The Federal Trade Commission filed an amicus brief in the phone bill cramming case Moore v. Verizon Communications, Inc. (No. 2 CV 09-1823 SBA) before the U.S. District Court for the Northern District of California, opposing a proposed class action settlement of the case because it is not fair, adequate, and reasonable.
The case stems from an allegation by plaintiffs that Verizon, through its third-party billing and collection system, allowed billing aggregators and third-party merchants to defraud its customers by cramming unauthorized charges onto their phone bills. The plaintiffs alleged, among other things, that Verizon failed to ensure that third-party charges were authorized by consumers, that the company relied on third-party merchants for consumer authorizations for billing charges, and that it deceptively described the charges on consumers’ bills.
The proposed settlement potentially would provide two types of payments to victims who were charged without their authorization. Class members can submit a claim to get a $40 flat payment, or file a claim for full reimbursement of all documented unauthorized charges. The latter type of claim is subject to challenge from Verizon, aggregators, and third-party merchants, and consumers who do not submit a claim will receive no compensation.
According to the FTC’s brief, the central problem with the proposed settlement is that class members who don’t opt out of the settlement would be prohibited from asserting any claims against Verizon, billing aggregators, and third-party merchants, and the settlement notice does not inform consumers of this fact. These consumers would waive any ability to recover their losses, the brief states, regardless of whether they received money under the settlement.
In addition, according to the brief, because unauthorized billing – or cramming – is intentionally designed to escape consumers’ notice, most consumers likely have no idea they have wrongfully been billed, and thus may not pay attention to the settlement notice and realize they are entitled to compensation. “This hurdle to class recovery would be bad enough,” the brief states, “but the settlement also contemplates an arduous claims process that creates significant barriers to recovery and a notice that does not clearly inform class members about the breadth of the parties released.”
Finally, the brief states that the proposed settlement could impair the FTC’s ability to provide redress to consumers who have been harmed by unauthorized billing. For instance, consumers in the class action overlap with those allegedly harmed in the FTC’s ongoing contempt case against BSG, the largest aggregator in the country, and one of the entities released by the terms of the settlement. Class members also covered by the FTC’s BSG litigation would be “out of luck” if a court interpreted the release in this case to preclude compensation from the FTC case. “Such a result is particularly troublesome where, as here, the class members have been victims of fraud and the release operates against them regardless of whether they have obtained financial redress for their harm,” the brief concludes.
The FTC vote approving the amicus brief filing was 4-0-1, with Commissioner Maureen Ohlhausen recused. The brief was filed on August 17, 2012 in the U.S. District Court for the Northern District of California. A copy of the filing can be found on the FTC’s website and as a link to this press release. (FTC File No. P024210, Case No. CV 09-1823 SBA; the staff contact is Robin L. Moore, Bureau of Consumer Protection, 202-326-2167.)
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