Readers divided on need for early termination fees

YARMOUTH, Maine—Early termination fees are a standard in the security industry, but now The ADT Corp. is facing a class-action lawsuit over them on consumer protection grounds. Are the fees necessary to help companies recover installation costs and the loss of profit, or are they just an anti-competitive tool used to lock in customers?

The 110 readers who responded to SSN's June News Poll were almost evenly divided on that question. Fifty percent said there was no need to handcuff customers, while 46 percent said the fees were necessary as part of long-term contracts. Among those who said the fees were needed, 73 percent said prorating them would ease the burden on customers while making sure the security company recovered its costs.

“I have heard arguments on both sides for years,” one reader wrote. “We take each [account cancellation] on a case-by-case basis. For the most part, we try not to be too tough, but there are cases where we have to be. I support ADT's right and any other company's right to do as they see fit within the legal limits and within reason. … People break contracts all the time even knowing full well what the conditions are.”

“A standard part of the alarm and cellphone business leverages the cost of the equipment against the service,” another reader said. “The term of the contract is to ensure the ability to stay in business. If the term length is changed, the installation prices will have to change accordingly.”

“With the common pricing model, we make a serious investment in the client's system,” another respondent wrote. “When a customer cancels in the initial contract period, we may not have recovered our costs, much less recognized a profit on the sale.”

Readers supporting that business model were slightly outnumbered by those who oppose early termination fees, prorated or not.

“There is no less expensive way for a customer to do business with you than a policy of 100 percent down [and] no easy monthly payments,” said George Tanguay, president and chief engineer for North American Security in Clarkston, Ga. “If you can't earn your customers' business each and every day, you do not deserve to keep them.”

“If companies would put in the system at a profit and not sell off the monitoring contract for many times the monthly amount, early termination fees would not be needed to cover lost profits,” another reader wrote.

“This is a legacy provision that has outlived its value. It is punitive,” a respondent said. “Reasonable-notice clauses for both parties should be sufficient. Perhaps the industry should stop offering the hardware for free in exchange for a fixed-term contract.”

Many of the readers who took the time to provide written comments used the opportunity to sound off on a larger issue: ADT's business practices and how they're affecting the industry.

“If ADT did a better job of servicing their accounts, they would not need to have such high cancellation fees,” a reader said. “We moved away from ADT several years ago for our 100-plus locations due to their poor service and even worse alarm response. It took nearly two years to do so because of their cancellation fees, but it was worth it in the end.”

“ADT just needs to quit giving away the bank when they do an installation,” another poll respondent wrote. “Then they have no risk downstream when the customer finds out they are not doing what they are supposed to be doing and [the customer] wants to cancel the service.”