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T-Mobile's no-contract offer in hot water with Washington AG

T-Mobile has been ordered by Washington state's attorney general to correct alleged "deceptive" advertising that promises a no-strings-attached wireless service plan.

T-Mobile CEO Jon Legere
T-Mobile CEO Jon Legere.
Lori Grunin/CNET

Contrary to what T-Mobile is promising, there are actually some strings to its new wireless service plans.

That's according to Washington state Attorney General Bob Ferguson, who ordered T-Mobile to change its alleged "deceptive advertising" that omits charges that consumers have to pay for leaving early.

"My office identified that T-Mobile was failing to disclose a critical component of their new plan to consumers, and we acted quickly to stop this practice and protect consumers across the country from harm," Ferguson said in a statement issued on Thursday.

Ferguson took issue with the component of the plan that involves consumers paying the full price for their smartphones. If consumers opt for the monthly installment plan, they pay a small fee on top of their cellular service to cover the cost of the device. But if they leave early, they need to immediately pay the full cost of the device, which Ferguson argued is a surprise "balloon payment" for consumers that in some cases is higher than an early termination fee. He said he believes T-Mobile has failed to properly communicate this potential large payment.

The lawsuit underscores the difficulties that T-Mobile has in selling its new plans, which abandon the traditional contract and subsidy. Executives have said they expect to have a discussion over the nature of wireless phone plans, and hope to educate consumers on the true cost of a smartphone. While T-Mobile's plans may offer savings over the span of two years, they run into consumers who balk at paying the full price for their phone.

The statement said that T-Mobile has agreed to cease advertising its offer as one with no restrictions, and also begin disclosing that consumers would have to pay full price for their device if they left the service early, making it clear the full consequences of canceling the service early. The carrier would also clear up the true cost of the phone, as well as the obligation to carry a 24-month financing plan if chosen. The customer sales representatives are also under obligation to disclose the terms of the contract.

Customers who purchased a T-Mobile plan and phone between March 26 and April 25 can get a full refund for the device and cancel their service plans without penalty.

T-Mobile said it doesn't agree with the Ferguson's charges, it will go along with the orders.

"While we believe our advertising was truthful and appropriate, we voluntarily agreed to this arrangement with the Washington AG in this spirit," said a T-Mobile representative. "We also think it important to note that this was a voluntary agreement entered into between T-Mobile and the Washington State AG to settle this matter outside of court, and that the settlement was not a result of any court action."

Updated at 12:30 p.m. PT on Thursday and 5:31 a.m. PT on Friday: to include a response from T-Mobile.