Articles

On July 30, the Federal Trade Commission provided an update on issues related to the placement of unauthorized charges on consumers’ mobile phone bills, a practice known as mobile cramming. Testifying on behalf of the Commission before the Senate Committee on Commerce, Science and Transportation, FTC Commissioner Terrell McSweeny told Chairman John Rockefeller (D-WV) and his committee that the Commission believes mobile cramming represents a significant consumer protection issue. Since ISPLA has had extensive dealings with the FTC that often concern issues affecting the professional investigator we thought we would report on an issue regarding another industry and fraudsters about which they are presently concerned, as well as the Senate committee presently dealing with security breaches and privacy issues. 

“Mobile cramming is a significant problem that threatens to undermine confidence in the developing payment method known as ‘carrier billing,’” said the testimony. “As stakeholders have noted, carrier billing of third-party charges may be particularly beneficial for unbanked and underbanked consumers. Additionally, consumers have used text messages to donate funds to a charitable organization, with the charge placed on their mobile phone account. As carrier billing has developed, however, fraud has become a significant problem for consumers.”

 

The testimony noted that for over two decades, the FTC brought more than 30 cases to combat cramming on landline phone bills that have led to tens of millions of dollars being returned to consumers.The testimony also highlighted the FTC’s partnership with both the Federal Communications Commission and state attorneys general on these cases.

In light of Americans’ rapidly growing use of mobile devices, the FTC has now turned an eye to mobile cramming. Of six mobile cramming cases brought since the spring of 2013, three have been fully or partially resolved by the FTC which they claim resulted in strong relief for consumers. The agency has obtained more than $160 million in judgments, as well as court orders preventing the defendants from further illegal cramming. Commissioner McSweeney's testimony also highlighted the Commission’s ongoing cases against two other merchants who crammed charges onto consumers’ bills, along with its case against the wireless carrier T-Mobile, filed earlier this month. The FTC on the same day it announced its case against T-Mobile, stated it had opened an investigation into the T-Mobile's cramming practices.

In bringing these cases, the FTC learned that the amount of harm reported by cramming victims significantly understates the overall cramming problem. This is because consumers are sometimes unable to discern which charges are unauthorized due to the confusing placement of crammed charges on their bills. The testimony also points to the difficulties consumers have noted in seeking refunds for crammed charges, sometimes receiving refunds for only a few months of charges that may have been appearing on their bills for much longer.

The testimony highlighted a number of recommendations that included consumers being able to block some or all third-party charges, that merchants avoid deceptive marketing of services, and that carriers watch out for signs of fraud by companies placing charges on consumers’ bills. In their July 28, 2014 report the FTC also recommended that when carriers or intermediaries discover a company has been cramming charges, consumers should be informed and given the opportunity to seek a full refund of the charges they paid. In addition, the report calls on carriers to make clear disclosures to consumers about third-party charges on their monthly bills, or by other means in the case of consumers who auto-pay bills or use a pre-paid service that does not receive a monthly bill.

In their report, the FTC staff recommended steps that mobile carriers and other companies should take to prevent consumers from being stuck with unauthorized charges on their mobile phone bills. Their “Mobile Cramming: An FTC Staff Report” includes five recommendations aimed at mobile carriers, merchants who offer goods and services charged directly to mobile phone bills, and billing intermediaries known as aggregators who facilitate the placement of such charges on mobile phone bills.                                   

“Mobile cramming is an issue that has affected millions of consumers, sticking them with charges they did not authorize, and the FTC has worked hard to combat it,” said Jessica Rich, the Director of the FTC’s Bureau of Consumer Protection.  “The best practices recommended in our report build on the FTC’s active enforcement in this area and would give consumers needed protections to rein in the problems we have seen.”                                   

While the report notes that mobile bills can include legitimate add-on third-party charges such as charitable contributions, others may be crammed onto consumers’ bills by scammers.  The report notes that while the full scope of mobile cramming is not known, just three cases brought last year by the Commission against mobile crammers led to more than $160 million in judgments. One participant in the FTC’s roundtable on mobile cramming participant called it “almost the perfect scam.”                                   

Based on findings from the Commission’s 2013 mobile cramming roundtable and other public evidence, the report follows a number of enforcement actions brought by the Commission in in the last year against mobile cramming. Specifically, the report calls for:                                   

                                    

Giving consumers the right to block third-party charges.  FTC staff calls on mobile phone carriers to give consumers the right to block third-party charges on their mobile bills altogether, and to inform consumers clearly and prominently of that right.  Carriers should inform consumers of this right not only when consumers create their account, but also on an ongoing basis. 

Ensuring that advertising, marketing, and opt-in processes for charges are not deceptive. Advertising, marketing, and opt-in processes for third-party mobile account charges should be clear about how much and how often a consumer will be charged.  Mobile carriers should closely monitor the merchants placing charges through their bills to scrutinize whether they are risky or suspicious, and if so, take steps to prevent them from placing charges. 

Getting  express, informed consent before charging consumers.  Consumers’ express, informed consent must be obtained before placing charges on their mobile phone bill, and reliable records of that consent should be kept.  Carriers should closely monitor refund rates, consumer complaints and other signs of possible cramming and take action where necessary. 

Clearly displaying third-party charges on bills.  Mobile bills should clearly and conspicuously show third-party charges.  Carriers should consider steps to make third-party charges more prominent, such as separate billing lines for third-party charges that make it clear to consumers which charges are directly from a carrier and which are from a third party.  In addition, mobile carriers should give consumers using pre-paid calling plans who do not otherwise receive bills from their mobile carrier to receive specific notification that a third-party charge is being deducted from their account. 

Creating an effective process for resolving disputes.  Finally, mobile carriers should put in place an effective dispute resolution process that gives clear information to consumers about how to dispute suspicious charges and seek refunds for unauthorized charges.  As the report notes, consumers have often complained that carrier refund processes are difficult and inconsistent. In addition, the report calls on carriers, where possible, to give consumers who were crammed refunds of recurring monthly charges including previous months, and when a third-party is stopped from billing due to cramming, to notify consumers whose bills were charged so they can seek refunds for those charges. 

                                    

In addition to the above recommendations, the report notes that after the Commission’s 2013 mobile cramming roundtable and FTC and state enforcement actions to combat mobile cramming, there has been a move away from premium SMS billing, which typically relies on text messages ostensibly sent to consumers to initiate charges.  In place of premium SMS billing, the report notes a trend toward what is called direct carrier billing, in which charges can be placed on a consumer’s mobile bill through a mobile website or app.  While major carriers have moved away from premium SMS, the report notes that the recommended consumer protections should apply to direct carrier billing or any other mechanism for placing third-party charges on mobile phone bills. 

Also, a link to the July 30th 17-page transcript of FTC Commissioner Terrence McSweeny's testimony is available at: