According to the FTC, the steps, if taken by mobile carriers and other companies, would prevent consumers from being stuck with unauthorized charges on their bills – a practice often referred to as carrier billing or mobile cramming.
A new FTC Staff Report [PDF] takes a look at the growing multi-billion dollar business which refers to the placement of charges for goods and services of third-party merchants on a consumer’s phone bill.
The shady practice has grown so much in recent years that the FTC has produced six recent enforcement actions, three of which resulted in judgments of more than $160 million.
In an effort to give carriers advice on how to avoid being the target of one of these actions in the future, the FTC has a handful of currently non-binding recommendations for the wireless industry —
Giving consumers the right to block third-party charges: Mobile phone carriers should give consumers the right to block third-party charges on their bills altogether. Additionally, carriers should inform consumers clearly and prominently of that right.
Ensuring that advertising, marketing and opt-in processes for charges are not deceptive: The processes for third-party account charges should be clear about how much and how often a consumer will be charged. 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: Consent from consumers must be obtained before placing charges on their 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 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.
Consumers with pre-paid calling plans who do not otherwise receive bills from their mobile carrier should have the option to receive specific notification that a third-party charge is being deducted from their account.
Creating an effective process for resolving disputes: Mobile carriers should create an effective dispute resolution process that gives clear information to consumers about how to dispute suspicious charges and seek refunds for unauthorized charges.
The FTC report found that consumers have often complained that carrier refund processes are difficult and inconsistent.
Additionally, 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.
The T-Mobile lawsuit was the FTC’s first cramming complaint against a national wireless provider.
According to the complaint [PDF], the FTC alleges the company received anywhere from 35-40% of the total amount charged to consumers for subscriptions (mostly $9.99/month) for things like “flirting tips, horoscope information or celebrity gossip.”
The government also claims that T-Mobile sometimes continued to bill customers for these services even after being made aware that they were being operated by scammers.
The FTC says that the demand for refunds on these charges were high, with sometimes as many as 40% of affected users requesting refunds for the charges.
Consumers cited in the suit say they were not given full refunds by T-Mobile, even though they had never authorized these subscription charges, and some were only offered partial refunds of two months’ worth of the charges; other customers were told to go after the scammers directly if they wanted full refunds.
For its part, T-Mobile officials say the FTC complaint was unfounded and without merit and that the company stopped billing for Premium SMS services in 2013.
Officials with the FTC say they tried to negotiate a settlement with the carrier but that was ultimately unsuccessful.
While this week’s recommendations are a good start in protecting consumers, government regulators have been rather slow-moving when it comes to creating actual rules against the practice. Back in 2012, legislation asked the Federal Communications Commission to create rules that would prevent wireless cramming, yet nothing concrete has been announced.
To illustrate just how much regulators have been dragging their feet, consider that the FCC finally created rules intended to curb the practice of cramming unauthorized third-party charges on consumers’ landline phone bills in 2012.
FTC Recommends Mobile Industry Changes to Combat Mobile Cramming [Federal Trade Commission]