The FCC today announced that it has agreed to a settlement with AT&T for the carrier allowing unauthorized third-party charges on customers’ monthly bill. AT&T will pay a total fine of $7.75 million, $6.8 million of which will be refunds to affect customers. The other $950,000 will be a federal fine paid to the U.S. Treasury.
In its statement, the FCC explained that AT&T allowed “scammers to charge customers approximately $9 per month for a sham directory assistance service.” For every charge, AT&T also received a cut, according to the results of the investigation. Two Cleveland-area companies, Discount Directory Inc and Enhanced Telecommunications Services, were behind the unauthorized billing that affected “thousands” of consumers that were subscribed to AT&T’s landline service. The companies claimed to provide a directory service that was never actually provided.
The fraud setup was initially discovered by the United States Drug Enforcement Administration while investigating the two companies for drug trafficking. According to the FCC, most of the affected customers were small businesses, none of which had agreed to charges for a directory service, let alone a directory service that didn’t actually exist. The crime was brought to light when the DEA seized nearly $3.4 million in assets from the two companies.
In addition to the $7.75 million in penalties, AT&T said in a statement that it has put much stricter requirements in place on third-party companies that bill its users. The new efforts will help both AT&T and consumers ensure that all charges are authorized and legitimate. “We have implemented strict requirements on third parties submitting charges for AT&T bills to ensure that all charges are authorized by our customers; indeed, those requirements go beyond the requirements of FCC rules and impose safeguards that the FCC proposed but never adopted,” the carrier said.
AT&T stopped billing for the sham directory service back in June 2015 and will send refund checks to consumers within 90 days.
This isn’t the first time AT&T has been hit with a fine by the FCC. Last year, the FCC fined AT&T $100 million for throttling customers with unlimited data plans. AT&T disputed the assertions by the FCC and similar ones from the FTC, saying customers were fully aware of the restrictions on the unlimited data plans.
You can view the AT&T and FCC statements on today’s announcement below.
“Consistent with industry practices, AT&T wireline telephone customers have been able to purchase certain telecommunications services from third parties and have charges for those services billed on their telephone bill. We have implemented strict requirements on third parties submitting charges for AT&T bills to ensure that all charges are authorized by our customers; indeed, those requirements go beyond the requirements of FCC rules and impose safeguards that the FCC proposed but never adopted. Nonetheless, unbeknownst to us, two companies that engaged in a sophisticated fraud scheme were apparently able to circumvent those protections and submit unauthorized third-party charges that were billed by AT&T.
Today, we reached a settlement with the FCC to resolve all claims associated with these companies and the related charges. Pursuant to the settlement, we will provide refunds for all charges on behalf of these two companies going back to January 1, 2012. Affected former and current AT&T wireline telephone customers will receive these refunds via check within 90 days. We stopped billing for these entities as of June 2015 and will also cease wireline third-party billing for other third parties, with limited exceptions.”
The Federal Communications Commission’s (FCC) Enforcement Bureau today announced a settlement with AT&T Services to resolve its investigation into whether the company “crammed” unauthorized third-party charges on its customers’ wireline telephone bills. AT&T allowed scammers to charge customers approximately $9 per month for a sham directory assistance service. The scam was uncovered by the U.S. Drug Enforcement Administration (DEA) while investigating the scammers for drug-related crimes and money laundering.
“A phone bill should not be a tool for drug traffickers, money launderers, and other unscrupulous third parties to fleece American consumers,” said Enforcement Bureau Chief Travis LeBlanc. “Today’s settlement ensures that AT&T customers who were charged for this sham service will get their money back and that all AT&T consumers will enjoy greater protections against unauthorized charges on their phone bills in the future.”
The DEA discovered the cramming scam while investigating two Cleveland-area companies, Discount Directory, Inc. (DDI) and Enhanced Telecommunications Services (ETS) for drug-related crimes and money laundering. In the course of seizing drugs, cars, jewelry, gold, and computers (totaling close to $3.4 million) from the companies’ principals and associates, DEA investigators discovered financial documents related to a scheme to defraud telephone customers. The key participants in the scheme told DEA agents that the companies were set up to bill thousands of consumers (mostly small businesses) for a monthly directory assistance service on their local AT&T landline telephone bills. The DEA referred this investigation to the FCC’s Enforcement Bureau in 2015.
AT&T received a fee from the companies for each charge AT&T placed on its customers’ bills. Although DDI and ETS submitted charges for thousands of AT&T customers, they never provided any directory assistance service. Neither DDI, ETS, nor AT&T could show that any of AT&T’s customers agreed to be billed for the sham directory assistance service. Phone companies like AT&T have a responsibility to ensure third-party charges are legitimate and were approved by the consumer.
Under the terms of today’s settlement, AT&T will issue full refunds to all current and former consumers charged for the sham directory assistance service since January 2012. These refunds are expected to total $6,800,000. AT&T will also pay a $950,000 fine to the U.S. Treasury.
The Enforcement Bureau has also secured strong consumer protections in the settlement that include requirements that AT&T cease billing for nearly all third-party products and services on its wireline bills, adopt processes to obtain express informed consent from customers prior to allowing third-party charges on their phone bills, revise their billing practices to ensure that third-party charges are clearly and
conspicuously identified on bills so that customers can see what services they are paying for, and offer a free service for customers to block third-party charges. In addition, the Consent Decree requires AT&T to implement a detailed program for addressing and refunding consumers who complain to the company about unauthorized third-party charges.
Placement of unauthorized charges and fees on consumers’ telephone bills is an “unjust and unreasonable” practice prohibited by the Communications Act. Cramming results in consumers paying for services they never requested and expending significant time and resources to reverse unauthorized charges. The FCC has taken many enforcement actions against carriers as a result of unauthorized, misleading, or deceptive charges placed on consumers’ telephone bills. In the last five years, the Commission has taken more than 30 enforcement actions against carriers for cramming and unauthorized carrier switches, totaling more than $360 million in proposed penalties and payments to the U.S. Treasury. In 2014, AT&T agreed to pay $105 million in fines and refunds to current and former wireless customers for unauthorized third-party subscriptions and premium text messaging services as part of a global cramming settlement with the FCC, Federal Trade Commission, and states’ attorneys general. Today’s Consent Decree does not impact the 2014 settlement.
For more information about the FCC’s rules protecting consumers from unauthorized charges on telephone bills, see the FCC consumer guides regarding cramming and slamming.