AT&T Inc. agreed to pay $105 million, including $80 million in consumer refunds, to settle federal and state investigations that the company illegally billed mobile phone customers for unauthorized charges for ringtones and other services, officials said Wednesday.
The practice, known as mobile cramming, began in 2011 and involved hundreds of millions of dollars in charges for third-party services, the Federal Trade Commission said.
The services, such as subscriptions for ringtones and text messages with love tips and horoscopes, usually cost customers $9.99 a month. AT&T Mobility, a subsidiary of the telecommunications giant, kept at least 35% of those payments, the FTC said.
"This case underscores the important fact that basic consumer protections -– including that consumers should not be billed for charges they did not authorize -- are fully applicable in the mobile environment," said FTC Chairwoman Edith Ramirez.
The agency has been cracking down on mobile cramming, and the AT&T case is the seventh since last year.
The settlement was with the FTC, the Federal Communications Commission and all 50 states, plus the District of Columbia.
In addition to the $80 million in customer refunds, AT&T will pay a $5 million penalty to the FCC and a total of $20 million in penalties and fees to states and D.C., the FTC said.
The FTC said AT&T received 1.3 million calls from customers questioning third-party charges on their bills in 2011 alone.
Despite the complaints, AT&T tightened its refund policy in October 2011. The company had offered refunds for up to three months worth of charges but limited refunds to just two months, the FTC said.
AT&T's bills made it difficult for customers to identify third-party payments they did not authorize. The payments were listed as "AT&T Monthly Subscription," which led customers to believe the charges were part of their service with the company.
The settlement requires AT&T to obtain "express, informed consent" from customers before placing any third-party charges on their bills. The charges need to be clearly identified as coming from a third party and customers must be provided with an option to block the charges.
AT&T agreed to send notices about the refund to all current customers who were billed for unauthorized third-party services. The FTC's refund administrator will notify former customers.
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