On Dec. 17, 2014, the Consumer Financial Protection Bureau announced that it was suing Sprint Corp., the major wireless provider, for “illegally cramming” consumers’ phone bills with unauthorized third party charges.
Specifically, the CFPB is alleging that Sprint acted as a payment processor when a consumer received content on their phones sent to the consumer from third-party vendors, including ringtones and wallpaper. The CFPB alleges that merchants of these premium text messages targeted consumers online, requested the consumers’ cell phone number in exchange for “free” digital content, and then charged for such content or, in some cases, charged the consumer for services that were never provided.
Sprint received 30 to 40% of the gross revenue of these third-party charges.
As per the CFPB, Sprint (1) did not obtain its consumers’ consent when it automatically enrolled the consumers in this third party billing system; (2) did not properly oversee the third-party merchants and vendors who provided these premium text messaging services and who placed unauthorized charges on consumers’ phone bill accounts; and (3) was aware that cramming of its consumers’ phone bills was occurring because there were several consumer complaints. Sprint, however, did not track such complaints, did not employ any fraud-alert mechanism, and did not remediate complaints. Sprint knew, or should have known, of the red flags associated with the third-party vendors providing the premium messaging, as several of them were previously sued for the exact cramming practice.
This lawsuit reinforces that the CFPB takes third-party vendor management seriously and will hold a financial institution responsible for improper, or negligent, oversight of a company’s third-party vendors. Financial institutions must properly vet their third-party vendors to ensure that there is no litigation, fraud allegations, or other risky behavior that might create risk for the mortgage company to conduct business with the third-party vendor. Financial institutions should also continue to internally monitor all fees and charges they require a consumer to pay to ensure that the fees and charges are reasonable, clear, and actually provided and to ensure that all consumer complaints are tracked and appropriately remediated.