T-Mobile must engage in a corrective advertising campaign pursuant to a settlement reached with Washington Attorney General Bob Ferguson, who filed suit against the company over deceptive advertising that promised consumers an annual contract was not necessary to purchase a phone plan.

According to the suit, T-Mobile charged customers hidden fees for early termination of their phone plans despite the company’s marketing message. The company claimed it had “no restriction,” “no annual contract,” and no requirement to “serve a two-year sentence.” Phones could be purchased separately at a monthly rate over a two-year term, paid for up front, or consumers could provide their own phone.

What the ads failed to disclose was that consumers who purchased a phone using the 24-month plan were obligated to enter into a service agreement with T-Mobile for the entire time period. If a customer cancelled earlier, the company charged them for the entire two-year balance, Ferguson alleged, and they faced “an unanticipated balloon payment.”

In an Assurance of Discontinuance filed in Washington state court with nationwide effect, T-Mobile agreed that it would no longer misrepresent consumers’ obligations under its contracts and would make adequate disclosures about termination fees. The company will also conduct a corrective advertising campaign by contacting customers to inform them that they can obtain a full refund for their telephone equipment and cancel their service plans without having to pay the balance owed.

Going forward, T-Mobile will train customer service representatives to comply with the settlement and to fully disclose all obligations under the terms of its contracts. In addition, the company will “more clearly state in all advertisements” the true cost of telephone equipment, including the 24-month service plan requirement.

Finally, T-Mobile will pay attorneys’ fees and costs to the AG totaling $26,046.40.

Why it matters: In a statement about the settlement, Ferguson said the action was triggered by T-Mobile’s failure to disclose “a critical component” of the plan to consumers. Companies seeking to avoid similar regulatory action – or a consumer class action – should adequately disclose all relevant terms and conditions to consumers.