Sprint will pay $1.125 million and AT&T; $365,000 to settle federal charges that they failed to tell applicants they had been denied telephone service because of poor credit reports.

The Federal Trade Commission charged that Sprint used consumers credit reports to deny them telephone service, and that both AT&T; and Sprint placed conditions or restrictions on consumers service, without telling the customers why they were doing so, contrary to federal law.

The Fair Credit Reporting Act (FCRA) requires that consumers be told when an adverse credit report has affected the service they receive and they must be told how they can obtain a free copy of the credit report so that they can dispute any errors in it.

According to the FTC, Sprint and AT&T; obtain consumers credit reports to determine their eligibility for telephone service. In some cases, the companies deny service, require consumers to make an advance payment or deposit, or limit the charges they may incur if the credit review shows the consumer to be a credit risk.

The FTC complaint alleges that all of these are adverse actions under the FCRA, triggering the companies obligation to provide the consumers with a notice disclosing the adverse action taken and providing the name, address, and phone number of the credit bureau from which the consumers credit report was obtained.

The FTC alleges that AT&T; and Sprint in many instances took adverse action, but failed to provide complete notices (or, in the case of Sprint, in some cases failed to provide any notice) in violation of the FCRA. The incomplete notices allegedly failed to tell consumers, among other things, of their rights to a free credit report and to dispute the accuracy of information in it.

The FTC also alleges that Sprint violated the Equal Credit Opportunity Act (ECOA) by failing to provide the notices mandated by that statute or by omitting certain required information in their notices.

The consent decrees order Sprint to pay $1,125,000 in civil penalties and AT&T; to pay $365,000. The decrees bar the companies from future violations of the adverse action notice requirements of the FCRA and, in the Sprint decree, the ECOA. Both consent decrees contain standard recordkeeping procedures to assist the FTC in monitoring the companies compliance.

Both companies denied that they had violated the law but said they agreed to settle the case to avoid the cost of litigation.