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(SAN FRANCISCO) – Attorney General Bill Lockyer today announced settlement of a consumer protection complaint that will result in certain refunds and changes in the way cellular phones are sold by AirTouch Cellular, currently known as Verizon Wireless, and the RadioShack Corp. to prevent false advertising and unfair business practices.
"Cellular phones have become a way of life," Lockyer said. "In signing up for cellular phone service, Californians deserve to clearly know the terms of their contract agreement and shouldn't be sprung with surprises like early cancellation penalties and extended contracts. This settlement requires the cellular phone company to make changes to prevent further false advertising and unfair business practices."
The settlement, which includes payment of $1.5 million in fines and costs, comes in a civil complaint filed by the Attorney General, District Attorney Dean Flippo of Monterey and the City Attorney of Los Angeles in February 2000. The settlement with the defendants was approved by the San Francisco Superior Court on Wednesday.
The lawsuit alleged that AirTouch engaged in false, misleading and unfair business practices after it eliminated written contracts in September 1997. Soon after the switch to oral contracts, consumers began complaining that certain material terms of their contract were not being disclosed when they purchased service from AirTouch and its authorized outside vendors, such as RadioShack. Among other things, the lawsuit alleged that the company in enforcing two-year oral contracts failed to adequately inform customers about their right to cancel during the 12th month of service without the early termination penalty. By law, oral contracts are restricted to a one-year period.
Under the settlement, the cellular phone company must identify and make restitution to qualified customers who were charged $150 in early termination fees. The refunds must be made to former customers who were charged the early termination fee during the second year of their oral contract and were not adequately informed at the time of sale about the imposition of such penalties if they ended their agreement before the contact expired, or that the agreement could be canceled during the 12th month of the first year without penalty, or that a change in the cellular pricing plan could result in the extension of the original agreement.
AirTouch Cellular also is required to make restitution to eligible current customers who cancel their service during the second year of their oral contract. Additionally, AirTouch Cellular will pay $999,000 in civil fines and costs and RadioShack will pay $540,000.
The settlement also requires AirTouch Cellular to inform customers in writing at the time of sale about the service terms of the cellular service plan being purchased, the rate charged for the plan and the nature and amount of any applicable early disconnection fee. The notice must further disclose that changes in the existing cellular service plan may result in the imposition of new terms or extention of the contract period for which an early disconnection fee could apply.
Under the agreement, AirTouch Cellular will train and monitor employees about compliance with the disclosure requirements. The company also must implement an effective procedure to review, investigate and reply to customer complaints about any misrepresentations or deception during the sale of Verizon Wireless service.
Similarly, the permanent injunction against RadioShack requires the company to inform customers in writing about the service term of the cellular plan being purchased, the rate charged for the plan, the nature and amount of any applicable early disconnection fees, and disclosure that any change or modification of an existing cellular service plan may result in the imposition of new terms or contracts.
RadioShack is also banned from misrepresenting to consumers the consequences of changing or modifying service plans and representing that Verizon Wireless cellular service is available in a particular geographical area unless it is true. In a situation where service is not available, RadioShack will be required to cancel the contract and reimburse the consumer for all charges except completed calls.