WASHINGTON, D.C. — Today, the Consumer Financial Protection Bureau filed a lawsuit against Sprint Corporation for illegally billing wireless consumers tens of millions of dollars in unauthorized third-party charges. The Bureau’s complaint alleges that Sprint operated a billing system that allowed third parties to “cram” unauthorized charges on customers’ mobile-phone accounts and ignored complaints about the charges. The CFPB seeks refunds for affected consumers and penalties to deter unauthorized third-party charges in the future.
“Today we are suing Sprint for allowing illegal charges to be crammed onto consumers’ wireless bills,” said CFPB Director Richard Cordray. “Consumers ended up paying tens of millions of dollars in unauthorized charges, even though many of them had no idea that third parties could even place charges on their bills. As the use of mobile payments grows, we will continue to hold wireless carriers accountable for illegal third-party billing.”
Consumers use mobile phones to purchase an array of digital products, such as apps, games, books, movies, and music. Wireless carriers collect and process payments for these purchases and control the networks connecting merchants and customers. From about 2004 through 2013, nearly all wireless third-party billing involved products called “premium text messages” or “premium short messaging services” (PSMS) because they were frequently delivered by text messages. Sprint outsourced payment processing for these digital purchases to vendors called “billing aggregators” without properly monitoring them.
The lack of oversight gave aggregators near unfettered access to consumers’ wireless accounts. Sprint’s system attracted and enabled unscrupulous merchants who, in some cases, only needed consumers’ phone numbers to cram illegitimate charges onto wireless bills. The charges ranged from one-time fees of about $0.99 – $4.99 to monthly subscriptions that cost about $9.99 a month. Sprint received a 30-40 percent cut of the gross revenue from these charges.
Most consumers were targeted online. Consumers clicked on ads that brought them to websites asking them to enter their cellphone numbers. Some merchants tricked consumers into providing their cellphone numbers to receive “free” digital content and then charged for it. Many others simply placed fabricated charges on bills without delivering any goods or communicating with consumers.
The Bureau is alleging that Sprint, as a payment processor for third parties, violated the Dodd-Frank Wall Street Reform and Consumer Protection Act’s prohibition on unfair practices by:
As a result, Sprint’s wireless customers – many of whom did not know that third parties could place charges on their bills – incurred millions of dollars in illegitimate charges. Sprint, in contrast, profited handsomely from its system, collecting hundreds of millions of dollars in revenue, according to the Bureau’s complaint. Sprint terminated premium short messaging services billing in December 2013.
The CFPB worked in close coordination with the Federal Communications Commission and received valuable assistance from its Enforcement Bureau in this matter.
The Bureau’s complaint is not a finding or ruling that the defendant has violated the law.
The Consumer Financial Protection Bureau is a 21st century agency that implements and enforces Federal consumer financial law and ensures that markets for consumer financial products are fair, transparent, and competitive. For more information, visit www.consumerfinance.gov.
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