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‘Cramming’ on customer bills proves costly to Verizon, Sprint


Inserting unauthorized third party charges into customer bills has cost wireless carriers Verizon and Sprint a combined $120 million in reimbursements to customers and federal and state fines of $38 million.

Mississippi received $358,269.56 for its participation in the Sprint and Verizon settlements. The national mobile cramming settlements with Verizon and Sprint and last fall with AT&T and T-Mobile carriers have netted  Mississippi a total of $846,136.

Richard Cordray, director of the U.S. Consumer Financial Protection Bureau, detailed the penalties Tuesday in address to attorneys general from around the country.

The CFPB, created through the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, joined with the Federal Communications Commission in ordering the reimbursements and assessing the fine.

Verizon must refund $70 million and Sprint $50 million. In addition to sharing the fine, the companies must also   change their business practices to prevent similar harm to consumers in the future.

“We are taking action against Sprint and Verizon for illegally cramming consumers’ bills with unauthorized third-party charges,” Cordray said.

“In doing so, we have secured $120 million in redress for harmed consumers and $38 million in fines. “

Cordray said the companies’ flawed billing systems allowed unscrupulous merchants to add unauthorized charges to wireless bills, and consumers ended up paying over a $100 million dollars in unnecessary charges.  Sprint and Verizon cashed in by taking a cut of the ill-gotten fees, Cordray charged.

“Many of these consumers had no idea that third parties could even place charges on their bills,” Cordray said.

According to the Pew Research Center, more than 90 percent of Americans now own a mobile phone.

When people use wireless accounts to make purchases, carriers such as Verizon and Sprint act as payment processors.  They place the charges for those purchases on wireless bills instead of on a credit card or other form of payment.

With Sprint and Verizon, both companies enrolled customers in third-party billing systems without their consent, Cordray said. “That allowed scammers to cram illegitimate charges onto people’s wireless bills.  For almost a decade, until the end of 2013, nearly all wireless third-party billing involved premium text messages.  These premium messages delivered things like ringtones, wallpaper, and horoscope text messages.”

Sprint and Verizon outsourced the billing for these messages to vendors known as billing aggregators.  But Sprint and Verizon failed to keep a watchful eye on these vendors or the charges they were placing on wireless accounts, according to Cordray.

“As a result, consumers were subjected to millions of unauthorized charges, including one-time fees ranging from 99 cents to $14.99 as well as monthly subscriptions that cost about $9.99 per month,” he said.

Most consumers who faced these unauthorized charges were targeted online.  Consumers clicked on ads that brought them to Websites asking them to enter their cell phone numbers.  Some merchants tricked consumers into providing their cell phone numbers to receive “free” digital content and then charged for it.

“Other merchants simply placed fabricated charges on people’s bills without delivering any goods or even communicating with them,” the CFPB chief said.

Cordray said the companies ignored complaints from consumers and other red flags and continued to outsource third-party billing to the aggregators and allowed the unauthorized charges to pile up on people’s monthly cell phone bills.

“When consumers paid these illegal charges, Sprint and Verizon were able to take a 30 to 40 percent cut of the gross revenue.  This was wrong,” he said.

The companies took advantage of their customers and treated them unfairly in a number of ways, he added.

“First, the companies allowed third parties to access their billing systems and failed to monitor those third parties.  Such billing practices made it easy for scammers to attach the charges.  On top of that, since the companies made a profit on every such charge, there was little incentive for the companies to put a stop to them.

“Second, Sprint and Verizon automatically enrolled customers in their third-party billing systems without the customers’ consent and did not require customers to opt-in to the service. “

Although Verizon and Sprint allowed consumers to block third-party charges, consumers had to make a specific request that they do so.  Since many consumers were unaware that third parties could even place charges on their bills, they did not know to ask for such protection, making the blocking option of little use to consumers.

“Third,” Cordray said, “both companies disregarded red flags showing that their third-party billing systems were breeding grounds for unauthorized charges.  They continued to outsource this process to aggregators even after those very same companies were sued for cramming.

“Fourth, Sprint and Verizon ignored or mishandled complaints about the unauthorized charges.  They did not track customer complaints about the charges and thus lacked even the most basic fraud-alert mechanism.”

Although wireless carriers generally ended premium message transactions at the end of 2013, third-party billing on mobile accounts continues through different platforms, like mobile wallets and direct carrier billing, the CFPB says.


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