As part of the increased regulatory focus on the mobile marketing space, the Federal Trade Commission (FTC) filed a complaint against several mobile marketing companies, including Tatto, Inc. and its principals, in a California federal court, alleging mobile telephone bill “cramming” in violation of the FTC Act and other applicable laws.  “Cramming” is the act of placing unauthorized charges on a consumer’s telephone bill – in the present example, mobile telephone bills.

FTC Cramming Complaint

The FTC’s complaint alleges that the defendants “controlled, pitched ‘love tips,’ ‘fun facts,’ and celebrity gossip alerts sent by text message to consumers, but placed monthly subscription fees for these ‘services’ on consumers’ mobile phone bills without their authorization.” The FTC asserts that the defendants took advantage of the fact that consumers may not expect their mobile phone bills to contain charges from third parties and disguised the charges on the consumers’ bills in an abbreviated manner that did not always clearly designate the company as the source of the charge. As a result, many consumers did not notice or understand the nature of the charges and otherwise paid the bills.  According to the complaint, to the extent that consumers did notice the charges, the process of obtaining refunds was difficult and often unsuccessful.

Cramming Penalties Sought

In addition to the temporary restraining order (with an asset freeze provision), which was granted on December 5, 2013, the FTC is seeking to enjoin the defendants from continuing their mobile cramming operations and to disgorge all ill-gotten gains generated from their conduct.

The FTC’s most recent cramming complaint is part of a larger trend of regulatory action within the mobile space.  In light of this action, and the general regulatory trend, mobile service providers that bill for services by and through consumers’ mobile telephone bills should immediately review their marketing practices and consumer disclosures in order to ensure compliance with the FTC’s guidance and to avoid allegations of cramming.  Entities that fail to comply with applicable law could find themselves facing regulatory action from the FTC, which could result in significant fines being levied.