Verizon’s TracFone reaches $13.4M settlement over Lifeline

The Federal Communications Commission (FCC) and Department of Justice (DoJ) reached a $13.4 million settlement with TracFone Wireless in connection with the FCC Lifeline program. Verizon acquired TracFone last year.

According to the FCC, the settlement resolves allegations that TracFone violated the False Claims Act by signing up more than 175,000 ineligible customers for the Lifeline program during 2012-2015 and that the false claims resulted from TracFone’s “lax oversight and monitoring” of its Lifeline program.

The Lifeline program was designed to help low-income Americans with their cell phone bills. To qualify for Lifeline, a consumer’s income must be at or below 135% of the Federal Poverty Guidelines or the consumer must receive benefits from specified federal assistance programs. Many of those who qualify end up getting a free cell phone and free monthly cell phone service.

However, Lifeline, which is part of the Universal Service Fund (USF), has been plagued by fraud and mismanagement for years. In 2017, for example, it was the subject of a U.S. Senate hearing with this title: “FCC’s Lifeline Program: A case study of government waste and mismanagement.”

“Today’s settlement reflects the FCC’s ongoing commitment to root out waste, fraud and abuse in its universal service programs,” said FCC Chairwoman Jessica Rosenworcel in a statement on Monday.  “Especially during these unprecedented times, the Universal Service Fund provides a key lifeline for many families, and our careful stewardship of the program ensures that low-income households can access the telecommunications services they so critically need. Let today’s action serve as a warning to others that we will do everything we can to ensure strict compliance with the rules of the road.”

The settlement resolves a qui tam action in the U.S. District Court for the Middle District of Florida and makes the USF program whole, according to the FCC.

What happened?

The U.S. government alleged that between 2012 and 2015, Miami-based TracFone signed up more than 175,000 subscribers who were ineligible for the program. TracFone hired independent third-party sales agents to enroll these customers, and the agents discovered a glitch in TracFone’s computer software that allowed ineligible customers to enroll in the program.

According to the DoJ, some agents in Florida then exploited the glitch to increase their consumer enrollments and commission payments. The scheme ended up taking advantage of non-low income veterans, Medicare patients, law enforcement and other people who didn’t qualify for the Lifeline program, the FCC said.

TracFone didn’t discover the problem with its software until August 2015, after which it repaid more than $10.9 million to Lifeline, an amount that was credited as part of the $13.4 million settlement.

Under the settlement, TracFone will be on the hook for an additional $2.5 million in damages. TracFone also agreed to enter into a three-year compliance agreement to help ensure adherence to the FCC’s rules for the Lifeline program going forward.

Verizon provided the following statement to Fierce: “TracFone reported these activities to the government years ago and we're pleased to now bring this matter to a close. At this point, the company is focused on bringing all of TracFone's customers, including those enrolled in Lifeline, best in class products and services at very competitive prices.”

The Lifeline program came up a lot when regulators were considering Verizon’s acquisition of TracFone because some consumer groups were concerned that Verizon would quit supporting the program. TracFone has been one of the largest providers for Lifeline.

Verizon ultimately agreed to support the program and actively market and advertise Lifeline services, as well as provide 5G to those customers. Under the compliance program with the government, Verizon must audit TracFone’s Lifeline program and provide comprehensive training for TracFone employees and its marketing agents covering both the Lifeline program and the Affordable Connectivity Program.