Carrier billing is certainly not new to the payments industry, but as digital technologies continue to evolve, companies have increasingly looked to mobile carrier billing to improve the reach and efficiency of digital transactions. But recent activities by the Senate Commerce Committee, including a proposed bill to impose additional consumer protection obligations on both wireline and wireless carriers, highlight the risks and regulations associated with carrier billing. These recent efforts build upon previous Committee investigations, agency actions by the Federal Trade Commission and the Federal Communications Commission, and ongoing efforts by state Attorneys General and legislators to combat the problem of “cramming” – the illegal act of placing unauthorized charges on telephone bills for third party goods or services.
What is carrier billing?
Carriers contract with a billing agent or (less commonly) directly with the merchant to allow for the placement of charges for goods and services on the customer’s phone bill. For years, third parties have used carrier billing to sell goods and services, in particular digital wares such as ringtones and apps. This billing method is attractive because it avoids the need to fill out payment forms, register with the goods or service provider, or submit credit card information to or otherwise transact with the credit card networks – in general, all the merchant really needs is access to the customer’s phone account. Moreover, since the carrier already has an account with the customer, there is, in general, a reduced risk that the purchaser is not the actual customer account holder, unlike those instances where the user of a credit card may not be the authorized cardholder. BoxPAY recently announced a service to permit smart TV and in-app purchases through mobile carrier billing. Google already allows for mobile carrier billing for app purchases on Google Play.
What is cramming?
Cramming occurs where the merchant places a charge on the customer’s telephone bill, without the customer’s knowledge or full understanding of the transaction. The FCC describes cramming as the placement of “unauthorized, misleading or deceptive charges on your telephone bill.” These unauthorized charges successfully avoid detection through a variety of means, for example, by posing as telecommunication-related services (calling plan, voicemail, mail server, collect calls) or broadly-described recurring charges (membership or subscription fees). Some charges may have been “authorized” in the sense that the consumer permitted a third party charge to appear on his or her bill, but was misled about the actual charges that would apply. Successful crammers are able to place charges on a phone bill in such a way that the customer does not notice the charge, or is led to believe that such charge was for an authorized good or service. Both the FCC and FTC have released consumer guides on cramming and how to detect such unauthorized charges.
State and federal efforts to combat cramming
Federal Communications Commission. The FCC is tasked with regulating cramming issues with respect to wireline and wireless carriers through enforcement of its “Truth In Billing” (TIB) rules. When first adopted in 1999, the TIB rules reflected broad but binding “principles” to encourage truth-in-billing. However, certain of these principles did not apply to wireless carriers until 2005, when the FCC removed one of the exemptions in light of an increased level of wireless cramming complaints, up from a few dozen reported cases in 1999 to approximately 18,000 in 2004.
This past April, the FCC took another, and arguably more direct, step to address cramming, adopting new rules that require carriers to (1) separately disclose charges from third parties for “non-telecommunication services” in a distinct section of the bill, and (2) clearly and conspicuously notify subscribers if the carrier offers the option to block third party billing. The FCC did not, however, apply these new requirements to wireless carriers, though it has solicited comments on whether and when to extend these requirements to wireless.
Today, wireless carriers must, pursuant to the FCC’s TIB rules:
Identify the name of the service provider associated with each charge;
Identify any change in service provider, including the identification of charges from any new service provider;
Include a brief, clear, non-misleading, plain language description of the service or services rendered; and
Disclose information necessary to make inquiries about, or contest, charges on a bill.
The full text of the TIB rules is available here.
Federal Trade Commission. While the FCC’s jurisdiction ends with the carriers, the FTC’s jurisdiction extends to the third party billing agents and merchants that are generally responsible for illegal cramming in the first place. The FTC treats cramming as an “unfair” and “deceptive” practice under the FTC Act, without distinction as to whether the unauthorized charges appear on a wireless or wireline phone bill. In 2009, the FTC reported receiving over 3,000 cramming-related complaints, which grew to over 7,000 complaints in 2010. Through legal action, the FTC has obtained multi-million dollar judgments against merchants and billing agents. In May of this year, the FTC filed a motion seeking $52 million from the nation’s largest third-party billing company, Billing Services Group, related to alleged “cramming” charges that appeared on nearly 1.2 million telephone bills in violation of a 1999 settlement between the company and the FTC.
States. Cramming is also of great concern at the state level. Many state Attorneys General have reported a growing number of wireline and wireless cramming complaints, leading some states to enact legislation to directly address, and in some cases, prohibit, third party billing. For example, in its consumer fraud statutes, Vermont prohibits a “seller” (including billing agents) from billing a consumer through wireline carrier billing, with very limited exceptions. Virginia and Maryland require prior customer authorization before wireline carriers may place third party charges on the customer’s telephone bill. As of May 30, both the Senate and House of the Illinois legislature approved a complete ban on third party wireline billing (HB5211). State Attorneys General have already reached settlements with major wireless carriers and crammers.
Congress. In December 2010, the Senate Commerce Committee initiated an investigation into cramming. In a Senate Staff Report released in July 2011, the Committee concluded that third-party billing has “largely failed to become a reliable method of payment” due to the large number of complaints and what the Committee found to be disreputable third parties operating out of PO Boxes, fake offices and apartments, with little to no oversight by any recognized corporate entity. As a result of its investigation, the large carriers, including AT&T and Verizon, announced plans to limit the use of third party billing, but it does not appear that they agreed to eliminate it altogether. Although the report focused mainly on wireline, staff indicated that wireless is a growing problem. Indeed, as noted above, Senator Rockefeller has already sent inquiries to the major wireless providers about their anti-cramming policies and introduced legislation to address both wireline and wireless carrier billing, as discussed further below.
Future regulation of mobile carrier billing
While state and federal efforts have historically distinguished between wireline and wireless carrier billing – for example, the FCC’s TIB amendments expressly exempt wireless carriers from the new bill format requirements; state cramming laws exempt wireless –that distinction appears to be thinning. As a follow up its 2011 investigation, on June 12, the Senate Commerce Committee sent letters of inquiry to the major wireless carriers – Sprint, T-Mobile, AT&T and Verizon Wireless –asking them about, among other things, their third party billing agents and vendors and what policies, procedures and protections the carriers have in place to identify and reject cramming efforts
The next day, Senator Rockefeller introduced new federal legislation – the Fair Telephone Billing Act (S.3291) – that would prohibit third-party charges on wireline (including interconnected VoIP) phone bills with limited exceptions, and further directs the FCC, in consultation with the FTC, to promulgate rules that would enhance consumer protections for mobile billing services, including the obligation to provide a mechanism to opt-out of third-party charges; to establish carrier procedures to confirm subscriber authorization; and to enable subscribers to receive reimbursement directly from the carrier for unauthorized charges.
Further complicating matters would be if the Consumer Financial Protection Bureau (CFPB) decided to participate in regulating mobile carrier billing. Under Dodd-Frank, a “covered person” subject to the CFPB’s jurisdiction includes a person offering a consumer financial product or service, a term that is further defined to include, among other things, the provision of “payments or other financial data processing products or services to a consumer by any technological means, including processing or storing financial or banking data . . . through any payments systems or network used for processing payments data, including payments made through [a] . . . mobile telecommunications network….” 12 U.S.C. 5481(15)(vii). This issue could become relevant if this broad definition were interpreted by the CFPB to treat mobile carrier billing as a “financial data processing service” through a mobile telecommunications network.
As wireline becomes increasingly subject to restrictive laws and industry practices, it is perhaps inevitable that crammers will recalibrate their efforts towards wireless. The question, then, is whether lawmakers and regulators will see fit to extend third-party wireline billing restrictions, and perhaps even prohibitions, to wireless.