Antitrust Law Daily Wrap Up, CONSUMER PROTECTION NEWS: FTC claims T-Mobile placed bogus charges on customer phone bills, (Jul 1, 2014)

By Linda O’Brien, J.D., LL.M.

The FTC announced today that it has charged mobile phone service provider T-Mobile USA, Inc., with making hundreds of millions of dollars by placing charges on mobile phone bills for purported “premium” SMS subscriptions that, in many cases, were never authorized by its customers. The FTC seeks a court order to permanently prevent T-Mobile from engaging in mobile cramming and to obtain refunds for consumers and disgorgement of T-Mobile’s ill-gotten gains. The complaint was filed in the U.S. District Court for the Western District of Washington.

According to the FTC’s complaint, (FTC v. T-Mobile USA, Inc., File No. 132-3231), T-Mobile received from 35 to 40 percent of the total amount charged to consumers for subscriptions for content such as flirting tips, horoscope information, or celebrity gossip that typically cost $9.99 per month. T-Mobile in some cases continued to bill its customers for these services offered by scammers years after becoming aware of signs that the charges were fraudulent.

In a process known as “third-party billing,” a phone company places charges on a consumer’s bill for services offered by another company, often receiving a substantial percentage of the amount charged. When the charges are placed on the bill without the consumer’s authorization, it is known as “cramming.”

In its complaint, the FTC charges that, in some cases, T-Mobile was charging consumers for services that had refund rates of up to 40 percent in a single month. The FTC has alleged that because such a large number of people were seeking refunds, it was an obvious sign to T-Mobile that the charges were never authorized by its customers. As the complaint notes, the refund rate likely significantly understates the percentage of consumers who were crammed. The complaint also states that internal company documents show that T-Mobile had received a high number of consumer complaints at least as early as 2012.

The complaint against T-Mobile alleges that the company’s billing practices made it difficult for consumers to detect that they were being charged, much less by whom. When consumers viewed a summary of their T-Mobile bill online, according to the complaint, it did not show consumers that they were being charged by a third party, or that the charge was part of a recurring subscription. The heading under which the charges would be listed, “Premium Services,” could only be seen after clicking on a separate heading called “Use Charges.” Even after clicking, though, consumers still could not see the individual charges.

The complaint also alleges that T-Mobile’s full phone bills, which can be longer than 50 pages, made it nearly impossible for consumers to find and understand third-party subscription charges. After looking past a “Summary” section as well as an “Account Service Detail” section, both of which described “Usage Charges” but did not itemize those charges, a consumer might then reach the section labeled “Premium Services,” where the crammed items would be listed.

According to the complaint, the information would be listed there in an abbreviated form that did not explain that the charge was for a recurring third-party subscription supposedly authorized by the consumer. In addition, the complaint notes that consumers who use pre-paid calling plans do not receive monthly bills, and as a result the subscription fee was debited from their pre-paid account without their knowledge.

When consumers were able to determine they were being charged for services they hadn’t ordered, the complaint alleges that T-Mobile in many cases failed to provide consumers with full refunds. T-Mobile refused refunds to some customers, offering only partial refunds of two months’ worth of the charges to others, and in other cases instructed consumers to seek refunds directly from the scammers – without providing accurate contact information to do so. The complaint also notes that in some cases, T-Mobile claimed that consumers had authorized the charges despite having no proof of consumers doing so.

“It’s wrong for a company like T-Mobile to profit from scams against its customers when there were clear warning signs the charges it was imposing were fraudulent,” said FTC Chairwoman Edith Ramirez. “The FTC’s goal is to ensure that T-Mobile repays all its customers for these crammed charges.”

The Commission vote authorizing the staff to file the complaint was 5-0.

Companies: T-Mobile USA, Inc.

News: ConsumerProtection FederalTradeCommissionNews