Antitrust Law Daily Wrap Up, CONSUMER PROTECTION NEWS: FTC staff report makes recommendations to fight mobile cramming, (Jul 28, 2014)

By Linda O’Brien, J.D., LL.M.

The staff of the FTC has issued a report, setting forth certain best practices and recommended steps that mobile carriers and other companies should take to prevent consumers from getting unwarranted and unauthorized charges on their mobile phone bills, an unlawful practice known as “mobile cramming.”

The report, entitled “Mobile Cramming: An FTC Staff Report,” focused on the multi-billion dollar business of carrier billing, which refers to the placement of charges for goods and services of third-party merchants on a mobile phone bill. While carrier billing has certain benefits for consumers, fraud has become a significant problem as carrier billing has developed.

The report included five recommendations aimed at mobile carriers, merchants who offer goods and services charged directly to mobile phone bills, and billing intermediaries known as aggregators who facilitate the placement of such charges on mobile phone bills. Mobile cramming, the practice of placing unauthorized third-party charges on a mobile phone account, is a particular concern of the agency.

While the report noted that mobile bills can include legitimate add-on third-party charges, such as charitable contributions, other charges may be added onto consumers’ bills by scammers. The report stated that while the full scope of mobile cramming is not known, three cases brought last year by the FTC against mobile crammers led to more than $160 million in judgments.

Based on findings from the FTC’s 2013 mobile cramming roundtable and other evidence, the report followed a number of enforcement actions by the agency in the last year against scammer. Specifically, the report included the following recommendations: (1) give consumers the right to block third-party charges; (2) ensure that advertising, marketing, and opt-in processes for placing charges are not deceptive; (3) get express, informed consent before charging consumers; (4) third-party charges should be clearly displayed; and (5) create an effective process for resolving disputes.

In addition to these recommendations, the report stated that after the FTC’s roundtable and FTC and state enforcement actions to combat mobile cramming, there has been a move away from premium SMS billing, which typically relies on text messages ostensibly sent to consumers to initiate charges. In place of premium SMS billing, the report noted a trend toward what is called direct carrier billing, in which charges can be placed on a consumer’s mobile bill through a mobile website or app. While major carriers have moved away from premium SMS, the recommended consumer protections should apply to direct carrier billing or any other mechanism for placing third-party charges on mobile phone bills.

“Mobile cramming is an issue that has affected millions of consumers, sticking them with charges they did not authorize, and the FTC has worked hard to combat it,” said Jessica Rich, the Director of the FTC’s Bureau of Consumer Protection. “The best practices recommended in our report build on the FTC’s active enforcement in this area and would give consumers needed protections to rein in the problems we have seen.”

The Commission vote to issue the report was 5-0.

News: ConsumerProtection FederalTradeCommissionNews