Sprint to Pay $2.95 Million Penalty to Settle FTC Charges It Violated Fair Credit Reporting Act

The Federal Trade Commission (FTC) announced yesterday that mobile service provider Sprint will pay $2.95 million in civil penalties to settle charges that the company failed to give proper notice to consumers who were placed in a program for customers with lower credit scores and charged an extra monthly fee.

In its Complaint the FTC alleged that Sprint placed consumers with lower credit scores in an Account Spending Limit (ASL) program. The ASL program required consumers to pay a monthly fee of $7.99 in addition to the charges for cell phone and data services.

According to Jessica Rich, director of the FTC’s Bureau of Consumer Protection:  “Sprint failed to give many consumers required information about why they were placed in a more costly program, and when they did, the notice often came too late for consumers to choose another mobile carrier. Companies must follow the law when it comes to the way they use consumer credit reports and scores.”

Because Sprint allows customers to be billed for services after they are used, they are subject to the requirements of the Fair Credit Reporting Act and its Risk-Based Pricing Rule. The Rule requires that companies inform consumers whenever they are offered service on less favorable terms – such as the ASL program – as a result of information from their credit reports or scores.

Under the terms of the settlement agreement Sprint is required to pay a $2.95 million penalty for violations of the Risk-Based Pricing Rule. It also requires the company to abide by the Rule’s requirements in the future. In addition, Sprint is required to provide the required notices to consumers within five days of signing up for Sprint service or by a date that gives them the ability to avoid recurring charges like those in the ASL program. Finally, the proposed settlement requires Sprint to send corrected risk-based pricing notices to consumers who received incomplete notices from the company.

insideARM Perspective

At last week’s insideARM First Party Outsourcing Summit, there was a session moderated by Mr. Greg Shelton from Lexis Nexis on FCRA liability. Had this case been announced earlier, the session at the Summit could have included a lively discussion on the implications of this settlement. Limiting FCRA exposure is one of the areas of focus for both credit grantors and collection agencies.

Beyond regulatory exposure, FCRA case law is still developing.  It may be the next frontier for consumer rights litigation.

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