CFPB and FCC Bring “Cramming” Actions Against Sprint and Verizon: Actions Represent First CFPB Settlements To Address Unauthorized Charges on Telephone Bills and First Concurrent Enforcement Proceedings by the CFPB and FCC

Sullivan & Cromwell LLP - May 19, 2015

On May 12, 2015, the CFPB and the FCC (together, the “Agencies”) concurrently announced that Verizon Wireless (“Verizon”) and Sprint Corporation (“Sprint” and, together with Verizon, the “Companies”) have agreed to pay a combined $158 million to settle allegations that the Companies included millions of dollars in unauthorized charges on customers’ landline or wireless phone bills, a practice known as “cramming.” Of the $158 million, $120 million consists of consumer redress ordered by the CFPB, and $38 million consists of fines assessed by the FCC and the attorneys general of each of the 50 states and the District of Columbia.  In the CFPB complaints and proposed orders against the Companies, the CFPB alleges that the Companies’ cramming practices constituted unfair acts or practices in violation of the Consumer Financial Protection Act (the “CFP Act”). In the FCC actions against the Companies (together with the CFPB complaints and proposed orders, the “Cramming Actions”), the FCC alleges that these same activities constituted violations of Section 201(b) of the Communications Act of 1934 (the “Communications Act”), which, among other things, prohibits “unjust or unreasonable” charges by carriers.

The Cramming Actions are the latest in a series of enforcement actions aimed at cramming activities by wireless carriers, but are notable for several reasons.  First, they are the first actions in which the CFPB has asserted its authority to prosecute unfair acts or practices relating to alleged cramming activities by telecommunications carriers.  As such, they indicate clearly that  the CFPB is willing to assert its authority under the CFP Act to pursue unfair or deceptive acts or practices against persons not traditionally thought of as consumer financial services providers.  Second, the Cramming Actions appear to be the first coordinated enforcement actions by the CFPB and the FCC and follow on the heels of a recent joint action by the CFPB and Federal Trade Commission (the “FTC”) to address unlawful mortgage servicing practices.  Thus, the Cramming Actions evidence a flexible approach to multi-agency resolutions with other agencies.