The Federal Trade Commission and Sprint Corporation have entered into a consent order which resolves the FTC allegations that Sprint violated the Fair Credit Reporting Act (“FCRA”) and it’s Risk Based Pricing Rule. Without admitting liability, Sprint has agreed to pay the FTC $2.95 million in civil penalties.
The Complaint alleges that Sprint placed consumers with lower credit scores into an Account Spending Limit ("ASL") program through which they were required to pay an additional $7.99 per month. According to the Complaint, Sprint used consumers’ credit scores to ascertain whether they should be subject to the ASL program. According to the complaint, Sprint failed to provide adequate and/or timely notification to consumers that were placed in the ASL Program that they were receiving risk based pricing. AS a result, the complaint contends that consumers were not provided notice until it was too late to switch to another service provider.
Risk Based Pricing occurs when lenders offer different interest rates or loan terms to borrowers based on their individual creditworthiness. The Rule requires that notice be provided to consumers who receive materially less favorable credit terms than a substantial proportion of consumers based upon their credit score. “Materially less favorable” can mean a higher APR, but where there is not APR, it can mean other things, like a deposit required by a telephone company or an annual membership fee for a credit card. 16 CFR 640.2(o). The Risk Based Pricing Rules require that notice be provided to consumers affected by Risk Based Pricing.
The Order requires Sprint to send consumers impacted by Risk Based Pricing notice by the earlier of either five (5) days after the consumer activates service or a date that give the consumer a reasonable opportunity to avoid incurring future financial obligations to Sprint. Sprint additionally must provide revised notifications to all consumers who previously received the incomplete notices. The Order further sets forth specifically the contents required for all Risk Based Pricing Notices moving forward. Beyond the specific remediation and civil penalty, and as is typical with FTC Orders, Sprint is required to provide compliance reporting to the FTC at the FTC’s request for ten (10) years.