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AT&T to Pay Record $105 Million Settlement for Mobile Cramming
Practical Law Legal Update 9-583-9466 (Approx. 4 pages)
AT&T to Pay Record $105 Million Settlement for Mobile Cramming
by Practical Law Commercial
| Published on 09 Oct 2014 • USA (National/Federal) |
AT&T will pay $105 million dollars to settle mobile cramming allegations that were the result of a joint investigation and enforcement action by the Federal Trade Commission (FTC), Federal Communications Commission (FCC) and the attorneys general from every state and the District of Columbia.
On October 8, 2014, the Federal Trade Commission (FTC), Federal Communications Commission (FCC) and attorneys general from every state and the District of Columbia announced a settlement agreement with AT&T to resolve an investigation into the company's allegedly deceptive billing practices.
According to the complaint filed by the FTC, AT&T:
- Billed its customers for hundreds of millions of dollars in charges originated by other companies, usually in amounts of $9.99 per month, for ringtones and text messages containing love tips, horoscopes and "fun facts."
- Kept at least 35% of the charges it imposed on its customers.
- Recieved high volumes of consumer complaints related to the unauthorized third-party charges placed on consumer's phone bills, reaching as high as 40% of subscriptions charged to consumers in a given month.
- Structured its bills such that it was difficult for customers to know about the third-party charges because the charges were listed as "AT&T Monthly Subscriptions," which left consumers to believe the charges were part of the services provided by AT&T.
These billing practices, commonly referred to as cramming, are prohibited by:
- Section 201(b) of the Communications Act of 1934 as placing unauthorized charges for or in connection with telephone service constituting an unjust and reasonable practice (47 U.S.C. § 201(b)).
- Section 5(a) of the Federal Trade Commission Act as an unfair or deceptive practice affecting commerce (15 U.S.C. § 45(a)).
- Individual state laws that vary between specifically prohibiting mobile cramming and generally prohibiting deceptive commercial practices.
The settlement agreement requires AT&T to:
- Pay a total of $105 million in penalties, which is composed of:
- $80 million to the FTC for distribution to current and former customers who were billed for unauthorized third-party services;
- $20 million to state governments; and
- $5 million to the US Department of the Treasury.
- Notify its current customers who were billed for unauthorized third-party charges of the settlement and the refund program by text message, e-mail, paper bill insert and notification on online bills.
- No longer offer commercial third-party "premium SMS" charges.
- Adopt processes to obtain express informed consent from customers before including third-party charges on their phone bills.
- Revise its billing practices to ensure that third-party charges are clearly and conspicuously identified on bills so that customers know what services they are paying for.
- Offer a free service to customers to block all third-party charges.
This is the largest amount for the settlement of an FCC enforcement action in history and is part of larger FCC and FTC efforts to curb telecommunications companies from mobile cramming and slamming (the illegal practice of switching a consumer's traditional wireline telephone company for local, local toll or long distance service without permission). To avoid similar liability, telecommunications companies should avoid any actions that might be construed as cramming or slamming when billing consumers.