The FCC and FTC have announced a $105 million settlement of complaints against AT&T’s wireless business for “cramming” – placing unauthorized third party charges on customers’ telephone bills – and violations of the FCC’s truth-in-billing rules. This is the largest settlement of an enforcement action in the history of the FCC, and is part of a recent emphasis at the FCC on enforcing its consumer protection rules. The settlement also covers a complaint filed in federal court by the FTC. This consent decree may set a pattern for other enforcement actions against wireless providers.

The complaints that led to the consent decree concerned charges to AT&T wireless customers for services like ringtones, wallpaper and text message horoscopes. Customers typically were charged $9.99 per month for these services. The FTC alleged that AT&T kept at least 35 percent of these charges.

Under the consent decree, AT&T will pay $5 million to the federal Treasury to resolve the FCC’s investigation, $20 million to state governments and $80 million to the FTC, which will be used to provide refunds to customers. AT&T also will take a series of steps to prevent future violations, including:

  • Eliminating the ability for customers to purchase commercial third-party services via premium messaging services
  • Refusing to bill for premium messaging services offered by third parties
  • Implementing a system that requires express, informed consent before a third party service will be billed through the AT&T billing system and sending confirmations to customers when they purchase third-party services that will be billed via AT&T
  • Offering blocking for third-party charges on AT&T bills
  • Separating third-party charges from all other charges on AT&T bills
  • Creating a new dispute process for third-party charges
  • Providing compliance reports to the FCC for six years

The breadth of this compliance plan and the six-year term are unusual for an FCC consent decree, and highlight that the FCC considers the AT&T violations to be egregious. (Some of the provisions that are unusual at the FCC are fairly common in FTC consent decrees, and are incorporated in the settlement of the FTC complaint.) The level of cooperation between the FCC and the FTC, with the FTC administering the refund program (instead of AT&T) also is very unusual, as is the participation by the states. Customers can begin applying for refunds at the FTC immediately.

The consent decree follows an agreement by AT&T, Verizon, Sprint and T-Mobile last fall to stop billing third-party premium text service charges on their wireless customers’ bills last fall. These recent actions also are reminiscent of a campaign to address similar issues affecting landline telephone service in the late 1990s. That campaign led to the adoption of the FCC’s truth-in-billing rules in 1999, and also led to landline telephone companies greatly reducing the number of third-party charges they placed on their bills. (In fact, many landline telephone companies do not provide any third-party billing today.) As consumers depend more and more on mobile phones, and as fraudulent and deceptive services for mobile phones proliferate, it is unsurprising that regulators have renewed their focus on billing issues. In fact, the FTC already has a pending complaint against T-Mobile, and also is pursuing enforcement action against several premium text messaging services.