FTC: T-Mobile made hundreds of millions from unwanted SMS features

T-Mobile USA made hundreds of millions of dollars by charging customers for purported “premium” SMS subscriptions that, in many cases, they never ordered, the Federal Trade Commission says.

The FTC, in a legal complaint filed Tuesday, alleged that T-Mobile pocketed 35 percent to 40 percent of the amount charged to customers for SMS-based services such as flirting tips, horoscope information and celebrity gossip, with the services typically costing $9.99 per month.

T-Mobile, in some cases, continued to bill customers for these services, offered by what the agency called “scammers,” years after the company was alerted that the charges may have been fraudulent, the FTC said. The charges were often added to customers’ bills through a fraudulent process called cramming, the FTC said. Cramming involves adding charges to bills without customers’ approval.

With the allegations against T-Mobile, the FTC has opened a “new front in its long-standing campaign” against cramming, Jessica Rich, director of the FTC’s Bureau of Consumer Protection, said during a news conference. The agency doesn’t yet have an estimate of the number of T-Mobile customers affected, but it received “oodles of complaints,” she said.

The FTC’s goal is to ensure that T-Mobile repays affected customers, added FTC Chairwoman Edith Ramirez. “It’s wrong for a company like T-Mobile to profit from scams against its customers when there were clear warning signs the charges it was imposing were fraudulent,” she said in a statement.

T-Mobile called the FTC’s complaint “unfounded and without merit.”

The company stopped billing for the premium SMS features 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,” T-Mobile USA CEO John Legere wrote in a blog post. T-Mobile is “disappointed that the FTC has chosen to file this action against the most pro-consumer company in the industry rather than the real bad actors,” he added.

T-Mobile accused of “cramming”

The charges were added to T-Mobile customers’ bills through a third-party billing process, in which a phone company places charges on a consumer’s bill for services offered by another company, with the carrier sometimes receiving a substantial percentage of the amount charged.

In some cases, T-Mobile charged consumers for services that had refund rates of up to 40 percent in a single month, the FTC said in its complaint. With such a large number of people seeking refunds, it should have been an “obvious sign” to T-Mobile that the charges were never authorized by its customers, the FTC said in a press release.

With typical charge-back requests with percentages in the low single digits, T-Mobile “disregarded telltale signs of fraud,” Rich said.

The refund rate likely significantly understates the percentage of consumers who had the charges crammed on their bills, the FTC said. T-Mobile documents show that the company received a high number of consumer complaints as early as 2012, the FTC alleged. The practice goes back to 2009, the FTC said.

T-Mobile’s phone bills, which can be longer than 50 pages, made it nearly impossible for consumers to find and understand third-party subscription charges, the FTC alleged.

The FTC has talked to T-Mobile about a settlement in the case, but hasn’t been able to reach an agreement, Rich said.

Updated at 2:15 p.m. PT with reaction from T-Mobile.