FCC settles with Verizon over mystery charges

The Federal Communications Commission scored a major political win today as it announced a $25 million settlement with Verizon Wireless over so-called mystery charges.

While critics complain that the FCC has been dragging its feet on issues such as Net neutrality, the agency announced that it has not only forced Verizon Wireless to refund more than $50 million to consumers for overcharging them, but it has also gotten the nation's largest cell phone operator to pay another $25 million to the U.S. Treasury as a penalty.

The payment is the largest in FCC history and the settlement concludes the agency's 10-month investigation into these overcharges, the FCC said in a statement. Earlier this month, Verizon had issued a statement that it planned to refund a minimum of $52.8 million to approximately 15 million customers. It also promised to make sure that consumers are no longer charged the mystery fees.

"Today's consent decree sends a clear message to American consumers: the FCC has got your back," FCC Chairman Julius Genachowski said in a statement. "People shouldn't find mystery fees when they open their phone bills--and they certainly shouldn't have to pay for services they didn't want and didn't use. In these rough economic times, every $1.99 counts."

The FCC's Enforcement Bureau began investigating Verizon Wireless in January 2010 after large numbers of consumers complained that they were getting unexampled data charges on their bills. The investigation focused on "pay-as-you-go" data fees. Verizon charges $1.99 per megabyte of data used. These were customers who were not on an unlimited data plan.

The FCC said the investigation found that about 15 million of these pay-as-you-go customers were or may have been overcharged for data usage over the course of three years, from November 2007 to the present. According to the settlement, these fees were caused by unauthorized data transfers initiated by applications that automatically accessed the Internet, as well as people accidentally clicking on something that initiated a Web connection.

In addition to promising no more mystery fees and refunding customers, Verizon has also committed to offering data blocks on phones so that consumers can avoid data charges. And the company has agreed to improving its customer service to provide consumers with better information about services and speedier resolution to problems such as this.

In a statement issued after the settlement announcement, Verizon said that billing mistakes had been made. And it apologized to customers.

"Internal billing processes can be complex and, in this case, we made inadvertent billing mistakes," the company said. "We accept responsibility for those errors, and apologize to our customers who received accidental data charges on their bills."

In an interview earlier this month, Verizon COO Lowell McAdam said the company had been proactively trying to resolve these issues for some time.

"We know the billing relationship we have with our customers is a sacred trust. And we put a lot of resources into making sure we get the bills out to customers accurately," McAdam said in an interview with CNET. "We've been working on this since we started offering BREW apps on phones. It's always been an ongoing process. It has nothing to with the FCC. We just wanted to bring them up to speed on our efforts and how the process is going. This is an ongoing process that every carrier deals with. And every carrier is trying to mitigate these problems, but some things slip through the cracks. That's what we are trying to fix now."

In the statement the company said that in September 2009, months before the FCC contacted the company about its investigation, Verizon had implemented a free 50 kilobyte allowance to limit inadvertent charges.

Verizon has already begun the process of repaying customers for accidental data charges. The company said it is notifying eligible current and former customers and it's either applying credits or sending refunds in October and November.

Current customers will be notified in upcoming bills. And former customers will receive a letter and refund check in the mail. In most cases, Verizon said the credits and refunds are in the $2 to $6 range, but some might be larger amounts. Verizon also said that the rest of its customers, 77 million of them, are not affected.

As mentioned above, the company explained that the only customers affected by inadvertent charges are those who do not have data plans. These customers choose to pay for data usage on a per megabyte basis. Most of the mystery charges stemmed from a very small data "acknowledgment" session sent by software pre-loaded on certain phones, the company said. For customers who did not have data plans and who were not otherwise using data features on their devices, this software triggered the pay as you go charge of $1.99.

"We never intended to charge customers for this "acknowledgment" data session," Verizon said in the statement. "In other cases, we accidentally charged customers for access to Web site links that were not supposed to trigger data charges."

Verizon said it has put improvements in place to prevent this from happening in the future.

"We are a company that listens to its customers and in this case we got to the bottom of a problem and resolved the errors," the statement read. "We have taken this action because it is the right thing to do. We value our customers and their trust in us, and we do everything in our power every day to earn and keep that trust."

Update at 1:33 p.m. PDT:This story has been updated with statements from Verizon Wireless.