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The FCC Never Collected Fines Stemming from ‘Obama Phone’ Fraud

Nov 23, 2015

The FCC proposed about $100 million in penalties against companies involved with defrauding a low-income phone subsidy program in 2013. But according to a report from Politico, the FCC has yet to collect the vast majority of those fines two years later, and lawmakers have started to take notice.

Many of the unclaimed fines stem from issues with the Lifeline program, which offers payments to companies that provide low-cost phone service to low-income customers. Many of these companies were accused of waste and fraud — in particular, they were accused of providing phone service to customers who already had Lifeline-subsidized subscriptions, resulting in double payments from the government to carriers.

The FCC investigated, and found that 12 carriers had broken rules, including TracFone, Icon Telecom, and Easy Wireless.

The Lifeline program has been under fire from Republicans since Barack Obama became president in 2009. Despite the fact that the Lifeline program is a 30-year-old program and was first enacted under Ronald Reagan, the phones and plans it distributes became commonly known as "Obama phones," and the program was regularly accused of being rife with fraud.

In response to political attention, the FCC "modernized" the Lifeline program in 2012, and it was under these new rules that it hit carriers with roughly $100 million in proposed fines. Few of these fines have yet been levied. The FCC's defense is that it never issued fines to Lifeline carriers, but instead issued proposed fines, which are officially called notices of apparent liability, and can be contested by the companies they target.

TracFone, for example, contests its penalty, claiming that fraudulent billing issues related to Lifeline amounted to less than $8,000, significantly less than the $4.5 million fine the FCC proposed.

MORE: Here's why cell carriers freak out when you use your unlimited data

The FCC says that it conducts an intensive investigation before even proposing a fine. But actually enforcing a penalty requires the Justice Department, adding time and complexity to the process. Often, the easiest outcome for both the FCC and companies after a notice of apparent liability is reaching a settlement, which is intended to protect the consumer as well as a long and drawn-out court case would. For instance, the FCC hit AT&T with a $100 million proposed fine for "misleading marketing practices" stemming from claims surrounding unlimited data earlier this year. AT&T (t) is not settling and will fight the fine, but has already changed its plans in response to FCC complaints.

But for the Lifeline program, no significant enforcement measures have been authorized since the proposed fines in 2013, and the lack of progress is starting to draw ire from lawmakers in both parties. "I am beyond confused as to why not one dime of that has been collected,” Claire McCaskill (D-Mo.) said during a hearing last month.

"If an enormous fine is announced and it's never prosecuted, it makes you wonder what's the purpose?" asked House telecom subcommittee chairman Greg Walden, a Republican from Oregon, told Politico.

The controversy comes as the FCC continues to rely on large fines as its primary enforcement mechanism, to the irritation of wireless industry groups and telecommunications companies. In the past year, the FCC has proposed a $100 million fine against AT&T, a $105 million fine against Sprint for sneaking unauthorized charges onto subscriber bills, and various penalties for hotel companies that block Wi-Fi hotspots.

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