Spotting the signs of a crampage: Lessons from the FTC’s proposed settlement with T-Mobile

Flashes at a railroad crossing. That chirp from a smoke detector. The “check engine” light on the dashboard. Those are just a few warnings that merit your attention. The FTC’s proposed settlement with T-Mobile – which imposes at least $90 million in financial remedies, including full consumer refunds – highlights another warning that businesses should heed: clear indications that consumers are getting billed without consent.

The FTC sued T-Mobile in July 2014 for its role in cramming unauthorized charges onto mobile phone bills. According to the complaint, fraudsters used an arsenal of underhanded tactics to place monthly charges for ringtones, “love tips,” etc., on consumers’ T-Mobile bills. Who pocketed a 35-40% piece of the action? T-Mobile.

The FTC says T-Mobile made matters worse by burying the unauthorized charges in bills that could run 50 pages or more, making it even tougher for consumers to figure out what was going on. For customers who checked their bills online, T-Mobile lumped fees for third-party subscriptions into one category called “Use Charges,” a nondescript descriptor if there ever was one. If consumers clicked to expand that field, all they got was a similarly unenlightening line listing “Premium Services.” If a consumer finally found the unexplained fee – a big if, under the circumstances – the billing line for the illegal charge said something like “8888906150BrnStorm23918." Clear? As mud, the FTC alleged.

Prepaid customers had it even worse, if that’s possible. Since they don’t get bills, T-Mobile just debited their accounts for the unauthorized charge without their knowledge.

So what about those warnings the FTC says T-Mobile didn’t heed? T-Mobile heard from thousands of customers who cried foul about the unauthorized charges. And it wasn’t just an occasional customer kvetch. In some cases, T-Mobile was charging people for services that had refund rates as high as 40% in a single month.

That wasn’t the only warning. Industry auditors, law enforcement actions, private lawsuits, and press reports all told the same story: T-Mobile customers were getting stuck with charges they hadn't agree to. But according to the FTC’s complaint, the company kept pocketing the proceeds rather than responding appropriately in the face of undeniable evidence that it was billing people without their authorization.

To settle the case, T-Mobile has agreed to offer full refunds to affected consumers. Under the proposed order, which requires court approval, T-Mobile must contact all crammed customers – current and former – to clearly explain how they can get their money back. In addition, T-Mobile will pay $18 million in fines and penalties to the state AGs and an additional $4.5 million to the FCC. In total, the proposed order requires T-Mobile to turn over at least $90 million in refunds and other financial remedies.

The settlement also puts three far-reaching changes in place to protect consumers in the future:

• T-Mobile will have to get people’s express informed consent before placing third-party charges on their bills;
• Consumers will be sent a purchase confirmation – separate from their phone bill – each time a third-party charge is placed on their bill; and
• T-Mobile will have to tell customers about options to block third-party charges from being placed on their bills in the first place.

The implications extend far beyond this industry. The primary lesson of the proposed T-Mobile settlement is that companies need to get customers’ express authorization before billing them. That fundamental protection applies with full force in the mobile arena.  Furthermore, savvy businesses take early and decisive action at the first signs of unauthorized billing. The T-Mobile cases offers 90 million reasons why it’s unwise to look the other way when consumers and others are warning you that illegal activity is afoot.