Mobile cramming was on the forefront of the Federal Trade Commission’s agenda recently, with the agency issuing a new report, testifying before Congress, and filing a federal complaint against a mobile crammer for making more than $100 million in deceptive charges in the course of a single week.
First up: the release of “Mobile Cramming: An FTC Staff Report,” which documented the multibillion-dollar business of third parties placing unauthorized charges for goods and services on mobile phone bills. Some add-on charges by third parties can be legitimate, the agency acknowledged, so in an effort to combat scammers, the report offered five recommendations.
Consumers should be given the right to block third-party charges and be informed of this right on an ongoing basis, the FTC said, as well as provided with an effective dispute resolution process. Third-party charges should be clearly and conspicuously displayed on mobile phone bills, perhaps by separating such charges out to make clear they are from a third party, and consumers with prepaid calling plans who do not receive bills should be given the option to be notified when a third-party charge is deducted.
The agency also recommended that express, informed consent be obtained prior to placing charges on mobile phone bills, with carriers closely monitoring refund rates and consumer complaints to keep an eye out for signs of possible cramming. Finally, the FTC advised companies that the advertising, marketing, and opt-in processes for charges should not be deceptive, with clear statements about how much and how often a consumer will be charged.
The next day, the agency announced a new suit against six companies and six individual defendants accused of a scheme that “demonstrates the kind of widespread harm that mobile phone cramming can inflict on American consumers,” Jessica Rich, director of the FTC’s Bureau of Consumer Protection, said in a statement. “It also shows why we’ve made it a priority to crack down on this problem.”
The defendants used deceptive practices such as bogus offers of gift cards or “freebies” to trick consumers into providing their mobile phone numbers, according to the complaint filed in California federal court. Consumers were then charged monthly subscription fees of $9.99 or $14.99 for services such as celebrity gossip alerts and horoscopes without authorization, the agency said, resulting in more than $100 million in unauthorized charges.
A federal court judge issued a temporary restraining order against MDK Media Inc. and the related defendants, halting business operations and freezing assets pending the litigation, in which the FTC seeks a permanent injunction and recovery of money for the roughly 1 million consumers charged.
To cap the week’s theme of mobile cramming, Commissioner Terrell McSweeny appeared before the Senate Committee on Commerce, Science and Transportation to tell lawmakers about the agency’s efforts to combat the problem, including recent lawsuits and the new report.
“Mobile cramming is a significant problem that threatens to undermine confidence in the developing payment method known as ‘carrier billing,’ ” she told the Committee. “As stakeholders have noted, carrier billing of third-party charges may be particularly beneficial for unbanked and underbanked consumers. Additionally, consumers have used text messages to donate funds to a charitable organization, with the charge placed on their mobile phone account. As carrier billing has developed, however, fraud has become a significant problem for consumers.”
The FTC’s history with cramming dates back 20 years, she said, when the Commission faced cramming on landline bills. In recent years, the focus has shifted to mobile cramming. McSweeny testified that the agency has brought six mobile cramming cases since 2013 and obtained judgments in three of the actions totaling more than $160 million, along with orders preventing the defendants from future cramming.
McSweeny told the lawmakers that the amount of harm reported understates the overall problem, as consumers are often unaware of their cramming charges or unable to discern which charges are unauthorized.
Referencing the agency’s new report, McSweeny promised that the Commission will continue to fight what it believes is “a significant consumer protection issue.”
To read the FTC report on mobile cramming, click here.
To read the complaint in FTC v. MDK Media, click here.
To read the text of Commissioner McSweeny’s testimony, click here.
Why it matters: The agency had a busy week focusing on mobile cramming, from congressional testimony to a staff report and a new lawsuit. Businesses in the industry are clearly on notice of the Commission’s focus on mobile cramming and should act accordingly, reviewing the best practices recommended in the FTC’s staff report.