Regulating Hidden Fees

Big telecommunication companies (telcos) and almost every large cable company use what the industry calls "hidden fees." These fees are not mentioned when advertising for a service but are put onto customer bills. There is a class action lawsuit in California that shows why broadband providers 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 providers that misbill customers are a class action lawsuit or the rare ruling against a single broadband provider 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. 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. 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 claims 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. Class action lawsuits are not a great tool for punishing bad behavior by carriers. The real solution to holding broadband providers accountable is strong regulation. 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.