Sprint (NYSE: S) and Verizon (NYSE: VZ) have become the last of the four major wireless carriers to settle with the United States government on charges that they were padding customer bills.
Both companies agreed to pay fines for "cramming," the practice of adding charges for services including ringtones, horoscopes, and more that the subscriber had not authorized. Though most of these charges were tiny on an individual basis, the practice added tens of millions to customer bills for premium services -- of which the carrier generally takes a 40% cut.
To settle their cases, Sprint has agreed to return $68 million to its users, while Verizon will pay $90 million. This follows similar cases last year where AT&T (NYSE: T) settled for $105 million and T-Mobile (NYSE: TMUS) offered up $95 million.
In the most recent agreements, Sprint will pay cramming victims $50 million and Verizon will pay $70 million with the remaining money going to the Attorneys General offices in the states that brought the complaints and the Federal Communications Commission, according to GeekWire.
Exactly what was charged?
New York Attorney General Eric T. Schneiderman issued a press release on the settlement that noted that "one common cramming charge is a $9.99-per-month premium text messaging subscription service (also known as PSMS) for horoscopes, trivia, sports scores or other information that consumers often never requested."
The AG, who was also involved in the AT&T and T-Mobile cases, celebrated the victory as win for consumers in his home state.
"It's both unfair and illegal to charge consumers for services they did not request, a practice that Sprint and Verizon engaged in over several years," said Schneiderman.
Consumer Financial Protection Bureau Director Richard Cordray said the carriers carry responsibility because they "did not keep a watchful eye" on so-called billing aggregators or the charges they placed on bills, and that both ignored red flags-including lawsuits accusing those very aggregators of cramming," Philly.com reported.
"Consumers clicked on ads that brought them to websites asking them to enter their cell phone numbers," Cordray said. Some believed they had given their numbers in return for free digital content. "Other merchants simply placed fabricated charges on people's bills without delivering any goods or even communicating with them."
The penalty is more than money
In addition to the cash penalty, the settlement also requires that Verizon and Sprint stay out of the PSMS business. AT&T and T-Mobile agreed to the same thing as part of their deal. They also agreed to a number of other stipulations:
- The carriers must obtain consumers' express consent before billing consumers for third-party charges, and must ensure that consumers are only charged for services if they have been informed of all material terms and conditions of their payment;
- The carriers must give consumers an opportunity to obtain a full refund or credit when they are billed for unauthorized third-party charges;
- The carriers must inform their customers when they sign up for services that their mobile phone can be used to pay for third-party charges, and must inform consumers of how those third-party charges can be blocked if the consumers do not want to use their phone to pay for third-party products; and
- The carriers must present third-party charges in a dedicated section of consumers' mobile phone bills, must clearly distinguish them from the carrier's own charges, and must include in that same section information about consumers' ability to block third-party charges.
Is this finally over?
It's important to note that none of the companies involved admitted intentional fault, and T-Mobile, which has a very pro-consumer business stance, was very vocal in denying any knowing wrongdoing. CEO John Legere called the charges "unfounded and without merit" when the lawsuit was filed and all four companies have made statements denying responsibility.
If the carriers were victims too -- and in some cases, maybe at least some of them were -- these settlements end any doubt and should kill cramming as a practice. This is not only good for consumers, but good for the companies that have been forced to lock out partners who might engage in this sort of practice.
Even if you apply benefit of the doubt to the industry and say that cramming was an unwitting practice, this deal now removes any possibility of future transgressions.
Daniel Kline owns shares of Apple. He does not believe in horoscopes, but has an affection for fortune cookie fortunes. The Motley Fool recommends Apple and Verizon Communications. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.