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T-Mobile logoThe Federal Trade Commission has filed a lawsuit against T-Mobile, alleging that the Bellevue-based wireless carrier made millions of dollars by allowing third-party services to bill customers without those customers knowledge or consent.

The agency alleges that customers were charged through third-party billing, which lets a provider inform a carrier that someone has requested a service, such as text messages containing horoscopes or dating tips, and ask the carrier to place a charge on that person’s bill. Some of those providers, however, never got customers’ approval, but were still able to charge them, in a process known as “cramming.”

“What we’re alleging here is that T-Mobile failed to follow some basic tenets of consumer protection,” FTC Consumer Protection Director Jessica Rich said in a conference call with journalists.

In a press release, T-Mobile CEO John Legere pushed back against the allegations in the lawsuit.

“We have seen the complaint filed today by the FTC and find it to be unfounded and without merit,” he said. “In fact T-Mobile stopped billing for these Premium SMS services last year and launched a proactive program to provide full refunds for any customer that feels that they were charged for something they did not want.”

Instead, Legere argued that the FTC should only go after the providers who charged customers for these services, and leave T-Mobile out of it.

The FTC alleges in its complaint that T-Mobile ignored warning signs that would point towards fraudulent charges. The company allegedly charged customers for services from providers even after those companies were the subject of industry alerts, law enforcement actions and other legal actions. Sometimes, up to 40 percent of customers who were charged for a particular service requested a refund, and the FTC said that T-Mobile did not change the way it dealt with third parties because of that.

What’s more, the FTC argued that T-Mobile worked to hide the charges deep inside consumers’ monthly bills, which made people less likely to notice they were paying for something they didn’t want. The commission alleges that T-Mobile took between 35 and 40 percent of the revenue from these premium charges, and brought in hundreds of millions of dollars by allowing third parties to bill its customers.

John Legere
John Legere

The complaint says that at the time of the charges, T-Mobile frequently denied customers refunds for the premium services, only offered partial refunds for up to two months’ worth of service charges, or directed customers to seek refunds from the service providers.

The FTC is seeking full redress for consumers who were charged without their permission. When asked about T-Mobile’s refund program, Rich said that consumers had not yet seen refunds from the company, which is part of what led to the lawsuit. In addition, Rich said that the FTC would be seeking an injunction that would prevent T-Mobile from engaging in similar practices in the future.

Rich said the FTC engaged T-Mobile in settlement negotiations over the charges, but that the two parties were unable to come to an agreement.

This is the first suit the FTC has brought against a telecommunications carrier over the course of its crusade against cramming. In the past, the commission has gone after service providers and billing aggregators, but never turned its watchful eye towards carriers. Rich said that she hoped this action would serve as an example to other wireless carriers, though she wouldn’t say if other companies were under investigation.

Rich also said that the Federal Communications Commission has launched its own investigation into T-Mobile’s practices, following the announcement of this lawsuit. That may lead to additional fines against the company.

The lawsuit comes at a bad time for the Bellevue-based “Uncarrier.” Sprint has reportedly taken an interest in acquiring T-Mobile, and is rumored to be moving towards making an acquisition offer public. When asked, Rich declined to comment on whether the legal action would have any effect on a merger between the two companies.

Meanwhile, T-Mobile continues to grow. The company added another 2.4 million subscribers in the first quarter of 2014, and has more than 49 million customers overall. Earlier this month, the company announced a new “Test Drive” program that allows people to try out the T-Mobile network by borrowing an iPhone 5S for a week. 12,000 people pre-registered for the program in the first 24 hours of its availability.

The full complaint against T-Mobile is embedded below.

Update: The Communication Workers of America has released the following statement about the charges:

Washington, D.C. — The Communications Workers of America isn’t surprised that T-Mobile US is being investigated by the Federal Trade Commission for cheating wireless customers and pocketing hundreds of millions of dollars.

CWA alerted parent company Deutsche Telekom in January 2013 that T-Mobile US managers were directing workers to add charges to customer accounts. Deutsche Telekom apparently ignored this warning.

Rather than address the underlying issues that incentivize cramming, in one case, the company blamed front-line employees who said they were working under direct orders from managers to cheat customers.  These fired workers deserve to have their cases reviewed.

In June 2013, at a T-Mobile shareholder meeting, a CWA activist spoke directly to then Deutsche Telekom CEO Rene Obermann and T-Mobile CEO John Legere about T-Mobile cramming.  This activist’s warning was also apparently ignored.

Now the FTC has stepped in and is suing T-Mobile US for cheating consumers.

T-Mobile US says it stopped billing for these Premium SMS services last year and has launched “a proactive program to provide full refunds for any customer that feels that they were charged for something they did not want.” Too bad that hundreds of thousands of customers couldn’t determine from their T-Mobile bill that they were the victims of fraud, because the “un-carrier’s” complicated billing practices made it nearly impossible for customers to determine that they were being cheated, according to the FTC. And consumers, mainly lower income families, who use pre-paid calling plans, do not receive monthly bills, so the fees were taken from their pre-paid accounts without their knowledge and consent. Will these customers also receive a “full refund?”

These third-party charges – often scams or entertainment sources – paid T-Mobile US as much as 40 percent of the monthly fees, the FTC complaint said. And even when it was made clear that charges were fraudulent, according to the FTC, T-Mobile US continued to illegally bill customers for the service.

Separately, the National Labor Relations Board also is investigating T-Mobile US for systemic violations of federal labor law. Complaints have been consolidated into one national case, which could lead to nation-wide remedies for the violations.

In addition to ignoring alerts about the “un-carrier’s” cramming, Deutsche Telekom also chose to ignore NLRB decision to pursue systematic abuse by T-Mobile US management. At the T-Mobile US annual meeting in April, DT voted its majority (67%) shares against a shareholder resolution that would have required human rights reporting; DT follows those principles in its operations in Germany.

CWA and the German union ver.di, which represents workers at DT and T-Mobile, are working to help T-Mobile US workers get the union representation they want. Thousands of T-Mobile workers in Germany have joined the campaign and have created partnerships with their U.S. counterparts, to convince DT that workers’ rights abuses at T-Mobile US must stop.

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