Device Financing Plans: CRTC suspends all 36 month plans
The Canadian Radio-television and Telecommunications Commission (CRTC) has asked wireless service providers to stop offering device financing plans for periods longer than 2 years until a review is complete.
Bell, Rogers and Telus all have introduced device financing options in recent months. Rogers was the first to launch 36-month device financing, followed by Telus. Bell has recently announced its own 24-month device financing plans.
For now, the CRTC has asked providers to stop offering these device financing plans while it completes its review.
In this article, we will take you through what device financing is and what the recent CRTC order means for those considering getting a current flagship phone on a device financing plan.
What is device financing?
Device financing is a way for providers to offer flexible payment options to consumers interested in purchasing the latest and greatest flagship phones. With zero upfront costs, device financing contracts spread out the price of purchase with monthly payments, usually over a couple of years.
So how is current device financing different from buying a phone on contract?
Though Canadians are no strangers to paying for devices with a 2-year plan, the current version of 24-36 month device financing is certainly new. Buying a phone on contract is one kind of device financing. However, there are a few key differences between the two. The main difference is that with the new plans, device financing could have now been spread over 36 months instead of being restricted to 24 months.
Another significant difference is that with a traditional 24-month contract, many providers discounted the cost of the phones. So you could often pay less than market value by buying a phone on contract. With the new device financing options, there is no device subsidy and you pay the full cost of the phone (often with interest built into the cost).
What is the need for 36-month device financing?
If you remember, with the introduction of the wireless code, the CRTC had restricted phone contracts to 24 months or 2 years. Thus, with a traditional contract, the phone was available with an upfront payment and a deferred monthly cost (usually $20) spread over 24 months. If at any time, you chose to break your contract, you were liable to pay the remainder of the device balance upfront. But with the newer more expensive devices and an arguably consequent slowdown in smartphone sales, many felt that 24-month contract financing no longer served to make the newer devices affordable to many Canadians. Thus, providers recently started offering new 36-month device financing options.
To get around this 24 month restriction in the wireless code, for the first time carriers, with device financing are separating the contract for the device from the contract for the phone plan. Thus, while you could be on a month to month plan for your phone plan, the contract for your device could span 36 months. However, despite this, and like a traditional phone plan, if you decide to leave the carrier before the device is paid off, you’ll be liable for the amount outstanding on the device.
So what is the problem with device financing?
While device financing does seem to make the latest smartphones seem more affordable to many Canadians, the CRTC is concerned that the 36-month terms of the financing contract simply serves as a backdoor to extend service contracts for 36 months.
Even though there are no cancellation fees, the requirement to pay back the remainder of the device if you cancel service before the device is fully paid off, can cause enough of a deterrent with consumers so as to essentially extend the ‘service contract’ to 36 months, in effect contravening the current requirement to restrict it to 24 months. Thus, the CRTC has stopped carriers from offering 36-month device financing until it completes a fuller review.
What does the CRTC say?
Earlier in the summer, the CRTC had sent a letter to all carriers offering 24-36 month device financing options (Bell, Rogers and Telus) and had asked them to explain the option by July 30, 2019. Upon a preliminary review, on August 2, 2019, the CRTC asked providers to stop offering 36-month device financing options until it completes a more detailed review.
In issuing the order, the CRTC said, “ Although we acknowledge that financing a device over 36 months may make it more affordable for some users, we worry that these types of plans may carry cancellation fees and other clauses that could potentially lock customers in for periods longer than the two-year limit set by the Wireless Code.”
While 36-month device financing plans offered by WSPs may appear to be attractive to consumers in the short term, we need to ensure these plans comply with the #WirelessCode and are truly consumer friendly.
— CRTCeng (@CRTCeng) August 3, 2019
“Canadian customers have the right to make informed choices based on clarity. We want customers to have options for financing their device if they so choose, but we also need to make sure these new 36-month device financing plans are fair for consumers,” CRTC’s chairman Ian Scott said.
“The Wireless Code protects consumers and gives them the ability to take advantage of competitive offers at least every two years. The CRTC is concerned by these financing plans as they appear to make it difficult for a customer to switch service providers even after 24 months.”
“At the conclusion of this process the commission will determine what regulatory action should be taken if these plans are not compliant with the Wireless Code,” the CRTC said.
What is the CRTC Wireless Code?
The Wireless Code was initially introduced to ensure that Canadian consumers are informed of their rights and obligations in regards to contracts they have entered with wireless service providers. It notably prohibits service providers from charging early cancellation fees beyond 24 months.
The Wireless Code set out by the CRTC aims to make it easier for consumers to understand their mobile plan, to change providers, to prevent bill shock, to return cell phones and more!
So, what do you think about the CRTCs ambivalence on long-term device financing? Are you currently on a device financing plan? Do you think this option makes it easier to own new devices or would you rather buy upfront and save on your monthly phone bill?