US agency sues Sprint for alleged unauthorized charges

Sprint operated a billing system that allowed third parties to cram unauthorized charges on customers' mobile bills and ignored complaints about the charges, the CFPB alleged in its complaint.

The complaint from the CFPB, an agency established by Congress in 2010 to protect customers of the U.S. financial sector, mirrors complaints made by the U.S. Federal Communications Commission, the Federal Trade Commission and 51 state-level governments against AT&T earlier this year. In October, AT&T agreed to pay US $105 million to settle those complaints of similar unauthorized third-party charges.

The FTC also filed a similar complaint against T-Mobile USA in July.

As the use of mobile payments grows, the CFPB will hold mobile carriers accountable for "illegal" third-party billing, CFPB Director Richard Cordray said. "Consumers ended up paying tens of millions of dollars in unauthorized charges, even though many of them had no idea that third parties could even place charges on their bills," he said. The CFPB has authority from Congress to investigate payment processors, including mobile phone carriers acting as payment processors, he said during a press conference.

FCC action on Sprint charges is pending, a spokeswoman said. In the meantime, the FCC is working closely with the CFPB. "Protecting consumers from unauthorized fees on their phone bills is a team effort," she added by email.

Sprint didn't immediately respond to a request for a response to the CFPB lawsuit.

Between 2004 and 2013, many mobile carriers allowed third-party billing for premium text messages, the CFPB said. Sprint outsourced payment processing for these digital purchases to vendors called billing aggregators without properly monitoring them, the agency alleged.

That lack of oversight gave aggregators "near unfettered" access to Sprint customers' accounts, the agency alleged. Sprint's system enabled sellers who, in some cases, only needed consumers' phone numbers to cram illegitimate charges onto bills.

Sprint did not track complaints about third-party charges, lacking "even the most basic fraud-alert mechanism," Cordray said.

"Sprint mistreated consumers egregiously by creating a billing system that invited illegal third-party charges and processed them in a highly irresponsible manner," he added. "Sprint ignored or mishandled complaints about the unauthorized charges. In some cases, Sprint refused to provide refunds and simply told people how they could block future third-party charges."

The charges ranged from one-time fees of $0.99 to $4.99 to monthly subscriptions that cost about $9.99 a month, the agency said. Sprint received a 30 to 40 percent cut of the gross revenue from these charges.

The CFPB alleged that Sprint violated the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act's prohibition on unfair practices, by among other things, automatically billing consumers for illegitimate charges without their consent. The company also disregarded red flags showing that its system was a "breeding ground" for unauthorized charges, the agency said.

Grant Gross covers technology and telecom policy in the U.S. government for The IDG News Service. Follow Grant on Twitter at GrantGross. Grant's email address is grant_gross@idg.com.