AT&T Inc will pay $105 million to settle allegations that it put unauthorized charges on customers' cell phone bills, a practice known as cramming, federal regulators said on Wednesday.
The settlement comes after years of complaints from cell phone owners about being charged for services like daily horoscopes or trivia that they never requested. It was negotiated by the Federal Trade Commission, the Federal Communications Commission and all state attorneys general.
AT&T will pay $80 million to refund customers while $20 million is earmarked for penalties and fees to all 50 U.S. states and Washington, said the FTC. The FCC also fined the company $5 million.
The FTC alleged that for companies whose billing was handled by AT&T, as many as 40 percent of subscribers complained about the charges.
"What’s shocking to me, as I thought about this particular settlement, is that we’re talking about reputable companies like AT&T and others. This isn’t, you know, Phil’s Phone Shack that’s doing this," said Maryland Attorney General Doug Gansler.
Prodded by state attorneys general, AT&T, T-Mobile US , Verizon and Sprint agreed in November to stop billing customers for such third-party services.
FCC Chairman Tom Wheeler estimated that 20 million consumers a year are crammed, and said other wireless providers were under scrutiny. "Stay tuned," said Wheeler, hinting of potential actions against other carriers.
AT&T said it had "rigorous protections" against unauthorized billing but it eventually scrapped what it called premium short messaging services, or PSMS.
"We reached a broad settlement to resolve claims that some of our wireless customers were billed for charges from third-parties that the customers did not authorize. This settlement gives our customers who believe they were wrongfully billed for PSMS the ability to get a refund," an AT&T spokesman said in an emailed statement.
FTC Chairwoman Edith Ramirez said consumers were often hit with $9.99 charges lumped together into "AT&T monthly subscriptions" on their bills.
When customers protested, Ramirez said, "Instead of acting to stop the charges, AT&T continued to make hundreds of millions of dollars from the practice by taking at least 35 percent of every charge and refused to provide refunds to many consumers."
The FTC has also moved against the smaller companies which originate the charges.
The FCC and the Justice Department are reviewing AT&T's proposal to buy DirecTV for $48.5 billion.
In July, the FTC filed a complaint against T-Mobile USA, accusing the wireless provider of cramming. The commission asked the court to order T-Mobile US, the fourth-largest U.S. mobile phone provider by number of customers, to stop mobile cramming, provide refunds and give up revenues from the practice.
The FCC is also investigating T-Mobile US for cramming.
AT&T shares were up 0.3 percent in afternoon trade.
(Reporting by Diane Bartz and Alina Selyukh; Editing by Ros Krasny, Susan Heavey, David Gregorio and Bernard Orr)