By Alan Zibel and Gautham Nagesh
WASHINGTON--The U.S. consumer-finance regulator filed its first
legal action against a telecommunications company on Wednesday,
accusing Sprint Corp. of hitting mobile phone customers with
unauthorized charges.
The Consumer Financial Protection Bureau sued the wireless
carrier in federal court in New York, alleging the company unfairly
charged customers by creating a billing system that allowed outside
companies to place unauthorized charges on customers' bills. In
addition, the Federal Communications Commission is preparing to
fine Sprint $105 million over similar alleged cramming practices,
The Wall Street Journal reported on Tuesday.
The CFPB alleged the company unfairly charged customers by
creating a billing system that allowed outside companies to place
unauthorized charges on customers' bills from 2004 through last
year. Consumers were enrolled in "premium" products offering
horoscopes, ringtones and digital wallpaper with charges ranging
between 99 cents a month and $9.99 a month, the CFPB said.
Even though consumers complained about the practices, Sprint
outsourced its billing functions and allowed unauthorized charges
to be placed on consumers' bills, taking a 30% to 40% share of the
revenue, the regulator said.
Sprint "invited illegal third-party charges and processed them
in a highly irresponsible manner," said CFPB Director Richard
Cordray.
A Sprint spokeswoman disputed the CFPB's depiction of its
business practices. The company "took considerable steps to protect
wireless customers from unauthorized third-party billing and is an
industry leader in proactively preventing unauthorized charges,"
she said.
The phone-charge issue represents a new area of focus for the
consumer-finance regulator. The CFPB said it has the authority to
sue Sprint because the company was processing financial
transactions for other companies.
Regulators have targeted a number of carriers, with the Federal
Trade Commission suing T-Mobile US Inc., in addition to AT&T's
settlement with the FCC.
The major wireless carriers have stopped most third-party
billing after pressure from regulators. The agencies will "continue
our close cooperation on this and other cases on behalf of wireless
customers nationwide," an FCC spokesman said Wednesday.
Write to Alan Zibel at alan.zibel@wsj.com and Gautham Nagesh at
gautham.nagesh@wsj.com
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