“Cramming” – while it sounds like the experience of being in the middle row of a cross-country flight – actually refers to unauthorized charges on phone bills. Residential and business telecommunications customers have experienced cramming on their wireline bills for years, particularly for premium and other pay-per-call services. And the FTC has brought nearly two dozen cases against those companies.
With so many U.S. consumers using mobile phones (and many replacing their wireline phones and relying on wireless service exclusively), cramming has migrated to mobile phone bills. We have previously discussed the FTC’s ongoing review of mobile payments and the agency’s continuing concerns with cramming practices.
Last week, the FTC filed its first legal action to shut down a mobile cramming operation. In federal court in Georgia, the FTC alleges that since 2011, Wise Media, LLC, its CEO Brian Buckley, and its owner Winston Deloney have made millions of dollars by placing unauthorized charges for premium text messages services offering “horoscopes, flirting, love tips and other information” on consumers’ mobile phone bills. The FTC’s complaint also names Concrete Marketing Research, LLC, a company owned by Deloney, as having received funds earned through the allegedly unfair and deceptive practices.
According to the FTC, consumers did not “opt in” to receive these text message services, for which Wise Media charged $9.99 per month. The charges appeared on the bills and were repeated each month. Many consumers did not notice the charges and simply paid them. Some consumers noticed the charges but had great difficulty finding a contact for Wise Media, according to the complaint. Other consumers contacted the company, indicating they had not authorized the charges, but were still charged. Still others allegedly were told they would receive refunds, but Wise Media never issued those refunds. Instead, the underlying mobile phone carriers often ended up refunding money to complaining customers. The FTC noted that mobile phone carriers had experienced a high rate of complaints on Wise Media charges. One unnamed major phone carrier had even terminated Wise Media based on its excessive rates.
The FTC’s complaint charges that Wise Media and the other defendants violated Section 5 of the FTC Act by representing that consumers were obligated to pay for premium text services they never ordered. According to the FTC, these representations were false or misleading statements, constituting deceptive acts or practices under Section 5. Further, the complaint states that the placing of charges on consumers’ mobile phone bills without consumers’ “express informed consent” constituted unfair acts and practices also prohibited by Section 5.
The agency is seeking substantial relief and penalties from Wise Media and the other defendants. The FTC’s requested relief includes a request for a temporary and preliminary injunction to prevent future violations of the FTC Act by defendants, an asset freeze, and the refund of monies paid and “the disgorgement of ill-gotten monies.” In fact, after the filing of the complaint, Wise Media and the other defendants entered into a stipulation with the FTC agreeing to a temporary restraining order, an asset freeze, and other relief. The court also ordered that a receiver be appointed to oversee Wise Media’s assets and is requiring financial disclosures by the defendants.
This action signals that the FTC is continuing to monitor closely the mobile payment marketplace and that it will use its broad Section 5 authority to curb alleged deceptive practices in this medium. In fact, on May 8, the FTC staff will host a roundtable discussion on preventing mobile cramming, which will feature consumer advocates, industry leaders, and government regulators. It will be interesting to see what actions the major mobile carriers may propose, as the carriers have been on the receiving end of many of the consumer complaints (and refunds) resulting from third-party charges.