Most telecom service providers impose various “discretionary” surcharges on their customers.  A discretionary surcharge is one that is not mandated by any law or regulation, but is otherwise permitted, subject to certain strictures and limitations. Such discretionary surcharges may include “Administrative,” “Cost Recovery,” or similarly named fees.  An anticipated multi-million dollar class action settlement is shining a bright light on this common industry practice, thereby increasing risks for any company whose billing practices and policies are not clear, conspicuous, and otherwise legally defensible. For reasons explained below, this development may warrant a review of your company’s practices. 

Verizon Wireless is currently facing a class-action lawsuit in New Jersey, alleging that certain undisclosed administration fees were charged to U.S. customers in a “deceptive and unfair manner.” While Verizon denies any wrongdoing, they have proposed a $100 million settlement and, according to press reports, is likely to settle.  The anticipated settlement is making national news headlines, which will undoubtedly draw the attention of consumers, other regulators and governmental agencies, class action lawyers, and scores of telecom expense management (TEM) firms, all of whom may apply pressure on services providers whose surcharge billing practices are not up to snuff.

Background: The lawsuit claims that customers who signed up for Verizon’s Wireless service plans at specific monthly rates ended up paying more due to undisclosed administration fees. These charges, starting at 40 cents a month per phone line in 2005, have increased over time, reaching $3.30 per line in 2022.

Settlement Details:

• Eligibility: All current and former account holders with wireless or data services charged Verizon’s administrative fees between Jan. 1, 2016, and Nov. 8, 2023, are eligible.
• Notification: Eligible customers will receive a notice by mail or email.
• Compensation: Customers may receive up to $100, depending on the number of claims filed. The minimum payment is reported to be $15, plus an additional $1 for each month the customer paid the charge.

How This May Affect Your Business: While this settlement pertains specifically to Verizon’s mobile phone customers, it raises awareness of billing practices and fees, and awareness increases risk. It is a reminder to review and ensure compliance with regulatory and legal standards regarding discretionary fees and to confirm that your company’s practices are legally defensible, and if not, to implement measures to mitigate risk and potential exposure.  Any business concerned about its potential exposure to class action or multi-district litigation may also want to evaluate its contracts and terms of service to ensure such risks are mitigated.

FCC’s Stance on Cost Recovery Fee (CRF): The FCC prohibits service providers from inflating or overstating surcharges, including those related to the federal Universal Service Fund (USF). However, providers are allowed to recoup compliance costs, contributions, and administrative fees through mechanisms like the Cost Recovery Fee (CRF). The crucial aspect is that the amount charged must be “just and reasonable,” and the description/explanation in invoices must comply with the Truth in Billing (TIB) rules.  And while VoIP service providers are not explicitly covered by the FCC’s TIB regulations (at this time), they are subject to the consumer protection laws in each of the 50 U.S. states and District of Columbia. As such, VoIP companies are not immune from exposure; indeed, the exposure may be more acute due to the multitude and diversity of laws, regulations, policies and legal precedent applicable to their business practices.

Recommendation: Considering the evolving regulatory landscape, it is advisable to review your billing practices, especially if you charge administrative fees like the CRF. Ensure that your invoicing complies with FCC regulations, accurately reflects actual costs, and adheres to TIB rules and “best practices” vis-à-vis state consumer protection laws.

Next Steps:

• Contact your attorney.
• Review your current billing practices.
• Assess the transparency, accuracy, thoroughness, and legal defensibility of all discretionary surcharge/fee descriptions.
• Ensure compliance with FCC regulations and state consumer protection law “best practices.”

If you have any concerns or need assistance in reviewing your billing practices, please feel free to reach out to the attorney assigned to your account with our firm or you may contact Jonathan S. Marashlian at jsm@commlawgroup.com.