AT&T Inc. agreed to pay $105 million, including $80 million in consumer refunds, to settle federal and state investigations that the company illegally billed mobile phone customers for unauthorized charges for ringtones and other services, officials said Wednesday.
The practice began at least as early as 2009 and involved hundreds of millions of dollars in charges for third-party services, the Federal Trade Commission said.
FOR THE RECORD
10:45 a.m.: A previous version of this post stated that AT&T's practice of billing for unauthorized charges began in 2011. It began at least as early as 2009.
The settlement is the largest the government has reached for so-called mobile cramming, in which unauthorized charges are stuffed into phone bills and often go undetected by customers for months.
The services, such as subscriptions for ringtones and premium text messages with love tips and horoscopes, usually cost customers $9.99 a month. AT&T Mobility, a subsidiary of the telecommunications giant, kept at least 35% of those payments, the FTC said.
The agency has been cracking down on mobile cramming, and the AT&T case is the seventh since last year. Consumers who think they are eligible can go to www.ftc.gov/att to seek a refund.
The settlement was with the FTC, the Federal Communications Commission and all 50 states, plus the District of Columbia.
"For too long, consumers have been charged on their phone bills for things they did not buy," FCC Chairman Tom Wheeler said at a Washington news conference.
"It's estimated 20 million consumers a year are caught in this kind of trap, costing hundreds of millions of dollars," he said. "It stops today for AT&T."
In addition to the $80 million in customer refunds, AT&T will pay a $5 million penalty to the FCC and a total of $20 million in penalties and fees to states and D.C., the FTC said.
California's portion of the penalties will be $927,536, said Atty. Gen. Kamala D. Harris.
Maryland Atty. Gen. Douglas Gansler called cramming "insidious fraudulent conduct" that duped consumers.
"We're talking about reputable companies like AT&T and others," he said at the news conference. "This isn't Phil's Phone Shack that's doing this."
Last year, AT&T and the other three major wireless providers -- Verizon, Sprint and T-Mobile -- agreed to stop putting charges for third-party text messaging services on customers' bills.
Those so-called premium short messaging services account for the majority of third-party charges and cramming complaints, authorities said.
"While we had rigorous protections in place to guard consumers against unauthorized billing from these companies, last year we discontinued third-party billing for PSMS services," AT&T spokesman Michael Balmoris said Wednesday.
"This settlement gives our customers who believe they were wrongfully billed for PSMS services the ability to get a refund," he said.
FTC Chairwoman Edith Ramirez said the settlement covers all forms of third-party billing, including some practices AT&T had not agreed to stop last year.
The FTC said AT&T received 1.3 million calls from customers questioning third-party charges on their bills in 2011 alone.
The complaints should have raised alarms, Ramirez said.
Instead, AT&T tightened its refund policy in October 2011 to reassure companies offering third-party services they would not have to hand over full refunds to customers.
AT&T had offered refunds for up to three months worth of charges but limited refunds to just two months, Ramirez said.
AT&T's bills made it difficult for customers to identify third-party payments they did not authorize. The payments were listed as "AT&T Monthly Subscription," which led customers to believe the charges were part of their service with the company.
The settlement requires AT&T to obtain "express, informed consent" from customers before placing any third-party charges on their bills.
The charges need to be clearly identified as coming from a third party and customers must be provided with an option to block the charges.
AT&T agreed to send notices about the refunds to all current customers who were billed for unauthorized third-party services. The FTC's refund administrator will notify former customers.