Some of the big telcos and almost every large cable company uses what the industry calls hidden fees. These are fees that are not mentioned when advertising for a service but are put onto customer bills. The cable companies have the most egregious fees, in many cases over $20 per month for new video subscribers.
There is a class action lawsuit in California that shows why ISPs are not worried about using hidden fees. In times past, when the big companies were regulated, they might have been ordered to make a 100% refund of a fee that regulators decided was questionable. But the only realistic remedy against ISPs that misbill customers is a class action lawsuit or the rare ruling against a single ISP by the Federal Trade Commission.
There has been a class action lawsuit in California about the ‘administrative fee’ that AT&T charges to wireless customers. That fee started at $1 per month in 2013 and was raised to $1.99 in 2018. There is no basis for this fee – it’s just a portion of the cost of service split off into a separate charge. This lets AT&T advertise rates for $2 less than the actual fee charged to customers. Somebody buying a $60 advertised plan will actually pay $61.99 because of this fee.
The Verge reported earlier this summer that AT&T and the plaintiffs in a class action lawsuit reached an agreed settlement, and AT&T is refunding $14 million to California wireless subscribers who make a claim. The class action lawsuit claimed that AT&T billed the fee without notifying the public or advertising the fee. But even in agreeing to the settlement, AT&T refused to admit any wrongdoing and says it fully disclosed all fees.
This award shows why big carriers can bill hidden fees with impunity. The typical settlement for a customer that makes a claim under this lawsuit will be between $15 and $29, which is far less than the average amount of this fee collected by AT&T in California at $180 per subscriber. The worst part of the settlement is that AT&T will continue to bill the fee, so they’ll recover any settlement from customers over the next year. AT&T also knows that most eligible customers won’t make a claim. It was reported that AT&T notified customers of the possible claim by text – which many people assume is spam. The settlement only applies to California customers and not folks in the rest of the country. This is a minuscule slap on the wrist to AT&T.
Class action lawsuits are not a great tool for punishing bad behavior by carriers. Lawyers taking on these issues are taking a big chance that they will lose. Anybody filing such a suit has to spend a lot of time on discovery, made worse because carriers will typically drown plaintiffs with mountains of documents in response to data requests. The lawyers employed by large corporations are generally the best around, and many class action suits never reach completion. In this case, the class action lawyers will receive $3.5 million from the settlement – but they likely spent a lot of money over many years to get the case to a settlement.
The real solution to holding ISPs accountable is strong regulation. In an ideal world, the FCC or the California Public Utilities Commission would have ordered a full refund to customers that were harmed by misdeeds by a carrier. I didn’t do the research in writing this blog, but I assume that neither regulatory body felt it had that authority in this instance – or else they chose not to take it on. That’s certainly not surprising on the Federal side since the FCC under Ajit Pai prided itself on a shift to light-touch regulation – which is a euphemism for basically no regulation at all. When I broke into the industry in the 1970s, regulators would have made a carrier rebate every cent of an overbilling, so carriers were cautious about trying something like the administrative fee.
It is within the purview of the Federal Trade Commission to tackle this sort of issue, but the agency only has the manpower to pursue a limited number of cases against bad behavior of industries of all types. Companies like AT&T know that the risk of having an issue like this brought before the FTC is tiny. And even if it happened, the company would not likely have to return all of the improperly charged fees.
Hidden fees are an interesting issue because it’s clear that hidden fees give carriers a marketing edge when competing against companies that don’t have hidden fees. The intent of carriers is to hide the fees or at least make it hard for a prospective customer to know about the fees. The issue with hidden fees is not that a company divides a fee for service into several pieces – it’s that the full fees are not disclosed. ISPs and carriers are not the only ones using hidden fees, and President Biden said last month that the administration is going to crack down on hidden fees from the airline and travel industry.