T-Mobile US (NYSE:TMUS) agreed to pay at least $90 million to resolve an FCC investigation into allegations that the company billed customers for millions of dollars' worth of unauthorized third-party subscriptions and premium text messaging services.
In July the Federal Trade Commission alleged in a lawsuit that T-Mobile 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 initially said the complaint was "unfounded and without merit" but in October indicated it was looking to settle the case.
The FCC's Enforcement Bureau launched an investigation after receiving consumer complaints about the practice. The subscription charges were typically $9.99 per month. According to the FCC, in some cases T-Mobile provided refunds after customers complained, but there were "numerous" customers who were billed for unauthorized third-party charges and were not compensated.
"While T-Mobile tracked third parties whose unauthorized charges resulted in T-Mobile issuing refunds to customers, even when the refund rate for a third-party merchant exceeded 15 percent, T-Mobile would nevertheless still continue to charge its customers for other subscriptions offered by that merchant," the FCC stated. The probe found T-Mobile charged its customers for some subscriptions with refund rates as high as 40 percent in a single month.
Under the terms of the agreement with the FCC, T-Mobile has agreed to a $90 million settlement, including a minimum of $67.5 million to fund and operate a consumer redress program that will give refunds to customers. If consumer claims exceed this amount, T-Mobile will continue to pay them. In addition, T-Mobile will pay $18 million to state governments participating in the settlement, and will make a $4.5 million penalty payment to the U.S. Treasury. The settlement was negotiated in coordination with the FTC and the attorneys general of all 50 states and the District of Columbia.
The T-Mobile settlement comes on the heels of a $105 million penalty AT&T Mobility (NYSE: T) agreed to in October to resolve similar allegations, and just after Sprint (NYSE: S) was hit with lawsuit by the Consumer Financial Protection Bureau over similar practices, known as "cramming." The FCC is coordinating its efforts with the CFPB and reports have indicated Sprint could be fined as much as $105 million.
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