On July 28, 2014, the Federal Trade Commission (FTC) issued a staff report on “mobile cramming”—the unlawful practice of placing unauthorized third-party charges on mobile phone accounts. The report recommended five best practices primarily directed to mobile carriers but at times also directed to merchants and billing intermediaries. This report follows a number of FTC enforcement actions to combat mobile cramming, as well as a May 2013 mobile cramming roundtable convened by the FTC and attended by industry participants, consumer advocates, and regulators. Following the roundtable, the four largest mobile carriers said that they would discontinue most “Premium SMS” billing, in which a consumer purportedly authorizes a third-party charge by texting a five or six-digit number. Nonetheless, the report emphasized that the consumer protection principles embodied in its recommendations apply to any form of carrier billing (i.e., charging a good or service directly to a mobile phone account), including direct carrier billing.
The FTC staff report explained that mobile cramming can occur when consumers are signed up and billed for a third-party service, such as a ringtone or recurring horoscope text messages, either without any affirmative action by the consumer or after the consumer takes an affirmative act without understanding that it will result in a charge to the consumer’s mobile phone account. The report highlighted that many consumers do not notice third-party charges on their mobile phone bills for a number of reasons: the charges are often buried in their bill under vague terms such as “usage charges” or other terms that suggest a connection to the carrier; consumers may use automatic bill payment or have large amounts due on their bills; and in the case of pre-paid mobile phones, the consumers do not receive bills. As part of the report, the FTC staff surveyed not only its own actions addressing mobile cramming, but also federal and state initiatives addressing mobile cramming, carrier refund rates, complaint information, other efforts to estimate the extent of cramming, and international views.
To help protect consumers from mobile cramming, the FTC staff issued the following five recommendations:
- Consumers should have the right to block third-party charges. The FTC staff recommends that upon activation of mobile phone accounts, consumers should be informed that third-party charges may be placed on their accounts and then be given the option to block all third-party charges. The FTC staff further recommends that while mobile phone accounts are active, consumers be given clear and prominent disclosures of this option. In addition, the report suggests that mobile carriers consider offering consumers the ability to block only specific providers or commercial providers.
- Advertisements for products or services charged to a consumer’s mobile account should not be deceptive. The FTC staff recommends that before charging a consumer’s mobile phone account, merchants should clearly and conspicuously disclose information about price. Specifically, the report states that at a minimum, pricing information should be prominent, in a legible font and size and on the same page, and immediately next to a purchase button or other invitation for a consumer to agree to a charge for a product or service. Furthermore, the FTC staff recommends that carriers and billing intermediaries should implement reasonable procedures to scrutinize merchants that are risky or suspicious or that previously have run a campaign containing deceptive advertising or engaged in landline cramming. The FTC staff also recommends carriers and billing intermediaries to terminate or take appropriate action against companies engaging in unlawful practices.
- Consumers must provide their express informed consent to charges before they are billed to their mobile accounts. The report recommends that given the unreliability of merchants’ claims that they have obtained consumer consent, carriers and intermediaries should maintain sufficient control over the consent process to address unauthorized charges. The report also suggests that carriers implement policies to investigate and take appropriate action when merchants may be cramming charges without consumers’ consent, as indicated by consumer refund requests and complaints.
- All charges for third-party services should be clearly and conspicuously disclosed to consumers in a non-deceptive manner. In order to help consumers understand what third-party service they are paying for, the report recommends that mobile phone bills should clearly and conspicuously disclose all charges for third-party services in a non-deceptive manner. According to the report, the mobile phone bill consequently should identify the third-party charges in relation to the third-party product or service offered and not suggest a carrier affiliation. Furthermore, the report provides that billing intermediaries and merchants must provide accurate information to carriers for the purposes of these disclosures. Finally, the report recommends that third-party charges be made more conspicuous on mobile phone bills and that consumers who automatically pay their bills or use prepaid phone plans receive a notification from the carrier regarding these charges.
- Carriers should implement an effective dispute resolution process. Carriers should implement a clear and consistent process for consumers to dispute suspicious charges on their mobile phone bills and obtain refunds for unauthorized charges. The FTC staff recommends that like landline carriers, mobile carriers should allow consumers to withhold payment for disputed third-party charges during the dispute without a cut-off in phone service or an accrual of interest. When consumers do seek refunds, the report recommends that if a carrier concludes those charges were crammed, consumers could be granted refunds for the same charges in previous months. When a third party’s billing activities are terminated for unauthorized charges, the report suggests that the carrier should notify consumers who incurred charges from that third party to allow them to request a refund.
The FTC will continue to monitor, investigate, and bring enforcement actions against industry participants involved in third-party mobile billing. Consequently, mobile carriers, merchants, and intermediaries who utilize carrier billing should consider how best to incorporate the five FTC staff recommendations into their policies and practices.