WASHINGTON Federal and state regulators said that mobile telephone carriers Verizon Wireless and Sprint have agreed to settle allegations that they bilked consumers out of millions by allowing third parties to "cram" unauthorized charges onto their customers' bills.
The announcement, made today by the Consumer Financial Protection Bureau and the Federal Communications Commission, in conjunction with the attorneys general of several states, calls for the companies to refund $120 million in faulty charges directly to consumers and pay an additional $38 million in fines and penalties.
"Sprint and Verizon had flawed billing systems that allowed merchants to add unauthorized charges to wireless customer bills," said CFPB Director Richard Cordray. "Consumers bore the brunt of those charges and ended up paying millions of dollars while the companies reaped profits. Today's actions will require these companies to improve their billing practices going forward."
The proposed settlement will cover a complaint that CFPB brought against Sprint in December as well as a similar complaint brought against Verizon today. The settlements must be approved by federal judges in New York and New Jersey before they are finalized.
The complaint alleges that between 2004 and 2013, the wireless carriers failed to appropriately oversee third-party vendors that handled payments for apps, games, books and other services that became increasingly available and lucrative as smartphones gained traction. That lack of oversight gave those vendors "nearly unfettered access to consumers' wireless accounts," according to the CFPB, allowing charges that ranges from one-time $0.99 fees to recurring $9.99 monthly fees. Verizon and Sprint, meanwhile, received a portion of those fees.
New York Attorney General Eric Schneiderman said that it was "both unfair and illegal to charge consumers for services they did not request, a practice that Sprint and Verizon engaged in over several years," and estimated that two million consumers in New York alone were affected by the practice.
In addition to the penalties, Sprint and Verizon must clearly and conspicuously disclose third-party charges on their billing statements and must obtain permission from consumers to allow third parties to assess charges on their bills. The settlement also requires the carriers to develop an improved resolution process for disputed charges and enhance customer service employee training programs. Consumers can submit claims for refunds at specially created websites, located here for Verizon customers and here for Sprint customers.
The settlements mark the agency's first attempt to assert jurisdiction over mobile carriers, which the CFPB claimed because the Dodd-Frank Act gave it authority over mobile payments and payment processing. Some observers said that CFPB has overstepped its bounds, but those jurisdictional claims were apparently convincing enough to Sprint and Verizon that they were willing to settle the charges rather than test them in court.