Cramming Makes a Nasty Comeback

Take a look at your phone bill. Every month. Even if you don’t have time to scrutinize every line item, it’s worth a quick review.  We’re all used to escalating bills for utilities (with the exception of gas—at least this year) so bill “creep” isn’t normally cause for alarm. But this year, particularly in the mobile device world, enforcers are coming from all corners to go after the carriers and providers who not only have continued to allow third parties to add piddling little charges without authorization, but who have, in many cases, been sharing the revenue with those third parties. Now at least some of those providers are getting spanked from all corners of government including, most notably the Federal Communications Commission, the Federal Trade Commission and, most recently, the Consumer Financial Protection Bureau.

The problem is cramming.  “Cramming” is the placement of unauthorized charges on a consumer’s phone bill (wireless or wireline) without authority from the consumer or notice to the consumer that new line items will appear on next month’s bill.  This activity has generated significant windfall for those third parties that engage in the practice, and also for the carriers that have allowed it to go on with a wink and a nod to angry regulators who’ve been aware of the problem for years.

Cramming began in the early 1990s, primarily with landlines. When consumers first figured out that small line items were appearing on bills, they squawked, but apparently not loudly enough to the appropriate regulators.  As such, certainly with the influence of powerful lobbyists, the industry was allowed to “self-regulate” with voluntary guidelines regarding the placement of third party charges on the bills of unsuspecting consumers.  Guess how that turned out?

As mobile devices became ubiquitous, some third party content providers (please note that I intentionally left out the adjective that would describe what I think of these types) moved to the wireless arena.  Again, without permission or authorization of any kind, small line items started appearing on consumer bills, not always clearly or appropriately identified. Most consumers didn’t notice. Those who did, and who raised a fuss, MAY have gotten a credit from the provider who not only billed on behalf of the third party biller, but also, because of the non-negotiable contract the consumer has with the wireless provider(s) guarantees to pay the bill no matter what, was guaranteed payment. It’s also important to note that the wireless provider (not the third party biller but the entity that was doing the actual billing like, for example T-Mobile and/or Sprint) collected as much as 40% of the amount collected on behalf of the third party biller.  Consumers didn’t notice, and those self-regulators were raking in extra cash in perhaps what they saw as “victimless crime.”  One more thing…what kind of hot information was contained in these third party billed transactions? The important stuff like (…wait for it…) ringtones, wallpaper and text messages containing horoscopes, flirting tips and celebrity gossip among other time-sensitive information.

However, for the past 12 months, a number of federal agencies (and by lots I mean at least 3) have gotten fired up (or had their collective interest renewed) in the problem.  First, there’s the FCC, the independent agency tasked with the oversight of “interstate and international communications by radio, television, wire, satellite and cable in all 50 states, the District of Columbia and U.S. territories.”  Then there’s the Federal Trade Commission, tasked with “a unique dual mission to protect consumers and promote competition. …The FTC is dedicated to advancing consumer interests while encouraging innovation and competition.“  Finally, and most recently, the Consumer Financial Protection Bureau (CFPB) has gotten into the act with its filing of a complaint against Sprint for the same actions that have garnered attention from the FCC and FTC of late.  They’re all going after the same kind of bad conduct. What’s different is the regulation(s) they’re using to achieve the same goal--Good and fair conduct in a marketplace filled with sophisticated and unsophisticated consumers.

Just before Christmas, the FTC announced a settlement with T-Mobile USA for its ongoing mobile cramming practices. The settlement provides refunds to affected customers in the amount of a whopping $90 million, along with additional $18 million for states’ attorneys general in all 50 states, and an additional $4.5 million paid directly to the RCC for repeated violations. Two days later, even closer to Christmas, the CFPB, an independent agency of the U.S. charged with regulating the offering and provision of consumer financial products and services, took aim at Sprint.  While CFPB’s mission is to “make markets for consumer financial products and services work for Americans,” it filed suit against Sprint in the U.S. District Court in the Southern District of NY for its continued third party billing practices.  Specifically, the CFPB has alleged the Sprint willfully engaged in conduct that enrolled customers in 3rd party billing without authorization, provided access to consumer and billing data belonging to customers without complying with existing data security controls, failing to resolve customer disputes and ignoring warnings from customers, government agencies and public interest groups about these ongoing practices.  Under the Banks and Banking sections of the U.S. Code (see 12 U.S.C. Sections 1031, 1036(a)(1)(B) of CFPA and 12 U.S.C. sections 5531 and 5536(a)(1)(B)), the CFPB is seeking an end to the practice, along with the award of damages to consumers and the imposition of civil penalties against the provider who had every reason to know about its own deceptive practices—particularly since it was profiting from them.  In addition to the CFPB’s action with respect to Sprint, the FCC, as of press time, is contemplating its own case against Sprint.  The number currently being bandied about is $105 million in penalties.  Stay tuned.

Finally, there’s the sad tale of Andrew Bachman, a third party biller whom, it is to be hoped, is in a class by himself.   When Mr. Bachman settled with the FTC over the misdeeds of his large third party billing scheme, he was forced to surrender some of his personal property. This included, according to the FTC’s press release on the settlement, the contents of four bank accounts valued at less $4,500 (aw), two vehicles including a 2012 Ferrari 458 Italia and a 2012 Mercedes G550 SUV, shares in a number of startup companies and “jewelry items, including three Audemars, one Patek Phillippe and four Rolex watches.  It must have been fun for him while it lasted.

Give your phone bill a quick once-over every month.  It really is worth the 1 or 2 minutes that it takes.