It was an all-too-common occurrence. People’s mobile phone bills included unexplained – and unauthorized – monthly charges. It’s called cramming and the FTC has brought a series of cases against companies that had fees for ringtones, horoscopes, “love tips,” etc., placed on cell phone bills without consumers’ consent. The crammers took a chunk of the cash, but you might be surprised to learn who the FTC says pocketed a 35-40% piece of the action. A just-filed lawsuit pulls back the curtain on the role the FTC alleges that mobile phone carrier T-Mobile USA played in deceptive and unfair billing.
T-Mobile bills people for its own cell phone services and for services offered by those third-party ringtone and horoscope peddlers – often at a monthly cost of $9.99 per subscription. T-Mobile’s bills make some clear and prominent claims about its own services, but the FTC says information about third-party services was often buried in fine print. You’ll want to read the complaint for details, but the gist of the FTC’s case is that it’s the law – and it’s always been the law – that it’s illegal to bill people without their express consent.
According to the FTC, choices T-Mobile made in how it billed customers exacerbated the problem of unauthorized charges. For consumers who looked at an online bill summary, T-Mobile lumped fees for third-party subscriptions into one category called “Use Charges.” If consumers clicked to expand that field, all they got was a line listing “Premium Services” with no explanation of what they were being billed for.
The FTC says T-Mobile’s full bills, which often totaled 50 pages or more, were no clearer. The company chose to include both third-party charges and charges for other services – for example, texting – under the not-very-descriptive descriptor “Usage Charges.” Even if consumers dug down and found the “OTHER SERVICE PROVIDER CHARGES” section, they may have seen a caption like “8888906150 BrnStorm23918.” The FTC says that didn't adequately explain to consumers that T-Mobile was billing them $9.99 per month for a trivia text service provided by another company. Pre-paid customers were out of luck, too, since T-Mobile just deducted the $9.99 charge from their available minutes without any notification.
Add to the mix the FTC’s allegation that in many cases, T-Mobile ignored signs that it was lending a hand to crammers notorious for placing unauthorized charges on consumers’ bills. “But how could T-Mobile know?” you might ask. By looking at the facts right in front of them, the FTC's lawsuit alleges.
One warning sign the FTC says T-Mobile didn’t adequately heed was the pile of complaints from its customers. As those numbers grew, T-Mobile’s own employees told the company that consumers “do not know what the charges are or why they are being billed for them.” According to the complaint, in some cases, T-Mobile kept charging consumers for subscriptions that were resulting in refund rates as high as 40% in a single month. (The FTC says that figure likely underestimates the percentage of consumers who were crammed because before they could ask for a refund, they first had to identify the charges. No mean feat, given how T-Mobile listed third-party subscriptions on bills.)
Another red flag was data from the company’s own Performance Improvement Plan (PIP) – an in-house program that was supposed to review problematic subscription services. It took a refund rate of 15% or more to get a service into the year-long PIP program. If the refund rate temporarily dipped below 15% in a given month, the FTC says T-Mobile removed the service from the PIP. If it rose above 15% the next month, T-Mobile reset the one-year clock all over again. And even if T-Mobile terminated a particular subscription for unauthorized charges, it continued to charge consumers for other subscriptions sold by the same merchant.
There were more alarms the FTC says T-Mobile didn't properly heed. Even after receiving credible alerts from industry auditors that certain companies were engaged in cramming, T-Mobile continued to charge consumers for their services and pocket its hefty share.
The warnings continued in the form of press reports, class action lawsuits, state AG settlements, and FTC law enforcement actions against crammers. How did T-Mobile respond? Aside from the ka-ching of money made from placing those companies’ charges on customers’ bills, the FTC says things were pretty quiet on T-Mobile’s end.
Furthermore, according to the complaint, T-Mobile didn’t respond well to consumer complaints. In many cases, the company flat-out refused to give refunds for unauthorized charges or offered only partial refunds. In other instances, consumers were told there was nothing that could be done about charges they had already paid, but that T-Mobile would block future charges. According to the FTC, the company sometimes failed to follow through with even that half-a-loaf promise. T-Mobile told some consumers to take it up with the third-party merchant, but then didn’t give them accurate contact information. The FTC says in other instances, T-Mobile told consumers they must have OKed the charges, even though T-Mobile had no proof to back that up. According to the complaint, T-Mobile even told some people they had to pay up because they hadn't taken sufficient steps to actively decline a merchant's solicitation.
Count I of the lawsuit alleges that T-Mobile violated Section 5 of the FTC Act by making deceptive representations about charges on consumers’ phone bills. Count II focuses on allegedly unfair billing practices. What's the FTC asking for? A court order to prevent T-Mobile from engaging in mobile cramming, refunds for consumers, and disgorgement of T-Mobile’s ill-gotten gains.
You’ll want to follow the case as it goes to trial in Seattle. In the meantime, bookmark the Business Center’s Payments and Billing page for compliance resources.