Feds Charge T-Mobile With Scamming Customers Out of Hundreds of Millions of Dollars

Customers were billed for flirting tips, horoscope information, and other information they didn't want.

A man talks on a mobile phone at the T-Mobile stand at the CeBIT technology fair March 15, 2007 in Hanover, Germany. CeBIT, the world's largest tech fair, will run from March 15-21. (Photo by Sean Gallup/Getty Images) (National Journal)

T-Mobile made hundreds of millions of dollars by placing unwanted charges on customers' monthly phone bills, according to federal charges filed Tuesday.

The phone company billed customers for flirting tips, horoscope information, celebrity gossip, and other services that they never asked for, the Federal Trade Commission says.

T-Mobile placed the charges on behalf of third-party scammers, but took a cut of 35-40 percent of the charges, according to the lawsuit. The services often cost $9.99 per month.

In the complaint, the FTC claims T-Mobile continued to bill many customers even after becoming aware the services were scams.

"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," FTC Chairwoman Edith Ramirez said in a statement.

The FTC will ask the court to force T-Mobile to provide refunds for the hundreds of millions of dollars in bogus charges, but the agency lacks the authority to impose additional fines. The Federal Communications Commission, which has fining power, has launched its own investigation into T-Mobile's practices.

Jessica Rich, the director of the FTC's Consumer Protection Bureau, said the agency negotiated with T-Mobile before filing the lawsuit but was unable to reach a settlement.

"We will be proceeding in court," she said. "We hope our lawsuit sends a strong message to other mobile phone companies."

In a statement, T-Mobile CEO John Legere said the charges are "unfounded and without merit."

He said the company stopped billing for "premium" text services last year and already launched a program to provide refunds. He said the third-party companies "should be held accountable" for scams, but that T-Mobile already has procedures in place to combat unwanted charges.

"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," Legere said, calling the legal action "sensationalized."

T-Mobile, the smallest of the four national carriers, has earned a reputation for aggressive marketing tactics to take on the industry's larger players.

The FTC has brought numerous cases in recent years over "cramming" — the practice of placing unwanted charges on phone bills. But previous cases targeted the third-party scammers and not the phone company that placed the charges on bills.

According to the FTC, the bogus charges were often difficult to find, identified only as "Use Charges" or "Premium Services" on online bills. T-Mobile's prepaid customers had the charges deducted from their available monthly minutes without any notification, the FTC said.

Consumers can unwittingly sign up for the scams by entering their information into online ads. Some of the cramming companies buy batches of phone numbers and charge customers who didn't take any action to buy an extra service.

This article was updated with a comment from T-Mobile at 4:29 p.m.