FTC: T-Mobile netted 'hundreds of millions of dollars' in fraudulent premium SMS charges

The Federal Trade Commission is alleging that T-Mobile US (NYSE:TMUS) made "hundreds of millions of dollars" by knowingly charging customers for purported "premium" SMS subscriptions that, in many cases, were "bogus charges" customers never authorized. T-Mobile said the complaint is "unfounded and without merit."

The FTC claims that T-Mobile received anywhere from 35 to 40 percent of the total amount charged to consumers for subscriptions for content that included flirting tips, horoscope information or celebrity gossip that typically cost $9.99 per month. Such content generally is offered by third parties. The FTC further alleges that T-Mobile continued to bill some customers for the services years after becoming aware of signs that the charges were fraudulent.

The complaint alleges the conduct went back to at least 2009. There is no exact figure on the number of T-Mobile customers who were affected, according to the FTC. The FTC voted unanimously, 5-0, to file the complaint, which was made in the U.S. District Court for the Western District of Washington.

The FTC's lawsuit seeks a court order to permanently prevent T-Mobile from engaging in mobile cramming, to get customers refunds, and to force payment from T-Mobile's "ill-gotten gains."

The FCC has also launched an investigation into the practices. "Consumers should not be charged for services that they did not order," Travis LeBlanc, acting chief the FCC's enforcement bureau, said in a statement. "We will coordinate our investigation with the FTC, and use our independent enforcement authority to ensure a thorough, swift, and just resolution of the numerous complaints against T-Mobile."

The FTC's complaint alleges that in some cases, T-Mobile claimed that consumers had authorized the charges despite having no proof of consumers doing so.

"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," FTC Chairwoman Edith Ramirez said in a statement. "The FTC's goal is to ensure that T-Mobile repays all its customers for these crammed charges."

In a statement, T-Mobile CEO John Legere said that "T-Mobile is fighting harder than any of the carriers to change the way the wireless industry operates and 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." On Twitter, Legere appeared to blame lobbyists from T-Mobile's larger rivals for the FTC's actions.

Notably, the claim from the FTC comes weeks after T-Mobile launched a new program to proactively reach out to customers who were billed for premium SMS messages they received from third-party services to give them the opportunity to request a refund for any unauthorized charges.

The program starts this month and runs through September. T-Mobile said it will notify current and former customers who paid for premium SMS services and have not already received a refund to let them know about how to get a summary of these charges and then request a refund for charges that were not authorized. The carrier also said it will set up a special website in July to provide more information on the issue.

"We exited this business late last year, and announced an aggressive program to take care of customers and we are disappointed that the FTC has instead chosen to file this sensationalized legal action," Legere said. "We are the first to take action for the consumer and I am calling for the entire industry to do the same."

Legere added: "This is about doing what is right for consumers and we put in place procedures to protect our customers from unauthorized charges. Unfortunately, not all of these third party providers acted responsibly--an issue the entire industry faced. We believe those providers should be held accountable, and the FTC's lawsuit seeking to hold T-Mobile responsible for their acts is not only factually and legally unfounded, but also misdirected."

"Cramming" is when charges are placed on the bill without a subscriber's authorization.

Jessica Rich, the FTC's consumer protection director, said on a conference call with reporters that the FTC could not reach a settlement with T-Mobile and will be pursuing its claims in court. She said T-Mobile is "well aware" of the lawsuit. The FTC will determine in court how much money it is seeking from T-Mobile in terms of repayments it must make to customers.

The FTC claim could dent T-Mobile's image as the "uncarrier," which it has nurtured as pursuing policies that favor consumers, such as paying off the Early Termination Fees of customers who switch to T-Mobile and trade in their phones.

Separately, in November 2013, AT&T Mobility (NYSE: T), Sprint (NYSE: S) and T-Mobile entered into an agreement with 45 states to stop billing customers for premium SMS messages they receive. Verizon Wireless (NYSE: VZ) was not part of the settlement but said that it would also discontinue the practice. The carriers continue to support text-to-donate for charitable programs and text-to-contribute for political campaigns.

"We can't comment on other carriers," Rich said, when asked if other carriers have engaged in practices similar to the ones the FTC is alleging T-Mobile engaged in. "I will say though that we have urged all of the industry to look at their practices and make improvements to prevent cramming."

The FTC's complaint alleges that T-Mobile should have been aware that its customers were not authorizing the services due to refund rates as high as 40 percent and because of customer complaints stretching back to 2012. The complaint also claims the carrier's billing practices made it difficult for customers to identify the charges--for example, some charges were listed as "8888906150BrnStorm23918" and did not explain that the charge was for a recurring third-party subscription supposedly authorized by the consumer.

The FTC also said T-Mobile in some cases refused to provide refunds, provided partial refunds or instructed customers to seek refunds directly from the third-party companies without providing accurate contact information to do so.

For more:
- see this FTC release 
- see this T-Mobile post
- see this FCC release (PDF)
- see this NYT article

Related Articles:
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Article updated July 1 to include T-Mobile's response.