As part of the increased regulatory focus on the mobile marketing space, the U.S. District Court for the Central District of California issued a temporary restraining order against six (6) companies and their respective principals, effectively halting an alleged mobile phone cramming scheme. “Cramming” is the act of placing unauthorized charges on a consumer’s telephone bill. In the present case, it is alleged that the defendants placed more than $100 million dollars worth of unauthorized charges on consumers’ mobile telephone bills. Regulators maintain that the act of cramming relies on the fact that many consumers do not closely scrutinize their monthly telephone bill statements, or assume that charges are legitimate.
FTC Cramming Complaint
Earlier this month, the Federal Trade Commission (FTC) filed the complaint in question alleging mobile telephone bill “cramming” in violation of the FTC Act and other applicable laws. Specifically, the FTC claimed that the defendants used fake websites to offer “free” gift cards to deceptively obtain consumers’ mobile phone numbers. The defendants then placed monthly subscription fees for a variety of text message services (i.e. gossip alerts, fun facts, horoscopes, etc.) on consumers’ mobile phone bills, allegedly without their authorization. The defendants’ text message services typically cost consumers $9.99 or $14.99 per month, and were set to renew automatically each month.
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 consumers’ bills in an abbreviated manner that did not always clearly designate the applicable company as the source of the charge. As a result, many consumers may not have noticed or understood 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 (which contains an asset freeze provision), the FTC is seeking to permanently 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 billing 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 and/or state attorneys general, which could result in significant fines and penalties.