They absolutely should lose their homes. But a significant part of the blame falls with the machine that lured them into a trap because of greed. They didn't have a chance.
Disconnect your television. Do your own research. Draw your own conclusions. They're probably lying. Don't be a sheep.
Closer, but not quite.
The dressmaker agreed to sell the dress for $100/mo for the first year, and then an undetermined amount for the next five years. At this point, any reasonable person would say, "Screw you!" "Oh no!" the dressmaker replies, "The market for dresses is through the roof! In a year, you'll be able to sell this for way more than you paid and upgrade to a new, better dress!"
The lenders writing these loans were creating mortgage pools with say 70% Class A loans, 20% Class B, and 10% Class C. Being in the lending business, they then made all these mortgages available to mortgage brokers, who sold them as retail products. Brokers don't get paid unless the loan closes and with the assumption of appreciation and the ability to do self-reported income, they misrepresented what kind of credit risk buyers were to sell loans. Suffice to say, the problem is there was a third party who carefully made it look that buyer really could afford payments over the life of the loan.
Collateral merely means the lien holder must be paid first in any sale after the origination of the loan. Lenders don't care about equity, that's not what they're generating income from. They're looking at the income stream from the loan and the collateral deal is secondary, it's to make sure if the loan goes bad, they get paid first. Lenders are not in the business of buying & selling real estate for profit, they in the business of selling money.
Wow, I don't think you understand the responsibilities of mortgages and other sources of credit.
1 2 & 3: They made mortgage payments for 6 months, in addition to their car payments, credit card payments, etc. People that do things like this also tend to eat out a lot, which gets expensive. There's more money going out than there is coming in, so that's where their savings goes until they have no savings left, at which point, they start missing bills or paying them with credit cards, thus creating more debt, and eventually creditors come after them.
4 5 & 6: If they declare bankruptcy, which they will probably have to do after taking on so much debt, that pretty much stops them from getting a home (or any other type of loan) for the next 7 years. Even after the 7 years, the fact that they declared bankruptcy will still come up, they will never really be free from it.
Not to mention the fact that money problems put a huge strain on a marriage. Money problems this bad will very likely lead to a divorce unless the husband and wife make an extraordinary effort to grow up really fast, and make major sacrifices. Normally people get into this kind of debt because they're not grown up and they don't know how to make sacrifices. That's an incredibly hard change to make.
In your silk dress analogy, you act as if there wouldn't be any repercussions from not paying for the dress. The dressmaker would not take the dress back, it's already been worn and used for 6 months. The dress maker wants money, so the buyer gets turned over to collections, where agents call and harass the buyer and the buyer's spouse, and they're not nice about it. Collections agents will use insults, question the strength of the marriage and try to pit the buyer and the buyer's spouse against each other. Also, the buyer's credit suffers, so the buyer has a harder time getting loans, and the loans the buyer gets come at a higher interest rate. This is all assuming the buyer doesn't just report the buyer to the police for theft, which is more likely.
To say that they got a free ride is far from the truth. They will suffer quite a bit, even if they did "get to" skip very few months of paying any of their bills before it caught up with them.
I'm married and have children. I make a respectable amount of money and own a decent home. I also have more debt than I'd like, but I've never ever missed a payment on anything. Even so, the debt is a very real burden that I'd rather be free of. If I stopped making payments the burden would turn into a crushing weight, not a free ride.
Come back to the discussion after you've taken on some responsibility.
You should keep an eye on the three credit reporting agencies. Verizon may also sell your debt to third parties who might continue to come after you.
When it comes to unfair debt collection, the collection agency is in dodgy water. It seems to me that collection agents are going to be rather afraid on some level of a big possible whammy. --That is, they are just a thin legal line away from being an extortion racket. --A company falsely decides that you owe money, sends it into the collection system, and then professional collectors are allowed to harass you until you pony up. On some level, these guys know the accusations which can be leveled at them, and while they may never have heard them, they probably spend a portion of their time having one-sided arguments in the car or shower with invisible accusers. Gotta love those self-imposed fears; they always take on the meanest possible face when in the imagination. So that stuff is always gnawing on at least some employees at the collection office.
It's like dealing with government employees during a tax audit, (been there). I noticed in the couple of civil servants I dealt with during the process that they were clearly harboring a gnawing guilt, that they were permanently stressed over the fact that at any moment the subject might leap up and scold them for being over-paid system leaches. I suspect they spend a good deal of internal energy dealing with this guilt or trying to shore up rational defenses against the idea. I remember the agents I was dealing with offering up excuses and defenses for things I'd never said or even implied, and one lady who reacted very strongly when she was questioning my write-off of a bicycle, (which she at first Ah-Hahed! as though it were evidence of my trying to get away with something). When I explained that I didn't drive a car and that a bicycle was my primary means of transport partly because that's all I could afford, she physically recoiled and started blustering apologies and rationalizations not just for her assumption, but for her own use of a car. It was as though I had laid out a big speech about how she was using tax-payer dollars on a selfish means of transport when she could easily take the bus to work, a job where she shook down people who worked harder than her at more worthwhile tasks and why was she being such a coward in life rather than go out there into the world and get a real job like everybody else? --All of that unspoken accusation was suddenly on the table, and it had all come from her! Her baggage. Cool. --Without even trying or ever really pushing the advantage, I discovered all kinds of buttons you could press in these people to torment them if I had chosen to do so. And that was just during a routine audit.
So unless you're dealing with a sociopath, then the same general rules will apply to collection agents; a low level fear that what they are doing is questionable or that it might in fact be illegal if the paperwork isn't clean; those fears are automatically going to reside in their minds, or at least their bosses' minds. Just bringing a little pressure to bear, not even directly, but simply through asking questions which are normal enough on the surface, but which will cause the secondary cascade of unspoken thoughts to lead to thoughts tied to fear buttons, (like that thing with the bicycle), will make their day that much more difficult and your case that much less appealing. And unlike with government employees, these guys aren't guaranteed to have a job the next month if they don't bring home lots of bacon for the company, so anything which makes your case file seem like one to shuffle to the bottom of the heap is good.
But mainly the big thing is the amount they hope to collect from you. It has to be at least equal the cost of employing the agent during the time required to process your case. The longer you drag it out, the less and less you are worth. If you kick up a fuss and insist that the company which sold them your 'debt' was n