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Supreme Court Asked to Rule on One-Sided Cell Phone Contracts

March 14, 2006
Nothing irritates wireless customers more than learning after the fact that their cell phone provider has unilaterally changed the terms of their service agreement. Now, the U.S. Supreme Court is being asked to rule on the issue.

Virtually every cell phone contract gives companies permission to change service agreements. Most also require consumers to agree that they will not file suit to settle disputes but will submit to binding arbitration, using arbitrators appointed by the company.

There's not much individual customers can do about this, but at least one state is trying to go to bat for the lowly consumer: In 2004, Minnesota enacted a law that requires cell phone companies to provide notice and get customer permission before changing the terms of the customer's contract.

Not surprisingly, cell phone companies were unhappy, and just two weeks before the measure was to take effect, cell phone companies filed a lawsuit in United States District Court, arguing that federal law preempted the statute.

Under federal law, states are not permitted to regulate the rates charged by cell phone companies, but may regulate other terms and conditions of cell phone contracts.

In September of 2004, U.S. District Judge John Tunheim issued a decision siding with the state, finding that the new law was an appropriate consumer protection measure regulating the terms and conditions of cell phone contracts.

The cell phone companies appealed to the Eighth Circuit Court of Appeals, which reversed Judge Tunheim's decision in December of 2005. The Eighth Circuit concluded that the Act regulated the rates of cell phone services and, therefore, was preempted by federal law. Under the Eighth Circuit's decision, the Act cannot be enforced.

Now, Minnesota Attorney General Mike Hatch has filed a petition with the United States Supreme Court requesting review of the case.

"The Eighth Circuit's decision leaves citizens at the mercy of cell phone companies, which are now allowed to change the terms of a customer's contract, including the rates they charge, without the customer's knowledge or consent," said Hatch. "By requiring notification and permission from cell phone customers, our law provides basic fairness that is currently missing in the relationship between cell phone companies and their customers."

The Supreme Court will consider the petition and decide whether to hear the case. If it decides to hear the appeal, it will likely happen during the 2006-2007 term.

The Act

The Consumer Protections for Wireless Customers Act was enacted in May of 2004 after the legislature heard from cell phone customers that companies routinely changed the terms of their contracts, including the price, without their knowledge or consent.

Customers testified that when they found out about the changes, they tried to terminate their contracts only to be hit with a termination penalty of $150 or more.

The appeal raises critical questions about the rights of all 50 states to protect their citizens from the unfair business practices of a very powerful industry, hatch said.

In 2004, almost 185 million Americans had cell phones, and at that time the Attorney General's Office received more complaints about cell phone companies than against all local telephone companies and energy utilities combined.

The Act involved in the cell phone lawsuit includes the following provisions:

• Requires cell phone companies to provide customers with a copy of their contracts.

• Requires cell phone companies to give customers advance notice of contract changes which could increase the cost or extend the length of the contract.

• Cell phone companies must get consent from their customers before increasing the cost or extending the length of contract.

• If a customer proposes a change in service, such as adding night and weekend minutes, the cell phone company is required to notify the customer if the change will increase the cost or extend the length of the contract.

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