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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.
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.
Belief? Hope? Preference?The Existential Vortex
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
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.
Javascript + Nintendo DSi = DSiCade
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.
brandelf -t FreeBSD
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
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.
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
Javascript + Nintendo DSi = DSiCade
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.