Wireless carriers are victims of phone cramming too, they just make billions of dollars instead of losing it

by Ashlee Kieler, Consumerist

wi-fi-track-smartphone-creepydol-2Opening your monthly mobile phone bill to find it significantly more expensive than it’s suppose to be can be infuriating. Finding out that it’s more expensive because you were charged for products you never requested is even worse. But wireless cramming is a practice that more and more consumers – and wireless providers (huh?) – are finding themselves victims of.

A new report [PDF], and subsequent hearing, on the subject by the Senate Committee on Commerce, Science and Transportation on Wednesday revealed that the practice of placing charges for third-party goods and services – think Hollywood gossip or daily horoscope texts – on consumers’ phone bills is growing more prevalent by wireless carriers, despite their so-called self-regulation practices.

“I don’t think the telephone companies were happy or content that the crammers were defrauding their customers,” Connecticut Senator Richard Blumenthal said, “but they almost certainly welcomed the revenue.”

And that revenue translated into billions of dollars for wireless providers and the third-party companies who produced the products.

Still, those working in the wireless industry contend that carriers are doing their best to stop the hurtful practice.

Michael Altschul, an official with wireless trade group Cellular Telecommunications Industry Association, said during the hearing that wireless carriers agreed that “placing an unauthorized, misleading or deceptive third-party charge on a consumer’s wireless bill is wrong and simply not acceptable.”

But don’t go blaming the carriers for all that cramming, because they, too, are apparently victims. Or at least that’s what Altschul implies.

“Carriers have been victimized by fraudsters who crafted elaborate schemes to defeat the industry’s self-regulation and third-party monitoring,” he told the committee.

It’s incredibly difficult to see carriers as victims when they’ve benefited greatly from cramming practices and continued to allow consumer protection gaps to exist in their safequards.

The committee report found that third-party billing on wireless phone bills has evolved into a billion dollar industry for carriers such as AT&T, Sprint, Verizon and T-Mobile, each of which generally retain 30% to 40% of each vendor charge.

And those self-regulation and third-party monitoring policies being purported by the industry? They don’t appear to hold up well when it comes to actually protecting consumers.

The report revealed most wireless carriers were aware of the growing cramming problem at least six years ago, but continued to retain lax oversight and self-regulation policies leaving ample opportunity for scammers to strike.

Those casual policies included touted safeguards such as “double opt-in” requirements which were often skirted by scammers. Additionally, some policies allowed vendors to continue billing consumers even when the vendors had several months of consistently high consumer refund rates – at times those rates topped 50% of monthly revenues.

However, major U.S. carriers Sprint, Verizon, AT&T and T-Mobile each agreed in November 2013 that they would stop billing for a certain type of charge – premium SMS messages.

Since the carriers may have largely stopped charging for PSMS, officials with the FTC told the Senate Committee that “complaints have fallen off a cliff.”

But there is a new source of cramming: direct carrier billing.

According to the report, the practice of cramming through digital content – apps, videos and songs – downloaded through app stores has increased nearly 30% from 2009 to 2012.

And even if carriers do discontinue cramming and direct carrier billing, they are still open to action by federal regulators.

Such action happened earlier this month when T-Mobile became the first major carrier to be charged by the Federal Trade Commission for allegedly making hundreds of millions of dollars off those premium text-messaging subscriptions that were never requested by subscribers.

For its part, T-Mobile officials say the FTC complaint was unfounded and without merit because of the company stopped charging consumers after their 2013 promise.

Just this week, the FTC announced a series of recommendations that could slow, or even cease, the practices of cramming and direct carrier billing.

The commission also had a hand this week in shutting down a mobile cramming operation that allegedly stuck consumers with more than $100 million in unauthorized charges.

In all, that action included charges against six companies and six individuals that used deceptive practices, including fake websites with bogus offers of “freebies” or gift cards, to trick consumers into providing their mobile phone numbers. The defendants then placed monthly subscription fees for a variety of “services” on consumers’ mobile phone bills without their authorization.

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