WASHINGTON The Consumer Financial Protection Bureau said today it had filed a lawsuit against Sprint Corp., alleging it illegally processed improper third-party billing charges marking the first time the agency has pursued a telecommunications firm.
The CFPB claims that Sprint allowed vendors to place "tens of millions of dollars" in unauthorized charges on cell phone bills and ignored consumer complaints about the third-party charges. The agency is seeking court approval to require Sprint to refund affected consumers and pay penalties.
"Today we are suing Sprint for allowing illegal charges to be crammed onto consumers' wireless bills," said CFPB Director Richard Cordray in a press release. "Consumers ended up paying tens of millions of dollars in unauthorized charges, even though many of them had no idea that third parties could even place charges on their bills. As the use of mobile payments grows, we will continue to hold wireless carriers accountable for illegal third-party billing."
The CFPB said from 2004 to 2013, Sprint outsourced payment processing for digital purchases like games and apps that came through text messages with hidden charges, but failed to monitor the vendors charging those fees. Most of the harmed consumers would first click on an advertisement online that would direct them to a website asking for their cell phone number in order to get a "free" digital item but would then charge the consumer for it. In other cases, the CFPB said vendors were fabricating the charges without ever sending the product.
"The charges ranged from one-time fees of about $0.99 - $4.99 to monthly subscriptions that cost about $9.99 a month," the CFPB said. "Sprint received a 30-40% cut of the gross revenue from these charges."
The CFPB acknowledged that Sprint stopped billing for the premium short messaging services last December. The CFPB worked with the Federal Communications Commission on the investigation. The suit has been filed in the U.S. District Court for the Southern District of New York.
Carrier billing is an increasingly common method of handling mobile payments worldwide. Companies like PayPal, Boku and Bango provide services that let consumers make purchases, mostly of digital goods, and have the charges placed on their phone bills.