Washington AG slaps T-Mobile USA for not warning about catch to new 'no-contract' plans

NEW YORK, N.Y. – Washington state’s chief prosecutor says there’s a catch to T-Mobile’s new cellphone plans, which replace the traditional two-year service contract with an installment plan for phone buyers.

One of the benefits of the new plan is that buyers can cancel their service at any time. But Washington Attorney General Bob Ferguson says the company hasn’t told customers that they have to pay the full remaining cost of the phone if they cancel service; they can’t remain on the installment plan.

Ferguson announced Thursday that T-Mobile has agreed to warn customers across the country about the lump-sum payments, which can be higher than the “early termination fees” charged by other carriers when subscribers cancel their contracts.

In an agreement filed with a Washington state court, the company also agreed to issue full refunds on request to customers nationwide who bought T-Mobile phones from March 26, when the plan was introduced, to Thursday.

T-Mobile said it believes its advertising was “truthful and appropriate” and agreed to the arrangement in the spirit of increased transparency.

For a high-end phone like the iPhone 5, T-Mobile charges $100 up front, then $20 per month for two years. Customers also have the option of paying the phone outright for $580. While the installment plan adds $20 to the monthly cost, T-Mobile’s service plans are cheaper than the competition.

T-Mobile USA is based in Bellevue, Wash., and is owned by German phone company Deutsche Telekom AG.