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Cramming on Wireless Phone Bills: A Review of Consumer Protection Practices and Gaps

News release – Chairman John D. (Jay) Rockefeller, IV, Senate Commerce, Science, and Transportation Committee, August 1, 2014

“Today’s hearing is about a practice known as “cramming,” where consumers get charged on their phone bills for goods and services they never agreed to purchase. The companies that put these bogus charges on phone bills know that consumers don’t always notice small charges when we pay our monthly bills. Some consumers have continued paying these charges for months – or even years – before noticing they were being ripped off. Cramming has been a problem for several decades now – ever since the phone companies opened up their billing platforms to allow third-party vendors to charge consumers for goods and services unrelated to their phone service. For as long as they have been giving outside parties access to their customers’ bills, the major phone companies have assured Congress and the public that they are protecting their customers from this type of billing fraud. But unfortunately we have found that not to be the case. In 2010, this Committee launched a year-long review of cramming on landline phones. And what we discovered was troubling: it turned out that, despite industry’s claims, over a billion dollars of unauthorized charges likely had made their way onto consumers’ phone bills. After the Committee reported publicly on its review, the major phone companies announced they would voluntarily stop allowing third party charges on consumers’ landline phone bills. But those same companies did not make the same promise for their rapidly growing wireless phone business. When we started asking whether cramming was happening on wireless phone bills, AT&T, Sprint, T-Mobile and Verizon told us they were not repeating the mistakes of the past. Industry representatives said that their voluntary policies and practices provide – and I quote – a “robust process designed to protect customers from unscrupulous actors,” and that cramming on wireless phones has been “de minimis.” There is now overwhelming evidence that these statements were just not true – cramming on wireless phones has been widespread and has caused consumers substantial harm. Our review of wireless cramming has focused largely on a wireless phone billing technique known as the premium short code messaging system – or “PSMS” – which involves use of text messages to place charges on consumers’ phone bills. These types of charges often involved products such as ringtones, horoscopes, or celebrity gossip text message updates – and have been the primary focus of the cramming complaints that consumers have made to the FTC, the FCC, and state regulators in recent years. My staff has summarized the findings of the Committee’s review in a report titled “Cramming on Mobile Phone Bills” that I would like to enter into the Committee record. Specifically, this report finds:

• Third-party wireless billing has been a billion dollar industry that has yielded tremendous profits for the four largest wireless carriers, AT&T, Sprint, T-Mobile, and Verizon – their cut was often 30-40 percent of each vendor’s charge;

• Wireless cramming likely cost consumers hundreds of millions of dollars. I would hardly call that a “de minimis” harm;

• The wireless industry was on notice about significant wireless cramming problems by the late 2000’s – yet they let the abuses continue;

• Documents obtained by the Committee include examples of carriers allowing vendors with repeatedly high monthly consumer refund rates – which at times topped 50 percent of monthly revenues – to continue to bill consumers.

• There is also evidence that the carriers placed questionable reliance on middlemen companies known as “billing aggregators” that helped the third parties place charges on consumers’ telephone bills.”

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