Privacy & Information Security Law Blog

On October 8, 2014, the Federal Trade Commission announced an $80 million settlement with mobile phone carrier AT&T Mobility, LLC (“AT&T”) stemming from allegations related to mobile cramming. The $80 million payment to the FTC is part of a larger $105 million settlement between AT&T and various federal and state regulators, including the Federal Communications Commission and the attorneys general of all 50 states and the District of Columbia. According to the FCC, “[t]he settlement is the largest enforcement action in FCC history.”

AT&T bills its customers for the mobile phone services provided by AT&T in addition to certain other services provided by third parties. In the complaint, the FTC alleged that AT&T billed its customers for services offered by third parties that the customers did not “order or authorize,” a practice known as mobile cramming. According to the FTC, many of these unauthorized charges were recurring, subscription-based charges that would appear on a customer’s bill every month. The FTC maintained that AT&T retained a percentage of the third party fees charged to customers, typically around 35%. In addition, the FTC alleged that the bills AT&T sent to its customers were ambiguous and did not clearly inform its customers of the nature of the third party services (such as ringtones or horoscopes) for which they were billed.

In addition to the monetary judgment, which primarily will be used to provide refunds to affected customers, the settlement requires that AT&T:

• notify relevant customers of their right to receive refunds for unauthorized third party charges;
• establish and implement a system to ensure that AT&T obtains prior express consent before billing customers for third party products or services;
• send customers purchase confirmations for third party charges separate and apart from the customers’ bills for phone services;
• provide customers with informational materials regarding third party charges;
• adequately train its relevant personnel and appropriately respond to customers who contact AT&T to inquire about a third party charge;
• provide specified records to a settlement administrator;
• submit periodic compliance reports to the FTC; and
• maintain records associated with third party charges.

In the FTC’s press release, FTC Chairwoman Edith Ramirez said that this case “underscores the important fact that basic consumer protections – including that consumers should not be billed for charges they did not authorize – are fully applicable in the mobile environment.”