A proposed rule from the Federal Communications Commission would bar pay-TV companies from charging customers early termination fees when they sever their service contract before it expires.

The proposal, which the commission will vote on next month, would also force cable companies and satellite TV services to give customers a rebate if a subscriber leaves before a billing cycle ends. FCC officials said eliminating early termination fees would benefit the video-streaming business.

"When companies charge customers early termination fees, it limits their freedom to choose the service they want," FCC Chairwoman Jessica Rosenworcel said in a statement Tuesday. "In an increasingly competitive media market, we should make it easier for Americans to use their purchasing power to promote innovation and expand competition within the industry." 

In an effort to attract customers, cable companies and satellite providers often offer a promotional price that locks new subscribers in a contract for at least one year. Such contracts typically contain fine print stating that the customer agrees to pay an extra charge if they end their contract before the agreed upon date. 

Streaming closes in on traditional TV for total viewers 05:29

The price of early termination fees vary, but is usually based on a specific amount, say $40, multiplied by the number of months a subscriber has left in the contract at the time of cancellation. While there are many reasons why a consumer might wish to terminate service, including financial hardship or dissatisfaction, such fees make it costly to do so during the contract term, according to FCC officials.

"Because these fees may have the effect of limiting consumer choice after a contract is enacted, it may negatively impact competition for services in the marketplace," the FCC said.

The early termination proposal is part of the Biden administration's effort to axe so-called junk fees. President Biden has already taken aim at stamping out bank fees, extra charges from food delivery services and surcharges on hotel stays. Junk fees hurt the economy and siphon billions of dollars from U.S. households every year, federal officials have said. 

"Companies shouldn't lock you into services you don't want with large fees," Mr. Biden said Wednesday on social media. "It's unfair, raises costs, and stifles competition. We're doing something about it."

If passed, the FCC proposal would erod a long-standing stream of revenue for TV operators many of which are already losing millions of paid subscribers to streaming services. Cable and satellite television companies lost 1.8 million subscribers in the second quarter of this year, which added to the 1.9 million lost during the same period last year, analysts at MoffettNathanson said in a September report. 

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  • Federal Communications Commission
Khristopher J. Brooks

Khristopher J. Brooks is a reporter for CBS MoneyWatch. He previously worked as a reporter for the Omaha World-Herald, Newsday and the Florida Times-Union. His reporting primarily focuses on the U.S. housing market, the business of sports and bankruptcy.

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