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From Banking and Finance Law Daily, May 12, 2015

CFPB seeks $120 million from Verizon and Sprint for alleged cram scam

By John M. Pachkowski, J.D.

The Consumer Financial Protection Bureau has announced that it is seeking approval from two federal courts for proposed consent orders against Sprint and Verizon Wireless for the companies’ alleged illegal billing of hundreds of millions of dollars in unauthorized third-party charges. The bureau collaborated with the Federal Communications Commission and the attorneys general from all 50 states and the District of Columbia in bringing these actions against Sprint and Verizon.

In a complaint against Verizon, filed with the U.S. District Court for the District of New Jersey, the bureau claimed that the company operated billing systems that allowed third parties to “cram” unauthorized charges on customers’ mobile-phone accounts and ignored complaints about the charges. The bureau filed similar charges against Sprint in late 2014 with the U.S. District Court for the Southern District of New York (see Banking and Finance Law Daily, Dec. 17, 2014).

Unfair practices. In each case, the CFPB specifically alleged that Sprint and Verizon, acting as payment processors for third parties, violated the Dodd-Frank Act’s prohibition on unfair practices by:

  • allowing third parties to illegally charge consumers;

  • automatically billing consumers for illegitimate charges without their consent;

  • ignoring consumer complaints about unauthorized charges; and

  • disregarding red flags about third party vendors.

Remedies. To remedy the unfair practices, the proposed consent orders would require Sprint and Verizon to pay a total of $120 million in customer refunds, with Verizon paying $70 million and Sprint the remainder.

In addition, the proposed consent orders would require the companies to:

  • clearly and conspicuously disclose third-party charges on wireless bills;

  • obtain informed consent from consumers prior to third-party billing;

  • improve dispute resolution procedures; and

  • enhance customer-service training programs.

Commenting on the bureau’s latest action, CFPB Director Richard Cordray noted, “Sprint and Verizon had flawed billing systems that allowed merchants to add unauthorized charges to wireless customer bills. Consumers bore the brunt of those charges and ended up paying millions of dollars while the companies reaped profits. Today’s actions will put $120 million back into the pockets of harmed consumers and require these companies to improve their billing practices going forward.”

Companies: Cellco Partnership; Sprint Corporation; Verizon Wireless

MainStory: TopStory CFPB EnforcementActions NewYorkNews UDAAP

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