Verizon, Sprint To Pay $158 Million To Settle Wireless Bill-Cramming Allegations

Several months after AT&T and T-Mobile reached multimillion-dollar settlements with federal regulators to close the books on allegations of bill-cramming — illegal, unauthorized third-party charges for services like premium text message subscriptions — both Sprint and Verizon have also decided to pay the regulatory piper. Combined, the two wireless companies will pay $158 million to settle cramming claims with the FCC and the Consumer Financial Protection Bureau.

Verizon’s portion of the penalty pie will be $90 million; $70 million of that will go to redress for wronged customers. Sprint will pay $68 million, with $50 million going back to consumers.

Both companies allegedly made hundreds of millions of dollars in commissions by allowing third-party services to charge for unauthorized subscription services at monthly rates ranging from $0.99 to $14. For each of these monthly charges, Verizon earned at least 30%, while Sprint’s commission was around 35%.

This practice occurred at all of the major wireless companies for years, even as consumers complained to their service providers and regulators about the unauthorized charges.

Some customers who complained were denied refunds, but the FCC says that the wireless providers were unable to demonstrate that the customer had ever authorized these charges.

In addition to the financial penalties, Sprint and Verizon have agreed to other conditions, including:
• no longer offer commercial third-party PSMS charges
• obtain informed consent from customers prior to allowing third-party charges
• clearly and conspicuously identify third-party charges on bills
• offer a free service for customers to block all third-party charges
• regularly report to the FCC on compliance and refunds to customers

“For too long, consumers have been charged on their phone bills for things they did not buy,” said FCC Chairman Tom Wheeler in a statement.

“Sprint and Verizon had flawed billing systems that allowed merchants to add unauthorized charges to wireless customer bills,” said CFPB Director Richard Cordray. “Consumers bore the brunt of those charges and ended up paying millions of dollars while the companies reaped profits.”

Delara Derakhshani, policy counsel for Consumers Union, the advocacy arm of our own parent publication, Consumer Reports, said in a statement, “We applaud the FCC and CFPB on today’s settlement because it makes it clear that these deceptive, predatory cramming practices will not be tolerated. Too many consumers have been duped by cramming, while wireless carriers continue to profit from these unauthorized charges. It’s only right that consumers are refunded for these charges. But we’re even more encouraged that Sprint and Verizon will now be required to get customer approval prior to any third-party charges, so that cramming schemes can be shut down before consumers end up paying for things they never purchased.”