Sprint Gets Caught Charging Extra for Having Bad Credit
The Federal Trade Commission has announced that Sprint will be forced to pay nearly $3 million in penalties due to the company's mishandling of a program that charges a fee to customers with lower credit scores.
In what can only be considered a ploy to prevent customers from defaulting on their payments, Sprint sets a limit on the amount an account can spend per month, if that account belongs to a customer with poor credit. This 'account spending limit', or ASL, is essentially meant to prevent loss for the company. When a customer's limit is exceeded they are automatically routed to a collection agency for payment with every outgoing call. Interestingly enough, Sprint charges $8 per month for limiting how much their customers with poor credit can spend.
When a Sprint customer signs up for automatic bill payment that ASL fee can be waived, as an automatic draft ensures the company will receive payment, protecting them against the bad credit of their customers. However, Sprint did not convey to their customers how their credit scores were affected by certain critical factors, as required by law. Had their customers been aware of how to repair their credit scores they might have been able to avoid the $8 monthly fee while also not having their accounts limited in any way. According to the Federal Trade Commission, Sprint also delayed informing consumers about the ASL program until they were unable to leave their contracts without incurring an early termination charge. By doing so they were locking their new customers into a billing cycle from which they could not escape without further damaging their already suspect credit.
At the very least from November 2013 to June 2014, but possibly for a longer period of time, Sprint acted upon this policy for all their customers. Today, when a new customer signs up, the company must inform that customer within five days (or enough time to cancel their service without any penalties) if they are to be placed in the $8 per month ASL program.
The FTC's 2011 'risk-based pricing rule' was the authority for the penalty on Sprint. The rule simply states that when a company uses information from a credit report to validate more severe terms for customers with poor credit, they must inform those customers of the alternative terms. The rule does not prevent companies from using credit report information to decide pricing, it only stipulates that doing so must be freely admitted to those whom it affects. Several large companies are known to utilize a risk-based pricing rule like the ASL from Sprint, and as long as they follow the law when it relates to what information they must give their customers, those companies are fully able to manipulate the charges and services of their customers in every legal sense. Being poor isn't cheap in the U.S., and being uninformed only further exacerbates things.
Sprint is not the first major company to fall under such scrutiny due to violations of the FTC's risk-based pricing rule. Time Warner Cable has also received a fine for requiring deposits or pre-payments of their customers with bad credit without informing them. Time Warner used the information acquired from credit reports of their prospective customers to warrant charging a deposit on those accounts holders with poor credit without informing the customers of the reason for the required deposit. In some cases they also required customers to pre-pay for their first month of service. Sprint's $3 million fine exceeds that of Time Warner's $1.9 million fine from 2013.
The FTC understands that pricing decisions based on credit can drastically affect those already struggling with money, especially when all the pertinent details are not readily available, or are purposefully withheld by the company in question. While Sprint did not directly confirm or deny any of the allegations made by the FTC, they agreed that certain information must be provided in a letter to all customers affected by the ASL program, and all those applying. They admitted their previous need to adjust the information provided through the ASL letter, but claimed to have already implemented the changes and moved past the problem.
Sprint was not the first company to receive fines for such practices, and they won't be the last. All large companies will inherently build in systems of loss prevention to their structure, and a program like Sprint's ASL is a perfect example. The program aims to more strictly regulate how their less responsible customers utilize services in such a way as to still allow those customers to have those services at all. It's an unfortunate part of life that not all people are equally responsible, but everyone deserves to have all the information they need to make the best choices for themselves, regardless of their social position or status.