TracFone, the largest prepaid mobile provider in the U.S., will pay $40 million to the Federal Trade Commission to settle charges that it deceived millions of consumers with false promises of unlimited data service.

The FTC’s complaint against TracFone alleges that since 2009, the company has advertised prepaid monthly mobile plans for about $45 per month with unlimited data under various brands - including Straight Talk, Net10, Simple Mobile and Telcel America.

But despite emphasizing unlimited data in its advertisements, TracFone drastically slowed or cut off consumers' mobile data after they used more than certain fixed limits in a 30-day period.

"The issue here is simple: when you promise consumers ‘unlimited,’ that means unlimited," said Jessica Rich, director of the FTC’s Bureau of Consumer Protection. "This settlement means that Straight Talk, Net10, Simple Mobile, and Telcel America customers will be able to get money back from the company for services the company promised but didn’t deliver."

Refunds will be paid to people whose data service was slowed or cut off.

According to the FTC’s complaint, TracFone marketed unlimited plans under its name brands through television and radio commercials, print advertisements, in-store displays and other media. Some of these brands’ advertisements were aimed at specific populations. For example, Telcel America marketed to Spanish-speaking consumers.

Counter to the marketing promises, the FTC alleges that TracFone regularly either slowed down consumers’ data speeds – known as throttling – or cut off their data entirely when they used more than certain fixed amounts of data in a 30-day period. TracFone even terminated all the services (talk, text and data) of some consumers. 

As described in the FTC’s complaint, throttled customers often experienced slow-downs of at least 60% and sometimes even 90%, significantly impairing their ability to engage in online activities like streaming video.  One TracFone employee who tested the effects of throttling said that “Customer experience is affected because [i]t is very slow… ‘Regular’ users like me may get upset.”

The FTC alleges that TracFone varied its data limits, but generally slowed data service when a customer used one to three gigabytes, and suspended data service at four to five gigabytes. When consumers approached TracFone’s limits, they would often receive a call that warned them for the first time about their “excessive data usage” but did not disclose TracFone’s data limits, according to the agency’s complaint.

The complaint states that there was no technical reason for TracFone to limit data, such as to reduce network congestion; rather, internal documents showed that the company’s data policies were created to “reduce the high costs associated” with providing the unlimited data that it had promised.

Starting in September 2013, TracFone began to make some disclosure of its throttling practices for its “unlimited” programs, but those disclosures were often not clear and conspicuous, according to the FTC’s complaint. In many cases, the disclosures were in very small print or on the back of packages or cards where consumers were likely to miss them.

Along with the $40 million in consumer refunds, TracFone is banned from making further deceptive advertising claims about its mobile data plans and must clearly and conspicuously disclose any limits on the speed or quantity of its data service.

This is the second case brought by the FTC against a mobile provider for failing to live up to its promises of unlimited data: the Commission’s case against AT&T is currently in litigation.

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