CFPB Sues Sprint for “Cramming”

by Tim Sloane 0

This articlein American Banker indicates that the CFPB has sued Sprint for crammingfraudulent charges onto consumer’s bills, a practice that the CFPB admitsSprint stopped in December of 2013:

“TheCFPB claims that Sprint allowed vendors to place ‘tens of millions of dollars’in unauthorized charges on cell phone bills and ignored consumer complaintsabout the third-party charges. The agency is seeking court approval to requireSprint to refund affected consumers and pay penalties.

‘Todaywe are suing Sprint for allowing illegal charges to be crammed onto consumers’wireless bills,’ said CFPB Director Richard Cordray in a press release. ‘Consumersended up paying tens of millions of dollars in unauthorized charges, eventhough many of them had no idea that third parties could even place charges ontheir bills. As the use of mobile payments grows, we will continue to holdwireless carriers accountable for illegal third-party billing.’

TheCFPB said from 2004 to 2013, Sprint outsourced payment processing for digitalpurchases like games and apps that came through text messages with hiddencharges, but failed to monitor the vendors charging those fees. Most of theharmed consumers would first click on an advertisement online that would directthem to a website asking for their cell phone number in order to get a ‘free’digital item but would then charge the consumer for it. In other cases, theCFPB said vendors were fabricating the charges without ever sending theproduct.

‘Thecharges ranged from one-time fees of about $0.99 — $4.99 to monthlysubscriptions that cost about $9.99 a month,’ the CFPB said. ‘Sprint received a30-40% cut of the gross revenue from these charges.”

The takeaway for any company involved in payments is to makesure every transaction is transparent and documented for the consumer and thata mechanism is in place to manage consumer problems and complaints. These are obvious and common sense businesspractices but now the CFPB is watching, apparently even retroactively!

Overview by Tim Sloane, VP, Payments Innovation for Mercator Advisory Group

Read full story in American Banker

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