CFPB Attempts to Extend Jurisdiction Over Cell Phone Companies
The CFPB took another step to test the limits of its jurisdiction with its recent lawsuit against Sprint Corp. In its complaint
, the CFPB alleged that Sprint outsourced its payment processing for digital purchases—such as apps, games, books, movies, and music—to third party vendors. These vendors had access to customers’ accounts and allegedly placed unwanted, and unauthorized, charges onto customers’ monthly bills. The complaint further alleges that Sprint received 30-40% of the profit from these charges and failed to properly monitor the vendors to ensure proper behavior.
The lawsuit bears close monitoring for two reasons. First, as before in its discussions of authority to regulate first party debt collectors and indirectly regulate behavior of auto dealers, this lawsuit is one more test of the boundaries of the Bureau’s jurisdiction. The Dodd-Frank Act gave the CFPB power to regulate businesses providing consumer financial products or services. In this instance, however, the third party vendor (not Sprint) is actually providing and charging for the service; Sprint only provides the billing network. If the lawsuit succeeds, this type of jurisdictional argument could have ramifications for innumerable other companies that do not directly provide a financial product or service.
Second, this case reinforces CFPB Director Cordray’s admonition to companies to proactively protect consumers. As he stated in a conference call announcing the lawsuit
: “If companies hire vendors to manage their billing and payment systems, which they are certainly entitled to do, they must carefully monitor and police their vendors’ activities. Companies are responsible for ensuring that their vendors are not violating the law, and need to take appropriate steps to remedy any harm done when they fail to meet their responsibility to treat consumers fairly. As we have said previously about other consumer financial markets, simply contracting with a vendor does not absolve the provider of its legal responsibility to treat consumers fairly.”
The Sprint lawsuit highlights that, today more than ever, you must monitor your vending partners’ behaviors and ensure you are not contributing to any questionable behavior, lest the next ringtone from the CFPB rings for thee.
This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader must consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.