Class Action Lawsuits Filed Over Unlawful Early Termination Fees

By Sarah Mirando | May 22, 2013

Category: Legal News

By Anne Bucher

early termination fee violations The early termination fee (ETF) has become a common practice for many service providers in a variety of industries, including wireless carriers, home security and payment processing companies.

The ETF is used to penalize customers who cancel their contracts early. Recently, California courts have determined that certain types of ETFs violate the law. As a result, an increasing number of Californians are taking action against companies who charge illegal ETFs. So far, these plaintiffs have received millions of dollars in settlements. These ETF lawsuits help to ensure that customers are treated fairly and that companies follow the law when imposing ETFs on customers who choose to end their contracts before the term is up.

How Are Early Termination Fees Determined?

When a customer ends a contract without cause before the term of the contract expires, the customer breaches the contract. Under the law, the service provider is allowed to recover some of its lost profits.

Most of the enforceable ETFs include a liquidated damages clause that designates the amount the customer agrees to pay in case the customer breaches the contract. The amount of the liquidated damages must be determined in good faith and must be an estimate of the actual damages that are likely to occur as a result of the broken contract. However, if the liquidated damages amount listed in the contract is not based on a good faith estimate, the ETF clause will likely be viewed as an illegal penalty.

Class Action Status Sought for ETF Lawsuit against ADT

In December 2012, a federal class action lawsuit was filed against the home security company ADT. In this ETF lawsuit, the plaintiffs argue that ADT illegally penalized customers by charging an early termination fee. They allege that ADT charges subscribers two types of ETFs: a flat fee or a percentage fee. The percentage fee is equal to a percentage of the amount due for the remaining contract term.

The plaintiffs also argue that ADT has charged an early termination fee even when the subscriber chooses to cancel their subscription with good cause. They believe that the ETF imposed by ADT serves as a penalty that is meant to keep the customer “tethered” to the company, providing ADT an anti-competitive advantage over other home security companies.

The class action lawsuit accuses ADT of regularly increasing the alarm monitoring fees without providing proper advance notice or obtaining consent from the customer. The plaintiffs are seeking class action status on behalf of current and former ADT subscribers.

ADT has not yet responded to the plaintiffs’ complaint.

Find Out More about Your Legal Options

If you are a California resident who has been charged an ETF, you could be eligible to join a class action lawsuit. To learn more about your legal rights, visit the California Early Termination Fee (ETF) Class Action Lawsuit Investigation. Submit information about your ETF issues to get a free case evaluation. If you qualify to join an ETF class action lawsuit, you could get a refund. Some ETF lawsuits have resulted in plaintiffs being awarded millions of dollars.