Verizon to pay $78 million over data 'mystery fees'

Complaints first arose nearly three years ago that mysterious $1.99-per-megabyte data charges were showing up on the bills of Verizon Wireless customers who said they didn't intentionally buy any data.  Earlier this month, Verizon said it planned to refund about $50 million to 15 million customers - some who complained, and others who likely never noticed the small charges that, as I wrote here, were reminscent of the old phone-bill trick known as cramming.

This afternoon, the Federal Communications Commission announced that it had reached a settlement with Verizon.  The company has agreed not just to change its ways and to refund $52.8 million to customers, but also to pay the government $25 million to end the investigation - the largest such payment in FCC history, the agency says.  Verizon, for its part, insists that the money is a "voluntary payment" and has been mischaracterized in some news reports - including the initial version of this blog item - as a penalty or fine.

"Today's settlement requires Verizon Wireless to make meaningful business reforms, prevent future overcharges, and provide consumers clear, easy-to-understand information about their choices," says Michele Ellison, chief of the FCC's Enforcement Bureau.

The FCC says it found mystery charges related to games built into phones, related to web links designated as free-of-charge such as Verizon Wireless's own Mobile Web home page, and related to "unwanted data transfers initiated by third parties and affecting customers who had content filters installed on their phones." In some cases, customers were charged for actual but failed attempts to access data.

The FCC says Verizon's promises include:

• No more mystery fees: Verizon Wireless must cease charging customers the incorrect fees. In addition, the company has agreed to take affirmative steps to prevent future unauthorized data charges.

• Immediate repayment of 15 million customers: Customers who have been indentified by Verizon Wireless as being potentially being overcharged for data usage will receive refunds or credits on their October or November bills.

• Right to appeal: Verizon Wireless's repayment obligations are not capped at the estimated $52.8 million in refunds identified by the company. Customers who do not receive a refund but believe they had unauthorized data charges have a right to appeal, receive a good-faith review, and reach resolution within 30 days. Verizon Wireless is required to disclose any unresolved complaints to the FCC.

• Commitment to offer data blocks on request: Verizon Wireless must offer data blocks to any customer who seeks to avoid data charges on his or her bill.

FCC Chairman Julius Genachowski said the deal was evidence to consumers that "the FCC has got your back. People shouldn't find mystery fees when they open their phone bills -- and they certainly shouldn't have to pay for services they didn't want and didn't use. In these rough economic times, every $1.99 counts."

Here's Verizon Wireless' statement regarding the settlement, courtesy of spokesman Tom Pica:

Verizon Wireless works very hard to simplify the wireless experience for customers and to ensure that customer bills are accurate. Nonetheless, internal billing processes can be complex and, in this case, we made inadvertent billing mistakes. We accept responsibility for those errors, and apologize to our customers who received accidental data charges on their bills.

We are issuing credits and refunds on our own initiative and because it is the right thing to do for our customers. Fixing this for our customers has been our aim since last year, as we stated publicly at that time. In September 2009, months before the Federal Communications Commission first contacted us, we implemented a free 50 kilobyte allowance to limit further inadvertent charges.

In a settlement with the FCC, we have agreed to a voluntary payment of $25 million to the U.S. Treasury even though the inaccurate billing was inadvertent.

The settlement acknowledges our prior announcement that we will reimburse about 15 million current and former customers who may have been mistakenly billed The company will spend $52.8 million to reimburse those customers. We also will provide targeted information about data usage and tracking to new and existing customers, in both English and Spanish; establish a special internal team to track, identify and address customer data usage complaints; and provide additional training on data charge and credit issues to all of our customer-facing customer care employees.

We have already begun the process of repaying the 15 million customers for accidental past data charges that we discovered through our own investigation in response to customer inquiries. These inadvertent charges affect those customers who do not have data plans and choose to pay for data usage on a per megabyte basis. We are notifying eligible current and former customers that we are applying credits to their accounts or sending refunds in October and November. Current customers will be notified in upcoming bills; former customers will receive a letter and refund check in the mail. In most cases, these credits and refunds are in the $2 to $6 range; some will receive larger amounts. The rest of our customers, 77 million or roughly five out of six, are unaffected. We have taken steps to ensure this does not happen in the future.

By far the single largest problem, involving the vast majority of credits, was caused by a very small data "acknowledgment" session sent by software pre-loaded on certain phones. For customers who did not have data plans and who were not otherwise using data features on their devices, this triggered a "pay as you go" charge of $1.99. We never intended to charge customers for this "acknowledgment" data session. In other cases, we accidentally charged customers for access to website links that were not supposed to trigger data charges. Once again, this affected only some of the customers who did not have data plans, and who were not otherwise intentionally using the data features on their devices.

We have put in place additional improvements to resolve issues that caused these accidental charges. We are changing software on future devices to remove acknowledgments and prevent them from triggering the small data "acknowledgment" sessions. Other steps involve enhancing internal controls on website links that should be free to access, as well as additional software improvements.

We are a company that listens to its customers and in this case we got to the bottom of a problem and resolved the errors. We have taken this action because it is the right thing to do. We value our customers and their trust in us, and we do everything in our power every day to earn and keep that trust.

Pica, via email, was especially emphatic on one point: "In no instance did Verizon Wireless intentionally engage in improper billing practices," he told me. "We do accept responsibility for these accidental billing mistakes, we are issuing $52.8 million in credits and refunds to those customers, and we have apologized to current and former customers."

One thing seems clear to me. As data usage becomes more important to wireless phone users, and as companies such as AT&T experiment with metered plans even for high-end users, consumers should expect more problems like this in the future. If you don't want to get overbilled, watch your monthly bills as closely as you can.