The F.T.C. said that for years some AT&T customers were billed for unauthorized charges of third-party items like ringtones and text messages with love tips and horoscopes. Credit Justin Sullivan/Getty Images
WASHINGTON — AT&T’s wireless business will pay $105 million in penalties and refunds to consumers for unlawfully billing cellphone accounts of customers, the biggest fine yet for such practices, federal and state regulators announced on Wednesday.
AT&T Mobility, one of the country’s largest mobile phone companies, agreed to pay $80 million to the Federal Trade Commission to provide refunds to customers who were billed “hundreds of millions of dollars,” often without their knowledge or consent, for items including ringtones and text messages with love tips and horoscopes, the commission said.
In addition, AT&T will pay $20 million in penalties and fees to 50 states and the District of Columbia and a $5 million penalty to the Federal Communications Commission for the practices, known as mobile cramming.
Even when it was obvious that customers were being harmed, AT&T repeatedly failed to help customers, the F.T.C. said in a complaint filed in federal court in Atlanta.
“Instead of acting to stop the charges, AT&T continued to make hundreds of millions of dollars from the practice, by taking at least 35 percent of every charge, and refused to provide refunds to many consumers,” Edith Ramirez, the F.T.C. chairwoman, said on Wednesday.
Despite having to paying millions or even billions of dollars in fines, many companies look at the payments as just the cost of doing business.
“In fact,” she added, “AT&T sought to reassure the third parties originating the unauthorized charges that it would not provide full refunds to consumers. AT&T told these companies that it would ‘help lower refunds’ by providing refunds of up to two months’ worth of charges, no matter how long the unauthorized charges existed on customers’ bills.”
AT&T said it discontinued billing for those types of third-party charges in December 2013.
“While we had rigorous protections in place to guard consumers against unauthorized billing from these companies, last year we discontinued third-party billing for Premium Short Messaging Services,” the company said in a statement.
The company added: “This settlement gives our customers who believe they were wrongfully billed for P.S.M.S. services the ability to get a refund.”
The settlement is the largest that regulators have brought against mobile phone companies for cramming. Over the last year and a half, the F.T.C. has filed seven cases, including five against content providers — the companies that originated the charges. The largest of those cases involved the surrender of about $10 million in assets by the companies involved.
In July, the F.T.C. filed a similar case against T-Mobile, which is contesting the charges. And officials said on Wednesday that more cases were in the works, involving other of the largest national wireless companies.
“This isn’t, you know, Phil’s Phone Shack that is doing this,” said Douglas F. Gansler, Maryland’s attorney general.
In the AT&T case, the payments stem from charges, typically $9.99 a month, that were billed by other companies to the accounts of customers over several years, regulators said. AT&T kept at least 35 percent of the charges, the F.T.C. said, even after as many as 40 percent of the billed customers complained about the practices.
On average, 15 percent of third-party subscriptions were refunded. By comparison, the average chargeback rate on credit card transactions is two-tenths of 1 percent, the commission said.
In 2011 alone, the commission said, AT&T received more than 1.3 million calls to its customer service lines about the charges. In October of that year, AT&T altered its refund policy to lower the amount of charges that could be returned to customers to two months’ worth from three months’ worth, the F.T.C. charged.
Even after customers objected, AT&T continued to reap big rewards from the billing practices. In 2012, the year after it altered its refund policy, AT&T earned $108 million from the charges. In 2013, that grew to $161 million. Officials said that the $80 million refund settlement did not cover all of the unlawfully billed amounts, although some consumers received refunds on their own after complaining.
According to the commission, AT&T did not ask the merchants to provide confirmation that the charges were authorized. It sometimes instructed customers to seek a refund directly from the merchant, then provided inaccurate contact information. Even though AT&T acknowledged in its internal communications that the authorizations were “often unreliable,” the company asserted to consumers that they had authorized the charges.
AT&T’s billing statements also made it difficult for customers to tell that unusual charges were being added, the commission said. And consumers using prepaid plans, who do not receive monthly bills, most likely received no information about such charges.
AT&T will be required to notify customers who were billed for the unauthorized charges about the settlement and the refund program. Consumers who believe they were wrongly charged can submit a refund claim at www.ftc.gov/att or contact the settlement administrator at 1-877-819-9692.
Authored by Edward Wyatt via nytimes.com.