FTC Combats ‘Cramming’ in Mobile Apps and Services

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In a recently released staff report, the Federal Trade Commission makes several recommendations designed to reduce “mobile cramming.” Cramming occurs when consumers access or enroll in third-party services through a mobile device, and, without being clearly informed, are billed by these services directly through their wireless service accounts. In light of this report, providers of mobile payment services will want to take note of the FTC’s recommendations and examine their mobile billing practices.

For service providers that facilitate mobile commerce, including app developers, the FTC recommends that advertisements and opt-ins for products and services clearly disclose that consumers’ phone bills will be charged, and that consumers be required to provide express informed consent prior to the charge posting to their phone bills. Further, payment intermediaries (i.e., stores where consumer can purchase apps) in these transactions should have sufficient procedures in place to scrutinize merchants' billing practices. The report also recommends that wireless carriers provide consumers with a means to block third-party charges to wireless phone bills clearly disclose on consumers' phone bills any third-party charges; and implement more effective methods for consumers to dispute unauthorized third-party charges.

As the mobile payments industry has expanded, directly billing consumers’ wireless service accounts (“carrier billing”) for third-party services, such as apps, games, or virtual currencies, has become a popular and convenient practice for consumers. The report notes that carrier billing is particularly useful for underbanked and unbanked consumers who may not have credit or debit cards. However, the ease of carrier billing is a double-edged sword that can easily lead to unauthorized charges. As such, any company involved in these transactions should carefully review and monitor its mobile billing practices to protect against cramming.

The report summarizes the FTC’s activities in this area, including a roundtable and enforcement actions against merchants and content providers for deceptively cramming consumers’ wireless service bills. Despite the FTC’s attempts to bring mobile cramming to the attention of industry, the FTC finds that industry efforts to combat cramming have fallen short. As such, the FTC recommends that merchants and content providers place pricing information on the same page, and immediately next to, any “buy” button or similar purchase function as described in the FTC’s .com Disclosures guidelines. Advertising and confirmation screens should also clearly disclose that the charges are being billed to a particular wireless telephone number.

The report makes additional recommendations for payment intermediary companies that contract with the wireless carriers to facilitate charges to consumers’ wireless bills. The report recommends that these intermediaries conduct better due diligence on merchants before providing payment services and maintain procedures to identify suspicious merchants and content providers. In addition, the report suggests these intermediaries implement procedures similar to banks’ Know Your Customer procedures for merchant payment processing. Finally, the report recommends that these intermediaries maintain control over the consent process to ensure that the consumer has expressly consented to the charge.

Topics:  Advertising, Cell Phones, Cramming, Enforcement, FTC, Mobile Apps, Mobile Devices, Mobile Payments, Mobile Services, Third-Party, Wireless Devices, Wireless Industry

Published In: Antitrust & Trade Regulation Updates, Communications & Media Updates, Consumer Protection Updates, Finance & Banking Updates, Science, Computers & Technology Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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