By Kate Tummarello - 07/01/14 02:15 PM EDT
Federal regulators are accusing T-Mobile of making hundreds of millions of dollars by scamming customers with unauthorized text messages.
The Federal Trade Commission (FTC) on Tuesday said it is seeking a court order to permanently bar T-Mobile from “cramming,” or charging cellphone customers for spam text messages that they did not sign up for.
The Federal Communications Commission (FCC) is also launching an investigation into T-Mobile's billing practices and has the power to level fines against the company if it finds wrongdoing.
The FTC said T-Mobile charged customers for spam texts — “such as flirting tips, horoscope information or celebrity gossip” — at a typical cost of $9.99 per month.
T-Mobile — which bills itself as a low-cost alternative to rivals AT&T and Verizon — received between 35 and 40 percent of the amount it charged customers for the texts subscriptions, generating hundreds of millions of dollars in revenue, the FTC alleged.
In addition to placing the charges on the customers’ bills, T-Mobile also ignored signs that the texts were unwanted — such as a large number of customers seeking refunds — and made it difficult to discover and remove the charges, according to the FTC.
“It’s wrong for a company like T-Mobile to profit from scams against its customers when there were clear warning signs the charges it was imposing were fraudulent,” Ramirez said.
T-Mobile CEO John Legere called the lawsuit "sensationalized legal action" that is "unfounded and without merit."
Rather than going after T-Mobile, the FTC should focus on the third-party companies that are sending the text messages, Legere said. He noted that T-Mobile has already made commitments to stop billing for unwanted spam text messages and issue refunds for unwanted texts.
"T-Mobile is fighting harder than any of the carriers to change the way the wireless industry operates and we are disappointed that the FTC has chosen to file this action against the most pro-consumer company in the industry rather than the real bad actors," he said.
Jessica Rich, director of the FTC's Bureau of Consumer Protection, said the agency and T-Mobile have not been able to reach a settlement on the charges, meaning the FTC will now take the case to court.
"In court we will determine just how much" T-Mobile needs to refund its consumers, but "our evidence to date is that hundreds and millions of dollars are at stake," Rich said.
"Our first priority is to get the money back to consumers."
Rich called the charges against T-Mobile — the agency's first cramming charges against a telecom company — "a new front in [the agency's] longstanding campaign" against wireless cramming.
The agency hopes the T-Mobile case "sends a strong message to other mobile phone companies," she said.
"We will continue to bring additional cases to deter this conduct," she said.
The FTC is centering much of its case around T-Mobile’s billing practices, which it said “made it difficult for consumers to detect that they were being charged, much less by whom.”
Customers would have to click through several screens online or scan through upwards of 50 pages of a physical bill to find obscure accounting for the third-party charges, the FTC said.
Prepaid customers, who do not receive monthly bills, would have the third-party charges deducted automatically, the agency said.
Once customers discovered the charges and their source, T-Mobile would refuse to fully refund the charges, sometimes directing the customers to contact the third-parties, according to the FTC.
The charges against and investigation of T-Mobile come as the company is reportedly in talks to be bought by Sprint, a highly-anticipated deal that would combine the country's third- and fourth-largest wireless companies.
— This story was last updated at 4:31 p.m.