Mobile service providers frequently look at their customers’ credit reports and scores to determine the best pricing plans for those customers. But as a recent settlement between Sprint Corporation and the Federal Trade Commission shows, mobile carriers that use customers’ credit information to determine service rates may be subject to the FTC’s Risk-Based Pricing Rule under the Fair Credit Reporting Act (“FCRA”), which requires notice to affected customers that they were approved for service on less favorable terms than other customers with better credit histories.
As this and previous FTC actions illustrate, the Risk-Based Pricing Rule applies not only to traditional credit products, like credit cards and loans, but also to the purchase of goods and services on a deferred payment basis (e.g., post-paid service), as can be the case with monthly subscriptions like wireless telephone or video service. Specifically, the Rule requires a company to notify consumers when the company engages in “risk-based pricing” – i.e. giving consumers less favorable terms based on a review of information in a consumer report.
According to the FTC, Sprint was offering its mobile services on less favorable terms to consumers with low credit scores by placing them in Sprint’s “ASL Program,” which charges such consumers an additional monthly fee for mobile service. The FTC alleged that Sprint often did not provide any risk-based pricing notice to these consumers until after the period they could cancel their Sprint wireless service without incurring early termination fees. The FTC further alleged that, when Sprint did provide the notice, it did not always include all of the information required by the Rule, including:
- An explanation of the information contained in the consumer report;
- Language encouraging the consumer to verify the information’s accuracy and advising how to contact the Consumer Financial Protection Bureau for further information on consumer reports; and,
- If the company also used a credit score to base the terms, a list of all the key factors that adversely affected the consumer’s credit score.
As part of its settlement with the FTC, Sprint agreed to pay $2.95 million in civil penalties and submit to ten years of compliance monitoring, and implement an extensive record creation and retention program.