FTC Suit Against T-Mobile Says ‘Un-Carrier’ Profited From Cell Phone Cramming

Two years ago, I posted a piece written by a former student of mine about a new type of scam called “phone cramming,” something I had never heard of at the time.  Fast forward to now, and I figured all the major cellular carriers had figured out this scheme and put in place safeguards to stop it.  Apparently, T-Mobile didn’t get the memo.  Last week, the U.S. Federal Trade Commission filed a complaint against the nation’s fourth largest carrier, accusing it of knowingly profiting from phone cramming schemes for years.

Not so fast, T-Mobile…

 

For those of you who don’t know about cramming, it is the practice of placing fraudulent charges on a person’s cell phone bill.  The practice is pretty simple: do you remember when the earthquake in Haiti created an international humanitarian crisis?  Cellular carriers began allowing the International Committee for the Red Cross and other organizations to collect $10 donations from customers if they sent a text message to a specific number.  The phone carrier would place a charge on the person’s phone bill and then send the money on to the charity associated with the number.  Criminals soon figured out how to trick carriers into placing fraudulent charges on people’s bills and pocketing these “donations.”  These days, phone bills are so loaded with fees and service charges that many people never even noticed when some errant charge showed up, so they paid and went on with their lives.

Here’s the gist of the complaint according to the FTC website:

The FTC alleges that T-Mobile received anywhere from 35 to 40 percent of the total amount charged to consumers for subscriptions for content such as flirting tips, horoscope information or celebrity gossip that typically cost $9.99 per month. According to the FTC’s complaint, T-Mobile in some cases continued to bill its customers for these services offered by scammers years after becoming aware of signs that the charges were fraudulent.

It gets way worse.  Some of the services that were showing up on people’s bills month after month had refund rates as high as 40% — meaning that people were demanding refunds in droves — and complaints about the charges that were showing up on customers’ bills were piling up.   According to the FTC, T-Mobile didn’t just do nothing, it actively resisted giving customers refunds and ostensibly protected the scammers by giving out dubious contact information.

When consumers were able to determine they were being charged for services they hadn’t ordered, the complaint alleges that T-Mobile in many cases failed to provide consumers with full refunds. Indeed, the FTC charged that T-Mobile refused refunds to some customers, offering only partial refunds of two months’ worth of the charges to others, and in other cases instructed consumers to seek refunds directly from the scammers – without providing accurate contact information to do so.

The complaint also notes that in some cases, T-Mobile claimed that consumers had authorized the charges despite having no proof of consumers doing so.

The matter will go to a judge in the U.S. District Court for the Western District of Washington.  From there, it could go up to the consumer-friendly 9th Circuit Court of Appeals.

In the meantime, the company’s brash new CEO, John Legere — famous for rock-star style, profanity-laden keynote addresses — has indicated that he will (unsurprisingly) not take this lying down.  After a timid initial response, he posted this to the company’s official news page:

The FTC certainly did a good job of sensationalizing their story and their news at the expense of both T-Mobile’s reputation and mine.  My frontline employees are upset about it and so am I.  I considered leaving it alone, but I have to set the record straight.

He went on to list three things the company has or is now doing to rectify the situation.  Once you get past all the trademark bluster and bravado, however, it actually strikes as a tacit admission that something fishy was going on, and that the complaint has struck the fear of God (or at the very least, a federal injunction) into the company.  Time will tell if these steps will be enough to address the matter and lead to a quick out-of-court settlement or consent decree, or if Legere will fight all the way to the Supreme Court.  My money’s on a quiet settlement, but then again, Big Pink is branding itself as the “Un-Carrier” these days, so anything is possible.

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About Justin Kwong

An attorney in the Twin Cities and adjunct professor at William Mitchell College of Law where I teach a seminar on the law of virtual worlds.
This entry was posted in Legal Developments, Litigation, Mobile Devices and tagged , , , , , , , , , , , , , , , . Bookmark the permalink.

One Response to FTC Suit Against T-Mobile Says ‘Un-Carrier’ Profited From Cell Phone Cramming

  1. Lawrence San says:

    When a telecommunications company collects money on behalf of other companies — for activities that in themselves have nothing to do with telecommunications — isn’t that phone company acting as a bank or financial services company? Are there regulations concerning which companies are allowed to engage in financial service activities, such as money collection for third parties, in the first place? Or can any company that can handle the logistics of such financial activities just go ahead and engage in them?

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