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Two of the nation’s largest wireless carriers have agreed to settle Federal Communications Commission investigations into an unlawful billing practice known as cramming that is pervasive in the U.S. wireless industry.
Verizon Wireless has agreed to fork over $90 million while Sprint will pay $68 million to resolve probes that examined improper billing for third-party premium text messaging services, the FCC announced Tuesday.
The agreements were negotiated in coordination with the Consumer Financial Protection Bureau and the attorneys general of all 50 states and the District of Columbia.
Thanks to the recent settlements, state and federal authorities have obtained $353 million in penalties and restitution against the four largest U.S. wireless providers in connection with cramming practices, according to an FCC news release. Of the settlements, $267.5 million will be returned to impacted customers, the agency said.
Sprint and Verizon Wireless customers who fell victim to the cramming schemes were typically charged $9.99 per month for third-party premium text messaging services, according to the FCC. Verizon retained 30 percent or more of each third-party charge, while Sprint’s cut was 35 percent, the agency said.
The third-party services included subscriptions for things like ringtones and text messages providing horoscopes and celebrity gossip.
“Consumers rightfully expect their monthly phone bills will reflect only those services that they’ve purchased,” said Travis LeBlanc, chief of the FCC’s Enforcement Bureau. “Today’s settlements put in place strong protections that will prevent consumers from being victimized by these kinds of practices in the future.”
Prior to any government action, Verizon Wireless stopped allowing companies to charge its customers for premium text messaging services on their bills, said Verizon Wireless spokeswoman Debra Lewis. She characterized the settlement as reflective of “Verizon’s continued focus on putting customers first.”
“Verizon Wireless rigorously protected its customers from unauthorized third-party charges for premium text message services,” Lewis added. “Verizon thoroughly vetted the companies that provided these services and terminated providers who did not comply with our industry-leading practices.”
Sprint and Verizon Wireless both noted affected customers can seek a refund.
“Sprint has always …
… put its customers’ interests first, and, under its liberal PSMS [premium short message services] refund policy, returned tens of millions of dollars long before the Government initiated its investigation of our industry,” Jeffrey Silva, a company spokesman, said.
The Sprint consent decree acknowledged the company implemented a fraud prevention program to monitor activities and complaints related to PSMS merchants.
But even though Sprint and Verizon Wireless issued refunds to customers who said they had been charged for services they hadn’t authorized, the FCC referenced complaints that at least some subscribers were not fully compensated for the unauthorized charges.
Verizon Wireless has agreed to earmark at least $70 million for impacted consumers and $16 million for state governments participating in the settlement, while Sprint will pay at least $50 million to fund a consumer redress program and set aside $12 million for state governments. The companies will fill the coffers of the U.S. Treasury with $10 million thanks to fines that Sprint ($6 million) and Verizon Wireless ($4 million) agreed to pay.
The settlements include a number of non-monetary protections. For instance, the wireless carriers can no longer offer commercial third-party PSMS charges; and Sprint and Verizon Wireless must obtain informed consent from their subscribers before they can authorize third-party charges.
Last year, the FCC announced cramming settlements with AT&T Mobility ($105 million) and T-Mobile USA ($90 million). The AT&T settlement was the most notable, ranking as the largest enforcement action and biggest cramming settlement in the FCC’s history.