Antitrust Law Daily Wrap Up, CONSUMER PROTECTION: TracFone to pay $40 million to settle FTC charges that it deceived consumers, (Jan 28, 2015)

By Dan Selcke, J.D.

TracFone, the largest prepaid wireless service provider in the U.S., has agreed to pay $40 million to the FTC in settlement of charges that it deceived consumers with empty promises of “unlimited” data service, the agency announced.

According to the FTC’s complaint, TracFone advertised prepaid monthly mobile plans for around $45 per month. According to the advertisements, the plans came with “unlimited” data under a variety of brands, including Straight Talk, Net10, Simple Mobile, and Telcel America. These “unlimited” plans were marketed through print advertisements, in-store displays, television and radio commercials, and other media.

Once consumers purchased the plans and went beyond certain fixed limits in a 30-day period, TracFone either drastically slowed down their mobile data—in some cases as much as 90%— or cut it off entirely. When consumers approached these limits, they would often receive a call, warning them about their “excessive data usage,” but they were not informed of the limits.

The complaint further stated that there was no technical reason for TracFone to limit data, but that internal documents revealed that the company was trying to “reduce the high costs associated” with providing the unlimited data that it had promised. Starting in September 2013, TracFone did start to disclose information about its practice of slowing down data, but the disclosures were usually in very small print or at the back of packages or cards where consumers were unlikely to see them.

“The issue here is simple: when you promise consumers ‘unlimited,’ that means unlimited,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection.

The settlement proceeds will go toward paying refunds for consumers who purchased purportedly unlimited plans only to have their data service slowed down or cut off. They can file claims at www.ftc.gov/prepaidphones. Consumers unsure whether data service on their unlimited plans was affected are also encouraged to file. In addition to paying the $40 million, TracFone was prohibited from making further deceptive advertising claim about its mobile data plans, and must clearly disclose any limits on the speed or quantity of its data service.

The case against TracFone was the second case brought by the FTC against a mobile provider for failing to live up to its promises concerning unlimited data. A similar suit against AT&T is currently in litigation.

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