T-Mobile Deceptively Earned Hundreds of Millions Through Cramming, FTC Suit Says
T-Mobile deceptively earned millions of dollars -- perhaps hundreds of millions -- from hidden and misleading charges on consumers cellphone bills, the FTC alleged in a lawsuit filed Tuesday at the U.S. District Court in Seattle (http://1.usa.gov/1iRZbpS). Since at least 2009, the mobile carrier has taken “a hefty cut” -- 35 to 40 percent -- of unwanted, recurring, third-party charges for text-message services on consumers’ bills, said FTC Consumer Protection Bureau Director Jessica Rich on a conference call with reporters Tuesday.
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The company ignored “telltale signs of fraud,” and refused to make refunds -- or would make only partial refunds -- to consumers after “oodles of complaints” and numerous suits against these third parties, Rich said. Concurrently, the FCC Tuesday launched its own investigation into T-Mobile’s actions, Rich said. The FCC in a release said both it and the FTC have received numerous complaints about T-Mobile regarding cramming.
The suit is “sensationalized,” “unfounded and without merit,” said T-Mobile USA CEO John Legere in a written statement (http://t-mo.co/1lPLG9k). “T-Mobile stopped billing for these Premium SMS services last year and launched a proactive program to provide full refunds for any customer that feels that they were charged for something they did not want.” Rich said the FTC sued after the two sides could not reach a settlement in negotiations.
It’s the first FTC enforcement action against a mobile carrier for this alleged practice, known as “mobile cramming.” The FTC has acted against four third-party companies alleging mobile cramming, all since the start of 2013 (CD March 31 p10). In the wireline space, the FTC has brought more than 30 cramming enforcement actions, Rich said Tuesday.
The FTC suit alleged T-Mobile allowed charges, typically $9.99, for texting services such as horoscopes and flirting. Despite refund rates of up to “a staggering 40 percent,” the company occasionally allowed the charges to continue for months -- even years, said Rich. Rich compared it to the credit card industry standard, which flags as possibly fraudulent any third-party merchant with a chargeback rate above 1 percent. Sometimes when customers asked for refunds, T-Mobile said there was nothing it could do, referred the consumer to the third party, or said it would block future charges and then didn’t do so, the complaint said. The FTC will seek consumer refunds that could run to hundreds of millions of dollars, Rich said.
T-Mobile pointed to the third parties as the bad actors. “We put in place procedures to protect our customers from unauthorized charges,” Legere said. “Unfortunately, not all of these third party providers acted responsibly -- an issue the entire industry faced.” In November, the four major carriers -- AT&T, Sprint, T-Mobile and Verizon -- worked with 45 state attorneys general to commit to ending billing for commercial premium SMS programs (CD Nov 25 p13). “Those providers should be held accountable, and the FTC’s lawsuit seeking to hold T-Mobile responsible for their acts is not only factually and legally unfounded, but also misdirected,” said Legere.
The degree to which mobile cramming is a problem is a contentious issue. Organizations like CTIA have told the FCC that a November agreement between all four major national carriers to end premium SMS billing programs would eliminate the issue. Others like Consumers Union have disagreed, arguing the FCC should extend the protections to wireless cramming that it has for wireline cramming (CD Dec 19 p7). The FTC has agreed, and last summer asked the FCC to impose those protections on mobile carriers (CD July 24/13 p1). The two agencies have overlapping and concurrent jurisdictions in the area, Rich said Tuesday. “Millions of consumers fall victim to cramming shakedowns each year,” said Consumers Union policy Counsel Delara Derakhshani in a statement. “Actions like the FTC’s announcement today should put scammers on notice.” CTIA declined to comment.
The FCC “will coordinate our investigation with the FTC, and use our independent enforcement authority to ensure a thorough, swift, and just resolution of the numerous complaints against T-Mobile,” said FCC Enforcement Bureau Acting Chief Travis LeBlanc. In the last four years, the FCC has brought nine wireline cramming enforcement actions, totaling more than $33 million in proposed fines, the commission said.
On Capitol Hill, Senate Commerce Committee Chairman Jay Rockefeller, D-W.Va., said he was “deeply disturbed” by the allegations. Rockefeller has been a vocal opponent of cramming, issuing subpoenas to billing aggregators, and investigating the practices more generally for over two years (CD March 17 p14). “The FTC’s allegations only heighten my concern about the industry’s repeated assertions that voluntary oversight effectively protects consumers from cramming,” Rockefeller said. Rich said the agency plans to release a report on mobile cramming in the next month or two, which might include legislative recommendations. The report will inform the Commerce Committee’s future work in the area, Rockefeller said.