U.S. Accuses T-Mobile of Overbilling

By
Courtesy of the Associated Press

c.2014 New York Times News Service

WASHINGTON — T-Mobile, which sees itself as a new kind of carrier, now stands accused of an old-fashioned practice — overbilling its customers.

The Federal Trade Commission on Tuesday brought a legal action accusing T-Mobile of illegally earning hundreds of millions of dollars by placing bogus charges on customers’ cellphone bills for premium texting services that the consumers never ordered. Regulators said that T-Mobile had been allowing the third-party charges, and taking a hefty cut of the revenue, since 2009.

The case is one of the largest yet brought by regulators against a major telecommunications company for unauthorized billing, known as “cramming.” The practice has been relatively common for landlines, but recently began to appear on mobile bills.

In T-Mobile’s case, the FTC said, fees for services like “flirting tips, horoscope information or celebrity gossip,” typically were for $9.99, of which 35 to 40 percent went to T-Mobile. In some cases, customers were charged for “years after becoming aware of signs that the charges were fraudulent,” it said.

Jessica Rich, director of the agency’s Bureau of Consumer Protection, said in a briefing that T-Mobile had “ignored telltale signs of fraud” in the charges, harming many consumers.

John Legere, T-Mobile’s chief executive, said in a statement that the FTC’s accusations were without merit.

Also Tuesday, the Federal Communications Commission said it was investigating T-Mobile’s billing practices after receiving consumer complaints. The commission and the FTC are the two main regulators of the telecommunications industry.

The inquiry and the accusations come at an awkward time for T-Mobile, which has been reported to be in talks with Sprint for a merger that would have to be approved by the FCC. T-Mobile has trumpeted itself in its ad campaign as the “Un-carrier” eliminating the things that frustrate customers, like hidden charges and confusing two-year contracts. For its efforts, the company has won praise and millions of customers.

Some of the charges resulted in refunds being given to 40 percent of the customers who asked for them, “an obvious sign to T-Mobile that the charges were never authorized by its customers,” the FTC said.

“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 Edith Ramirez, the FTC chairwoman. “The FTC’s goal is to ensure that T-Mobile repays all its customers for these crammed charges.”

In his statement, Legere said that last month the company stopped allowing third-party companies to incur charges, and proactively offered refunds to customers.

“We are disappointed that the FTC has chosen to file this action against the most pro-consumer company in the industry rather than the real bad actors,” Legere said. “The FTC’s lawsuit seeking to hold T-Mobile responsible for their acts is not only factually and legally unfounded, but also misdirected.”

According to the FTC complaint, filed in federal court in Seattle, T-Mobile told the agency that consumers had authorized the charges. But the agency said the company had shown “no proof of consumers’ doing so.” Commission officials said they had tried unsuccessfully to reach a settlement with T-Mobile.

The FTC is seeking refunds for consumers, and to permanently prevent T-Mobile from engaging in cramming. The commission lacks the power to impose its own fines for charges of consumer fraud, but the FCC has that authority. In the last four years that agency has taken nine enforcement actions against companies for cramming that have totaled more than $33 million in proposed fines.

Consumers would have had a hard time figuring out that they were being charged by T-Mobile for the services, the FTC said, because the company’s online billing statements did not show that the charge was coming from a third party or that it was a recurring payment. Its full-length bills, which often run to dozens of pages, gave more information, but in what was often unintelligible fashion, the agency said.

(STORY CAN END HERE. OPTIONAL MATERIAL FOLLOWS.)

For example, one type of unauthorized charges appeared on bills with the service listed as “8888906150BmStorm23918,” the FTC said. Consumers who had prepaid phone plans do not receive a bill at all; therefore, the amount was simply deducted from their accounts, according to the agency.

T-Mobile announced in November 2013 that it would no longer allow third parties to bill its customers for premium texting services. When it offered refunds last month to consumers, Mike Sievert, the company’s chief marketing officer, said: “If customers were charged for services they didn’t want, we’ll make it right. That’s being the Un-carrier.”

The FTC’s complaint says, however, that T-Mobile knew in early 2012 that customers were complaining about the charges in increasing numbers and that it had identified several third-party merchants as the subject of those complaints. But, the FTC said, T-Mobile did little to determine whether the customers had authorized the charges.

T-Mobile refused to give some consumers refunds when they asked for them, the commission said, or told them it would block future charges and then failed to do so.