February 9, 2012
ADT Settles Suit for $950,000 over Monitoring Rate Increases
Home security subscribers are fighting back all across the US when they think their alarm service provider has stepped out of line: interestingly, a growing number of state and local jurisdictions are willing to take up the cause and see it through with lawsuits, fines, and other penalties. It’s good news for the consumer, since the alarm companies rarely prevail in these cases, and today’s blog post demonstrates the point very well. ADT, the 800 lb. gorilla of the US alarm industry, is writing a very big check in Contra Costa County, California to settle just such a suit.
Alarm-industry giant ADT Security Services has agreed to pay $950,000 to settle a lawsuit claiming that customers weren't told up front about fee increases and cancellation costs, a Contra Costa County prosecutor said Tuesday. Prosecutors filed suit in Superior Court in 2008, accusing ADT of requiring customers to enter into two- or three-year contracts but failing to tell them about the costs of their obligations.
It’s All about Transparency
Although the company reserved the right to increase charges, ADT didn't tell its customers what those increases could amount to when they signed a contract, the suit said. Under the terms of a settlement reached Monday, ADT will provide written disclosures of contract terms, including the total price of monitoring services for the initial term of the contracts, said Deputy District Attorney Lon Wixson. The penalty money will be given to the district attorney's office, he said.
Specifics of the Suit – and ADT is not Alone
The suit claimed that ADT had engaged in unfair business practices and that its failure to disclose the total amount of customers' obligations violated the federal Truth in Lending Act and the state's Unruh Act, which prohibits a broad range of discriminatory business conduct. Contra Costa prosecutors filed a similar lawsuit against Vivint Inc., formerly APX Alarm, resulting in a $425,000 settlement last year, Wixson said.
Vivint, for those of you not familiar with the name since they changed from APX, is the largest “door knocker” alarm company that has received so many complaints, and been the target of numerous government actions.
The latest lawsuit is a wakeup call for alarm companies when it comes to compliance, Les Gold, a partner in the law firm Mitchell, Silberberg & Knupp (MS&K) tells SSI. "Just as an admonition, whether it's federal, state or local, alarm companies need to know what the law is," he says. "Secondly, they need to understand the law. Lastly, make sure to comply with the law."
Ken Kirschenbaum, who pens an alarm industry " Legal Briefing” column, agrees, noting that this suit has a negative effect on the industry as a whole. "This type of notoriety is of course no good for ADT or the rest of the alarm industry," he tells SSI. "Sweeping contract issues affect all alarm companies. This is a good example of why alarm contracts need to be customized from state to state and sometimes to address local municipal requirements."
Most alarm companies do increase monthly rates from time to time, but the monitoring contract should state in very specific terms when the company can do this, and by how much: for instance, no more than a 5% increase per year, after the first year. That's what the FrontPoint contract allows - although we have not increased monthly rates for existing customers since we began in 2007! That specific disclosure is where ADT appears to have failed – and, it seems, so did Vivint.
It's not just about the Law
Transparency is an important aspect of any business relationship, and in the Internet age, more and more people expect to have virtually unlimited information at their fingertips. Access to this information starts in the shopping phase, which is why a good web site and a good on-line reputation are critical components for success in today’s marketplace. And transparency clearly need to be incorporated into any contractual agreements as well.
As for FrontPoint, we love it when people shop for security on-line: that’s where you’ll quickly learn why FrontPoint is the leader in interactive, wireless home security: our long list of five-star reviews spells out very clearly what makes us the #1 ranked alarm company in the US. Being on top means we have to prove ourselves in every aspect of our business – with systems that are safer, smarter, simpler, more affordable, and virtually impossible to defeat. And we’ve never had an issue with our contracts, or been fined or sued for violating a contract or licensing regulation. These days, that makes us rare indeed among nationwide alarm service providers.