Sprint will pay $2.95 million in civil penalties to settle charges by the Federal Trade Commission that the wireless provider failed to give proper notice to consumers with low credit scores.
Those consumers were placed in a program for higher-risk customers and charged an extra monthly fee. But the FTC alleges that they were not given full notice of this action.
In its complaint, the FTC alleges that Sprint placed these lower-scoring consumers in an Account Spending Limit (ASL) program.
The ASL program requires consumers to pay a monthly fee of $7.99 in addition to the charges for cell phone and data services.
“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,” said Jessica Rich, director of the FTC’s Bureau of Consumer Protection. “Companies must follow the law when it comes to the way they use consumer credit reports and scores.” (The rest of Sprint’s statement can be found below.)
Sprint is subject to the requirements of the Fair Credit Reporting Act and its Risk-Based Pricing Rule, the FTC says. 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.
Sprint provided eCreditDaily with a detailed response to the FTC settlement: “Sprint puts its customers first and is always working to provide clear and necessary information to customers. The FTC’s relatively new Risk Based Pricing Rule requires certain specific disclosures in specific formats be provided by letter to ASL (Account Spending Limit) customers and applicants. The FTC agreed that we were including almost all of the relevant information in our ASL letters, but requested that we modify the format of the letter. We appreciated the dialogue with the FTC and we have already implemented the changes requested by the FTC.”
The complaint alleges that Sprint in many cases failed to provide consumers placed in the ASL program with all of the disclosures in the required notice, omitting required information that would help consumers understand the information in their credit reports, and that may have alerted them to possible errors that caused them to receive less favorable terms of credit. An FTC study showed credit reports often contain significant errors.
The proposed settlement requires Sprint 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. The proposed settlement requires Sprint to send corrected risk-based pricing notices to consumers who received incomplete notices from the company.
Here is the rest of Sprint’s statement:
“This settlement is not about this fee – it is about the format of the letter used to communicate required information to consumers when a credit report is used. We disagreed on the format used to communicate the information. The $7.99 fee has always been clearly disclosed to consumers during the sales transaction and in multiple notices after the transaction to ensure customers are aware of and not surprised by the fee. And to be clear, customers receive multiple disclosures about the ASL program and the fee prior to the end of the 14 day return period so they can decide whether or not to make changes to their carrier.”
“The Account Spending Limit program is designed to provide postpaid wireless services to customers who may not otherwise qualify for postpaid service. We do not have plans to modify our program at this time. We will continue to disclose the program terms and the ASL fee in multiple ways with the customers during the sales transaction and in notices delivered to the customer before the 14-day return period has ended.”