Sprint faces federal lawsuit over illegal 'cramming'

A federal consumer protection agency is suing Sprint over allegations that it allowed third-party companies to "cram" customers' bills with fraudulent charges.

Sprint is being sued by the US government for illegally billing its wireless customers for bogus third-party charges.

Sprint

The Consumer Financial Protection Bureau, which has been working with the Federal Communications Commission, announced Wednesday it has filed a lawsuit in federal court against the wireless carrier, alleging it illegally billed wireless customers for unauthorized third-party charges. The suit also alleges that Sprint ignored complaints about the charges. The agency is seeking refunds to affected consumers as well as penalties to deter future unauthorized third-party charges.

"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," Consumer Financial Protection Bureau Director Richard Cordray said in a statement. "As the use of mobile payments grows, we will continue to hold wireless carriers accountable for illegal third-party billing."

The practice that Sprint is being accused of turning a blind-eye toward is called cramming. The way it works is operators add charges to mobile bills from third-party companies without the knowledge or consent of subscribers.

The Federal Trade Commission has also been aggressively pursuing companies it has suspected of engaging in this practice. The FTC has filed at least seven complaints against mobile carriers involving mobile cramming since 2013. In October, AT&T agreed to a $105 million settlement with the government over its cramming case. FCC Chairman Tom Wheeler said at the time the settlement was announced that nearly 20 million customers a year have been victims of cramming.

The FTC filed a similar case against T-Mobile in July. The case has yet to be resolved. In November, AT&T, T-Mobile, Sprint and Verizon agreed to stop billing customers for third-party services.

The Consumer Financial Protection Bureau is an independent U.S. government agency that was created in 2010 by the Dodd-Frank Wall Street Reform and Consumer Protection Act to protect consumers in the financial sector. Agency officials say the organization has enforcement authority over companies that process payments over mobile phones.

On a call with reporters, Jeff Ehrlich, deputy enforcement director at the Consumer Financial Protection Bureau explained that his agency has been working closely with both the FCC and the FTC, which have traditionally gone after wireless operators for this unlawful practice.

On Tuesday, several news outlets reported that the FCC was close to announcing that Sprint would be fined $105 million over the cramming allegations. Ehrlich declined to comment on whether the FCC would take separate action or whether the FTC would file its own complaint against Sprint. He also declined to comment on whether the Consumer Financial Protection Bureau would bring similar lawsuits against other wireless operators for engaging in a similar practice.

An FCC spokesman indicated that the agency is working closely with the Consumer Financial Protection Bureau, but would not rule out a fine or negotiated settlement between Sprint and the agency.

"Protecting consumers from unauthorized fees on their phone bills is a team effort," the FCC spokesman said. "The commission has a great working relationship with CFPB and state law enforcement partners. Together, we are pursuing joint enforcement actions to protect consumers from unauthorized fees on their wireless bills. Our agencies have agreed to continue our close cooperation on this and other cases on behalf of wireless customers nationwide."

Sprint said in a statement that it's "disappointed" with the CFPB's decision to target the company, adding that it "strongly disagrees with its characterization of our business practices." The company claims it has taken steps to help protect wireless consumers from unauthorized third-party billing.

Specifically, Sprint claims it was the first major wireless carrier to partner with an outside compliance vendor to monitor companies that place charges on customers' wireless bills. It also said that it vetted each company that added charges to customers' bills.

The company said these practices along with others align with government recommendations to prevent bill cramming.

"We recognize this is an important issue for our customers," the company said in a statement. "And we consistently have encouraged any customers who think they may have incurred an unauthorized third-party charge on their phone bill to contact Sprint to resolve the issue."

Update, 2:35 pm. PT:Adds Sprint's statement and additional information from the company.

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