Markets Wired

Note: A conference call for media with FTC Associate Director Malini Mithal was held:

Date: October 21, 2015
Time: 4:00 p.m. ET
Mithal and FTC staff took questions from the media about the case.

Mobile service provider Sprint will pay $2.95 million in civil penalties to settle Federal Trade Commission charges that the company failed to give proper notice to consumers who were placed in a program for customers with lower credit scores and charged an extra monthly fee.

In its complaint, the FTC alleges that Sprint placed consumers with lower credit scores in an Account Spending Limit (ASL) program. The ASL program requires consumers to pay a monthly fee of $7.99 in addition to the charges for cell phone and data services.

“Sprint failed to give many consumers required information about why they were placed in a more costly program, and when they did, the notice often came too late for consumers to choose another mobile carrier,” said Jessica Rich, director of the FTC’s Bureau of Consumer Protection. “Companies must follow the law when it comes to the way they use consumer credit reports and scores.”

Because Sprint allows customers to be billed for services after they are used, they are subject to the requirements of the Fair Credit Reporting Act and its Risk-Based Pricing Rule. The Rule requires that companies inform consumers whenever they are offered service on less favorable terms – such as the ASL program – as a result of information from their credit reports or scores.

The complaint alleges that Sprint in many cases failed to provide consumers placed in the ASL program with all of the disclosures in the required notice, omitting required information that would help consumers understand the information in their credit reports, and that may have alerted them to possible errors that caused them to receive less favorable terms of credit. An FTC study showed credit reports often contain significant errors.

In addition, the complaint alleges that Sprint often provided these notices to consumers after the window in which they could cancel their service and change to another provider without paying an early termination fee, leaving consumers unable to shop for another carrier that may offer them better terms.

The proposed settlement requires Sprint to pay a $2.95 million penalty for violations of the Risk-Based Pricing Rule. It also requires the company to abide by the Rule’s requirements in the future. In addition, Sprint is required to provide the required notices to consumers within five days of signing up for Sprint service or by a date that gives them the ability to avoid recurring charges like those in the ASL program.  Finally, the proposed settlement requires Sprint to send corrected risk-based pricing notices to consumers who received incomplete notices from the company.

The Commission vote to authorize the staff to refer the complaint to the Department of Justice, and to approve the proposed stipulated order, was 4-0. The DOJ submitted the complaint and proposed stipulated order on behalf of the Commission in U.S. District Court for the District of Kansas on Oct. 21, 2015. The proposed order is subject to court approval.

NOTE: The Commission authorizes the filing of a complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. Stipulated orders have the force of law when signed by the District Court judge.

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC’s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 2,000 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s website provides free information on a variety of consumer topics. Like the FTC on Facebook, follow us on Twitter, and subscribe to press releases for the latest FTC news and resources.