AT&T will pay $105 million to settle complaints from the U.S. Federal Communications Commission, the Federal Trade Commission and 51 state-level governments that it made millions of dollars through unauthorized third-party charges on customers' mobile-phone bills.
The settlement, announced Wednesday by the two agencies and 51 state attorneys general, includes $80 million for consumer refunds and $25 million in penalties, the agencies said. AT&T knew of potential problems with premium text-messaging services for years and sought in 2011 to reassure third-party billers by saying it would limit refunds to two months, FTC Chairwoman Edith Ramirez said during a press conference.
"This should have, and in fact did, ring alarm bells at AT&T," she said. "Instead of acting to stop the practice, AT&T continued to make hundreds of millions of dollars from the practice."
The $9.99-per-month third-party charges included horoscopes, ringtones and celebrity gossip, the agencies said. AT&T took up to a 35 percent cut for the third-party charges, and combined those charges with AT&T's monthly mobile subscription on some customers' bills, Ramirez said.
AT&T's bills "suggested the services were provided by AT&T and not by third parties," she said.
AT&T said in a statement that it has in the past allowed its mobile customers to purchases services like ringtones from third paries using PSMS (Premium Short Messaging Services). "We would put those charges on their bills," a spokesman said. "While we had rigorous protections in place to guard consumers against unauthorized billing from these companies, last year we discontinued third-party billing for PSMS services."
The settlement resolves complaints that some of AT&T's mobile customers were billed for charges they did not authorize, the spokesman said by email. "This settlement gives our customers who believe they were wrongfully billed for PSMS services the ability to get a refund."
The settlement is the largest in FCC enforcement history and the first joint enforcement action brought by the FCC, FTC and state attorneys general. This settlement "will not be the last time" the two agencies and state attorneys general take action together to protect consumers, FCC Chairman Tom Wheeler said.
AT&T has stopped premium text billing and as part of the settlement will put "rigorous" checks in place to police third-party billing, Wheeler said. Some third-party billing continues at U.S. carriers, the agencies said. The settlement requires AT&T to obtain informed consent from customers before adding third-party charges to their bills and to clearly disclose third-party charges on bills, the agencies said.
"This is a team victory for American consumers," Wheeler said. "For too long, consumers have been charged on their phone bills for things they did not buy."
An estimated 20 million consumers a year are victims of phone-bill cramming, he added.
The two federal agencies brought similar complaints of third-party mobile bill "cramming" against T-Mobile earlier this year.
This is the seventh phone-bill cramming action the FTC has taken since last year.