On December 19, 2014, the Federal Trade Commission ("FTC") issued a press release announcing a settlement with T-Mobile USA, Inc. ("T-Mobile") concerning alleged practices of illegal cramming. Among other provisions, the terms of the settlement require that T-Mobile issue full refunds to those of its customers who were charged for third-party services by T-Mobile from June 1, 2010 through the date the court "so-orders" the settlement agreement. In addition, T-Mobile will also pay fines in varying amounts to the Federal Communications Commission ("FCC"), the attorneys general of all 50 states, and the Attorney General of the District of Columbia, respectively. The settlement also requires that T-Mobile develop and implement a system by March 2, 1025, for obtaining "express informed consent" from its customers before third-party charges may be placed on their subject mobile telephone bills.
Allegations of Cramming Against T-Mobile
According to the complaint, until at least December 2013, T-Mobile illegally crammed third-party premium short messaging service ("PSMS") charges (for services such as ringtones, wallpaper, and text messages providing horoscopes and flirting tips) on its customers' cellular telephone bills. The FTC alleged that consent was not obtained from T-Mobile's customers prior to "cramming" these third-party charges on their telephone bills.
The complaint also alleges that T-Mobile often hid these charges. For example, "[a]lthough third-party charges are included in the line item 'Premium Services' [on consumer telephone bills], the Account Service Detail section of T-Mobile's bills do not identify them as such or provide any additional information to consumers." Moreover, according to the FTC, "[a] breakout of the actual third-party charges has typically appeared in the middle or towards the end of the bill, which in some instances may exceed 50 pages in length . . . ."
Terms of T-Mobile's Settlement for Alleged Cramming
Pursuant to the settlement agreement, T-Mobile must provide refunds to its customers in the total amount of at least $90 million for its alleged cramming practices. T-Mobile must provide notice to consumers concerning their right to receive refunds and process all such refunds through a single claim form. Additionally, T-Mobile must pay a total of $18 million in fines and penalties to the attorneys general of all 50 states and the District of Columbia, and an additional $4.5 in fines to the FCC.
The settlement agreement also requires that by March 1, 2015, T-Mobile must develop and implement a system for obtaining prior express informed consent from its customers before placing third-party charges on their telephone bills. In addition, by April 1, 2015, T-Mobile must: 1) implement a system whereby customers will be sent purchase confirmation, separate from their telephone bills, associated with every third-party charge, including recurring charges, that will appear on customer bills; and 2) provide clear and conspicuous disclosures about third-party charges and blocking options in informational material provided at or near the time that customers subscribe for services.
Protect Yourself
In October, we blogged about AT&T Mobility's $105 million settlement with the FTC for alleged cramming. Now T-Mobile has been slammed with a $90 million dollar settlement for the same business practices. Because regulatory activity concerning cramming is on the rise, it is important for marketers and third-party service provides to take appropriate steps to prevent becoming the next entity that we blog about.
If you are a third-party marketer that charges for your products or services via mobile billing or if you have been served with legal process relating to your billing or marketing practices, please e-mail us at info@kleinmoynihan.com or call us at (212) 246-0900.
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