The Federal Trade Commission accused wireless carrier T-Mobile of adding bogus charges totaling "hundreds of millions of dollars" on customers' accounts without their consent.
At least as far back as 2009 until at least December 2013, the carrier placed unauthorized charges on customers' mobile phone bills for premium subscriptions, the agency alleges in a suit filed today in U.S. District Court.
The agency says T-Mobile participated in "cramming," a practice where the carrier places charges for services from a third-party company on consumers' bill without telling them. The FTC says T-Mobile also made it difficult for its customers to detect the charges.
T-Mobile CEO John Legere called the FTC's complaint "unfounded and without merit. In fact T-Mobile stopped billing for these Premium SMS services last year and launched a proactive program to provide full refunds for any customer that feels that they were charged for something they did not want."
The FTC's case says that the charges were typically for third-party content such as flirting tips, horoscope information or celebrity gossip and amounted to $9.99 per month. Usually, when customers see a third-party service in an advertisement, they must opt-in twice before charges can be added to their mobile phone bill.
However, in many cases deceptive advertisements hid the fact that the consumer was agreeing to the charges, said FTC attorney Brian Shull. And, in other cases, the third-party merchants were "just buying phone numbers from random places and billing these consumers without any notice whatsoever," he said.
T-Mobile, typically, gets 30% to 40% of the third-party fees and forwards the rest to the merchant. "We allege that T-Mobile knew about these fraudulent charges and failed to stop them or take any action, therefore they continued," said Jessica Rich, the FTC's director of consumer protection.
The money fraudulently gathered by this practice could actually be higher than the "hundreds of millions" that the agency lists in the suit, because that is just the amount that T-Mobile gained from its alleged "cramming," Rich said.
T-Mobile was "deceptive and unfair" because the company had let charges from third-party companies continue on consumers bills after "clear warning signs those charges were fraudulent."
The agency has taken action against 30 companies for cramming, Rich said, but this is the first against a telecommunications provider. The Federal Communications Commission announced has coordinated with the FTC its own investigation of "cramming" complaints involving T-Mobile.
"Consumers should not be charged for services that they did not order," said Travis LeBlanc, Acting Chief the FCC's Enforcement Bureau. "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 allegations arrive as T-Mobile is attempting to distance itself from its competitors with its selection of "Uncarrier" wireless plans aimed at eliminating contracts. Last week, the company introduced free music streaming and the ability to try a new iPhone for free.
The alleged practices began before current CEO Legere took the job in September 2012, but continued, as reported, under his watch throughout 2013. During its "Uncarrier" push, Legere has been on the offensive about wireless rivals loading up customers with restrictive contracts and high fees.
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."
T-Mobile now has procedures in place to protect consumers from unauthorized charges, Legere said.
"Unfortunately, not all of these third party providers acted responsibly—an issue the entire industry faced," he said. "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."
T-Mobile has also been the subject of merger talks with fellow wireless carrier Sprint, which did not comment on the FTC announcement. The merger is reportedly worth as much as $50 billion.
The FTC's Rich said that the agency's goal is to get the court to require T-Mobile to repay fees collected under unauthorized practices. She suggested that consumers "should read their bills closely and they should quickly contact any carrier when they see any unauthorized charges on it and do so quickly in case there is a window of time ... to when they can get their money back."
Some carriers also let consumers block all third-party charges, another way to protect against fraud, Rich said.