In an unprecedented coordinated effort, the Federal Trade Commission, the Federal Communications Commission, and 51 State Attorneys General announced a joint action against AT&T Mobility, LLC (“AT&T”) for $105 million. The regulators alleged that AT&T engaged in an illegal practice called “mobile cramming,” where it permitted third-party vendors or service providers to place unauthorized monthly charges, up to $9.99, on customers’ phone bills. These charges often allegedly appeared with generic-sounding labels or were combined under a line item such as “AT&T Monthly Charges.” Included among these third-party charges might be subscription fees for special text messages with horoscope information or extra ringtones.
Given the complexity of mobile phone bills, the regulators claimed that many customers did not realize they were paying these charges. However, they also asserted that AT&T should have known that there was an issue with unauthorized charges on its customers’ bills, as AT&T received a high volume of refund requests for these charges and between 35 and 40 percent of those charges were refunded.
In order to settle these claims, AT&T agreed to pay $80 million to the FTC for distribution to customers in the form of refunds, $20 million in penalties to the State AGs, and $5 million in penalties to the FCC. Moreover, the agreement imposed injunctive obligations, which may serve as guidance of best practices for other mobile providers. For example:
- AT&T will be required to obtain express informed consent from users before placing any third party charges on a bill; and
- AT&T will need to rework its refund policy, which the regulators found to be too stringent, to allow for refunds for more than 2-months of unauthorized charges.
The settlement agreement contained no admission of wrongdoing by AT&T, who contested the government’s allegations.
In their joint press conference announcing this settlement, the regulators heralded this agreement and the process that led to it as historic and a “blueprint” for future cooperation. They also emphasized that they will continue to monitor the mobile space and the practice of cramming, in particular.
Photo by Frits Ahlefeldt-Laurvig from Flickr