Buying a phone in combination with a contract – the mislabeled “free phone” – just became a whole lot more complicated in my home country of The Netherlands. Today, our minister of finance, Jeroen Dijsselbloem (if you follow international news – yes, that one) today announced that he is not going to create an exemption in Dutch finance laws specifically for mobile carriers offering “free” phones on contract.
Last year, The Hoge Raad der Nederlanden (our supreme court) ruled that if carriers offer a loan of ^a`not250 or higher, they need to abide by the same rules as any other company, institution, or entity providing such loans – meaning, they will have to perform an income check, check if people have prior debts, and in general, if their financial situation is sound enough for them to be able to take on a loan for a smartphone. They will also need to be a lot more transparent and upfront about the fact they are offering a loan, including warnings, the terms, and so on.
This, of course, affects carriers a great deal; a lot of expensive, high-end phones, like iPhones or the latest Galaxy phones, are sold in combination with contracts, their true price hidden in monthly payments. Making it harder for consumers to take on these loans hurts their business model. As such, carriers had asked our minister of finance to create an exemption specifically for them – but he refused.
Carriers are, of course, not happy. T-Mobile, Vodafone, and KPN – our three major carriers – have already voiced their displeasure. They’re complaining they will have to do considerable investments to change their sales model, and that it will become a lot harder for customers to buy high-end phones. To be fair to the carriers, all this does mean consumers will have to reveal a considerable amount of private information to carriers if they want to take out a loan to buy a phone.
That being said, there are alternatives: carriers could simply charge the price of the phone upfront. This, of course, is not something they want – they’d much rather be a little bit shady and fuzzy about the true price of smartphones. Samsung, Apple, and other smartphone makers surely won’t be happy with this either, as they rely on these somewhat shady deals to peddle their wares. Half of Dutch consumers are already on SIM-only contracts, and this will only push more consumers to cheaper phones.
As a Dutchman, I find this great news. My financial means are such that I don’t have to worry about this sort of thing, but there are enough people out there for whom this is not the case, and there are certainly quite a few people lured into these seemingly “cheap” phones, only to suffer for it down the line. While I’m sure people living in Libertarian la-la-land will scream bloody murder, the fact of the matter is that if left to their own devices, these companies will abuse people left and right.
Poor babies. And all that half a year after they got their excessive roaming charges taken away! Oh wait, that was postponed two years after some great lobbying and blackmailing.
Great to see the Dutch take a stand here. If the telecom sector wants to make money by granting loans and screwing over people, perhaps they should actually work for it and follow the same draconian rules that those poor banks are subjected to.
Not that that would make much of a difference in the US. That was the cause of the 2008 crash – making bad loans and calling them AAA. Hopefully the Dutch are more strict on that sort of thing. The US didn’t bother to fix the problem, merely throw enough money at it to hide it for another decade.
Edited 2015-07-02 17:37 UTC
Maybe “Libertarian” means something different where I’m from, but I would think Libertarians would be more on the side of transparency that benefits the individual, and therefore would welcome this change.
Yeah, some time over the last decade or so, “Libertarian” got coopted by the Randians and assorted crazies. So instead of just meaning “liberal” with a helping of less government, it NOW means market anarchy with a helping of police state.
“coopted” or not, that’s entirely a fictitious meaning, Morgan’s meaning/interpretation is 100% the right one. I’d the same thought but hadn’t voiced it
Words often change meanings. People still “dial” phone numbers to “ring” others, even though phones no longer have dials, or bells. Modern light “bulbs” are as likely to be shaped as a double helix as a bulb. “Toilet” used to refer to personal grooming. To “temper” used to mean to restrain, hence to “lose one’s temper”, to fail to restrain oneself. But now, to “have a temper”, means to be liable to “lose one’s temper”, essentially the opposite thing.
I guess I’m in la-la-land. Last I checked, nobody was forcing consumers to take a poor deal on a “free” cell phone. It’s hard to call it “abuse” when people willingly sign up for these deals. It’s more like “the consequences for making a stupid decision.”
Last time I checked, contract prises in the States are ridiculously high for the poor performing cellular networks. Cell phone prises on the other hand, are ridiculously low when bought together with the contract. I for one am glad this coupled selling was never allowed in Belgium.
One can call it natural selection, they shouldn’t be so stupid as to buy into it, but a lack of choice might actually force people in these kind of sch~A¨mes.
Another explanation is the free market: it is very lucrative to study the human mind in order to try to steer masses of people into the direction one would want. A practice quite common in Lalaland (called advertising, cause propaganda is such a bad bad word…).
The Advertising business gets rich looking for loopholes in laws and bypassing them to trick people. being careful is not enough anymore these days, one has to be wary about everything and everyone. That is not a world I like living in.
Besides, it is simple: they give you something valuable which you are paying for in a monthly fee… it is a loan, period. Calling it “free” is a dirty lie and should be forbidden.
I suspect it is more about liberty for all, without infringing on another’s freedom.
That would imply: Carpe Diem.
No, we call it Innovating. As in, Sprint is good at Innovating their customers with free phones. It’s something only a Job-creator can do.
Here we go with the “job-creator” BS.
“Innovating”
This is awesome news for the environment as well. The throwaway culture with phones always bothered me.
If this plays out right more people will pick phones with interchangeable batteries and update-safe operating systems. It will get a lot harder for a manufacturer or carrier to sell a phone without updating it over the lifetime.
If the longevity and the price of phones increases, people will also think twice about buying the latest fashion item and maybe, just maybe, the likes of Jolla and Firefox OS will seem like more attractive alternatives.
Honestly, who throws out working phones? Most phones are either sold on to others, or passed on to family and friends. At least all phones worth anything are.
If mobile phone companies were really suffering due to people not paying back, they would be doing credit checks already.
This is nanny state all over again. Not necessary. In Europe, you can always get a sim free contract anyway, and you can compare very easily the cost of a phone + sim free contract against one provided by your carrier. Anyone who has done basic arithmetic can do that. It is not that complicated.
Sometimes I really despair at the nanny state-ism in Europe.
Uh, there are rules regarding loans. Carriers offer loans. Carriers must abide by the rules regarding loans.
How is this “nanny state”? Just because giving out loans is bound by rules regarding making sure people can repay them, and that the term are transparent?
I think that just goes to show that rulings like this in the Netherlands are correct; many people don’t even realise that buying a ‘phone that way in contract constitutes a credit agreement. Why shouldn’t the people who are providing the credit be held to the same rules as everyone else?
I agree that these rules are ‘fair’. The carriers are certainly ‘lenders’ in this case.
However, I think that this rule could conceivably negatively impact lower income people who will be financially ‘locked out’ of owning what is essentially a high end device.
The same way they’re locked out of owning a high-end car? Or a luxury mansion? If they can’t afford it, they can’t afford it. Having the latest iPhone isn’t a human right, and there are plenty of phones they could own which will easily provide far more functionality than they really need.
But they probably can afford it, hence the fact that so many people currently have high end phones on contract. Of course people shouldn’t be taking out loans they can’t repay, but I don’t think the alternative to that should be some unaccountable credit reference agency deciding who should be deserving of buying an iPhone.
If they can afford it then the credit check won’t be a problem for them. If they can afford it but they have a bad credit rating, they still have the option to buy the phone with cash instead of taking out a loan for it. Nobody’s denying them the right to own a phone.
It’s the same with buying a decent TV using a loan offered by many electrical retailers. If you don’t have a good enough credit rating, you can still buy the TV with cash, or with a loan from elsewhere (credit card or what not). Why the difference for some other piece of technology that also costs ^a`not1000 off the shelf?
Except in The Netherlands that agency is not unaccountable; there is only one such agency (BKR), it’s government-mandated and was originally set up by the banks. Every entity that offers loans or other financial services MUST be registered with them. Important note: the BKR is a non-profit, and is not allowed to make a profit in any way.
Consumers have access to all data pertaining to themselves (for ^a`not5) and can request corrections. Consumers can also see who has requested access to their information; if such request is found to be illegitimate, the requester will be fined.
Edited 2015-07-03 13:40 UTC
Which means so very much when applied to government agencies and, more to the point, the politicians who run them. You’ll forgive me if I don’t believe a word of it. And, for the record, they ar in fact accountable to no one. To whom is a government agency accountable? The people? Sure, yeah. Go right on believing that if it comforts you, but that kind of idealism and belief that those who run a country have any interest in mind save their own has been long since burned out of me.
Edited 2015-07-04 01:40 UTC
Locking out people from buying things they cannot afford, or taking loans they cannot pay back is a Good Thing^a"c.
Maybe not from a libertarian point of view, true.
Companies generally do not lend to people who cannot pay back. The amounts that are lent are typically very low. For a $800 device, we are talking about approximately $40 per month in repayments and that is if you are taking the high end devices. These are small amounts we are talking about.
In any case, what just happens is that customers get even longer contract documents that they don’t read, full of legal jargon they can’t be bothered to understand because getting a phone on a contract has been made as complicated as buying a car.
And phone companies will still lend to those people anyway, so all they have really done is made getting a mobile phone a bit more expensive for everyone else, and made credit reference bureau’s a bit more money.
So basically you are advocating that consumer protection laws for loans should be abolished.
Problem is that companies do lend to people who cannot pay back. This is why consumer protection laws force the creditor to verify that the recipient can likely pay back the loan.
The complaint is that the carriers can now give out credits to fewer people, namely only those who pass the credit check.
Also $40/mo may not be much to you, but for someone who lives on a low-wage job or even social security it is. Some people even get two contracts to have a new phone every year.
I don’t know how the system operates in the Netherlands, but here in the UK, all credit reference agencies do is to give information about the customer to the lender. The lender then makes a decision on whether to lend or not. Forcing companies to look up this information doesn’t necessarily mean they will be forced to stop lending to those people.
Unfortunately, companies do have incentives to give out loans to customers whose ability to pay back is unclear. They will sell the loan to debt collectors if the customer cannot pay. The customer is then left with the mess.
Carriers just factor the rate of bad loans, and the difference between the amount owed and what the debt collector pays them into their monthly contract fee.
But: If the creditor is informed that the customer has income X and is currently paying back another consumer loan Y and maybe even defaulted on Z in the past, and still gives out a loan, this could count as acting in bad faith.
Yes, just like banks didn’t make all those mortgage loans to people who couldn’t afford them on properties that were worth less than the loan. That’d never happen and cause a world-wide economic depression. Not at all.
Yes, it’s a nanny state, I’m not saying that it’s good or bad (although I am what would be considered in the US to be a raving Socialist). What you have described is exactly a nanny state.
For a government to look at an individual’s finances, and for it then to decide whether that individual can afford a loan totally meets the definition of a nanny state.
I’m not saying it’s right or wrong, necessary or not, merely that ‘nanny state’ is accurate, at least the way the term would be understood in the UK.
The government does not look at the individual’s finances. There are commercial agencies who do these checks.
Yes, three of them in the states. Most places’ systems randomly pick one, so it can make the credit check an iffy process especially since these agencies don’t cross-check with one another to verify their records. It can also make correcting an incorrect credit record quite difficult, since you may no sooner get it fixed in one agency than it shows up in another. I wish these agencies would be force-merged, at least then there’d be a single point of trouble to deal with if trouble comes.
If there’s one thing states should do is protect individuals against others. This is exactly that: protecting consumers against big corporations. There’s no nannying about it. Sure, you could go all libertarian and blame the consumers for being gullible, but not everyone is even smart enough to understand, nor should everyone need to be constantly on the look-out to avoid being screwed over. Nanny states ftw!
The expensive phones are also made in China, but the profit doesn’t stay there.
The whole “high end phone” thing is just marketing. What is less High end about the Lg g4 or Oneplus, except it’s price?
The current bottom of the range models are better than the “flagships” of 2011-2
I’d also like to see cheaper phones gaining market share. Not everyone needs a samsung galaxy note X (I lost count), or iphone Y (I never bothered to count), but they go and buy the most advertised and priciest consumer phone available anyway.
For the most part, carriers are quite happy to sell you a phone on loan because they make money by buying wholesale and selling retail, while charging reasonable interest. I have actually seen examples where it would be more expensive to get a sim free contract and get a phone directly because the carrier is quite happy to forgo some of the profit because they are tying (bundling) two products together.
Funny. Our carriers in the states have done that for a long time. They hide the true price of the phone in the fine print, of course, but they do all the credit checks, background checks, the whole she-bang.
Not all of them. I was with AT&T from the Cingular days of the early 2000s, and I never once had a credit/background/income check to get a phone on contract with them. Basically, if I could come up with the initial payment (if there was one) and provide a billing address, I was set. When I switched to T-Mobile, I was surprised to see that they did credit checks for contract phones (this was in 2009 when they still offered contracts). When I switched again to Sprint in 2011, I wasn’t put through any sort of credit or background checks and my phone was on a two year contract.
These days, the non-contract payment plans are indeed loans (or more correctly, leases) where the customer will eventually pay the full retail price for the phone, and I believe all the major carriers do background checks of some sort now, but it wasn’t always the case.
Morgan,
Not doubting anything you say, however just wanted to point out in my experience some companies will run credit history checks without informing you first. In other words, you might not know they’re performing the check unless you see your own reports.
Actually I don’t know if the problem is widespread but when I checked my personal credit report I found maybe a handful of unauthorized accesses listed for the year (in addition to some authorized one). I don’t think there’s anything in place to secure your history from businesses who pay and say they have your permission. I think some may have been from job applications, but I never gave permission to look at my financial history…it came as a shock to me.
I guess this is why you get the right to freeze your credit history, but it’s a total scam that you have to pay the monitoring agencies to activate it. We should automatically be entitled to privacy until we explicitly release our information (ie when we actually apply for credit).
I imagine this crap is only acceptable in the US.
Edited 2015-07-03 03:44 UTC
Interesting. I watch my credit like a hawk, and I’ve only ever had one hard pull I didn’t authorize, by some car dealership that did it as an employment check so they could send me a prescreened offer. When I called them on it they claimed it was a mistake by a new employee in their advertising department but I got the feeling it was a common tactic for them.
Not doubting you either, but sometimes if you don’t pay attention to what you sign or initial, you may end up giving permission unknowingly. Technically they “asked” you in that 36 page agreement you didn’t get a chance to read.
Morgan,
I think you misunderstood me, I never applied for a job at the car dealership, in fact I’d never heard of them before seeing that they had pulled my credit as an employment check. Based on their reaction when I called them inquiring about it, I’m guessing they either mixed up my SSN with a potential employee, or they use that tactic to get a detailed credit report so they can send specific advertisements to individuals.
My point was that cell phone companies technically can’t run your credit without your consent, but it’s possible that you give consent unknowingly when you sign or initial any document prior to purchasing the plan or phone.
Nobody needs a high-end phone, there are a lot of fully capable cheap phones out there at very low prices, even poor people can afford them. “Evil companies” from libertarian la-la-land made it possible.
Tax exception for luxuries like an iPhone 6 is the most stupid thing I’ve ever heard… but hey… everything is possible in Euro-land. xD
Not at all. I’ll pass on the question of evilness, but those cheap phones are coming mostly out of China, which can’t be said to be libertarian.
Libertarian la-la-land is free market competition.
No matter where the phones were manufactured, We have cheap phones thanks to competition between “evil” companies.
That’s why even the poorest people can afford a smart phone. No subsidies, no government programs, no stupid world saving policies.
No, we have cheap phones thanks to poor people in underdeveloped countries that also need phones, and can’t afford to pay $500 or more.
I think thanks to poor people in developed countries too. They’re a target of free competition as well.
However we sometimes think that if you have 3 or 5 vendors you have competition. It’s not. I’d argue that you need at least 50 vendors to have real, price-pushing competition. GAFA is just a oligopoly where.
Google is gratis but certainly the cost is going up. True, they improve things but only because they’re autistic as an entity – obsessed with total encroachment.
Apple never was cheap
Facebook = Google
Amazon kills other businesses.
Mobile carriers are in the same situation. In Poland there are 3 main ones, all the rest are virtual. 20 years into mobile phones here and the plans are still absurdly complex, customer service sucks (e.g. accuse you of pouring water on phones to be able to void your warranty, evil stuff), robocalls, lying they have a promotion just for you, where on the webpage a better offer is there, etc. These are the fruits of oligopolies.
Or even by people in the rich countries who know what kind of phone they need and feel no need to piss away money.
What I meant is that without the poor people, the cheap phones would probably never have come into existence. We owe them.
This, of course, affects carriers a great deal; a lot of expensive, high-end phones, like iPhones or the latest Galaxy phones, are sold in combination with contracts, their true price hidden in monthly payments. Making it harder for consumers to take on these loans hurts their business model. As such, carriers had asked our minister of finance to create an exemption specifically for them – but he refused.
In Germany it is the same. The carriers want to sell high-end smartphones and you have to pay more money on a monthly rate. I recently bought a new Sony Z3 compact and my mobile contract (from a big carrier mentioned in the text) expires soon. The called me up to 4x to tell me that I can get a new IPhone for a good price. It’s their business model and the people go crazy for new Apples,Samsungs and so on..
I told the sales guy that I already have a new smartphone and were more interested in better conditions for my contract. That wasn’t the answer he wanted to hear.
Here in Germany there are also carriers which offer contracts based on a lesser contract period (not the 24 months as usual) and the prepaid market is getting stronger. Good news for me.
Yeah, and in Ireland it’s similar too – lots of calls offering “free” phones coming up to the end of your contract. In fact, up until a couple of years ago, you couldn’t even get a contract without subsidising a new phone. If you didn’t take the upgrade offer for a new phone at the end of your contract, you still ended up paying the same monthly fee, so paying for a phone you didn’t have. Now though most networks also have SIM-only contracts which are much cheaper and let the customers supply their own phone. Which is a good thing!
Edited 2015-07-03 11:19 UTC
Australia has always had credit checks for (mobile) phone accounts. It doesn’t seem to have much affect on sales.
Edited 2015-07-04 02:42 UTC
Back in the early days of GSM long before any smartphones it was forbidden to sell any phones on contract in Finland. It was also strictly enforced. Some years ago our parliament set a law to temporarily allow selling phones on contract and the law is still in effect today. I believe such legislation forces the carriers to compete more on price and services rather than who gets to sell which phones exclusively.
Edited 2015-07-04 04:55 UTC