FTC Recommends Mobile Industry Changes to Combat Mobile Cramming

Note: A conference call for media with FTC Consumer Protection Director Jessica Rich will occur as follows:

Date: July 28, 2014
Time: 1:30 p.m. ET
Call-in: 800-230-1951; confirmation number 333099

Call-in lines, which are for media only, will open 15 minutes prior to the start of the call. Jessica Rich and FTC staff will be available to take questions from the media about the case.

In a report issued today, the Federal Trade Commission staff recommends steps that mobile carriers and other companies should take to prevent consumers from being stuck with unauthorized charges on their mobile phone bills, an unlawful practice known as mobile cramming.

The report focuses on the multi-billion dollar business known as carrier billing, which refers to the placement of charges for goods and services of third-party merchants on a mobile phone bill. “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 these 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.

As noted in the report, the FTC is joined by important partners in its efforts to protect against mobile cramming, including state attorneys general and the Federal Communications Commission.

The Commission vote to issue the report was 5-0.

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