T-Mobile’s advertising and debt collection practices have made headlines recently. Yesterday, USA Today reported that New York Attorney General Eric Schneiderman has opened an investigation into the company’s advertising and debt collection activities.

The website wirelessweek.com also published a similar story yesterday.

Both articles reference:

  1. A coalition of consumer groups is calling for the Consumer Financial Protection Bureau (CFPB) to investigate what it calls T-Mobile’s “misleading advertisements and abusive debt collection practices.”
  2. A complaint filed by Change to Win (CtW) with the CFPB. CtW is a federation of labor unions representing workers in the private and public sectors.

T-Mobile was the leader in the wireless industry in moving away from two year service agreements that prohibited customers from switching carriers unless they paid a large early termination fee. At the same time that the company eliminated the two-year service contracts, it ceased providing new customers with discounts on their new phones and equipment and introduced the Equipment Installment Plan (EIP) – a two-year no-interest consumer loan for purchasing phones and other equipment – to help customers manage the increased costs of these purchases.

That change has had a very positive impact on the size of T-Mobile’s customer base.

However, the CtW complaint alleges the following:

T- Mobile’s “no contract” marketing is misleading because a customer’s cancellation of his wireless service before two years makes the amount remaining on the EIP immediately due — a fee that is often larger than the penalties associated with early termination of a traditional two-year service contract. A review of 5,500 customer complaints to federal regulators and the Better Business Bureau revealed that more than three hundred current and former customers were either unaware of the EIP fee or believed it to be unfair when they sought to cancel their T-Mobile service.

Compounding T-Mobile’s deceptive marketing of its wireless service is evidence that T-Mobile engages in abusive debt collection practices. As discussed in detail below, almost 1,300 consumers complained to federal regulators or the Better Business Bureau about T-Mobile’s debt collection practices from January 2013 through September 2015. The most common complaints were little or no notice before the debt was referred to a collection agency, and incorrect information relayed to the collection agency.

In a smaller sample of approximately 600 complaints about debt collection that were also coded for other issues, nearly sixty consumers who cancelled their T-Mobile service were then sent to collections due to debt stemming from the inadequately-disclosed EIP fee.

CtW believes T-Mobile has contracted with least eight third party debt collectors in the past three years. The consumer complaints suggest that T-Mobile improperly sends bills to collections and engages in practices that make it difficult for customers to contest their debts. The company’s deceptive marketing of its “no contract” service plans may exacerbate customers’ confusion and vulnerability to delinquency, which makes T-Mobile’s inadequate debt collection procedures and debt resolution process particularly troubling.

insideARM Perspective

Collection on wireless accounts has always presented the challenge outlined in the CtW complaint. Whether dealing with early termination fees on the traditional 2-year service contract or dealing with an outstanding balance owed under T-Mobile’s new EIP, the likelihood of consumer confusion exists. Both are really dealing with the same issue – amortizing the cost of the handset or smartphone. Consumers rarely consider that element when making their “buying decision.” Most are interested only in the monthly charges when they are signing a new contract.


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