The Technologies Management Blog

Posted by Amy Gross on 5/14/15 3:57 PM

TMIVerizon Wireless and Sprint Corporation entered into separate agreements with the FCC, the Consumer Financial Protection Bureau (CFPB), and the attorneys general of all 50 states and the District of Columbia to settle charges of mobile cramming. Verizon’s $90 million settlement will include a minimum of $70 million to fund a consumer redress program, $16 million for state governments participating in the settlement, and $4 million as a fine paid to the U.S. Treasury. Sprint’s $68 million settlement will include a minimum of $50 million to fund a consumer redress program, $12 million for state governments participating in the settlement, and $6 million as a fine paid to the U.S. Treasury. 

Federal Communications Commission

 

What did the companies do wrong?

Both companies were charged with billing customers millions of dollars in unauthorized third-party premium text messaging services (PSMS). The PSMS charges included services such as monthly subscriptions for ringtones, wallpapers, and text messages providing horoscopes, flirting tips, celebrity gossip, and other information. The typical charge for these types of subscriptions was $9.99 per month. Verizon retained 30% or more of each third-party charge that it billed, while Sprint received approximately 35% of collected revenues for each of its third-party charges.

Mobile Cramming BillNumerous consumers complained to the carriers, as well as the FCC and other government agencies, that they never requested or authorized the third-party services for which they were charged. While the carriers issued refunds to some consumers, many consumers were only given partial refunds or were refunded charges for only a few months even if they had been charged for unauthorized services for much longer.

 

What laws were they accused of violating?

The FCC investigation focused on charges that the companies engaged in an unjust and unreasonable practice under Section 201 of the Communications Act by billing consumers for products or services they had not authorized.

 

The CFPB alleged the companies, as a payment processor for third parties, violated the Dodd-Frank Wall Street Reform and Consumer Protection Act’s prohibition on unfair practices by: (1) allowing third-parties to illegally charge consumers; (2) automatically billing consumers for illegitimate charges without their consent; (3) disregarding red flags about third parties; and (4) ignoring consumer complaints about unauthorized charges.

CFPB

 

What operational changes will the companies implement to ensure consumer consent for third party charges?

Under the settlements, Verizon and Sprint agreed to:

  • Stop offering third-party PSMS products or services.
  • Develop and implement a system to obtain a consumer’s express informed consent before third-party charges are placed on their bills and retain sufficient information to allow the consumer’s consent to be verified. If consent is not directly collected by Verizon or Sprint, they must implement policies and practices to confirm that such consent was collected and documented. They also must monitor the activities of the third parties obtaining such consent to enforce these policies and practices, taking remedial action as needed.
  • Implement a system to provide separate purchase confirmations for all third-party charges (whether on a phone bill or as a deduction from a prepaid account). The confirmation must include a statement of the blocking options available to customers.
  • Block third party charges for free when requested by a consumer and provide disclosures about third party charges and blocking options in informational material provided at or near the time of subscribing to service. For postpaid service, the information must be provided in a context separate from the actual subscriber agreement document. For prepaid service, the information must be included in the disclosures provided at the time of purchase.
  • Place clear descriptions of third party charges in a dedicated section on customer bills. This bill section must also contain a disclosure of a consumer’s ability to block third-party charges.

 

What operational changes will the companies make to their customer service organizations?

Under the settlements, Verizon and Sprint agreed to provide customers calling about third-party charges with access to a customer service representative who has access to at least 12 months of the consumers’ billing statements.

Sprint Corporation

  • The representative must offer consumers the option to block future third-party charges and provide consumers with a refund of unauthorized charges unless the companies can demonstrate the consumers expressly consented to the charges, already received refunds for the charges, or are otherwise ineligible for a refund. 
  • If a consumer disputes third party charges as unauthorized, the companies may not: require the consumer to pay the disputed charge (including any related late charge or penalty); send the disputed charges to collection; make any adverse credit report based on non-payment of the disputed charge; and/or suspend, cancel, or take any action that may adversely affect the consumer’s mobile telephone service or functionality.

In addition, the companies will, for 6 years, conduct a training program to ensure customer service personnel resolve customer complaints about unauthorized third-party charges in accordance with the agreements.

 

Are the companies required to keep any records or file any reports?

Yes. Both companies agreed to implement a process to track third-party charge complaints and associated refunds and credits and to retain such records for 6 years. They also agreed to file quarterly reports with the FCC for 6 years. Under the CFPB and Attorney General settlements, the companies agreed to create and maintain for 5 years all documents and records necessary to demonstrate compliance with the provisions of the their respective orders.

 

Verizon wireless resized 600

How will the consumer refunds work?

Each company submitted a consumer redress plan to the CFPB for review. The CFPB agreed to the plans and will oversee each redress program.

 

Verizon will provide refunds to consumers of at least $35 million, not to exceed $70 million. Once Verizon pays at least $35 million in consumer refunds, it may claim a $16 million credit. If the full $70 million still has not been exhausted after the $16 million credit is applied, Verizon may claim an additional $5 million credit for costs associated with administering the redress plan. If, after March 31, 2016, the full $70 million (including the credits described above) has not been exhausted, Verizon will pay the remaining amount to the Bureau or the Bureau’s agent.

 

Sprint will provide up to $50 million for consumer redress. Sprint will provide notice of consumers’ right to file claims and receive redress under the supervision of the CFPB.

 

Verizon customers can submit claims for refunds at www.CFPBSettlementVerizon.com or can learn more information about the Verizon settlement by calling 888-726-7063. Sprint customers can submit claims for refunds at www.SprintRefundPSMS.com or can learn more information about the Sprint settlement by calling 877-389-8787.

 

Have other carriers entered into similar decrees?

Yes. Last year, AT&T Mobility agreed to a $105 million settlement and T-Mobile USA, Inc. agreed to a $90 million settlement. See the Regulatory Mix dated 12/22/14 and 10/9/14. All told, by working together, the FCC, CFPB, Federal Trade Commission, and states’ attorneys general have brought a total of $353 million in penalties and restitution against the U.S.’s four largest wireless carriers, structuring these settlements so that $267.5 million of the total will be returned to affected customers.

 

How can I get copies of the settlement documents?

The FCC and CFPB settlement documents are available via the following links:

 

Verizon FCC Consent Decree

Verizon CFPB Stipulated Final Judgment And Order

Sprint FCC Consent Decree

Sprint CFPB Stipulated Final Judgment and Order

 



Explore TMI's  Online Store

Download a Sample Regulatory Digest

Download a Sample of the Preferred Carrier Change Requirements


Topics: FCC, cramming, featured post, Verizon, Sprint

Subscribe to Email Updates

Posts by Topic

see all