United States - Mobile Payments Mobile Cramming, Mobile Shopping Apps

For the past few years, with the explosive growth of mobile technologies in consumers lives, all things mobile especially consumer protection challenges arising from mobile commerce and mobile payments – have been at the center of the FTC's radar screen. Starting in 2012, the FTC sponsored Paper, Plastic… or Mobile? An FTC Workshop on Mobile Payments, to consider the issues key issues facing consumers and companies as they adopt mobile payment services. The FTC followed the workshop with a report in 2013, which outlined key recommendations to ensure that consumers are protected in the mobile marketplace.The report highlighted the then-growing problem of mobile “cramming,” which occurs when third parties place unauthorized charges onto consumers’ mobile phone bills. Since then, the agency has made a concerted effort to monitor developments in the mobile arena and target deceptive and unfair practices in this marketplace.

Following its 2013 mobile payments report, the FTC held a Mobile Cramming roundtable.The roundtable brought together consumer advocates, industry representatives, and government regulators to explore various issues, including how mobile cramming occurs and how to protect consumers from this practice.Since then, the FTC has brought multiple enforcement actions to deal with this issue, including five mobile cramming cases against merchants, resulting in substantial monetary judgmentsAnd, as detailed in the last issue of the FTC International Monthly, on July 1, the FTC filed a lawsuit againstthe telecommunications company, T-Mobile USA, Inc.,charging it with placing millions of dollars of crammed charges on mobile phone bills.

The agency’s efforts in this area are ongoing. Just last week, the FTC issued a new staff report on mobile cramming, which contains recommendations for industry best practices, announced its latest enforcement action against a mobile cramming scheme, and testified before Congress on its work in this area.The FTC also released a staff report on mobile shopping apps, which contains recommendations for consumers and businesses.Following are details of the recent reports, Congressional testimony, and enforcement action.

Mobile Cramming

FTC Report and Recommendations

In a report issued July 28, the FTC staff recommends steps that mobile carriers and other companies should take to prevent consumers from being stuck with mobile cramming charges arising from carrier billing. The report includes 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.The recommendations are: giving consumers the right to block third-party charges; ensuring that advertising, marketing, and opt-in processes for charges are not deceptive; getting express, informed consent before charging consumers; clearly displaying third-party charges on bills; and creating an effective process for resolving disputes.In making these recommendations, the FTC considered the evolution of the mobile carrier billing industry from “Premium-SMS” payments, relying on text messages ostensibly sent to consumers to initiate charges, towards direct-carrier billing arrangements, in which charges can be placed on a consumer’s mobile bill through a mobile website or app.The report notes that the recommended consumer protections should apply to direct carrier billing or any other mechanism for placing third-party charges on mobile phone bills.

Congressional Testimony  

On July 30, FTC Commissioner Terrell McSweeny told the Senate Committee on Commerce, Science and Transportation, that the Commission believes mobile cramming is a significant consumer protection issue.  According to the testimony, “Mobile cramming is a significant problem that threatens to undermine confidence in the developing payment method known as ‘carrier billing.’”  The testimony further stated: “As stakeholders have noted, carrier billing of third-party charges may be particularly beneficial for unbanked and underbanked consumers.  Additionally, consumers have used text messages to donate funds to a charitable organization, with the charge placed on their mobile phone account.  As carrier billing has developed, however, fraud has become a significant problem for consumers.”  The testimony summarized FTC efforts to combat both landline and wireless cramming and highlighted the recommendations the FTC has made for baseline consumer protections, including those contained in the latest staff report.

Enforcement Action

On July 29, the FTC announced it latest enforcement action against a mobile cramming scheme that deceptively charged over a million consumers more than $100 million on their mobile phone bills without their permission.  The FTC’s complaint alleges that the defendants violated the FTC Act through their deceptive tactics and by unfairly billing consumers for unauthorized services.  It seeks to permanently shutter the operation and recover money lost by consumers.  The court issued a temporary restraining order against six companies and six individual defendants behind the scheme, halting their operations and freezing their assets pending litigation.  The complaint charges that the defendants used deceptive practices, including fake websites with bogus offers of “freebies” or gift cards, to trick consumers into providing their mobile phone number.  Then the defendants placed monthly subscription fees ranging from $9.99 to $14.99 per month for a variety of “services” on consumers’ mobile phone bills without their authorization.  According to documents the FTC filed in court, the defendants continued cramming charges, using fake business names, even after wireless carriers terminated their billing privileges.

Mobile Shopping Apps “

What’s the Deal?” Staff Report On Mobile Shopping Apps Finds Disclosures to Consumers Are Lacking

On August 1, the FTC announced a staff report that finds that many mobile shopping apps do not provide consumers with important information – such as how the apps manage payment-related disputes or handle consumer data – prior to download.  If a shopping app passes charges through to a credit card, a consumer’s liability should be limited to $50.  But transactions made using stored value on a card may lack the legal protections afforded by credit or debit card transactions.  The report makes a number of recommendations to companies: apps should make clear consumers’ rights and liability limits for unauthorized, fraudulent, or erroneous transactions; apps should more clearly describe how they collect, use, and share consumer data; and companies should ensure that their data security promises translate into sound data security practices.