FCC to Nullify Millions of Contracts?

My colleague Alex Harris is drooling over the latest version of Apple‘s iPhone. In true CEI spirit he added, “Regulators better not get in my way.” Sorry to say, Alex, but tomorrow the FCC is holding a hearing that may do just that.

Here’s what’s happening. Monthly service is cheap, but phones themselves are expensive. A good one costs hundreds of dollars. Many people can’t afford to buy them outright, or don’t want to. Since phone companies want to sell phones, they’ve found a way around that: spread the cost out over time.

Providers often sell their phones cheaply, sometimes even at a loss. Then they make their money back by locking the customer in for a set period of time, usually a year or two. If the customer wants out before then, they have to pay an early termination fee.

The FCC ‘s hearing tomorrow will discuss ways to regulate early termination fees. The fees are unpopular, even though they allow more people to afford better phones.

Some people have complained because they found out about the fees only after signing a legally-binding contract; not everyone can be bothered to read fine print. The FCC claims it is looking out for these people.

They are not. The fees are a good thing. They lower the cost of entry into the cell phone market. Without early-termination clauses, a lot of people would be priced out of cell phone ownership, period. Others would only be able to afford a low-end phone. The FCC’s proposals would hurt these people.

That doesn’t matter when there’s a chance to be seen “doing something.” Ergo, the FCC is considering violating the sanctity of millions of contracts. In Washington, good publicity trumps the rule of law. I wish it were for a better reason than people not reading what they sign.