Prepared Remarks of CFPB Director Richard Cordray at the Sprint Enforcement Press Call

Thank you for joining us on this call. Today we are announcing that we are suing Sprint, the wireless carrier, for illegally cramming consumers’ bills with unauthorized third-party charges. Sprint’s flawed billing system allowed unscrupulous merchants to add unauthorized charges to wireless bills, and consumers ended up paying tens of millions of dollars in such charges. Many of these consumers had no idea that third parties could even place charges on their bills.

We use our phones to do so much that they have become integral to our daily lives. We communicate with loved ones, do work, find information, listen to music, and make a growing number of purchases on them. According to the Pew Research Center, more than 90 percent of Americans now own a mobile phone. When we use our wireless accounts to make purchases, our carriers, such as Sprint, act as payment processors. They place the charges for those purchases on our wireless bills instead of on a credit card or other form of payment.

In today’s case, Sprint was enrolling customers in a third-party billing system without their consent. That allowed scammers to cram illegitimate charges onto people’s wireless bills. For almost a decade, up until 2013, nearly all wireless third-party billing involved premium text messages. These premium messages delivered things like ringtones, wallpaper, and horoscope text messages.

Sprint outsourced the billing for these messages to vendors known as billing aggregators. However, Sprint did not keep a watchful eye on them or on the charges they were placing on wireless accounts. As a result, consumers were subjected to millions of unauthorized charges, including one-time fees ranging from $0.99 to $4.99 as well as monthly subscriptions that cost about $9.99 per month.

Most consumers who faced these unauthorized charges were targeted online. Customers clicked on ads that brought them to websites asking them to enter their cellphone numbers. Some merchants tricked consumers into providing their cellphone numbers to receive “free” digital content and then charged for it. Other merchants simply placed fabricated charges on people’s bills without delivering any goods or even communicating with them.

Despite complaints from consumers and other red flags, Sprint continued to outsource its third-party billing and allowed the unauthorized charges to pile up. When consumers paid off these illegal charges, Sprint itself took a 30 to 40 percent cut of the gross revenue. This was wrong. Part of our mission here at the Consumer Bureau is to make sure that consumers are treated fairly in the financial marketplace. Sprint mistreated consumers egregiously by creating a billing system that invited illegal third-party charges and processed them in a highly irresponsible manner.

Sprint took advantage of its customers and treated them unfairly in a number of ways. First, Sprint allowed third parties to place illegitimate charges on people’s bills. Its billing practices made it easy for scammers to attach the charges. On top of that, since Sprint made a profit on every such charge, there was little incentive for the company to put a stop to them.

Second, Sprint automatically enrolled customers in its third-party billing system without their consent and did not let customers opt in to the service. This automatic enrollment perpetuated the harm because many customers did not spot unauthorized charges, since they were not even aware that those charges could be placed on their bills.

Third, Sprint disregarded red flags showing that its billing system was a breeding ground for unauthorized charges. Sprint continued to outsource this process to aggregators even after those very same companies were sued for cramming. In addition, Sprint had already been subject to a related law-enforcement action and therefore should have been on notice that cramming posed a major risk of illegal charges to consumers.

Lastly, Sprint ignored or mishandled complaints about the unauthorized charges. Sprint did not track customer complaints about the charges and thus lacked even the most basic fraud-alert mechanism. Sprint also failed to provide full and prompt remediation to consumers known to be harmed by the charges. In some cases, Sprint refused to provide refunds and simply told people how they could block future third-party charges. Other times, Sprint refused to provide refunds and referred people back to the scammers themselves.

Because consumers are increasingly using their phones for all sorts of financial activities, they need to be able to trust that their wireless carriers and other payment processors are keeping their accounts safe. Although Sprint and other wireless carriers ended premium message transactions in 2013, third-party billing on mobile accounts continues through different platforms, like mobile wallets. Companies must have strong safeguards in place and they must take vigorous and proactive steps to protect consumers against fraud and abuse.

If companies hire vendors to manage their billing and payment systems, which they are certainly entitled to do, they must carefully monitor and police their vendors’ activities. Companies are responsible for ensuring that their vendors are not violating the law, and need to take appropriate steps to remedy any harm done when they fail to meet their responsibility to treat consumers fairly. As we have said previously about other consumer financial markets, simply contracting with a vendor does not absolve the provider of its legal responsibility to treat consumers fairly.

In the end, Sprint customers should not have been subjected to unauthorized charges and Sprint needs to be held accountable. The company should have been responsive to consumers, curbed the illegal charges, and ending the damage done by cramming. Because Sprint did not deliver such common-sense protections, the Bureau is filing this lawsuit today to seek appropriate relief for Sprint’s misconduct and the harm it has done to consumers.

I would like to personally thank Chairman Wheeler, Travis LeBlanc, and the Federal Communications Commission staff for their ongoing assistance and their tireless efforts to protect consumers against wireless cramming. We will continue to work in close coordination with the FCC on this matter. Thank you.