Wireless Cramming Cost Consumers ‘Hundreds of Millions,’ Rockefeller Report Says

"Just as in the landline context, cramming on wireless phone bills has been widespread and has caused consumers substantial harm,” the Rockefeller staff report said (http://1.usa.gov/1k7OShH). “Third-party billing on wireless phone bills has been a billion dollar industry that has yielded tremendous revenues for carriers. AT&T, Sprint, T-Mobile, and Verizon generally retained 30%-40% of each vendor charge placed.” Carriers allow third-party charges through direct carrier billing, often dealing with digital content along the lines of music and apps, the report said, stating that in years past carriers crammed through what was known as premium short message service (PSMS) charges, now being phased out. Wireless cramming likely cost consumers hundreds of millions of dollars in recent years, it estimated.

Industry and policymakers should “vigilantly monitor evolving third-party billing practices to make sure that bad actors do not find ways to penetrate barriers to cramming on these new systems,” the report recommended, and they should “evaluate consumer protection gaps that occurred in the landline and PSMS contexts to establish consistent policies going forward that will provide consumers with appropriate transparency in the third-party billing process and a clear avenue of recourse where unauthorized charges occur."

Carriers ended PSMS support last November, CTIA General Counsel Michael Altschul said at the Wednesday hearing, saying the wireless industry wants to prevent wireless cramming. “Although CTIA has no direct involvement in this area, it is our understanding that each of the national carriers employs stringent vetting and safeguards to guard against any abuse of the process, and, as reported to this committee, there have been very few consumer complaints with direct carrier billing, and refund rates are around 1 percent to 1.5 percent.”

Adoption of smartphone technology creates “new opportunities for crammers,” FCC Enforcement Bureau Acting Chief Travis LeBlanc said. Of the complaints the FCC has received about cramming, the fraction about wireless cramming has grown from 15 percent from 2008 to 2010 to 58 percent in 2013, just “the tip of the iceberg” given that many don’t know they've been crammed on those bills, he said. “We have no reason to believe T-Mobile is the only carrier to engage in this conduct,” LeBlanc said of the FTC’s investigation of T-Mobile. “On the regulatory side, the FCC has adopted ’truth-in-billing’ rules designed to help consumers detect cramming or other unauthorized activities associated with their phone service, and is considering expansion of the rules. It is expected that the Commission will consider any rule changes within the next several months.”

FTC Commissioner Terrell McSweeny outlined the steps the FTC has taken against T-Mobile and other companies. “Basic consumer protections apply in the mobile environment just as they do in the brick and mortar world,” she said.

"All of the parties involved could do more to protect consumers from cramming,” said committee ranking member John Thune, R-S.D. He pressed Altschul on whether direct carrier billing would have the same cramming potential as PSMS. That could be an “on ramp,” Altschul said, expressing the need for vigilant monitoring.

"We haven’t yet heard a lot of complaints that these newer billing methods are allowing scammers to place unauthorized charges on phone bills,” Rockefeller said in his written hearing statement. “But given this industry’s dismal track record, we need to watch these practices carefully."

It’s “abundantly clear” that carriers were not doing enough to protect consumers from “massive fraud,” which “happened right under the telephone companies’ noses,” said Sen. Richard Blumenthal, D-Conn., at the hearing’s outset. “The time for effective action is now,” he said. “Where should the buck stop?” Blumenthal asked, wondering if the carriers would have more incentive “to take stronger action” if they were making less money. “Shouldn’t the buck stop with the wireless carriers?”

"The carriers will take responsibility for charges on their bills,” Altschul said, pointing to the carriers’ November action and other steps they have taken to abide by recommendations from the FTC. Carriers are at a bit of a disadvantage because they don’t know which programs consumers have opted into, Altschul remarked. “The scope of the problem has been demonstrated to be significant.”

"But what about the potential for the abuse on broadband bills? Or on bundled bills?” Sen. Ed Markey, D-Mass., asked, inquiring whether the FCC is looking at such cramming. LeBlanc said it’s likely wherever third-party charges are allowed. The FTC believes it has authority to protect consumers from fraud in this arena, McSweeny said. Markey also questioned industry voluntary guidelines as a route, musing about the strength of having a “governmental sword behind the threat.”

"I'm not sure there is enough awareness,” Sen. Bill Nelson, D-Fla., said, suggesting a possible need for an independent consumer ombudsman within the FTC. Consumers Union is still concerned about unauthorized charges and wants cramming protections extended to wireless and VoIP customers, it told Senate Commerce in a Wednesday letter (http://bit.ly/1zwxdUC).

Vermont has investigated wireless cramming in recent years and found many people unaware of when wireless cramming charges hit, state Attorney General William Sorrell told the committee. Complaints “have fallen off a cliff” since the carriers ended PSMS, but Vermont officials are staying wary of new technologies that could be used, Sorrell said. “This is a national problem,” he said. “In the wireless arena, self-regulation has failed.”