Actions Represent First CFPB Settlements To Address Unauthorized Charges on Telephone Bills and First Concurrent Enforcement Proceedings by the CFPB and FCC
On May 12, 2015, the CFPB and the FCC (together, the “Agencies”) concurrently announced that Verizon Wireless (“Verizon”) and Sprint Corporation (“Sprint” and, together with Verizon, the “Companies”) have agreed to pay a combined $158 million to settle allegations that the Companies included millions of dollars in unauthorized charges on customers’ landline or wireless phone bills, a practice known as “cramming.”1 Of the $158 million, $120 million consists of consumer redress ordered by the CFPB, and $38 million consists of fines assessed by the FCC and the attorneys general of each of the 50 states and the District of Columbia. In the CFPB complaints2 and proposed orders3 against the Companies, the CFPB alleges that the Companies’ cramming practices constituted unfair acts or practices in violation of the Consumer Financial Protection Act (the “CFP Act”).4 In the FCC actions against the Companies (together with the CFPB complaints and proposed orders, the “Cramming Actions”), the FCC alleges that these same activities constituted violations of Section 201(b) of the Communications Act of 1934 (the “Communications Act”),5 which, among other things, prohibits “unjust or unreasonable” charges by carriers.
The Cramming Actions are the latest in a series of enforcement actions aimed at cramming activities by wireless carriers, but are notable for several reasons. First, they are the first actions in which the CFPB has asserted its authority to prosecute unfair acts or practices relating to alleged cramming activities by telecommunications carriers. As such, they indicate clearly that the CFPB is willing to assert its authority under the CFP Act to pursue unfair or deceptive acts or practices against persons not traditionally thought of as consumer financial services providers. Second, the Cramming Actions appear to be the first coordinated enforcement actions by the CFPB and the FCC and follow on the heels of a recent joint action by the CFPB and Federal Trade Commission (the “FTC”) to address unlawful mortgage servicing practices. Thus, the Cramming Actions evidence a flexible approach to multi-agency resolutions with other agencies.
Section 1036(a)(1)(B) of the CFP Act prohibits covered persons6 from engaging in any “unfair, deceptive, or abusive act or practice.”7 The CFPB appears to be relying on its authority under the CFP Act to pursue “unfair” (but not “deceptive” or “abusive”) acts or practices. Acts or practices are unfair if they cause substantial injury to consumers that consumers cannot reasonably avoid themselves and that is not outweighed by countervailing benefits to consumers or competition.
Section 201(b) of the Communications Act states, in part, that “[a]ll charges [and] practices . . . for and in connection with [interstate or foreign] communication service, shall be just and reasonable, and any such charge [or] practice that is unjust or unreasonable is declared to be unlawful . . . .”8 The FCC previously has found the inclusion of unauthorized charges and fees on consumers’ telephone bills to be an “unjust and unreasonable” practice under Section 201(b).9
Specifically, the CFPB and the FCC found that the following cramming practices by Sprint and Verizon were unlawful:
- allowing third parties to attach charges to customers’ bills without ensuring that the charges were authorized;
- enrolling customers in third-party billing without their consent;
- failing to “adequately resolve” consumers’ complaints about unauthorized charges; and
- disregarding “red flags” about “flaws and risks” in their third-party billing systems.
To resolve the Cramming Actions, the Companies agreed to take the follow remedial measures:
- paying a total of $158 million in restitution and fines, including a total of $120 million in customer refunds, $28 million for state governments participating in the settlement and a $10 million fine paid to the U.S. Treasury;10
- clearly and conspicuously disclosing third-party charges on wireless bills;
- obtaining informed consent from consumers prior to third-party billing;
- improving dispute-resolution procedures with respect to third-party charges; and
- enhancing customer-service training programs with respect to third-party charges.
1. CFPB Jurisdiction
The Cramming Actions mark the first regulatory enforcement actions brought by the CFPB to address cramming activities by telecommunications carriers. Prior to these actions, the FTC11 or the FCC, at times in coordination with state attorneys general, had brought cramming actions against wireless carriers. In announcing the Cramming Actions, the CFPB acknowledged that it had worked in “close coordination” with the FCC, but other than that general statement, no information has been given about how they divided roles and responsibilities. The FTC was not involved—at least not publicly—in the Cramming Actions, despite the fact that it, much like the CFPB, has jurisdiction to address the alleged unfair or deceptive billing practices, and has taken action against wireless carriers for cramming in the past. It is not clear how the Agencies and the FTC will coordinate cramming enforcement actions going forward.
Significantly, the CFPB asserts that it has jurisdiction over the Companies not only because they are third-party payment processors, but because they extend credit to consumers. This suggests that the CFPB intends to assert its authority under the CFP Act to pursue actions for unfair or deceptive acts or practices against persons not traditionally thought of as consumer financial services providers, thus introducing an additional layer of federal regulatory oversight in areas that are already subject to the review or supervision of other federal agencies. Indeed, the assertion of jurisdiction over the Companies on this basis raises a number of questions, including whether the CFPB takes the same view with respect to all consumer billings by merchants and service providers. Under such a view, the CFPB might also assert that a gas or electric company, or any merchant that provides a service or delivers a product before requiring payment, is extending credit to consumers and that its billing practices are consequently subject to the CFPB’s jurisdiction.
2. CFPB Coordination with Other Agencies
The Cramming Actions appear to constitute the first coordinated enforcement actions by the CFPB and the FCC. As noted, however, the extent of that coordination is unclear, especially given that the Agencies issued separate actions.
The separate-but-coordinated approach apparently taken by the Agencies in the Cramming Actions stands in contrast to the CFPB’s and the FTC’s recent (and first) joint enforcement action to address unlawful mortgage servicing practices, in which the CFPB and the FTC filed a joint complaint and issued a joint order.12 The differing approaches taken in these two recent cases suggests a certain amount of flexibility in multi-agency resolutions involving the CFPB.
It is also significant that the CFPB did not assess its own fine against the Companies. This stands in contrast to many of the CFPB’s enforcement actions against banking organizations and suggests a recognition by the CFPB that it is in the public interest to have not just coordinated enforcement actions, but actions that allocate enforcement measures rationally.