Sprint to pay $2.95M to settle FTC charges that it did not tell subs with lower credit why it was charging them more

Sprint (NYSE: S) agreed to pay $2.95 million in civil penalties to settle Federal Trade Commission charges that the carrier failed to properly alert consumers with lower credit scores that they were being placed in a special program and charged an extra monthly fee.

In its complaint, the FTC alleges that Sprint put subscribers with lower credit scores in a so-called "Account Spending Limit" (ASL) program. The ASL program requires consumers to pay a monthly fee of $7.99 in addition to the charges for wireless and data services. As the Washington Post notes, the FTC did not say how many customers were affected by Sprint's actions, but said that it occurred at least between November of 2013 through June of 2014.

"Sprint failed to give many consumers required information about why they were placed in a more costly program, and when they did, the notice often came too late for consumers to choose another mobile carrier," Jessica Rich, director of the FTC's Bureau of Consumer Protection, said in a statement. "Companies must follow the law when it comes to the way they use consumer credit reports and scores."

The FTC noted that since Sprint allows customers to be billed for services after they are used, they are subject to the requirements of the Fair Credit Reporting Act and its "Risk-Based Pricing Rule." The rule requires that companies inform consumers whenever they are offered service on less favorable terms, which the FTC said includes things such as the ASL program, as a result of information from their credit reports or scores.

The complaint alleges that Sprint in many cases failed to provide consumers placed in the ASL program with all of the disclosures that were required and omitted required information that would help consumers understand the information in their credit reports. That information, the FTC said, may have alerted subscribers to possible errors that caused them to receive less favorable terms of credit. Additionally, the complaint alleges that Sprint often provided these notices to customers after the point in which they could cancel their service and switch to another carrier without paying an Early Termination Fee.

Under the terms of the settlement, Sprint neither admitted nor denied the allegations. According to Re/code, Sprint said it was including almost all of the relevant information in its disclosures, but made changes in July as part of the settlement.  

"Sprint puts its customers first and is always working to provide clear and necessary information to customers," Sprint said in a statement to FierceWireless. "The FTC's relatively new Risk Based Pricing Rule requires certain specific disclosures in specific formats be provided by letter to ASL (Account Spending Limit) customers and applicants. The FTC agreed that we were including almost all of the relevant information in our ASL letters, but requested that we modify the format of the letter. We appreciated the dialogue with the FTC and we have already implemented the changes requested by the FTC."

Sprint said the settlement is not about the fee but about the format of the letter used to communicate required information to consumers when a credit report is used. "We disagreed on the format used to communicate the information," Sprint said. "The $7.99 fee has always been clearly disclosed to consumers during the sales transaction and in multiple notices after the transaction to ensure customers are aware of and not surprised by the fee. And to be clear, customers receive multiple disclosures about the ASL program and the fee prior to the end of the 14 day return period so they can decide whether or not to make changes to their carrier."

Sprint added the ASL program "is designed to provide postpaid wireless services to customers who may not otherwise qualify for postpaid service. We do not have plans to modify our program at this time.  We will continue to disclose the program terms and the ASL fee in multiple ways with the customers during the sales transaction and in notices delivered to the customer before the 14-day return period has ended."

For more:
- see this FTC release
- see this FTC filing
- see this Re/code article
- see this Washington Post article 

Related articles:
Sprint must face $300M lawsuit for underpaid taxes in New York
Nonprofits using WiMAX sue Sprint, alleging violation of contracts ahead of network shutdown
Judge demands more details before approving $50M Sprint settlement in 'cramming' case

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