U.S. authorities filed a complaint against T-Mobile USA on Tuesday, accusing the wireless provider of adding millions of dollars of unauthorized charges onto customers' bills, a practice known as "cramming."
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The charges were for subscriptions for services like horoscopes or celebrity gossip delivered by text message, which often cost $9.99 a month. T-Mobile USA received 35 to 40 percent of the amount charged, the Federal Trade Commission (FTC) said.
In many cases, customers never authorized the charges but were signed up without their knowledge, the commission said.
The Federal Communications Commission also announced it was investigating T-Mobile USA for cramming and said it would coordinate with the FTC.
The FTC asked the court to order T-Mobile USA, the fourth-largest U.S. mobile phone provider by number of customers, to stop mobile cramming, provide refunds and give up any revenues from the practice.
The company, which has a reputation as a price-cutter, said in a statement that it had already stopped billing for the text services. It announced on June 10 that it was reaching out to "crammed" customers to tell them how to request a refund.
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"We are disappointed that the FTC has chosen to file this action against the most pro-consumer company in the industry rather than the real bad actors," Chief Executive Officer John Legere said in an emailed statement.
Legere blamed the companies providing the text services for the cramming. "We believe those providers should be held accountable," he said, terming the FTC's lawsuit misdirected.
The FTC has previously gone after the smaller companies that provide the flirting tips and other services delivered by text but this is its first action against a wireless carrier for cramming. "The FTC’s goal is to ensure that T-Mobile repays all its customers for these crammed charges," FTC Chairwoman Edith Ramirez said in a statement.
"There were oodles of complaints," said Jessica Rich, director of the FTC's Bureau of Consumer Protection. She said the agency held settlement talks with T-Mobile but did not reach agreement.
Despite the lawsuit, the practice should be coming to an end based on a pact that carriers T-Mobile USA, Verizon, AT&T Mobility and Sprint, under pressure from 45 state attorneys general, agreed to in November to stop billing customers for third-party services.
The FTC also alleged that T-Mobile USA was deceptive in how it billed customers, putting the crammed charges under a total for "use charges" and "premium services" but never spelling out that a portion of the charge was for third-party charges.
Further, T-Mobile USA frequently balked at providing refunds, often urging customers to take their complaint to the vendor, the FTC said.
T-Mobile USA shares closed at $33.41, down 21 cents or 0.6 percent.
The complaint was filed in the U.S. District Court for the Western District of Washington.