In early December, several consumer groups joined in a letter asking the Consumer Financial Protection Bureau (CFPB) to investigate T-Mobile over allegedly misleading advertisements and abusive debt collection practices. The New York State Office of the Attorney General is also investigating the groups’ complaints.

In a 2013 advertising campaign, T-Mobile said it was “rewriting the rules of wireless” by doing away with annual service contracts. Instead of a traditional two-year service plan, T-Mobile began offering month-to-month service plans and two-year interest-free loans that allow customers to buy new phones over time.

With other carriers, customers can buy new phones at steep discounts by signing two-year service agreements. Customers pay early-termination fees (ETFs) that could range from $325 to $350 if they end service before the agreed term. T-Mobile customers, on the other hand, commit to monthly service, but pay the full price for a new phone. However, T-Mobile makes new phones affordable by also offering two-year interest-free loans called equipment installment plans (EIPs). For example, through an EIP, a customer can buy a new iPhone 6s Plus that retails for around $750 through 24 monthly installments of $31.25.

After the customer pays off the EIP, or if a customer brings her own phone to T-Mobile, the customer owns the phone and pays only for monthly wireless service. T-Mobile’s pitch is that its approach provides more transparency by showing customers what they pay for service versus equipment and by charging for service only after the equipment is paid off.

In their letter, the consumer groups, led by Change to Win, a Washington, D.C.-based consumer advocacy group, contend that T-Mobile’s advertisements mislead customers about the EIPs. Under the EIP terms, if a customer terminates service with T-Mobile, the remaining balance on the EIP is immediately due. Depending on how many EIP payments were made before termination, paying the remaining balance may cost more than paying an ETF with another carrier. Change to Win claims that the effect of T-Mobile’s program is no different than an ETF: Customers enrolled in EIPs “have entered into agreements to maintain wireless service with the company for 24 months or pay a lump sum of money to exit the contract.”

The groups contend that “T-Mobile’s marketing campaign promotes the notion that it has no contracts and, by extension, a consumer relying on these claims would reasonably believe there are no penalties or fees associated with terminating T-Mobile’s wireless service” when in fact they must pay the remaining balance on the EIP when cancelling service. While the EIPs outline the terms of the phone loans, the groups believe these disclosures are not enough.

The groups also assert that T-Mobile has engaged in abusive debt collection practices by (1) providing insufficient notice before referring unpaid EIP balances to collection agencies; (2) providing collection agencies with incorrect customer information; and (3) improperly locking customers out of their accounts, making it difficult for customers to contest debts.

According to the groups, the CFPB’s October 2014 consent order with Manufacturers and Traders Trust Company (M&T) related to its marketing of “free” checking accounts supports their view that T-Mobile’s advertising is “unfair, deceptive, or abusive” under the Consumer Financial Protection Act. M&T marketed a checking account as free and imposing no monthly service charges; however, if a customer failed to maintain a minimum level of account activity, M&T automatically converted the account to one that required a minimum balance to avoid monthly fees. Even though M&T disclosed these terms, the CFPB concluded that the bank’s advertisements were deceptive because they did not disclose the minimum activity requirement.

In April 2013, the Washington State Office of the Attorney General investigated T-Mobile’s “no-contract” advertising and concluded that T-Mobile had “failed to adequately disclose that customers who purchase a phone using the [EIP] must carry a wireless service agreement with T-Mobile for the entire 24 months - or pay the full balance owed on the phone if they cancel earlier,” which resulted in an “unanticipated balloon payment” sometimes higher than an ETF. The parties entered into an “assurance of discontinuance” settlement in which T-Mobile promised to “clearly communicate the limitations of its new ‘no-contract’ wireless services plans.” T-Mobile also agreed to pay just over $26,000 in attorneys’ fees and costs to the Attorney General’s Office.

Change to Win acknowledges that, since then, T-Mobile has improved disclosure of EIP terms but maintains that T-Mobile’s “no-contract” advertising is deceptive because it does not mention the EIPs. It remains to be seen whether the CFPB will engage with T-Mobile on this issue.