The Federal Trade Commission accused wireless carrier T-Mobile of adding bogus charges totaling "hundreds of millions of dollars" on customers' accounts without their consent.
At least as far back as 2009 until at least December 2013, the carrier placed unauthorized charges on customers' mobile phone bills for premium subscriptions, the agency alleges in a suit filed today in U.S. District Court.
The agency says T-Mobile participated in "cramming," a practice where the carrier places charges for services from a third-party company on consumers' bill without telling them. The FTC says T-Mobile also made it difficult for its customers to detect the charges.
The charges were typically for third-party content such as flirting tips, horoscope information or celebrity gossip and amounted to $9.99 per month. Usually, when customers see a third-party service in an advertisement, they must opt-in twice before charges can be added to their mobile phone bill.
However, in many cases deceptive advertisements hid the fact that the consumer was agreeing to the charges, said FTC attorney Brian Shull. And, in other cases, the third-party merchants were "just buying phone numbers from random places and billing these consumers without any notice whatsoever," he said.
T-Mobile, typically, gets 30% to 40% of the third-party fees and forwards the rest to the merchant. "We allege that T-Mobile knew about these fraudulent charges and failed to stop them or take any action, therefore they continued," said Jessica Rich, the FTC's director of consumer protection.
The money fraudulently gathered by this practice could actually be higher than the "hundreds of millions" that the agency lists in the suit, because that is just the amount that T-Mobile gained from its alleged "cramming," Rich said.
T-Mobile was "deceptive and unfair" because the company had let charges from third-party companies continue on consumers bills after "clear warning signs those charges were fraudulent."
The agency has taken action against 30 companies for cramming, Rich said, but this is the first against a telecommunications provider. The Federal Communications Commission, she said, launched an inquiry into T-Mobile's alleged practices today.
T-Mobile could not be reached immediately for comment. The FTC allegations arrive as T-Mobile is attempting to distance itself from its competitors with its selection of "Uncarrier" wireless plans aimed at eliminating contracts. Last week, the company introduced free music streaming and the ability to try a new iPhone for free.
"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," said FTC Chairwoman Edith Ramirez in a statement. "The FTC's goal is to ensure that T-Mobile repays all its customers for these crammed charges."
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During the "Uncarrier" push, T-Mobile CEO John Legere has been on the offensive about wireless rivals loading up customers with restrictive contracts and high fees.
The company has also been the subject of merger talks with fellow wireless carrier Sprint. The deal is reportedly worth as much as $50 billion.