Roll Call: Latest News on Capitol Hill, Congress, Politics and Elections
December 21, 2014

Wireless Cramming: Consumers Took Big Hits, Report Says

A report released by a Senate panel estimates that unauthorized third-party charges on consumer cellphone bills, known as “cramming,” likely cost consumers hundreds of millions of dollars over several years. It also states that wireless companies’ policies to address the issue and ” sometimes lax oversight left wide gaps in consumer protection.”

The Commerce, Science and Transportation Committee is holding a hearing on the issue Wednesday afternoon and its report comes just a couple days after the Federal Trade Commission issued a staff report listing recommendations for industry to reduce mobile cramming. The agency also filed a lawsuit recently against T-Mobile, accusing the company of engaging in cramming.

“Industry representatives told us that their voluntary policies and practices provide consumers – and I quote – a ‘robust process designed to protect customers from unscrupulous actors,’ and that cramming on wireless phones has been ‘de minimis,’” panel chairman Jay Rockefeller, D-W.Va., said in a statement. “But this report makes it clear that is not the case. Cramming on wireless phones has been widespread and has caused consumers substantial harm.”

One aspect to note is that the report’s review focused on a third-party charging system involving text messages, known as premium short message service, which major wireless carriers have now ended.

Another form of third-party billing, known as direct carrier billing, is relatively new and it’s too early to predict the “extent to which scammers” will engage in cramming under these other billing systems that aren’t premium short message services, the report states.

The report states that the panel’s review indicates that “industry has gained substantial profits from third-party wireless billing while providing consumers inadequate protections against deceptive and fraudulent charges on their wireless bills.”  It points to a likely multibillion-dollar third-party wireless billing industry and estimates that major wireless carriers made hundreds of millions of dollars each year in their role in third-party charges to wireless phone bills.

Wireless cramming – unauthorized third-party billing – hit consumers with likely hundreds of millions of dollars over several years, the report estimates.

The report also  points to one industry protection measure, known as “double opt-in,” where consumers had to go through two affirmative steps to authorize a purchase through their phones, and states that several cases over the last few years showed it could be circumvented.

One example:

According to an FTC action brought in December 2013, content providers operated a scam in which they billed consumers for services that were not authorized through the use of misleading websites. The complaint cites as an example a website that offered to sign up consumers for Justin Bieber concert tickets if consumers provided their phone number, and alleges defendants likely used that phone information to sign up the consumer for services without their knowledge.

The report notes that industry representatives have contended that this double-opt in procedure generally worked and that such cases had to do with activities that were circumventing authorizations.

“However, conduct described in the above cases allegedly continued for time periods as long as several years, indicating substantial weaknesses in the wireless industry’s ability to root out abuses of consumer authorization requirements,” the report states.

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