T-Mobile accused of false advertising; New York AG investigates

NEW YORK — T-Mobile, the nation's fastest-growing wireless carrier, is coming under scrutiny for its popular ad campaign promising to rip up service contracts and do away with hidden fees.

The office of New York Attorney General Eric Schneiderman is investigating complaints that the ads are misleading. And a letter alleging "deceptive marketing and abusive debt collection practices" is making its way to the Consumer Financial Protection Bureau, which is responsible for consumer financial products, USA TODAY has learned.

T-Mobile's colorful CEO, John Legere, has shaken up the telecom industry with his "un-carrier" campaign, which vows to free consumers of burdensome service contracts and other pesky fees. The campaign has been so effective that it helped T-Mobile push past Sprint to become the nation's third-largest carrier this year — a feat that seemed far-fetched when Legere took over in 2012.

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The carrier scored yet another victory Monday when it was named the nation's best wireless carrier by Consumer Reports readers, who ranked it above Verizon, AT&T and Sprint.

But critics, led by labor and consumer organization Change to Win, are blasting T-Mobile's advertising, saying the vast majority, or 91%, of its customers are locked into two-year loans for new phones and other equipment, known as an equipment installment plan.

The phone loans, which must be paid off over 24 months and require a lump sum to exit, contradict T-Mobile's splashy ads promising consumers they can switch carriers at any time, said the letter to the CFPB, which was also signed by numerous civil rights and consumer advocacy groups, including the Consumer Federation of California.

Customers who end their financing agreements before 24 months may end up owing more than if they were to break a traditional service contract — or be placed in debt collection "with little or no notice," according to the CFPB complaint, a copy of which was reviewed by USA TODAY.

"We ask T-Mobile to reform its own practices by no longer using the misleading language around no contracts," said Nell Geiser, a research director with Change to Win. "We ask that it stop claiming that it pays customers' early termination fees," she said. The group also plans to bring a complaint to the Federal Communications Commission, which investigates potentially misleading advertising.

T-Mobile spokeswoman Annie Garrigan received, but did not return, a request for comment. Eric Soufer, a spokesman for the New York attorney general, declined to comment on the investigation, which he called "ongoing."

After this story was published late Monday, Legere tweeted about it, saying T-Mobile stands by its ads. He tweeted, "we haven't been accused of false advertising by any regulatory body."

T-Mobile customers sign installment agreements, which outline the terms of the phone loans. Other company documentation, including its website, provide the terms of the equipment contracts. Still, critics say it's not enough and argue that T-Mobile's practices tend to hurt low-income customers and minority communities.

"Our main concern is the bait-and-switch," said Rashad Robinson, executive director of Color of Change, online advocacy group with 1.3 million members. "They tell customers one thing and they give them something completely different," said Robinson, who said the practice unfairly targets people of color, including black people and people of Latin American descent.

The group, which also signed the CFPB letter, plans to circulate a petition Tuesday to encourage the public to demand the CFPB investigate T-Mobile's sales practices, Robinson told USA TODAY.

Paying for cell phones on installment has become the industry norm in recent years, regardless of whether the consumer also has a service contract.

Change To Win's Geiser said the group is concerned about similar practices by other wireless carriers. The group is focusing on T-Mobile in their CFPB letter because it has led the no-contract trend, she said.

"We also think their dependence on marginalized communities make them an important company to make accountable," Geiser said, referring to data showing that 48% of T-Mobile customers who have financed their phone have sub-prime credit ratings.

The group also published a report on their findings Tuesday, titled "Unmasking the Un-Carrier." Follow USA TODAY reporter Kaja Whitehouse on Twitter: @kajawhitehouse