Lawsuit takes aim at alarm contract’s early termination fees and price increases.

file00040843113Sorry, 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.




3 thoughts on “Lawsuit takes aim at alarm contract’s early termination fees and price increases.

  1. Jim Henson

    I have a similar story to so many ADT customers. Having been a loyal ADT customer for over five years, I upgraded to ADT Pulse. Because of increasing travel and a possibility of a move, I asked about canceling if I needed to. I was told that this would be no problem since I had been a loyal customer for so many years. When I finally did have to move a year and a half later, I was told THEN that I had to pay 75% of the contract, $890!!!!!! Are you kidding me?

  2. Wendy Carlisle Post author

    On behalf of the industry, I am sorry for your bad experience. Having a contract and penalties for cancellation help alarm companies stay in business, especially when they offer installation and equipment below cost. For those on the consumer end, it’s always a good idea to read contracts and make sure any promises you receive are in writing. In some instances, an alarm company will allow you to negotiate a reduced contract period for instances like yours where you expect to move. I hope your experience has not soured you from getting an alarm system in the future. Best Regards, Wendy

  3. Nancy Lanelle

    I have a three year contract with ADT. I was not made aware that I would have a price increase during that period so the price increase was a surprise to me. To ad insult to injury I am being held prisoner by the three year contract I entered into in January 2012. In May 2012 I had back surgery and due to complications had a second surgery two weeks later and was unable to walk. I was hospitalized for physical rehabilitation therapy for a month following the second back surgery and then had a 2 1/2 month stay in a nursing home for additional rehab. To make a long story short I was never able to live in my home again because being that it is located on a hill with no driveway, I simply could not enter it. I took up what I thought was to be temporary residence with my sister. So until February 2014 I paid my mortgage, utilities, and ADT bill each month when I finally accepted I would never be able to return home and sold my house. Unfortunately ADT had no sympathy for me and required that I pay the remaining months of the contract through January 2015. They have lost me as a customer forever. I just bought a new accessible home which I will move into in September and will most assuredly not use ADT for my new security system.

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