An early termination fee is a penalty charge that consumers must pay if they decide to end their contracts prior to the agreed upon date. This kind of fee is typical of cell phone contracts, gym memberships, leases or other long-term contracts. The purpose of the early termination fee is to encourage consumers to honor the contract for its full duration. These fees can vary in amount, from a flat fee to several months’ worth of payments.

Example:

Lee signed a two-year cell phone agreement that, after six months, he wanted to end. Rather than continue to make payments for the rest of the two years, the cell phone company required that he pay an early termination fee of $250.

Sample – Cell Phone Provider:

If we terminate your service for nonpayment or other default before the end of the Service Commitment, or if you terminate your service for any reason other than (a) in accordance with the cancellation policy; or (b) pursuant to a change of terms, conditions or rates as set forth below, you agree to pay us with respect to each device identifier or telephone number assigned to you, in addition to all other amounts owed, an Early Termination Fee in the amount specified below (“Early Termination Fee”). If your Service Commitment includes the purchase of certain specified Equipment on or after June 1, 2010, the Early Termination Fee will be $325 minus $10 for each full month of your Service Commitment that you complete. Otherwise, your Early Termination Fee will be $150 minus $4 for each full month of your Service Commitment that you complete. The Early Termination Fee is not a penalty, but rather a charge to compensate us for your failure to satisfy the Service Commitment on which your rate plan is based. AFTER YOUR SERVICE COMMITMENT, THIS AGREEMENT SHALL AUTOMATICALLY RENEW ON A MONTH-TO-MONTH BASIS UNTIL EITHER PARTY GIVES NOTICE PURSUANT TO THE TERMINATION PROVISION BELOW.