Feds move to crack down on bogus phone charges

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Federal regulators are cracking the whip on companies that “cram” wireless bills with unauthorized charges for things like ringtones and daily horoscopes.

In a staff report released on Monday, the Federal Trade Commission handed down guidelines that officials said should protect consumers from surprise charges.

“Mobile cramming is an issue that has affected millions of consumers, sticking them with charges they did not authorize, and the FTC has worked hard to combat it,” Jessica Rich, director of the FTC’s Bureau of Consumer Protection, said in a statement.

“The best practices recommended in our report build on the FTC’s active enforcement in this area and would give consumers needed protections to rein in the problems we have seen,” she said.

“Mobile cramming” is also taking center stage in Congress, with Sen. Jay Rockefeller (D-W.Va.) this week set to unveil the findings of a two-yearlong investigation into wireless billing practices.

The increased attention from regulators and lawmakers is putting pressure on mobile companies to ensure that their billing practices aren’t misleading.

The FTC is already going after T-Mobile, accusing the company of making “hundreds of millions” of dollars by taking a cut of the fees third-party services charge for subscriptions — such as for flirting tips or celebrity gossip.

Additionally, the FTC alleged the company tried to hide the charges in monthly phone bills and made obtaining a refund difficult.

While the FTC had brought charges over billing practices, it had never before filed a “cramming” case against a wireless company — leading many in the industry to wonder whether other cellphone providers could be next.

T-Mobile — which touts its “uncarrier” corporate culture of putting customers first — has pushed back hard on the FTC’s claims, calling it “sensationalized legal action” and pointing to the company’s vow to curb unauthorized charges.

In November of last year, the four major U.S. wireless companies — T-Mobile, Sprint, AT&T and Verizon — committed to stop billing customers for “premium” text message services, which they said constituted the bulk of unauthorized charges.

“This is about doing what is right for consumers, and we put in place procedures to protect our customers from unauthorized charges,” T-Mobile CEO John Legere wrote in his blog post.

He put the blame on third-party services that billed for unwanted subscriptions and products, “an issue the entire industry faced.”

“We believe those providers should be held accountable,” he said, rather than pursuing carriers with claims that are “not only factually and legally unfounded but also misdirected.”

According to the FTC, the major carriers’ voluntary commitments — limited to the premium text messages — don’t go far enough.

“They continue to engage in another form of third-party billing, known as direct carrier billing,” Malini Mithal, assistant director of the FTC’s Financial Practices Division, said in a statement to The Hill.

“Regardless of the type of billing involved, companies need to make sure that they are abiding by basic consumer protection principles, including by following the best practices outlined in our report,” she said.

The new FTC report recommends that wireless companies take steps to inform consumers when they’re being charged for third-party services while providing them a way to opt out or contest those charges.

The report suggests that wireless companies investigate suspicious third-party charges and clearly inform consumers about the charges, including conspicuously labeling them on cellphone bills or notifying consumers who do not receive monthly bills.

Finally, the agency recommended that the third-party services honestly advertise the costs of their products and obtain consumers “express, informed consent” before billing them.

“Mobile billing offers a promising option for consumers, but industry participants must recognize that innovation goes hand-in-hand with longstanding consumer protection principles,” the report said, adding that the agency will continue to monitor and investigate mobile billing.

FTC Commissioner Terrell McSweeny is set to testify at Wednesday’s Senate Commerce Committee hearing on mobile cramming, along with representatives from the FCC and wireless industry.

— This story was updated at 5:16 p.m.