On May 12, 2015, the Consumer Financial Protection Bureau (“CFPB” or “Bureau”) announced that Verizon and Sprint will refund its customers $120 million for allegedly “cramming” unauthorized charges on their wireless phone bills. Sprint and Verizon have also agreed to pay state and federal agencies $38 million in fines.
According to the CFPB, Verizon and Sprint maintained billing systems which allowed third party merchants to tack onto consumer’s wireless bills unauthorized or fabricated charges for digital content such as apps, books, music or movies. Verizon and Sprint allegedly outsourced their payment processing for digital content to vendors without exercising proper oversight. Due to the Verizon and Sprint’s alleged failure to adequately monitor their vendors, the CFPB claims that the companies’ billing systems enabled merchants to charge customers for digital content described as “free” and in other instances, place fabricated charges on a customer’s bill without delivering any digital content or other goods. The CFPB claims that Verizon and Sprint received between 30 and 40 percent of the gross revenue from these charges.
CFPB Director, Richard Cordray, stated that the Bureau’s action against Verizon and Sprint “will put $120 million back into the pockets of harmed consumers and require these companies to improve their billing practices going forward.”
The CFPB claims that Verizon and Sprint committed an unfair practice in violation of the Dodd-Frank Act by doing the following: allowing third parties to illegally charge consumers; automatically billing consumers for illegitimate charges without their consent; ignoring consumer complaints about unauthorized charges; disregarding red flags about third party vendors.
Affected Verizon and Sprint customers were allegedly damaged in that they incurred millions of dollars in illegitimate charges; many of these customers were purportedly unaware that they could be charged by third parties.
The CFPB filed its Complaint against Sprint in December 2014 in the Southern District of New York. Its Complaint against Verizon was filed in the District of New Jersey on May 12, 2015. Consent orders were issued in both cases on May 12, 2015.
Pursuant to the proposed consent orders, Verizon and Sprint have agreed to, among other things, pay $120 million in refunds to affected customers and $38 million in fines to state and federal agencies. Both companies also agreed to disclose third party charges in a separate and clearly labeled section of the customer’s bill, obtain a customer’s informed consent prior to being charged by a third party, and train customer service representatives about third-party billing. Sprint and Verizon are also required to refund customers for unauthorized charges unless the companies can demonstrate that the consumer expressly consented to the charge, already received a refund for the charge or is otherwise ineligible for the refund.