Sorry, ADT. I am not trying to pick on you. You’re so big and have so much litigation that there’s just a lot to write about. This time, it is a putative class action lawsuit that has been filed against ADT in California, taking aim at the alarm contract’s early termination fees and mid-contract price increases. The plaintiffs claim that ADT has a “never let them go strategy”– it tries to rope its customers in with promises of low monitoring fees that then get raised during the contract period, and it has long contract periods that are costly to escape, even in cases where a customer is dissatified with the service. Should this lawsuit cause other alarm companies to be concerned?
Deceptive Trade Practices Act.
The legal theory is that ADT’s practices violate the California and Illinois deceptive trade practices act. In general these laws (and similar laws in almost every state) prohibit companies from myriad unlawful, unfair, or fraudlent activity. The penalty for violations can be steep: some state’s consumer protection laws allow the person suing to recover their attorney’s fees and triple damages.
Long Contract Terms and Price Increases.
We all know that long contract terms and early termination fees are standard in the industry. What I hear from alarm companies is that they simply could not afford to do business without these long contract periods to recoup money they lose by offering discounted installations. And most contracts allow for price increases, which simply allow the alarm company to pass on any increases in its costs of doing business.
But, the plaintiffs claim that ADT’s contract period is longer than is required to recoup its costs. Plus, they allege that the contract’s terms amount to a retail installment contract– for which ADT should comply with federal truth in lending requirements– like stating the total amount of all payments. And, they allege that ADT did not comply with its own contract terms, which state that they will give notice of price increases. Read the complaint here: Hogan et al v. ADT.
ADT is currently trying to get the case moved to Florida. And then its next battle will be to fight the class action from being certified. But, if it gets to the merits of the matter, ADT could have a costly battle ahead of it, with lots of experts trying to disprove plaintiffs’ claims.
What Should Your Business Do Now?
ADT is the subject of this suit because it is a large company with deep pockets– class actions are all about money. So small and mid-size alarm companies should not be overly concerned right now.
But, I do think this is another case to watch. And I think there are lessons that every alarm company can learn from this case, regardless of the ultimate outcome:
1. Follow you contract’s terms. For example, if your contract says you’ll give notice of a price increase, then give the notice. Or if it says you won’t increase the price during the first year, then don’t increase the price during the first year.
2. If your contract is anything other than an outright purchase of the alarm system, you should consult with an attorney to determine if you should comply with truth in lending laws.
3. Don’t be afraid to give your customers leeway on the termination fees, and shorter contract periods (with, perhaps, an increased installation fee). Good customer service dictates this; and it shows that your contracts aren’t adhesive (i.e., take it or leave it), which can be an argument against the contract’s enforement.