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Feds sue Sprint over "cramming" allegations

The Consumer Financial Protection Bureau on Wednesday announced it is suing Sprint (S), alleging the wireless giant illegally billed its customers "tens of millions of dollars" by allowing "cramming" -- assessing third-party charges without permission.

The lawsuit comes just a day after word leaked that the Federal Communication Commission was preparing to levy a $105 million fine against Sprint over the same issue. AT&T (T) was hit with a $105 million penalty in October to settle similar accusations from the FCC.

The lawsuit seeks refunds to consumers as well as penalties against Sprint.

"Consumers ended up paying tens of millions of dollars in unauthorized charges, even though many of them had no idea that third parties could even place charges on their bills," CFPB Director Richard Cordray said in a statement. "As the use of mobile payments grows, we will continue to hold wireless carriers accountable for illegal third-party billing."

The CFPB noted that between 2004 and 2013 Sprint outsourced payment processing for purchases made for mobile devices, such as premium texting and music, but did not properly monitor the billing from companies called billing aggregators.

"The lack of oversight gave aggregators near unfettered access to consumers' wireless accounts," the CFPB said. "Sprint's system attracted and enabled unscrupulous merchants who, in some cases, only needed consumers' phone numbers to cram illegitimate charges onto wireless bills."

The CFPB said consumers were hit with were anywhere from a one-time fee of 99 cents to a recurring monthly subscription of about $10, with Sprint keeping 30 percent to 40 percent of those billings. The agency added that Sprint didn't heed warning signs that cramming was an issue and ignored consumer complaints and prior action by law enforcement over similar allegations.

"As a result, Sprint's wireless customers -- many of whom did not know that third parties could place charges on their bills -- incurred millions of dollars in illegitimate charges," the CFPB said. "Sprint, in contrast, profited handsomely from its system, collecting hundreds of millions of dollars in revenue."

In response, Sprint said it's "disappointed that the CFPB has decided to target Sprint on this issue, and we strongly disagree with its characterization of our business practices. Sprint took considerable steps to protect wireless customers from unauthorized third-party billing and is an industry leader in proactively preventing unauthorized charges."

Sprint added that it recognizes "this is an important issue for our customers, and we consistently have encouraged any customers who think they may have incurred an unauthorized third-party charge on their phone bill to contact Sprint to resolve the issue."

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