Rounding out a week punctuated by new accusations of mobile carriers overcharging consumers using a practice known as “bill-cramming,” one past lawsuit is being put to rest. T-Mobile agreed today to shell-out at least $112.5 million to settle a Federal Trade Commission lawsuit that the “Un-carrier” tacked-on unwanted third-party charges to customer’s bills.
The FTC announced Friday that T-Mobile agreed [PDF] to pay at least $90 million in consumer refunds, $18 million in fines and penalties to the attorneys general of all 50 states and the District of Columbia, and $4.5 million to the Federal Communications Commission.
Back in July, the FTC filed a complaint [PDF] accusing T-Mobile of allowing third parties to participate in what’s known as “bill cramming,” the placing of often-questionable charges for premium services on a phone customers’ bill.
The FTC alleged that T-Mobile received anywhere from 35-40% of the total amount charged to consumers for subscriptions (mostly $9.99/month) for things like “flirting tips, horoscope information or celebrity gossip.”
Making matters worse, the government claims that T-Mobile sometimes continued to bill customers for these services even after being made aware that they were being operated by scammers.
While T-Mobile may have plead ignorance, the FTC says that’s simply not the case.
The demand for refunds on these charges were high, with sometimes as many as 40% of affected users requesting refunds for the charges. If that wasn’t enough of an indicator that the charges were fake, then the FTC says that industry auditor alerts, law enforcement actions, and news articles should have been a sign to stop collecting these for the third-party companies.
T-Mobile’s large numbers of prepaid customers – who don’t receive bills for their monthly service – were also being charged for these unwanted services. The carrier would allegedly deduct $9.99 worth of minutes from their available balance each month without prior notice to the customer.
The FTC alleged that for the most part T-Mobile customers were clueless about the extra charges. For this who received paper bills – that can at times be 50 pages or longer – the charges were often listed in the summary as a $9.95 “usage charge,” or buried deep within the bill using nonsensical abbreviations that gave no indication what they were for.
When customers did become aware of the unapproved charges, they often ran into issues receiving help from T-Mobile, the FTC says.
According to the complaint, some subscribers were only offered partial refunds of two months’ worth of the charges, while other customers were told to go after the scammers if they wanted full refunds. Of course, T-Mobile failed to provide adequate contact information for these scammers.
The FTC claimed in the complaint that T-Mobile received indications of an issue related to the mobile-cramming as early as 2012 but continued allowing the charges at least through the end of 2013.
Before filing the complaint in July, the FTC said they had tried to work with T-Mobile to reach a deal.
At the time of the lawsuit’s filing, T-Mobile responded to the accusations by claiming that it shouldn’t be sued because it stopped allowing the illegal charges.
Under the terms of the proposed settlement, which must be cleared by a judge, T-Mobile will be required to offer full refunds to all affected consumers. The amount of money the company pays must reach at least $90 million in redress or other payments.
Should the company fail to reach that amount, the balance must be remitted to the FTC for additional consumer redress, consumer education, or other uses.
The settlement also requires T-Mobile to contact all of its crammed customers – current and former – to inform them of the refund program and claims process, and to do so in a clear and conspicuous way.
In addition to requiring T-Mobile to provide consumers with full refunds, the settlement requires the company to get consumers’ express informed consent before placing third-party charges on their bills. The company also must ensure that consumers are notified of any third-party charges on their bills and provide them with information about the option to block third-party charges.
“Mobile cramming is an issue that has affected millions of American consumers, and I’m pleased that this settlement will put money back in the hands of affected T-Mobile customers,” FTC Chairwoman Edith Ramirez says of the settlement. “Consumers should be able to trust that their mobile phone bills reflect the charges they authorized and nothing more.”
Our colleagues at Consumers Union released a statement shortly after the settlement was announced calling the proposed deal “a strong message that consumers deserve to be compensated for charges which they did not authorize.”
In the past, Consumers Union has pushed for tougher consumer protections to prevent cramming, first when unauthorized, third-party charges appeared on wireline phone bills in the 1990s, followed by cramming on wireless bills.
“We’re pleased that as part of the settlement, full refunds will be awarded to the millions of consumers who were affected by this scam,” Delara Derakhshani, policy counsel for Consumers Union, says in a statement. “All too often, consumers are unaware that they have been a victim of cramming practices, and the terms of today’s settlement go a long way to ensuring that consumers are provided with clear and conspicuous information about the wrongdoing that has occurred and the redress that is to follow.”
The settlement with T-Mobile marks the second mobile-cramming-related action this week.
On Wednesday, the Consumer Financial Protection Bureau filed a lawsuit against Sprint for allowing the same unauthorized charges to appear on customers’ bills.
In that case, the CFPB claims that Sprint essentially welcomed the third-party charges with open arms.
Sprint allegedly did not allow customers to opt-in to third-party billing. Instead the wireless company automatically enrolled customers without their consent.
This policy helped to perpetrate the egregious actions by the third-party companies because many customers did not spot unauthorized charges, as they were unaware that third parties could place charges on their bill, the CFPB reports.
On Tuesday, rumors first surfaced that Sprint could be facing a $105 million fine from the FCC for the same issues. There has been no additional action regarding the possibility of a hefty fine for Sprint.
Mobile-cramming has been a hot topic for both state and federal authorities in recent years.
In October, AT&T entered into a similar deal with the Federal Trade Commission, FCC and attorneys general from 50 states and the District of Columbia to pay $105 million to settle allegations that it profited off of bill-cramming.
The FTC claimed that AT&T kept about 35% of all the fees it took in from these charges; in some cases, the company earned upwards of 40% of the revenue from the third-party charges.
Continued allegations and action against carriers regarding bill-cramming may not come as much surprise after a Senate Committee on Commerce, Science and Transportation report released in July found that wireless providers often turned a blind eye to cramming because it resulted in billions of dollars in revenue for carriers.