RENEE MONTAGNE, HOST:
The Federal Trade Commission is suing T-Mobile, the cellular service provider, over allegedly fraudulent charges on customer's phone bills. In question are hundreds of millions of dollars in charges for what are known as premium services. T-Mobile says the civil lawsuit is without merit. NPR's Chris Arnold explains.
CHRIS ARNOLD, BYLINE: If you pay an extra $10 a month, you can get all sorts of things sent to your cell phone - horoscopes, quirky ringtones, celebrity gossip, texts. The FTC says that third-party companies told T-Mobile that its customers had signed up for such services, and then T-Mobile billed for them and took a hefty 35 to 40 percent cut. The only problem was that many customers never signed up at all. That's according to Jessica Rich, the FTC consumer protection director. In this way, she said since 2009, T-Mobile made a lot of money off fraudulent charges.
JESSICA RICH: They took in hundreds of millions of dollars from consumers. We know that much of that was unauthorized. But in court we will determine just how much, and how much we would ask the court to refund customers.
ARNOLD: T-Mobile denies that it did anything wrong. The company says it refunds customers for any unauthorized charges. But Jessica Rich says, T-Mobile didn't do enough.
RICH: We allege that T-Mobile knew about these fraudulent charges and failed to stop them or take any action, and therefore they continued.
ARNOLD: What's more, the FTC says that T-Mobile made it very hard for customers to even figure out that they were being hit with these extra charges and what the charges were for.
RICH: They hid the charges on the bill and it was enough for consumers to figure out what they were being charged. And second, they did not obtain consent from consumers for those charges.
ARNOLD: As far as how these third-party companies managed to get people's cell phone numbers and sign them up for horoscopes and whatever else - Brian Shull is with the FTC Bureau of Consumer Protection. He says, in some cases, these outside companies tricked people into clicking on something that signs them up. Or...
BRIAN SHULL: In many cases, what we have found is that the third-party merchant, they're just buying phone numbers from random places and billing these consumers without any notice whatsoever.
ARNOLD: In this civil lawsuit, Jessica Rich says the FTC can't impose monetary penalties on T-Mobile, should the government win its case. But she wants to get customers paid back for bogus charges. Also, she said penalties could come from a separate Federal Communications Commission inquiry into T-Mobile. That was also just announced.
RICH: The Federal Communications Commission - their remedy that they often seek is fines, so it's possible if the outcome of their inquiry is a case, they will be able to obtain fines.
ARNOLD: Rich says the FTC and T-Mobile discussed a possible settlement but were unable to reach an agreement. And that's why the lawsuit is moving ahead. Again, T-Mobile denies the allegations. It says over the past year, it's taken steps to protect its customers from fraudulent charges. In a statement, the company said quote, "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." Chris Arnold, NPR News.
MONTAGNE: This is NPR News. Transcript provided by NPR, Copyright NPR.