FTC Seeks to Cramp ‘Mobile Cramming’7 May, 2013 By: William I. Rothbard
It seems that every time the Federal Trade Commission (FTC) announces new guidelines or brings a new enforcement action to try to keep pace with fresh forms of consumer deception emanating from the explosive growth of online and mobile technology, another type of hucksterism arises to command its attention. The latest is “telephone cramming” (unauthorized third-party phone charges) that apparently has now migrated from the offline, wired world to the wireless domain. Mobile phone users now have to add “mobile cramming” of fake charges for phony services to their list of unscrupulous marketing tricks to watch out for on the digital advertising horizon.
Cramming has been a huge problem on landline bills for years, resulting in more than two-dozen FTC cases against the practice. Now, as part of the FTC’s efforts to extend consumer protection principles to the new frontier of mobile marketing, last month it filed its first case against mobile cramming, alleging that Wise Media LLC and its principals placed recurring unauthorized charges on mobile phone bills and should be subject to an asset freeze, consumer redress and injunctive relief.
In the alleged scheme, Wise Media billed consumers for so-called “premium SMS” subscription services that sent periodic text messages containing horoscope alerts, “flirting tips,” “love tips” and the like. A merchant like Wise Media is known in this sphere as a “content provider,” which may offer digital content (such as a game that can be played on a phone) that can be purchased by the consumer using text messaging. The charge for the service then goes on the consumer’s cell bill.
In this instance, Wise Media offered its premium SMS services through various short codes. For example, it offered a subscription service called “HoroscopeGenie” which was supposed to provide three horoscope-related messages a week by text message, using the short code “27140.” In another, it advertised a subscription service called “Long Life Love Tips,” which purportedly provided three “flirting tips” a week, using the short code “84930.” Each subscription cost $9.99 a month and automatically renewed each month.
The essence of the FTC’s complaint, however, is that Wise Media placed these charges on consumers’ mobile phone bills without consumers ever knowingly signing up for the services. The complaint claims consumers got text messages suggesting they had been subscribed to Wise Media’s services, which they thought were spam and ignored. It says consumers were charged even if they sent text messages back saying they didn’t want the services. It also alleges that Wise Media’s charges on consumers’ bills were cryptic, and that many consumers consequently didn’t catch them and paid the bill in full. Wise Media also allegedly made it difficult for consumers who did notice a charge to dispute it and get a refund.
With the increasing use of mobile phones as a platform for delivery and payment of third-party services, the FTC anticipates that the problem of mobile cramming will only grow. Accordingly, it already has followed up on this maiden enforcement action by holding a public roundtable on May 8 to get the views of consumer advocates, regulators and industry on strategies for combatting mobile cramming. One strategy, which it has already recommended to the Federal Communications Commission (FCC), is to require wireless carriers to give customers the option to block all third-party charges from their bills. It also is encouraging consumers to scrutinize their mobile phone bills more carefully, looking for odd variations in the amount due and for services they haven’t ordered.