Two men walked into a deli and both ordered pastrami on rye. When the check arrives, $8 is due. Another person was surprised to receive a bill for $15.99. This isn’t the beginning of Henny Youngman’s old joke. The analogy raises some questions about the FTC’s proposed $2.95 million settlement with Sprint for allegedly charging customers with lower credit scores monthly fees without providing them with the proper advance notice required by law.
The FTC’s lawsuit focuses on mobile service provider Sprint’s account spending limit program. Under the plan, consumers with lower credit scores will pay a monthly fee of $7.99 on top of what they already pay for cell phone and data service. But here’s the thing: Many consumers don’t know they’re “enrolled” in the program and don’t get the mandatory information that would allow them to do meaningful comparison shopping before they’re locked out. The FTC said Sprint violated the Fair Credit Reporting Act and its risk-based pricing rules by adding an additional $7.99 fee to consumers’ monthly bills without making required disclosures.
Because Sprint charges consumers for services after the fact, the company is subject to risk-based pricing rules. Under the rule, if consumers receive less favorable services based on their credit report or credit score, companies must inform them of that fact by providing them with what the rule calls a risk-based pricing notice.
But according to the complaint, in many cases Sprint failed to provide all required disclosures to its customers who were enrolled in the account spending limit program. The FTC said Sprint’s notice omits critical information consumers need to determine whether their lower credit scores are due to errors in consumer reports. This is an especially important consideration because FTC research shows that credit reports often contain errors that can have a significant impact on how much people pay for things like cell phone service.
Sprint’s timing also raises concerns. The complaint alleges that Sprint often gave consumers the required notices too late, leaving them unable to shop around for a better deal without having to pay hefty early termination fees.
In addition to a $2.95 million civil penalty, the proposed settlement would require Sprint to comply with risk-based pricing rules. But that’s not all. From now on, Sprint must provide customers with required notices (this time with complete information) within five days of signing up for Sprint service, or before the date that allows customers to avoid recurring charges such as account charges, limiting procedures. Sprint must also send corrected risk-based pricing notices to consumers who received incomplete notices from the company.
Do your company’s practices put you at risk of violating risk-based pricing rules?An important compliance tip: Make sure your notice reaches consumers all Information required by law. Read Using Consumer Reports for Credit Decisions: What to Know About Adverse Conduct and Risk-Based Pricing Notices for guidance.
