Mobile service provider Sprint will pay $2.95 million in civil penalties to settle Federal Trade Commission charges that the company failed to give proper notice to consumers who were placed in a program for customers with lower credit scores and charged an extra monthly fee.
Sprint was represented by John Villafranco, Alysa Hutnik and Matthew Sullivan of Kelley Drye and Warren.
In its complaint, the FTC alleges that Sprint placed consumers with lower credit scores in an Account Spending Limit (ASL) program.
The ASL program requires consumers to pay a monthly fee of $7.99 in addition to the charges for cell phone and data services.
“Sprint failed to give many consumers required information about why they were placed in a more costly program, and when they did, the notice often came too late for consumers to choose another mobile carrier,” said Jessica Rich, director of the FTC’s Bureau of Consumer Protection. “Companies must follow the law when it comes to the way they use consumer credit reports and scores.”
Because Sprint allows customers to be billed for services after they are used, they are subject to the requirements of the Fair Credit Reporting Act and its Risk-Based Pricing Rule. The Rule requires that companies inform consumers whenever they are offered service on less favorable terms – such as the ASL program – as a result of information from their credit reports or scores.
The FTC alleged that Sprint in many cases failed to provide consumers placed in the ASL program with all of the disclosures in the required notice, omitting required information that would help consumers understand the information in their credit reports, and that may have alerted them to possible errors that caused them to receive less favorable terms of credit.
An FTC study showed credit reports often contain significant errors.
The FTC alleged that Sprint often provided these notices to consumers after the window in which they could cancel their service and change to another provider without paying an early termination fee, leaving consumers unable to shop for another carrier that may offer them better terms.
The proposed settlement requires Sprint to pay a $2.95 million penalty for violations of the Risk-Based Pricing Rule.
It also requires the company to abide by the Rule’s requirements in the future. In addition, Sprint is required to provide the required notices to consumers within five days of signing up for Sprint service or by a date that gives them the ability to avoid recurring charges like those in the ASL program.
The proposed settlement requires Sprint to send corrected risk-based pricing notices to consumers who received incomplete notices from the company.