On December 17, 2014, the Consumer Financial Protection Bureau ("CFPB") filed a lawsuit against Sprint Corporation ("Sprint") alleging that Sprint illegally crammed third-party charges on its customers' cellular telephone bills. The lawsuit, filed in the United States District Court for the Southern District of New York, marks the first brought by the CFPB against a cellular telephone provider. Although the lawsuit does not include a specific dollar amount, it seeks damages against Sprint including payment of restitution to customers and disgorgement of all profits obtained as a result of the alleged illegal cramming.
Allegations of Illegal Cramming Against Sprint
According to the complaint, between 2004 and 2013, Sprint illegally crammed third-party premium short messaging service ("PSMS") charges (for services such as ringtones, wallpaper, horoscopes and flirting tips) on its customers' cellular telephone bills. The CFPB alleges that Sprint did so by relying on third-party billing aggregators, at least two of which helped certain merchants to bill alleged unauthorized charges from at least January 2011 to November 2013.
The complaint also alleges that Sprint ignored customer complaints and other warning signs in continuing its PSMS billing activities. For example, the CFPB points out that in 2010, Sprint settled a law-enforcement action related to cramming with the Florida Attorney General. Despite this settlement, Sprint continued to outsource payment processing and compliance to billing aggregators. Sprint did so even after the aggregators themselves settled with other regulatory agencies. As a result of its PSMS billing activities, the complaint asserts that Spring retained 40% of gross revenues of all of the alleged illegal cramming charges.
Sprint May Face Further Action for Illegal Cramming
On December 16, 2014, several media outlets reported that the Federal Communications Commission ("FCC") was close to announcing a $105 million fine against Sprint for illegal cramming. The deputy enforcement director of the CFPB has declined to comment on whether the FCC will take separate action against Sprint, but has noted that the FCC and CFPB have been working closely on this matter. An FCC spokesperson has confirmed the substance of same, but did not elaborate on any further regulatory action that may be taken against Sprint.
Protect Yourself
Last year, we blogged about the CFPB's enforcement efforts against payday lenders. Although the CFPB has declined to comment on whether it would bring similar lawsuits against other wireless operators for cramming, its increased activity in this field, as well as the FCC's ongoing regulatory crackdown on wireless carriers, makes it likely that cramming litigation will continue into the foreseeable future.
If you are a third-party marketer that charges for your products or services via mobile billing or if you have been served with legal process relating to your billing or marketing practices, please e-mail us at info@kleinmoynihan.com or call us at (212) 246-0900.
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