FTC sues T-Mobile, alleging millions in bogus charges

The charges were for services such as flirting tips, horoscopes and anti-virus scans. They typically cost T-Mobile subscribers $9.99 a month, including prepaid customers who never received bills showing them. And the Federal Trade Commission says they were often bogus, bringing hundreds of millions of dollars in ill-gotten gains to the nation’s No. 4 carrier.

On Tuesday, the FTC filed suit against T-Mobile USA, seeking refunds for consumers it says were hit with unauthorized third-party charges on bills from 2009 until November – a practice known as “cramming.” The agency said T-Mobile sometimes “continued to bill its customers for these services offered by scammers years after becoming aware of signs that the charges were fraudulent.”

T-Mobile, which serves about 50 million customers and touts itself as a consumer-friendly “uncarrier,” called the FTC’s suit “unfounded and without merit.” It said it had already begun offering refunds for the “premium” short-message-service (SMS) charges at issue, which it said prompted similar complaints against all the national carriers before all four quit billing for them in November.

“T-Mobile is fighting harder than any of the carriers to change the way the wireless industry operates and we are disappointed that the FTC has chosen to file this action against the most pro-consumer company in the industry rather than the real bad actors,” said a statement on T-Mobile’s website signed by CEO John Legere.

It was unclear whether other carriers’ billing was under investigation by the FTC or the Federal Communications Commission, which said Tuesday it also was looking into the T-Mobile cramming complaints.

“We don’t allege that all premium SMS billing is fraudulent,” said Jane Ricci, a staff attorney at the FTC’s Bureau of Consumer Protection. “We alleged that these were unfair and deceptive practices, and that T-Mobile knew there were problems in the premium SMS billing.”

The FTC says T-Mobile typically received 35 percent to 40 percent of the revenue for the services, which the agency said prompted refund rates as high as 40 percent.

The agency said such rates should have been “an obvious sign to T-Mobile that the charges were never authorized by its customers,” and that they likely understate the frequency of fraud. Consumer advocates say cramming works because customers often overlook relatively small, recurrent charges.

Some T-Mobile customers were even more vulnerable than usual, because the carrier doesn’t send bills to those who prepay for wireless service. “As a result, the subscription fee was debited from their prepaid account without their knowledge,” the FTC said in announcing the lawsuit.

Even when customers did receive bills, the FTC said, it was likely hard for them to identify questionable fees that appeared only as “use charges” on statements.

Ricci said that although the bogus charges predated 2009, the lawsuit covered only the period from 2009 through November 2013, when she said “all four carriers announced they were ceasing premium SMS billing.”

Before then, though, the FTC said that T-Mobile lagged some competitors in stopping billing for questionable services from companies such as Wise Media LLC, which the FTC accused in April 2013 of billing for authorized horoscopes and flirting tips.

“At least two other mobile carriers had terminated Wise Media on their networks a year before the FTC’s action,” the lawsuit said.