SACRAMENTO, Calif. (KEYT) – A new rule capping how much consumers can be charged for early termination fees and requiring clearer cancellation terms in installment contracts was signed into law by Governor Newsom.
AB 483, authored by Assemblymember Jacqui Irwin, would limit early termination fees for fixed-term installment contracts to 30 percent of the total sum consumers are obligated to pay under the contract beginning on Aug. 1, 2026.
Installment contracts will also be required to provide consumers “clear and conspicuous written disclosure” of the total of a termination-related fee and the formula used to calculate those fees as well as the highest possible termination fee the contract can levy.
“Too many Californians have been shocked by outrageous early termination fees when they try to end an installment subscription early,” explained Assemblymember Irwin. “With AB 483, Californians will know exactly what type of termination fees they may have to pay – and those fees will never exceed a fair limit. Keeping these agreements transparent and predictable is a win for consumers across the state.”
Installment contracts run for a specific amount of time, unlike subscriptions or automated renewals, and are often offered to consumers for products such as internet service, cable or satellite television services, and cell phone service.
Consumer focused groups noted these early termination fees can surprise consumers and have been used to avoid other consumer protection laws.
“Businesses often argue that early termination fees act as a mechanism to balance out the discount a consumer may have received in exchange for their long-term commitment,” stated the Consumer Attorneys of California which supported the bills passage. “However, it is not clear when fees go beyond recoupment of discounts. Businesses who do not clearly disclose and explain how cancellation fees are calculated prioritize their own profits over the understanding of the consumer and general notions of fairness.”
Telecommunications providers and retailer groups opposed the bill arguing that companies would be less likely to offer the discounts commonly found when initially signing these installment contracts and were able to secure a later implementation date as the bill traveled through the state legislature.
“In a variety of industries, consumers benefit from arrangements that allow them to receive a significant portion of the benefit of that installment contract initially – or a discount for a longer commitment,” said a coalition of industry groups including the California Chamber of Commerce that opposed the bill. “AB 483 would disincentivize such a discount, because any such discount implicitly limits the recoverable amount if the consumer breached the agreement to 20% of the total value of the contract. That limitation creates an implicit risk for any contract where the cost of the good or service provided is greater than 20% of the contract value for the vendor.”