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Early Termination Fees: When They’re Legal, When They’re Not, and How To Fight Them

In November 2020, a frustrated customer took to Xfinity’s forums, looking for help.

“I have been a long time customer with xfinity internet for a really long time with zero issues and zero complaints,” they wrote. “Then in July 2020 I got a text message saying there is upgrades going on in my area and there might be some service interruptions for that day. I was excited for the new and improved network but it became a nightmare. Since that day my service pretty much was not usable.”

The customer continued to share their story, saying that for months, they had been experiencing outages and slow service that left them unable to use their home internet. They scheduled service appointment after service appointment, only to be told that the issue was with the network, not their own home connection, and they’d just have to wait for it to be resolved.

But going months without reliable internet in 2020 isn’t an option for most households, so this customer understandably decided to give up and switch to a different provider. That’s when their next big shock came.

“I was able to get the early termination fee waived. I have screenshots proving this,” they wrote. Nevertheless, they were charged an early termination fee, which has since been sent to a collection agency.

This kind of horror story might sound like an extreme. But sadly, it’s all too common. Social media sites — especially Reddit — are filled with similar stories of customers who were on month-to-month contracts or who are paying for a service that doesn’t work, who get hit with early termination fees when they try to get out.

If you’ve ever thought that there must be a way to avoid those fees, well, the answer is: Sometimes. In this guide, we’ll explain everything consumers should know about early termination fees, including what they are, why businesses charge them, when they might be illegal (or at least unethical) and how to fight them if you think you’ve been charged an early termination fee that isn’t fair.

What Is an Early Termination Fee?

At its most basic level, an early termination fee is just what it sounds like: A fee charged to a consumer who exits a contract or ends an agreement with a business early.

Early termination fees are extremely popular in telecom contracts — cell phone, cable TV, or internet service agreements, just to name a few. But they can also pop up in less expected places. The surcharges you have to pay if you break your apartment lease early might be considered an early termination fee, for example.

In many cases, early termination fees are imposed by companies to make sure they can recoup their own costs and losses in the event of a customer leaving a contract early. That’s why they’re so common in telecom service contracts — an early termination fee might ensure that the company gets paid back for any discounts, promotions, or installation or equipment charges that were built into your contract, ensuring they don’t lose money if customers cancel their service.

Types of Early Termination Fees

All early termination fees don’t look exactly the same. In fact, they can take a number of different forms.

Flat Fees

A flat fee for early termination is just like it sounds: The company or provider will charge you a flat amount for ending your contract early. The amount needs to be specified in the contract and agreed upon by both parties. This is the most common type of early termination fee you’re likely to encounter with cell phone, TV, and internet service providers.

Liquidated Damages

Liquidated damages fees are a little less common, but have the potential to be much more expensive than flat early termination fees. In this case, the business charges a termination fee in the amount of the revenue it determines it will lose because of you closing your account early. This means, for example, if you have a three-year contract and cancel two years early, your early termination fees could be as high as the cost of continuing your contract for those two years.

This type of termination fee is more common in something like a leasing contract. For example, apartment leases often include a clause that says if you vacate the apartment early, you’ll be responsible for paying any marketing costs the landlord incurs while searching for a new tenant, as well as the rent for any months the apartment is empty. This ensures that the landlord doesn’t lose money because of your early termination.

It’s worth noting that flat early termination fees are often charged as a way to help business recoup lost costs, and the wording of the early cancelation clause in your contract should reflect that. We’ll talk about that a little bit more in the next section, when we talk about when early termination fees are legally allowed.

Are Early Termination Fees Legal?

So are companies allowed to charge you huge fees if you leave your contract early? Well, the answer to that isn’t a simple yes or no. It depends, and there are a lot of different factors to take into account.

First, know this: Early termination fees tend to be difficult to fight. The main reason for this is, in many cases, they’re outlined in a contract that you are given before you start your service. If you had access to that contract and signed it, that means you legally agreed to whatever early termination fees are listed in it. The company has a legal right to hold you to that agreement.

But that doesn’t necessarily make early termination fees a black-and-white situation. For example, think back to the Xfinity customer we talked about at the beginning of this article. They were able to get their early termination fee waived because Xfinity wasn’t holding up their end of the contract: Service outages and slow internet speeds meant Xfinity wasn’t offering the service it promised.

In any case where you’re trying to cancel your contract early because you’re not satisfied with the quality of the service, you have more leverage than you may think. Unfortunately, telecom companies in particular are likely to fight you on that. Make sure to document everything you can as far as the service not living up to your expectations, and then use that documentation when you file complaints against the company (more on that below).

When to Watch Out for Early Termination Fees

An unfortunately common theme (especially with telecom companies) is customers thinking they’re on a month-to-month contract, only to get hit with a high early termination fee when they try to cancel.

This happens because these companies are known for engaging in the unscrupulous practice of assigning “renewal events” to accounts that the customers often don’t know about or agree to. In other words, they look for ways to sneakily renew your contract so you’re locked into a new, long-term agreement with an early termination fee.

Here’s what to watch out for, and how to avoid having this happen to you.

Renewal Offers

Once your contract is up, it’s not uncommon for the company to call you and ask you, point blank, to renew it. Often, they’ll make this seem like a good deal by throwing in some kind of discount or promotion — like a free phone upgrade with every two-year cell service contract, or a lower internet rate with a year of service. They might even call and threaten to raise your rates, unless you sign a new agreement.

If your contract is expired, know that you don’t have to enter into a new one. As long as you continue to pay your bill on time, you can keep your account (though, it should be noted, the company can increase your service prices if they give you proper notice that they’re doing so). Renewing your contract will subject you to another early termination fee if you decide you want to switch providers, so keep that in mind before agreeing to a renewal.

Upgrades

If your telecom company contacts you and offers upgraded service or equipment out of the blue, be wary — especially if you’re at or near the end of your contract. If you accept, the company could interpret that as entering into a new contract, locking you into a new deal with another early termination fee.

Any Time Anything Is Offered Early

If you’re expecting to get something like a phone upgrade, and your cell service company offers it earlier than you expected, proceed with caution. It’s possible that they’re attempting to get you into a new contract before your original one ends, which would (you guessed it) come with an early termination fee.

How to Complain About Early Termination Fees

Early termination fees are notoriously difficult to fight.

But all hope is not lost. Follow this checklist, and you’ll be using every tool consumers have at their disposal to fight unfair charges and shady business practices.

Start with Customer Service

As with any complaint, your first course of action is to contact the customer service department of the company you have a disagreement with.

Keep in mind that the first (and likely first several) agent you get on the phone won’t be able to waive your fees, so keep escalating your complaint as much as you can. If anyone tells you that you signed a contract that agreed to an early termination fee, ask for a copy of the contract. If they tell you that you verbally agreed to a contract over the phone, ask for a recording or other proof.

Take Your Complaint to a Higher Agency

Depending on the type of company you’re trying to fight, you might be able to make a complaint to the FCC, CFPB, or a local regulatory agency. Sometimes, even just mentioning a higher agency on the phone will be enough to get a company to waive your early termination fee and let you out of your contract.

To Get Money and Power Back In Your Hands, There’s FairShake

If you’ve already paid an early termination fee that you didn’t think was fair, you may still have options.

One option consumers often overlook is arbitration, a process that works a little bit like small claims court, in which an independent third party (called an arbitrator) helps a consumer and company settle a dispute.

Arbitration can be a complex process, and that’s where FairShake comes in. FairShake uses a combination of automation and one-on-one guidance to help consumers take on the big guys. You tell us about your dispute, and we’ll help you draft a complaint letter, send it, let the company know you’re serious, and guide you through the next steps, all the way to a settlement or an arbitration hearing.

We put the power back where it belongs: In consumers’ hands. Ready to get your fair shake? Start a claim today.





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