The U.S. Federal Trade Commission has issued new guidelines for mobile
carriers aimed at better protecting consumers against “mobile cramming,” a practice that adds unauthorized third-party charges to customers’ mobile phone bills. The guidelines are recommendations only, and do not come with any new regulatory teeth. However, further government actions on the practice may still be forthcoming.
The FTC guidelines, outlined in a staff report on mobile cramming, recommend five best practices for mobile carriers. These include giving consumers the option of blocking all third-party charges on their phone accounts, avoiding deceptive advertisements for products or services billed to mobile accounts, seeking informed customer consent for any charges, disclosing clear and non-deceptive information on charges for third-party services and providing a straightforward dispute resolution process for customers with cramming complaints.
While the FTC describes carrier billing as a “multi-billion dollar business,” it notes that the full cost of mobile cramming to consumers is unknown. However, just three cases brought against mobile crammers by the agency last year resulted in more than $160 million in judgments. Speaking at an FTC roundtable on the practice in May 2013, John Breyault, vice president of public policy, telecommunications and fraud with the National Consumers League called it “almost the perfect scam.”
A ‘Step Forward’ for Customers
We reached out to Breyault to ask for his reaction to the latest recommendations from the FTC. He said the guidelines are “certainly a step forward” in providing “rules of the road for industry.” While they don’t come with enforcement powers, the recommendations do suggest to mobile carriers that these are good steps to follow if they don’t want to be sued by the FTC, he added.
Still more needs to be done, however, to ensure consumers aren’t taken by mobile billing scams, Breyault said.
“Most consumers aren’t looking at third-party charges,” Breyault said. “Our position on this is that the third-party platform itself is inherently an insecure payment [method].”
For example, he said, consumers can be tricked into unknowingly adding third-party charges to their bills when they visit some Web sites that request a phone number during registration. They can also unwittingly incur third-party fees through direct carrier billing that uses an app, for example, rather than a text message that requires an explicit OK from the customer.
A Game of ‘Whack-a-Mole’
Earlier this month, the FTC filed a complaint against mobile service provider T-Mobile USA Inc. that alleged the company was making “hundreds of millions of dollars” through so-called premium SMS subscriptions that in many cases had not been authorized by customers. Those subscription services included horoscopes, celebrity gossip and flirting tips with typical charges of around $9.99 per month.
In a response posted in its online newsroom, T-Mobile called the complaint “unfounded and without merit.” The company also noted that it had stopped billing customers for such premium SMS services in 2013.
We reached out to T-Mobile for a reaction to the latest recommendations from the FTC, but a spokesperson declined to comment.
T-Mobile and two other carriers -- AT&T Mobility and Sprint -- agreed last November to stop charging customers third-party charges for premium SMS services. The announcement followed discussions with 45 states led by Vermont and Vermont's Attorney General Bill Sorrell.
The practice of mobile cramming is also getting attention from the U.S. Senate, which has scheduled a committee hearing on the subject for Wednesday, July 30. Led by Sen. John D. (Jay) Rockefeller IV, chairman of the US Senate Committee on Commerce, Science and Transportation, the hearing will examine ways of protecting consumers as the carrier billing industry continues to evolve.
Breyault said he plans to attend the hearing, although he will not be testifying. He added that continued action will be needed as technology keeps changing and mobile fraudsters move on to new territories.
“It seems to be a game of whack-a-mole,” he said, referring to the popular carnival game where the goal is to hit the pesky troublemaker wherever it pops up next.