Privacy & Information Security Law Blog

On December 19, 2014, the Federal Trade Commission announced a settlement of at least $90 million with mobile phone carrier T-Mobile USA, Inc. (“T-Mobile”) stemming from allegations related to mobile cramming. This settlement amount will primarily be used to provide refunds to affected customers who were charged by T-Mobile for unauthorized third party charges. As part of the settlement, T-Mobile also will pay $18 million in fines and penalties to the attorneys general of all 50 states and the District of Columbia, and $4.5 million to the Federal Communications Commission.

Similar to another recent enforcement action, the FTC alleged in its complaint that T-Mobile billed its customers for certain services offered by third parties, including subscription services for “ringtones, wallpaper, and text messages providing horoscopes, flirting tips, celebrity gossip, and other similar information.” The FTC stated that customers did “not order or authorize” these services in many cases, and T-Mobile continued to bill its customers for these charges even after receiving a large number of customers’ complaints about unauthorized charges, as well as “industry auditor alerts, law enforcement and other legal actions, and news articles” indicating that third parties had not obtained valid authorization from customers for these charges. The FTC asserted that T-Mobile retained a percentage of the third party fees charged to customers, typically around 35%. The FTC also claimed that the third party charges were not “conspicuous” on customers’ bills, but were lumped together with other charges, such as charges for texting, and often buried toward the end of the bill.

The settlement requires T-Mobile to:

• notify relevant customers of their right to receive refunds for unauthorized third party charges;
• establish and implement a system to ensure that T-Mobile obtains prior express informed consent before billing customers for third party products or services;
• send customers purchase confirmations for third party charges separate and apart from the customers’ bills for phone services;
• provide customers with informational materials regarding third party charges, including blocking options;
• adequately train its relevant personnel and appropriately respond to customers who contact T-Mobile to inquire about a third party charge;
• provide specified records to a settlement administrator;
• submit periodic compliance reports to the FTC; and
• maintain records associated with third party charges.

The proposed settlement is subject to approval by the U.S. District Court for the Western District of Washington before becoming effective. The FTC has recently brought several cases related to mobile cramming, including against online marketing and advertising companies and AT&T Mobility, LLC.