The Federal Trade Commission (FTC) sued T-Mobile US Inc. (TMUS), accusing the wireless carrier of adding hundreds of millions of dollars in bogus charges to subscribers’ bills as recently as December.

The FTC alleges that T-Mobile charged consumers monthly fees for third-party services that in many cases the subscribers hadn’t ordered. These included ringtones, wallpaper, and text messages providing such tings are horoscopes, the agency said. In a separate announcement, the Federal Communications Commission (FCC) said it is investigating T-Mobile for the same practice, called “cramming.” While the FTC’s lawsuit is focused on preventing future cramming and obtaining refunds for consumers, the FCC has authority to levy punitive fines.

The FTC complaint further alleges that T-Mobile continued to charge for the services even after large numbers of subscribers complained, retaining 35% to 40% of the fees. The FTC also claims that T-Mobile made it difficult for customers to discover the charges on their own phone bills. The carrier also refused refunds to some customers or told them to try to get their money back from the scammers, according to the FTC.

T-Mobile called the suit “unfounded and without merit,” and said it abandoned the business of providing billing services for third-party vendors last year. The company said it has started a program to give consumers full refunds. It also said it has procedures in place to help customers avoid unauthorized charges. But it placed blame on third-party service providers it says acted irresponsibly.

The cramming accusation undermines T-Mobile’s customer-friendly “Un-carrier” marketing campaign the carrier has pursued in the last year. As part of that strategy, the company has gotten rid of cellphone plan mainstays, like two-year contracts and overage charges, while constantly painting its competitors as greedy.

T- Mobile is the fourth-largest U.S. wireless carrier by subscribers, behind rivals Verizon Communications Inc. (VZ), AT&T Inc. (T) and Sprint Corp. (S), making it the highest-profile company targeted so far by an FTC crackdown on cramming.

Jessica Rich, director of the FTC’s Bureau of Consumer Protection, said it wasn’t able to reach a settlement with T-Mobile, and is seeking a court order that would ban the company from engaging in similar conduct in the future. The lawsuit also will seek refunds for consumers. Ms. Rich declined to specify the sum the FTC would seek, saying only that “it could be many millions of dollars.”


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Wayne Thorp

Wayne A. Thorp, CFA, is a vice president and the senior financial analyst at the American Association of Individual Investors (AAII). His primary responsibility is to oversee AAII's content strategy. He is also the program manager for AAII's Stock Investor Pro fundamental stock screening and research database program and is on the advisory boards of AAII's Stock Superstars Report and Dividend Investing newsletters. He holds the Chartered Financial Analyst (CFA) designation and is a 1997 honors graduate of DePaul University in Chicago. Wayne's interests include stock screening, technical analysis and charting, social media and tech gadgets. However, in the summer he'd prefer to be hip-deep in northern Michigan's Manistee River fly-fishing for rainbow trout. He is also a rabid University of Michigan and Detroit Red Wings fan.

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