Just a day after rumors surfaced that Sprint could be facing a $105 million from the Federal Communications Commission for allegedly overcharging customers using a practice known as “bill-cramming,” the Consumer Financial Protection Bureau has filed a lawsuit against the carrier for the bogus charges placed on customer’s phone bills.
The CFPB announced today that it has filed a lawsuit against Sprint Corporation for illegally billing wireless consumers tens of millions of dollars in unauthorized third-party charges.
According to the Bureau’s complaint [PDF], which seeks refunds for affected consumers, Sprint operated a billing system that allowed third-party servicers to “cram” unauthorized charges on customers’ mobile-phone accounts and subsequently ignored consumers’ complaints about the charges.
Like previous cramming allegations against T-Mobile and AT&T, Sprint allegedly tacked unasked-for and unauthorized subscriptions for things like ringtones and text messages containing love tips, horoscopes, and “fun facts” onto bills.
From about 2004 through 2013, regulators say nearly all wireless carriers’ third-party billing involved products called “premium text messages” or “premium short messaging services” (PSMS) because they were frequently delivered by text messages.
In Sprint’s case, the company outsourced payment processing for these digital purchases to vendors called “billing aggregators” without properly monitoring them.
Because of the lack of oversight, regulators allege that Sprint’s system attracted and enabled unscrupulous merchants who, in some cases, only needed consumers’ phone numbers to cram illegitimate charges onto wireless bills.
The charges typically ranged from one-time fees of about $0.99 – $4.99 to monthly subscriptions that cost about $9.99 a month.
In all, the CFPB estimates that Sprint received a 30% to 40% cut of the gross revenue from these charges.
The CFPB reports that most affected Sprint customers were initially targeted by the third-party products online.
“Consumers clicked on ads that brought them to websites asking them to enter their cellphone numbers,” officials with the CFPB say in a news release. “Some merchants tricked consumers into providing their cellphone numbers to receive ‘free’ digital content and then charged for it. Many others simply placed fabricated charges on bills without delivering any goods or communicating with consumers.”
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.
In addition to providing a hospitable environment for exploitative merchants, Sprint regularly disregarded red flags showing its system was a “breeding ground” for unauthorized charges, the CFPB alleges.
“Sprint continued to outsource to billing aggregators despite lawsuits about cramming against the very same aggregators that Sprint used,” the CFPB says. “In addition, Sprint should have known that cramming was a major problem as the company had already been subject to a law enforcement action related to the issue.”
That action was closed when Sprint settled charges of wireless cramming with the Florida Attorney General.
Officials with the Bureau say that Sprint further failed its customers by ignoring their complaints regarding unauthorized charges.
“Sprint failed to track customer complaints about unauthorized charges, and as a result, lacked the most basic alert mechanism that could have revealed flaws in its monitoring systems,” regulators say. “Sprint also failed to provide full and prompt remediation to consumers subjected to these charges.”
In many cases, Sprint refused to provide customers with refunds and only offered instructions on how to block future third-party charges.
While action by the FCC against Sprint – rumored to be a $105 million fine – is still pending, Commission spokesman Tom Wheeler provided a press statement on the CFPB’s lawsuit against the wireless company.
“Protecting consumers from unauthorized fees on their phone bills is a team effort,” Wheeler says. “The Commission has a great working relationship with CFPB and state law enforcement partners. Together, we are pursuing joint enforcement actions to protect consumers from unauthorized fees on their wireless bills. Our agencies have agreed to continue our close cooperation on this and other cases on behalf of wireless customers nationwide.”
If the FCC moves forward with the speculated $105 million fine, it would mark the third time this year a major wireless carrier has faced action regarding bill-cramming.
In October, AT&T entered into a 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.
The CFPB’s lawsuit against Sprint marks the second such action against a mobile carrier this year.
Back in July, the Federal Trade Commission sued T-Mobile for similar practices, accusing the company of making hundreds of millions of dollars off of premium text-messaging premium.
T-Mobile’s response to that lawsuit was to claim that it shouldn’t be sued because it stopped allowing these illegal charges.
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.”
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.
Consumer Financial Protection Bureau Sues Spring For Cramming Consumers With Unauthorized Third-Party Charges [CFPB]