[Senate Hearing 113-674]
[From the U.S. Government Publishing Office]
S. Hrg. 113-674
CRAMMING ON WIRELESS PHONE BILLS:
A REVIEW OF CONSUMER PROTECTION
PRACTICES AND GAPS
=======================================================================
HEARING
before the
COMMITTEE ON COMMERCE,
SCIENCE, AND TRANSPORTATION
UNITED STATES SENATE
ONE HUNDRED THIRTEENTH CONGRESS
SECOND SESSION
__________
JULY 30, 2014
__________
Printed for the use of the Committee on Commerce, Science, and Transportation
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
U.S. GOVERNMENT PUBLISHING OFFICE
95-539 PDF WASHINGTON : 2015
_________________________________________________________________________________
For sale by the Superintendent of Documents, U.S. Government Publishing Office,
Internet:bookstore.gpo.gov. Phone:toll free (866)512-1800;DC area (202)512-1800
Fax:(202) 512-2104 Mail:Stop IDCC,Washington,DC 20402-001
SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
ONE HUNDRED THIRTEENTH CONGRESS
SECOND SESSION
JOHN D. ROCKEFELLER IV, West Virginia, Chairman
BARBARA BOXER, California JOHN THUNE, South Dakota, Ranking
BILL NELSON, Florida ROGER F. WICKER, Mississippi
MARIA CANTWELL, Washington ROY BLUNT, Missouri
MARK PRYOR, Arkansas MARCO RUBIO, Florida
CLAIRE McCASKILL, Missouri KELLY AYOTTE, New Hampshire
AMY KLOBUCHAR, Minnesota DEAN HELLER, Nevada
MARK WARNER, Virginia DAN COATS, Indiana
MARK BEGICH, Alaska TIM SCOTT, South Carolina
RICHARD BLUMENTHAL, Connecticut TED CRUZ, Texas
BRIAN SCHATZ, Hawaii DEB FISCHER, Nebraska
EDWARD MARKEY, Massachusetts RON JOHNSON, Wisconsin
CORY BOOKER, New Jersey
JOHN E. WALSH, Montana
Ellen L. Doneski, Staff Director
John Williams, General Counsel
David Schwietert, Republican Staff Director
Nick Rossi, Republican Deputy Staff Director
Rebecca Seidel, Republican General Counsel and Chief Investigator
C O N T E N T S
----------
Page
Hearing held on July 30, 2014.................................... 1
Statement of Senator Blumenthal.................................. 1
Report dated July 30, 2014 entitled, ``Cramming on Mobile
Phone Bills: A Report on Wireless Billing Practices'' by
the Office of Oversight and Investigations Majority Staff.. 3
Statement of Senator Thune....................................... 55
Statement of Senator Johnson..................................... 87
Statement of Senator Nelson...................................... 89
Statement of Senator Markey...................................... 91
Statement of Senator Klobuchar................................... 94
Witnesses
Hon. Terrell McSweeny, Commissioner, Federal Trade Commission.... 58
Prepared statement........................................... 59
Hon. William H. Sorrell, Attorney General, State of Vermont...... 66
Prepared statement........................................... 67
Travis LeBlanc, Acting Chief, Enforcement Bureau, Federal
Communications Commission...................................... 73
Prepared statement........................................... 74
Michael F. Altschul, Senior Vice President and General Counsel,
CTIA--The Wireless Association................................ 79
Prepared statement........................................... 81
Appendix
Response to written questions submitted to Hon. Terrell McSweeney
by:
Hon. Cory Booker............................................. 103
Hon. John Thune.............................................. 103
Response to written questions submitted to Travis LeBlanc by:
Hon. Cory Booker............................................. 125
Hon. John Thune.............................................. 125
Response to written questions submitted to Michael F. Altschul
by:
Hon. Cory Booker............................................. 127
Hon. John Thune.............................................. 128
CRAMMING ON WIRELESS PHONE BILLS:
A REVIEW OF CONSUMER PROTECTION
PRACTICES AND GAPS
----------
WEDNESDAY, JULY 30, 2014
U.S. Senate,
Committee on Commerce, Science, and Transportation,
Washington, DC.
The Committee met, pursuant to notice, at 2:50 p.m. in room
SR-253, Russell Senate Office Building, Hon. Richard
Blumenthal, presiding.
OPENING STATEMENT OF HON. RICHARD BLUMENTHAL,
U.S. SENATOR FROM CONNECTICUT
Senator Blumenthal. This hearing is open.
And as you know, my name is Richard Blumenthal. I am a
Senator from Connecticut, and I am here regretfully in place of
Chairman Rockefeller, who has an urgent intel, intelligence
matter and therefore could not be with us at the opening. I do
not think he will be able to join us, but his absence is in no
way a sign of any lack of interest in this subject. In fact, I
have talked to him in some detail about this hearing, and I
know that he would be here if he could be.
I want to welcome all of our panel here and all of the
folks who are attending. This subject is one very, very close
to my heart as a former Attorney General for a couple of
decades in Connecticut. I had firsthand experience with
cramming, both wireless and landline, and worked with at least
one of the members of this panel, Attorney General Sorrell. And
I will be introducing him in just a moment.
As many of you know, more than 2 decades ago, the telephone
industry decided to get into the payment processing business.
The bright idea was that consumers could charge purchases to
their phone bills rather than doing it through a credit card or
a bank account. At the end of every billing period, consumers
would pay for their telephone service plus the purchases they
had made from third-party vendors.
In theory, using a telephone bill as a way to purchase
goods and services makes some sense, has a lot of potential,
and attracted a lot of interest. As several of our witnesses
point out in their testimony today--and they do it very well--
the so-called direct carrier billing method of payment could
benefit unbanked customers and other people looking for an
alternative way to shop or make a charitable contribution.
But the reality of third-party charges on telephone bills
is a markedly different story, a profoundly different tale, and
the fact of the matter is that it has not lived up to its
potential. Almost as soon as the telephone companies opened up
their payment platforms to outside parties, scammers figured
out a way to beat the system, not surprisingly. They found ways
to cram unauthorized charges onto consumers' bills, and they
have been absolutely relentless in doing so.
So today most consumers still do not understand, including
some of my colleagues, that their phone bills have often
contained charges for things they never actually bought. What a
surprise. They are paying for things they never bought. And it
is an unwelcome surprise to them, especially when they discover
that they have trouble getting refunds or that they cannot get
their money back at all.
In the 1990s and into the 2000s, most cramming occurred on
consumers' wireline telephone bills, as this committee
documented in an excellent 2011 hearing and report. American
consumers and businesses paid billions of dollars for fax,
voice mail, celebrity gossip, and other services they did not
want and did not order. A few days ago, the crammers very
predictably turned their attention--I should have said a few
years ago the crammers very predictably turned their attention
to the rapidly growing wireless telephone market. They figured
out a way to rip consumers off who had grown accustomed to
purchasing music and other content on their phones through a
text messaging-based system called PSMS, premium short
messaging system.
The Commerce Committee staff--and I really want to thank
them for their excellent work--has prepared a new report
documenting how crammers exploited the weaknesses in the
premium messaging system to fraudulently charge American
consumers literally hundreds of millions of dollars. And I ask
unanimous consent to put this report and its exhibits in the
record of this hearing.
[The information referred to follows:]
Table of Contents
Executive Summary
I. Background
A. Initiation of Third-Party Billing on Telephone Bills
B. Third-Party Charges on Landline Bills
C. The Emergence of Cramming on Wireless Phone Bills
D. State and Federal Enforcement and Regulatory Authority
II. Committee Investigation
III. Overview of Premium Short Message Service (PSMS) Wireless Billing
A. The PSMS Third-Party Wireless Billing Process
B. Voluntary Industry Oversight over Third-Party Wireless
Billing Practices
1. Industry-Wide Oversight
2. Individual Carrier Policies
IV. Committee Findings on PSMS Third-Party Wireless Cramming
A. Carriers Have Profited Tremendously from Third-Party
Wireless Billing
B. Wireless Cramming Has Likely Cost Consumers Hundreds of
Millions of Dollars
1. Refund Rates
2. Consumer Complaint Data
3. State and Federal Actions
C. Carriers Were on Notice about Cramming and Other Vendor
Problems
D. Industry Self-Regulation Has Left Gaps In Consumer
Protection
1. The Double Opt-In Safeguard was Porous
2. Tolerance for High Consumer Refund Rates Raises
Questions about Carrier Commitment to Preventing and
Addressing Cramming
a. Carrier Policies on Refund Thresholds
b. Some Vendors Had Exceedingly High Refund
Rates that at Times Spanned Several Months
c. Case Study on Vendor with High Refund
Rates: Variation in Carrier Response
Underscores Broad Latitude Afforded by the
Self- Regulatory System
3. Carriers Placed Questionable Reliance on Billing
Aggregators as Oversight Partners
V. Emerging Third Party Wireless Billing Technologies and Potential
Consumer Protection Issues
Exhibits
Exhibit A
Exhibit B
Exhibit C
______
Executive Summary
For several decades, phone companies have allowed third-party
vendors to charge consumers on their phone bills for goods and services
unrelated to phone service, such as photo storage, voice-mail, and
faxes. This practice began with landline phone bills and continued on
wireless phone bills as consumer use of mobile phones increased.
Throughout this period, the industry has assured the public that its
self-regulatory system is effective at protecting consumers from
fraudulent third-party billing on their phone bills.
However, this Committee's 2010-2011 review of third-party billing
practices on landline phones showed that widespread unauthorized
charges--known as ``cramming''--had been placed on phone bills and had
likely cost consumers billions of dollars over the preceding decades.
In light of these findings, and emerging reports of cramming in the
wireless context, the Committee subsequently began reviewing third-
party billing practices on wireless phone bills.
This inquiry focused largely on third-party vendor charges placed
through a system known as the premium short message service, or
``PSMS,'' which involves use of text messaging charged to consumers at
a higher rate than standard text messaging. These types of charges had
been the focus of mounting reports of abuses. Products charged to
consumers through the PSMS system generally have involved digital goods
used on mobile phones, such as ringtones and cellphone wallpaper, or
for services such as subscriptions to periodic text message content
sent to the subscriber on subjects such as horoscopes or celebrity
gossip.
To assess the nature and scale of wireless cramming, the
Committee's majority staff reviewed narrative and documentary
information provided by the four major wireless carriers, entities
known as ``billing aggregators'' that serve as middlemen between
vendors and carriers in the billing process, and other sources.
Unfortunately, the information reviewed by the Committee shows
that, just as in the landline context, cramming on wireless phone bills
has been widespread and has caused consumers substantial harm.
Specifically, this report finds:
Third-party billing on wireless phone bills has been a
billion dollar industry that has yielded tremendous revenues
for carriers. AT&T, Sprint, T-Mobile, and Verizon generally
retained 30 percent-40 percent of each vendor charge placed.
Despite industry assertions that fraudulent third-party
wireless billing was a ``de minimis'' problem, wireless
cramming has been widespread and has likely cost consumers
hundreds of millions of dollars.
The wireless industry was on notice at least as early as
2008 about significant wireless cramming concerns and problems
with third-party vendor marketing tactics, yet carriers' anti-
cramming policies and sometimes lax oversight left wide gaps in
consumer protection:
Consumer billing authorization requirements known as
the ``double opt-in'' that were touted as safeguards by
industry were porous, and multitudes of scammers appeared
to have repeatedly skirted them.
Some carrier policies allowed vendors to continue
billing consumers even when the vendors had several months
of consecutively high consumer refund rates--and documents
obtained by the Committee indicate this practice occurred
despite vendor refund rates that at times topped 50 percent
of monthly revenues.
Carriers placed questionable reliance on billing
aggregators in monitoring conduct of vendors that were
charging consumers on carriers' billing platforms.
In November 2013, the Attorney General of Texas brought an action
alleging that Mobile Messenger, one of the major PSMS billing
aggregators, had engaged in a deceptive scheme with vendors to cram
consumers' bills. Within weeks--and after years of wireless industry
attestations about its effective consumer protection practices--AT&T,
Sprint, T-Mobile, and Verizon abruptly announced they would virtually
eliminate PSMS billing on their platforms.
Today, while the major carriers have phased out commercial PSMS
services, they continue to allow third-party charges on consumers'
wireless bills using methods that do not involve PSMS. These include
methods sometimes labeled ``direct carrier billing'' (DCB) through
which vendors using websites and apps connect to carrier billing
platforms. To date, products and services charged through these non-
PSMS billing methods have primarily involved digital content, such as
music and apps including games with in-app purchasing capabilities.
Direct carrier billing methods are relatively nascent, and it is
not possible at this stage to predict the extent to which scammers will
find ways to cram charges on wireless bills under these non-PSMS
systems. As new third-party wireless billing methods continue to
evolve, it is important that industry and policymakers evaluate the
consumer protection gaps that have enabled widespread deceptive and
fraudulent charges to be placed on consumers' landline and wireless
bills, and to ensure that the unfortunate history of cramming on
consumer phone bills does not repeat yet again.
Background
A. Initiation of Third-Party Billing on Telephone Bills
Third-party billing on consumer phone bills grew out of two
regulatory steps that occurred in the 1980s: the divestiture of AT&T in
1984 and de-tariffing of telephone billing and collection in 1986.
Prior to those steps, AT&T had its own billing and collection system
that encompassed both local and long-distance charges. Following the
break-up of AT&T, regional bell operating companies, also known as
local exchange carriers, were not allowed to offer their own long-
distance services, and began providing billing collection services to
AT&T and other companies that offered long-distance services.\1\
---------------------------------------------------------------------------
\1\ Senate Committee on Commerce, Science, and Transportation,
Staff Report on Unauthorized Third-Party Charges on Telephone Bills, at
1 (July 12, 2011).
---------------------------------------------------------------------------
Over time, telephone companies opened these billing platforms to an
array of other third-party vendors that offered products and services
beyond those directly related to phone service--from webhosting, to
online gaming, online photo storage, and roadside assistance.\2\
Telephone numbers thus became a payment method similar to credit card
numbers. However, third-party charges levied on the phone bill platform
did not receive the same protections as credit card payments. For
example, with credit card payments, consumers' liability for
unauthorized charges is limited to $50, consumers have the right to
dispute unauthorized charges, and consumers have the right to seek to
reverse a charge.\3\ Further, unlike credit card numbers, telephone
numbers for landline phones are widely accessible to anyone with a
telephone directory.\4\
---------------------------------------------------------------------------
\2\ See Senate Committee on Commerce, Science, and Transportation,
Staff Report on Unauthorized Third-Party Charges on Telephone Bills, at
22 (July 12, 2011).
\3\ See Fair Credit Billing Act, 15 U.S.C. Sec. Sec. 1666-1666j;
Consumer Credit Protection Act 15 U.S.C. Sec. 1643; Regulation Z, 12
C.F.R. Sec. 1026.13.
\4\ See Senate Committee on Commerce, Science, and Transportation,
Staff Report on Unauthorized Third-Party Charges on Telephone Bills, at
2 (July 12, 2011).
---------------------------------------------------------------------------
B. Third-Party Charges on Landline Phone Bills
From early on, industry representatives pledged that voluntary
industry practices would protect consumers from billing scams relating
to third-party charges on the carrier billing platforms, and carriers
agreed upon a set of nonbinding guidelines.\5\ At a Senate hearing in
July 1998, the President of the United States Telephone Association
asserted, ``I have a high degree of confidence that these voluntary
guidelines will produce an effective means to curb this abuse,'' that
the industry has ``a powerful self-interest to correct this problem,''
and, that the industry was ``working overtime'' to eliminate ``this
scourge.'' \6\
---------------------------------------------------------------------------
\5\ See Federal Communications Commission, Anti-Cramming Best
Practices Guidelines (available at www.fcc.gov/Bureaus/Common_Carrier/
Other/cramming/cramming.html) (accessed July 7, 2011).
\6\ Permanent Subcommittee on Investigations of the Senate
Committee on Governmental Affairs, Hearing on ``Cramming'': An Emerging
Telephone Billing Fraud, 105th Cong. (July 23, 1998) (S. Hrg. 105-646).
---------------------------------------------------------------------------
However, over the decade that followed, consumers increasingly
began to complain that the third-party charges appearing on their
wireline--also known as ``landline''--telephone bills were
unauthorized. This came to be known as ``cramming.'' State and Federal
law enforcement agencies brought dozens of enforcement actions against
third-party crammers that highlighted problems consumers were
encountering. For example:
In 2006, the Attorney General of Florida filed a lawsuit
against E-mail Discount Network for charging 20,000 Florida
consumers' telephone bills for e-mail accounts and coupons they
did not request or use;\7\
---------------------------------------------------------------------------
\7\ See Settlement Agreement, Florida, Office of the Attorney
General v. E-mail Discount Network, Fla. 2d Cir. Ct. (No. 2006 CA 2475)
(Feb. 15, 2007).
In 2009, the Attorney General of Illinois filed a lawsuit
against U.S. Credit Find for placing ``unauthorized charges on
more than 9,000 Illinois consumers' phone bills'' for a
purported online tutorial that would ``help consumers fix their
credit;'' \8\ and
---------------------------------------------------------------------------
\8\ See Press Release, Madigan Reaches Agreement with U.S. Credit
Find to Prevent Phone Cramming, The Office of the Illinois Attorney
General (June 18, 2009).
In 2010, a Federal district court awarded the FTC a $37.9
million judgment against Inc21.com Corporation and related
third-party vendors after learning that as few as 3 percent of
the defendants' customer base expressly authorized the
defendants' charges on their telephone bills.\9\
---------------------------------------------------------------------------
\9\ See Federal Trade Commission v. Inc21.com Corp., 745 F.Supp.2d
975, 982-983 (N.D. Cal. 2010).
In 2010, Chairman Rockefeller opened an investigation to examine
the extent of third-party billing on landline telephone bills. This
investigation resulted in a majority staff report issued in July 2011
---------------------------------------------------------------------------
that found:
(1) third-party billing on wireline telephone bills was a billion-
dollar industry, with over $10 billion in charges placed on
consumer bills over a five year period;
(2) a substantial percentage of the charges placed on consumers'
telephone bills were likely unauthorized;
(3) telephone companies profited from cramming, generating over $1
billion in revenue from placing third-party charges on customer
bills over preceding years;
(4) cramming affected every segment of the landline telephone
customer base, from individuals to small businesses, non-
profits, corporations, government agencies, and educational
institutions;
(5) many third-party vendors were illegitimate and created solely to
exploit third-party billing;
(6) many telephone customers who were crammed did not receive help
from their telephone companies; and
(7) telephone companies were aware that cramming was a major problem
on their third-party billing systems.\10\
---------------------------------------------------------------------------
\10\ Senate Committee on Commerce, Science, and Transportation,
Staff Report on Unauthorized Third-Party Charges on Telephone Bills, at
ii-iv (July 12, 2011).
Following release of the investigation's findings at a Committee
hearing and through a majority staff report, in early 2012 the three
major telephone companies--Verizon, AT&T, and CenturyLink--agreed to
stop placing third-party charges for enhanced services on their
customers' wireline telephone bills.\11\ These and other carriers
continued, however, to allow third parties to place charges on
consumers' wireless telephone bills.
---------------------------------------------------------------------------
\11\ See Senate Committee on Commerce, Science, and Transportation,
Rockefeller Hails Verizon Decision to Shut Down Unwanted
3rd-Party Charges on Telephone Bills (Mar. 21, 2012); Senate
Committee on Commerce, Science, and Transportation, Another Major Phone
Company Agrees to End Third-Party Billing on Consumer Phone Bills (Mar.
28, 2012); Chairman Rockefeller Introduces Telephone Bill Anti-Cramming
Legislation, U.S. Federal News (June 14, 2012).
---------------------------------------------------------------------------
C. The Emergence of Cramming on Wireless Phone Bills
Over the past two decades, consumers have migrated from using
landline phones to relying on mobile phones,\12\ including Internet-
enabled smartphones that today represents over half of the mobile phone
market.\13\ As use of wireless phones began to increase, reports began
to mount that consumers were being ``crammed,'' or charged for text
message services for which they had not enrolled, on their wireless
phone bills. Many of the products that were the subject of consumer
complaints were charges for subscription services such as celebrity
gossip, horoscopes, sports scores, love tips, and diet tips, which were
similar to many of the services found to be fraudulent in the
Committee's 2011 wireline cramming investigation.\14\
---------------------------------------------------------------------------
\12\ A recently released report by the National Center for Health
Statistics showed that two out of five U.S. households, or 41 percent,
had only wireless phones in the second half of 2013 (July-December
2013). Pew Research Center, CDC: Two of Every Five U.S. Households Have
Only Wireless Phones (July 8, 2014) (online at http://
www.pewresearch.org/fact-tank/2014/07/08/two-of-every-five-u-s-
households-have-only-wireless-phones/).
\13\ As of January 2014, 90 percent of American adults had a cell
phone and 58 percent had a smartphone. Pew Research Center, Cell Phone
and Smartphone Ownership Demographics (online at http://
www.pewinternet.org/data-trend/mobile/cell-phone-and-smartphone-
ownership-demographics/).
\14\ See What's Your Sign? It Could Be a Cram, New York Times (Mar.
24, 2012) (reporting on a consumer who complained of being billed for
horoscope text services not authorized). In the wireline cramming
investigation, the Committee found that companies that were charging
consumers each month for e-mail accounts that included weekly e-mail
messages with ``celebrity gossip'' and ``fashion tips.'' See Senate
Committee on Commerce, Science, and Transportation, Staff Report on
Unauthorized Third-Party Charges on Telephone Bills, at ii-iii (July
12, 2011); See also footnote 16 infra, detailing legal actions
concerning various subscription services.
---------------------------------------------------------------------------
In recent years, private parties, state Attorneys General, the
Federal Trade Commission (FTC), and the Federal Communications
Commission (FCC) have brought a number of actions highlighting consumer
protection vulnerabilities in the wireless billing system, particularly
with respect to charges placed through a system known as premium short
message service (PSMS).
For example, between 2008 and 2010, the Attorney General of Florida
reached settlements with AT&T Mobility, Verizon, T-Mobile, and Sprint,
wherein the companies agreed to issue refunds to customers billed for
ringtones, wallpapers, and other mobile content that had been
advertised on the Internet as free, but resulted in consumers being
signed up for monthly text message subscriptions.\15\ A plethora of
other actions followed.\16\
---------------------------------------------------------------------------
\15\ See FL AG McCollum in Settlement With Sprint Over `Free'
Ringtones, Bloomberg (Oct. 8, 2010) (online at http://
www.bloomberg.com/apps/news?pid=21070001&sid=aXwc4FpkupsU); T-Mobile
$600k Settlement with Florida AG Affects All Mobile Content Marketing,
Mobile Marketer (July 22, 2010) (online at http://
www.mobilemarketer.com/cms/news/legal-privacy/6873.html). See Part I.D
below for discussion of additional state and Federal actions.
\16\ See Texas v. Eye Level Holdings, LLC, et al., Tex. D. Ct.,
Travis County (No. 1:11-cv-00178) (Mar. 11, 2011) (where the Texas
Attorney General accused the defendants of engaging in deceptive trade
practices by running a text messaging scheme that cost consumers in
Texas millions in unauthorized wireless charges; and defendants agreed
to pay nearly $2 million to settle the charges); Federal Trade
Commission v. Wise Media, LLC, et al., N.D. Ga. (No. 1:13cv1234) (Apr.
16, 2013) (where the third-party content provider was charged for
placing over $10 million on consumers' wireless bills for unauthorized
charges for PSMS messages containing horoscopes, love and flirting
tips, and other information); Federal Trade Commission v. Jesta
Digital, LLC, also d/b/a JAMSTER, D.D.C. (No. 1:13-CV-01272) (Aug. 20,
2013) (where the third-party content providers were charged with
cramming unwanted charges on consumers' cell phone bills for ringtones
and other mobile content); Texas v. Mobile Messenger U.S. Inc., et al,
Tex. D. Ct., Travis County (Nov. 6, 2013) (alleging that defendants,
who were a billing aggregator, four content providers, and an online
advertising placement business, conspired to enroll consumers in PSMS
programs for ringtones, horoscopes, celebrity gossip news, and other
coupons without consumer consent); and Federal Trade Commission v.
Tatto, et al., C.D. Cal (No. 2:13-cv13-8912-DSF-FFM) (Dec. 5, 2013) (in
which FTC alleged that defendants placed millions of dollars on
consumers' wireless phone bills for text messages that consumers did
not authorize; and defendants ultimately agreed to surrender over $10
million in assets to settle these charges). Private parties also have
brought legal actions involving third-party cramming charges. See
Tracie McFerren v. AT&T Mobility LLC, Sup. Ct. of Ga. (No. 08-cv-
151322) (May 30, 2008) (a class action suit alleging that AT&T failed
to set up controls to stop unauthorized third-party charges on
consumers' wireless bills); Gray v. Mobile Messenger Americas, Inc.,
S.D. Fl. (No. 0:08-cv-61089-CMA) (July 11, 2008) (a class action suit
charging Mobile Messenger, a billing aggregator, with placing
unauthorized third-party charges on consumers' wireless bills); Armer
v. OpenMarket, Inc., W.D. of Wash. (No. 08-CV-01731-CMP) (Dec. 1, 2008)
(a lawsuit against OpenMarket, a billing aggregator, and Sprint
concerning alleged unauthorized charges for PSMS messages containing
content such as ringtones, sports score reports, weather alerts, and
horoscopes); and Cellco Partnership d/b/a Verizon Wireless v. Jason
Hope, Eye Level Holdings, LLC, et al., D. Ariz. (No. 2:11-cv-00432-DGC)
(Mar. 7, 2011) (in which Verizon charged that the third-party content
provider collected unauthorized or deceptive charges on consumers'
wireless bills through PSMS messages).
---------------------------------------------------------------------------
Most recently, the FTC filed its first wireless cramming complaint
against a major carrier, alleging that T-Mobile placed unauthorized
third-party charges on its customers' wireless bills, including in some
cases, for services that had refund rates of up to 40 percent in a
month. The complaint alleged that T-Mobile knew or should have known
that these charges were not authorized and that T-Mobile's billing
practices--allegedly burying charges deep into phone bills and without
clear descriptions--made it difficult for consumers to find these
unauthorized charges on their bills. According to the complaint, when
consumers found these charges on their bills, T-Mobile failed to
provide full refunds, and directed consumers to the third-party content
providers for redress.\17\ The FCC announced that it is also
investigating complaints against T-Mobile regarding these same
practices.\18\
---------------------------------------------------------------------------
\17\ See Federal Trade Commission v. T-Mobile USA, Inc., W.D. Wash.
(No. 2:14-cv-00967) (July 1, 2014) (online at ftc.gov/enforcement/
cases-proceedings/132-3231/t-mobile-usa-inc).
\18\ FCC, FCC Investigates Cramming Complaints Against T-Mobile
(July 1, 2014) (online at http://www.fcc.gov/document/fcc-investigates-
cramming-complaints-against-t-mobile).
---------------------------------------------------------------------------
D. State and Federal Enforcement and Regulatory Authority
Agencies at the state and Federal level have enforcement and
regulatory authority to protect consumers from cramming. Many states
have enacted legislation and regulations prohibiting cramming on
landline service.\19\ Further, California has adopted regulatory
provisions specifically addressing wireless cramming.\20\ In addition,
state Attorneys General have been active in pursuing cases against
carriers, billing aggregators, and third-party content providers
alleged to have crammed consumers on their wireless bills under their
state laws prohibiting unfair and deceptive trade practices.\21\
---------------------------------------------------------------------------
\19\ See, e.g., Mich. Comp. Laws Sec. 484.2502; Cal. Pub. Util.
Code Sec. 2890; 52 Pa. Code Sec. 64.23; Tex. Util. Code Sec. 17.151;
Va. Code Sec. 56-479.3. In 2011, Vermont became the first state to
enact legislation prohibiting third-party billing on landline telephone
bills, with three limited exceptions: ``(1) billing for goods or
services marketed or sold by entities subject to the jurisdiction of
the Vermont Public Service Board; (2) billing for direct-dial or dial-
around services initiated from the consumer's telephone; and (3)
operator-assisted telephone calls, collect calls, or telephone services
provided to facilitate communication to or from correctional center
inmates.'' 9 Vt. Stat. Sec. 2466. Illinois enacted similar legislation
in 2012. See 815 ILCS 505/2HHH.
\20\ The California Public Utilities Commission adopted rules that
(1) established that wireless carriers must obtain explicit
authorization from consumers before they can be billed for third-party
charges; (2) establish that the carriers must refund consumers for
unauthorized charges and investigate any complaints of unauthorized
charges; and (3) requires wireless carriers to report quarterly the
total amount of refunds given to California consumers for unauthorized
charges and third party vendors that have been suspended or terminated.
See Press Release, CPUC Strengthens Consumer Protections Against
Cramming and Fraud on Telephone Bills, California Public Utilities
Commission (Oct. 28, 2010).
\21\ See, e.g., cases cited at footnote 16, supra.
---------------------------------------------------------------------------
At the Federal level, both the FTC and the FCC have jurisdiction
over cramming. The FTC enforces Section 5(a) of the FTC Act, which
prohibits ``unfair or deceptive acts or practices in or affecting
commerce.'' \22\ The FTC has pursued enforcement actions against third-
party content providers, billing aggregators, and carriers based on
this authority, finding that cramming charges onto phone bills is both
an unfair and deceptive practice.\23\
---------------------------------------------------------------------------
\22\ 15 U.S.C. Sec. 45(a). Misrepresentations or deceptive
omissions of material fact constitute deceptive acts or practices, and
acts or practices are unfair if they cause substantial injury to
consumers that consumers cannot reasonably avoid themselves and that is
not outweighed by countervailing benefits to consumers or competition.
Id.
\23\ See, e.g., cases cited at footnote 16, supra.
---------------------------------------------------------------------------
In addition to these enforcement actions, the FTC has held a
workshop regarding wireless cramming and explored the possibility of
Federal regulations.\24\
---------------------------------------------------------------------------
\24\ See Federal Trade Commission Roundtable, Mobile Cramming, An
FTC Roundtable (May 8, 2013) (online at http://www.ftc.gov/news-events/
events-calendar/2013/05/mobile-cramming-ftc-roundtable). The FCC also
held a workshop on wireless cramming. See Federal Communications
Commission Workshop, Bill Shock and Cramming (Apr. 17, 2013) (online at
http://www.fcc.gov/events/workshop-bill-shock-and-cramming).
---------------------------------------------------------------------------
The FCC has pursued cramming cases under Section 201(b) of the
Communications Act of 1934, which states in pertinent part: ``[a]ll
charges, practices, classifications, and regulations for and in
connection with [interstate or foreign] communication service [by wire
or radio], shall be just and reasonable, and any such charge, practice,
classification, or regulation that is unjust or unreasonable is
declared to be unlawful. . . .'' \25\ The FCC has found ``cramming'' to
be an ``unjust and unreasonable'' practice.\26\
---------------------------------------------------------------------------
\25\ 47 U.S.C. Sec. 201(b).
\26\ See Order, FCC v. Assist 123, LLC, at 3 (EB-TCD-12-00005541)
(July 16, 2014) (online at http://www.fcc.gov/document/assist-123-pay-
13m-resolve-wireless-cramming-investigation).
---------------------------------------------------------------------------
Current FCC regulations also contain ``truth-in-billing'' rules
regarding both wireline and wireless phone bills.\27\ Further, on April
27, 2012, the FCC issued a Further Notice of Proposed Rulemaking
(FNPRM) seeking comments on additional measures to prevent wireline
cramming and on possible regulatory and non-regulatory measures to
address wireless cramming.\28\ The comment period closed in July
2012.\29\
---------------------------------------------------------------------------
\27\ 47 C.F.R. Sec. Sec. 64.4200-64.2401.
\28\ Empowering Consumers to Prevent and Detect Billing for
Unauthorized Charges (``Cramming''); Consumer Information and
Disclosure; Truth-in-Billing and Billing Format, 27 FCC Rcd 4436 (Apr.
27, 2012). The additional safeguards proposed regarding wireline
cramming ``require wireline carriers that currently offer blocking of
third-party charges to clearly and conspicuously notify consumers of
this option on their bills and websites, and at the point of sale; to
place non-carrier third-party charges in a distinct bill section
separate from all carrier charges; to provide subtotals in each section
of the bill; and to display separate subtotals for carrier and non-
carrier charges on the payment page of the bill.'' Id.
\29\ Consumer and Governmental Affairs Bureau Announces Comment
Deadline for ``Cramming'' Further Notice of Proposed Rulemaking, Public
Notice, DA 12-833 (May 25, 2012).
---------------------------------------------------------------------------
In joint comments made to the FCC in 2012, consumer advocates
including the Consumers' Union, Consumer Federation of America, and
National Consumer League,\30\ pressed the agency to adopt rules that
would, among other things: (1) prohibit third party charges on wireless
accounts except for charitable or political giving;\31\ (2) for
recurring charges (such as subscriptions), require authorization every
time a charge is placed on the consumer's account;\32\ (3) require
carriers to report wireless cramming complaints on a regular basis;\33\
and establish a clear dispute resolution process when consumers
complain of unauthorized charges on their wireless bills that includes
consumer protections such as the right to withhold payment for the
charge while the dispute resolution process takes place.\34\ Industry
representatives, on the other hand, submitted comments arguing that, at
the time, wireless cramming was not ``a prevalent consumer issue,''
that voluntary industry measures would ensure that it did not become a
significant consumer issue, and that the FCC lacked authority to issue
wireless cramming rules.\35\
---------------------------------------------------------------------------
\30\ The comments were also joined by the National Consumer Law
Center, Consumer Action, and the Center for Media Justice. Comments of
Center for Media Justice, Consumer Action, Consumer Federation of
America, Consumers Union, National Consumer Law Center--On Behalf of
its Low-Income Clients, and National Consumer League, Federal
Communications Commission, CG Docket No. 11-116, CG Docket No. 09-158,
& CG Docket No. 98-170 (June 25, 2012).
\31\ Id. at 18.
\32\ Id. at 20.
\33\ Id. at 20-21.
\34\ Id. at 21-22.
\35\ Comments of CTIA-The Wireless Association, Federal
Communications Commission, CG Docket No. 11-116, CG Docket No. 09-158,
& CG Docket No. 98-170 (June 25, 2012).
---------------------------------------------------------------------------
On August 27, 2013, the FCC released a Public Notice seeking to
refresh the record on cramming ``in light of developments and
additional evidence'' \36\ related to both wireline and wireless
cramming. The FCC rulemaking remains pending.
---------------------------------------------------------------------------
\36\ Consumer and Governmental Affairs Bureau Seeks to Refresh the
Record Regarding ``Cramming,'' CG Docket No. 11-116, CG Docket No 09-
158, & CC Docket No. 98-170, Public Notice, DA 13-1807 (rel. Aug. 27,
2013). Issues on which FCC sought comment included the extent of
cramming for consumers of wireline and wireless services, the need for
an opt-in requirement and the mechanics of an opt-in process for
wireline and wireless services, the details and efficacy of any other
industry efforts to combat wireline and wireless cramming, whether
different measures to combat cramming are appropriate for small and
rural wireless carriers and other wireless carriers, and whether
additional measures to combat wireline and wireless cramming are
appropriate. Id. at 2-3.
---------------------------------------------------------------------------
II. Committee Investigation
In June 2012, Chairman Rockefeller followed up on his wireline
cramming investigation to open an inquiry into the scope of
unauthorized third-party charges in the wireless context and what steps
carriers had undertaken to protect consumers from cramming. He launched
this investigation with letters to the four major U.S. wireless phone
companies--Sprint, T-Mobile, Verizon Wireless, and AT&T \37\--
requesting information regarding the companies' relationships with
third-party vendors and billing aggregators and their practices to
prevent cramming on consumer wireless bills.
---------------------------------------------------------------------------
\37\ Senate Committee on Commerce, Science, and Transportation,
Rockefeller Asks Wireless Carriers for Information on Third-Party
Charges (June 12, 2012).
---------------------------------------------------------------------------
As evidence of wireless cramming continued to mount, Chairman
Rockefeller followed up with additional letters to the same four
carriers in March 2013 requesting billing data the companies had
provided to the California Public Utilities Commission (CPUC) under
California's law requiring disclosures relating to wireless
billing.\38\ Also in March 2013, the Chairman requested information
from five major billing aggregators--Ericsson, mBlox, Mobile Messenger,
Motricity, and OpenMarket--relating to their practices in facilitating
third-party wireless billing and steps they were taking to prevent
abuses.\39\
---------------------------------------------------------------------------
\38\ Senate Committee on Commerce, Science, and Transportation,
Rockefeller Vows to Avert Wireless Cramming Scams on Consumers (Mar. 1,
2013).
\39\ Senate Committee on Commerce, Science, and Transportation,
Rockefeller Questions Billing Aggregators on Wireless Cramming (Mar.
22, 2013).
---------------------------------------------------------------------------
In June 2013, Chairman Rockefeller wrote the four major carriers to
request additional information on questions that had emerged regarding
how carriers were monitoring consumer authorizations of third-party
billing and following up on consumer concerns.\40\
---------------------------------------------------------------------------
\40\ Senate Committee on Commerce, Science, and Transportation,
Senators Introduce Legislation to Stop Cramming on Telephone Bills
(June 12, 2013).
---------------------------------------------------------------------------
In November 2013, the Attorney General of Texas filed a complaint
against Mobile Messenger, one of the major wireless billing
aggregators, alleging that the company had engaged in a deceptive
scheme with third-party vendors to cram consumers.\41\ These
allegations raised questions regarding representations Mobile Messenger
had made to the Committee about the company's commitment to consumer
protection and the assurances major carriers had given the Committee
that aggregators worked with carriers to promote consumer protections
in the third-party wireless billing process. In late November, Chairman
Rockefeller wrote to Mobile Messenger seeking additional information
concerning a subset of vendors whose conduct had raised concerns and
pressing for production of previously requested information.\42\
---------------------------------------------------------------------------
\41\ Plaintiff's Original Petition, Texas v. Mobile Messenger U.S.
Inc., et al, Tex. D. Ct., Travis County (Nov. 6, 2013).
\42\ Letter from Chairman Rockefeller to Michael L. Iaccarino,
Chief Executive Officer, Mobile Messenger (Nov. 26, 2013).
---------------------------------------------------------------------------
When Mobile Messenger refused to provide key information requested
in the Chairman's March 2013 and November 2013 letters, the Committee
on March 14, 2014, issued a subpoena to the company, and Mobile
Messenger was responsive to the subpoena.
Over the course of the Committee's investigation, Committee
majority staff reviewed thousands of pages of narrative and documentary
materials produced by wireless carriers and billing aggregators, and
conducted interviews of carrier and aggregator representatives as well
as other experts. An association for the wireless industry, CTIA--The
Wireless Association (CTIA), also provided the Committee documentary
and narrative information about the third-party wireless billing
system.
III. Overview of Premium Short Message Service (PSMS) Wireless Billing
From the early days of third-party wireless billing, major carriers
allowed third-party vendors to charge for their goods and services on
customers' wireless accounts. One system that became prevalent is known
as the premium short message service (PSMS) whereby consumers would be
charged at a higher rate for one-time content or subscriptions received
via text message as compared to the standard messaging rate.\43\ PSMS
charges, along with other third-party charges, are billed to the
consumers' wireless account and appear on their billing statement. Over
the past few years, use of PSMS has been waning and major carriers
ultimately stopped most commercial PSMS billing early in 2014.\44\ At
the same time, use of other methods that do not involve PSMS for
placing third-party charges on consumers' wireless bills has been
increasing.
---------------------------------------------------------------------------
\43\ Verizon Wireless, Premium Messaging FAQs (accessed July 27,
2014) (available at http://www.verizonwireless.com/support/faqs/
Premium_TXT_and_MMS/faq_premium_txt_and
_mms.html).
\44\ See, e.g., Letter from Chief Executive Officer, mBlox, to
Senator John D. Rockefeller IV (Apr. 23, 2013); VT. AG: 3 Firms End
Extra Cellphone Bill Charges, Associated Press (Nov. 21, 2013). See
also AT&T Mobility, Sprint and T-Mobile Will No Longer. . . .,
Communications Daily (Nov. 25, 2013) (quoting Verizon General Counsel
as saying that Verizon had ``previously decided to exit the premium
messaging business''). PSMS use continues for charitable giving and
political contributions. Briefing by CTIA--The Wireless Association to
Senate Commerce Committee Majority Staff (June 3, 2014); Briefing by
Sprint Nextel to Senate Commerce Committee Majority Staff (July 16,
2014).
---------------------------------------------------------------------------
This section of the report provides an overview of the billing
process associated with PSMS and the self-regulation regime that the
wireless industry developed to oversee marketing and billing under the
PSMS system. Section V of the report addresses alternative third-party
billing methods that have been emerging amid the recent decrease in
PSMS billing.
A. The PSMS Third-Party Wireless Billing Process
Third-party PSMS billing generally has involved three types of
companies: vendors (often known as content providers), wireless
carriers, and middlemen known as ``billing aggregators'' who have
provided technology to link content providers and wireless carriers.
Under this system, vendors contract with billing aggregators to
facilitate placement of charges for goods and services--often referred
to as ``programs''--on consumers' wireless accounts. Billing
aggregators in turn contract directly with the wireless carriers, which
control access to the consumers' wireless bills. Each party in this
process has retained a portion of the charges paid by consumers.\45\
---------------------------------------------------------------------------
\45\ See, e.g., Master Services Agreement provided by Mobile
Messenger to Senate Commerce Committee (AG-MM-COMM-001908-001911).
---------------------------------------------------------------------------
FIGURE I: PARTIES IN THE PSMS BILLING PROCESS
In order for a content provider to send commercial premium text
messages, the provider first has to obtain authorization to use a five
or six-digit code known as a ``common shortcode'' (CSC).\46\ CTIA-The
Wireless Association has managed and controlled issuance of CSCs.\47\
Once a content provider has been granted a shortcode, they also must
apply to individual wireless carriers to obtain access to the carrier's
billing platform to charge consumers for specific content--or
``campaigns''--associated with the shortcode.\48\
---------------------------------------------------------------------------
\46\ Common shortcodes can also be used to allow consumers to make
charitable donations and political contributions via text messaging.
The Committee's inquiry focused on commercial shortcode charges.
\47\ See Common Short Code Administration, About Short Codes
Frequently Asked Questions--CTIA Vetting (online at http://
www.usshortcodes.com/about-sms-short-codes/sms-marketing-
faqs.php#.U8l0L6ggZss).
\48\ See, e.g., Letter from Executive Vice President, Federal
Relations, AT&T, to Chairman John D. Rockefeller IV, at 5 (July 11,
2012); Letter from General Counsel, Verizon Wireless, to Chairman John
D. Rockefeller IV, at 5 (July 11, 2012); Letter from Vice President,
Federal Legislative Affairs, T-Mobile USA, to Chairman John D.
Rockefeller IV, at 1 (July 11, 2012).
---------------------------------------------------------------------------
From a consumer's perspective, the PSMS purchase process as
prescribed by industry guidelines has worked as follows. Using an
authorization process known as the ``double opt-in,'' consumers must
take two affirmative acts when purchasing goods or services with their
mobile phone: one to initiate the purchase and one to confirm the
purchase.\49\ At least one of these actions must be performed using the
mobile device associated with the wireless account to be charged.
---------------------------------------------------------------------------
\49\ Mobile Marketing Association, Global Code of Conduct; Mobile
Marketing Association, U.S. Consumer Best Practices for Messaging,
Version 7.0 (Oct. 16, 2012) (online at: http://www.mmaglobal.com/files/
bestpractices.pdf).
---------------------------------------------------------------------------
Industry guidelines also have required content providers to provide
information and disclosures to consumers before completing the PSMS
charge including the identity of the content provider, contact details
for the content provider, a short description of the program, pricing,
and terms under which consumers could opt out of the subscription,
among other requirements.\50\
---------------------------------------------------------------------------
\50\ Id.
---------------------------------------------------------------------------
In addition, content providers must provide a confirmation message
after affirmative consumer acceptance, including disclosures about the
premium charge billed or deducted from the user's account.\51\
---------------------------------------------------------------------------
\51\ Id.
---------------------------------------------------------------------------
Following is an example of what the prescribed authorization
process looks like from a consumer's perspective: a consumer would see
an advertisement online, on television, or in-store, for downloading a
song. The advertisement denotes the advertisement's sponsor, a
description of the service or good being offered, its cost, the
frequency of the service--which in this case was one song--information
regarding customer support, opt-out information, and information
regarding any additional carrier costs.
FIGURE II: STEPS IN PRESCRIBED PSMS BILLING PROCESS \52\
The advertisement would tell the consumer to send a text to the
shortcode ``12345'' with the message ``music'' to buy the song list in
the ad. The consumer would take this step, then receive a message
confirming the content ordered, which would reiterate much of the
information provided in the original advertisement, including program
sponsor, price, frequency of product, how to ask for help with the
product purchase, and any additional carrier costs. After confirming
this content was accurate, the consumer was to authorize the purchase
by sending an affirmative message, in this case ``Yes,'' to the
``12345'' shortcode. The consumer would then receive a link to the
product purchased.
---------------------------------------------------------------------------
\52\ Graphic was provided to the Committee by the company Boku.
---------------------------------------------------------------------------
B. Voluntary Industry Oversight Over Third-Party Wireless Billing
Practices
With respect to third-party billing via PSMS, the U.S. wireless
industry developed industry-wide consumer protection standards.
Industry-based member organizations created guidelines and
recommendations for mobile marketers including parties involved in the
marketing and sale of products consumers charge to the wireless phone
bills through the PSMS system. Further, carriers developed their own
individual policies for oversight of these charges. The following is a
description of industry policies concerning the placement of third-
party charges on consumer wireless bills.
1. Industry-Wide Oversight
The Mobile Marketing Association (MMA) and CTIA--The Wireless
Association (CTIA) spearheaded a number of industry initiatives that
were widely adopted throughout the industry for PSMS billing.\53\ MMA
drafted the Global Code of Conduct and the U.S. Consumer Best Practices
for Messaging to provide advertisers, aggregators, application
providers, carriers, content providers, and publishers with guidelines
for implementing shortcode programs.\54\ The guidelines provide
detailed requirements for advertising and notice to consumers, along
with the appropriate methods for authenticating consumer PSMS
purchases.
---------------------------------------------------------------------------
\53\ Mobile Marketing Association, Global Code of Conduct (July 15,
2008); Mobile Marketing Association, U.S. Consumer Best Practices for
Messaging, Version 7.0 (Oct. 16, 2012); and CTIA--The Wireless
Association, Mobile Commerce Compliance Handbook, Version 1.0 (June 4,
2012).
\54\ Mobile Marketing Association, Global Code of Conduct at 1
(July 15, 2008); Mobile Marketing Association, U.S. Consumer Best
Practices for Messaging, Version 7.0 (Oct. 16, 2012). MMA defines
``application provider'' as an organization that offers network based
software solutions. Mobile Marketing Association, MMA Glossary--
Application Provider (2014) (online at http://mmaglobal.com/wiki/
application-provider). ``Publisher'' is defined as a company that
provides WAP sites [a website that is specifically designed and
formatted for display on a mobile device] and/or facilitates the
delivery of advertising via one or more WAP sites; also, as a publisher
of mobile content, such as games and personalization products. Mobile
Marketing Association, MMA Glossary--Publisher (2014) (online at http:/
/mmaglobal.com/wiki/publisher).
---------------------------------------------------------------------------
CTIA--in its Mobile Commerce Compliance Handbook--provides ``a
unified standard of compliance for mobile carrier billing.'' The
guidelines set forth principles for acceptable program content, opt-in
procedures, and cancellation. Many of these are highlighted in the
``Consumer Bill of Rights,'' which provide:
Programs must use a two-factor authentication for all opt-
ins.
After opt-in, users should receive purchase confirmation of
their purchase, either on an additional screen or via a text
message.
All offers must display clear, legible pricing information
adjacent to the call-to-action. Pricing information must appear
on all screens in the purchase flow.
Billing frequency information should appear with pricing
information, and subscriptions should be labeled clearly as
such.
Clear opt-out instructions must be provided before the
purchase is completed and before renewal billing each month.
All offers must include customer care contact information in
the form of a toll-free phone number or an e-mail address.
Contact information should function and result in actual user
help.
All offers must supply privacy policy access.
Purchase flows should include clear descriptions of products
offered, and products marketed must match products delivered.
Product descriptions on customers' wireless bills must
reflect accurately the product purchased. Descriptions should
include the billing shortcode and the program name.\55\
---------------------------------------------------------------------------
\55\ CTIA--The Wireless Association, Consumer Bill of Rights (July
1, 2013).
CTIA in conjunction with an outside auditor would vet content
providers that were seeking to lease shortcodes to market and charge
products to consumers.\56\ Content providers that passed CTIA screening
through the Common Short Code Administration could lease a shortcode
from CTIA consistent with terms of a user agreement requiring
compliance with industry best practices and standards, such as whether
the vendor makes clear disclosures to the consumer about how to
authorize purchases, or whether the consumer is signing up for a one-
shot versus a recurring charge.\57\
---------------------------------------------------------------------------
\56\ CTIA has been screening all applicants for shortcodes by
requiring basic identity and program information, such as the company
name, corporate registration, and legal history. See Common Short Code
Administration, About Short Codes Frequently Asked Questions--CTIA
Vetting (online at http://www.usshortcodes.com/about-sms-short-codes/
sms-marketing-faqs.php#
.U8l0L6ggZss). CTIA has worked with Aegis Mobile and WMC Global to
conduct the vetting process. See id.; Aegis Mobile, CTIA Vetting FAQ
(online at http://www.aegismobile.com/resources/industry-documents/
ctia-vetting-faq/).
\57\ Briefing by CTIA--The Wireless Association to Senate Commerce
Committee Majority Staff (June 3, 2014); Mobile Marketing Association,
U.S. Consumer Best Practices for Messaging, Version 7.0 at 23-24 (Oct.
16, 2012); CTIA--The Wireless Association, Mobile Commerce Compliance
Handbook, Version 1.0 at 3-4 (June 4, 2012). CTIA also included the
same provisions in its updated Handbook. See CTIA--The Wireless
Association, Mobile Commerce Compliance Handbook, Version 1.2 at 5, 7
(Aug.1, 2013).
---------------------------------------------------------------------------
Content providers that are permitted to charge consumers via the
PSMS system have been subject to ongoing CTIA monitoring for compliance
with industry standards surrounding program content, as well as opt-in
and cancellation procedures.\58\ In 2010, CTIA began providing carriers
and billing aggregators access to an online portal that provided the
results of these reviews--or audits--in reports that detailed why and
how guidelines were violated and that assigned a severity level to each
failure. Under this system, each carrier has been responsible for
determining what follow-up they would conduct with the violating
vendor.\59\ In addition, carriers receive e-mail notification of new
audit findings \60\ and weekly reports aggregating the audit failures
across the mobile content market.\61\ These weekly reports have been
compiled into monthly reports to the carriers, which also identify the
PSMS billing aggregators that hosted content with the most
failures.\62\
---------------------------------------------------------------------------
\58\ See CTIA--The Wireless Association Launches Common Short Codes
Media Monitoring Process, Business Wire (June 15, 2009) (online at
http://www.businesswire.com/news/home/20090615005802/en/
CTIA%E2%80%93The-Wireless-Association-Launches-Common-Short-Codes
#.U8VyB6ggZss); WMC Global, Frequently Asked Questions (online at
http://www
.wmcglobal.com/faq.html); CTIA, CTIA In-Market Monitoring Portal User
Guide (online at http://www.wmcglobal.com/assets/
ctia_imm_portal_user_guide.pdf); Briefing by CTIA--The Wireless
Association to Senate Commerce Committee Majority Staff (June 3, 2014).
\59\ Briefing by CTIA--The Wireless Association to Senate Commerce
Committee Majority Staff (June 3, 2014); CTIA--The Wireless
Association, Mobile Commerce Compliance Handbook, Version 1.0, at 6-7
(June 4, 2012).
\60\ Id.
\61\ Briefing by CTIA--The Wireless Association to Senate Commerce
Committee Majority Staff (June 3, 2014).
\62\ See, e.g., WMC Global for CTIA--The Wireless Association, In-
Market Monitoring Update January 2011, at 6 (Jan. 2011).
---------------------------------------------------------------------------
2. Individual Carrier Policies
In responses to Committee inquiries, the four major carriers all
reported that they comply with CTIA and MMA guidelines for third-party
wireless billing, \63\ and contractually require the same from their
billing aggregators and vendors.\64\ All carriers also highlighted
several key components of their oversight policies:
---------------------------------------------------------------------------
\63\ Letter from Executive Vice President, Federal Relations, AT&T,
to Chairman John D. Rockefeller IV, at 4 (July 11, 2012); Letter from
General Counsel, Verizon Wireless, to Chairman John D. Rockefeller IV,
at 6 (July 11, 2012); Letter from Vice President--Government Affairs,
Sprint Nextel, to Chairman John D. Rockefeller IV, at 2 (July 11,
2012); Letter from Vice President, Federal Legislative Affairs, T-
Mobile USA, to Chairman John D. Rockefeller IV, at 6 (July 11, 2012).
\64\ See, e.g., Sample Advanced Messaging Agreement for Marketing
Messaging Hubs provided by mBlox to the Senate Commerce Committee
(stating ``At a minimum, programs shall be run in a manner that is
congruous with the letter and spirit of the MMA Code of Conduct for
Mobile Marketing'') (000360).
Vetting of third-party vendors and their services beyond the
CTIA vetting process; \65\
---------------------------------------------------------------------------
\65\ Letter from Assistant General Counsel, Verizon Wireless, to
Senate Commerce Committee Majority Counsel, at 1-5 (July 12, 2013);
Letter from Vice President--Government Affairs, Sprint Nextel, to
Chairman John D. Rockefeller IV, at 3 (Mar. 22, 2013); Letter from
Executive Vice President, Federal Relations, AT&T, to Chairman John D.
Rockefeller IV, at 4-5 (July 11, 2012); Letter from Vice President,
Federal Legislative Affairs, T-Mobile USA, to Chairman John D.
Rockefeller IV, at 3 (July 11, 2012).
The two-step authentication process known as the ``double-
opt-in'' required for consumer approval of third-party services
charged on wireless bills \66\ (see discussion above in part
III.A);
---------------------------------------------------------------------------
\66\ Letter from Executive Vice President, Federal Relations, AT&T,
to Chairman John D. Rockefeller IV, at 5 (July 11, 2012); Letter from
General Counsel, Verizon Wireless, to Chairman John D. Rockefeller IV,
Attachment A, at 6 (July 11, 2012); Letter from Vice President--
Government Affairs, Sprint Nextel, to Chairman John D. Rockefeller IV,
at 7 (July 11, 2012); Letter from Vice President, Federal Legislative
Affairs, T-Mobile USA, to Chairman John D. Rockefeller IV, at 5 (July
11, 2012).
Monitoring of third-party vendor opt-in and opt-out
functionality as well as how they market to consumers; \67\
---------------------------------------------------------------------------
\67\ One carrier stated that such audits are done ``randomly''
(Letter from Vice President--Government Affairs, Sprint Nextel, to
Chairman John D. Rockefeller IV, at 8 (June 28, 2013)); while another
stated they are done on at least a monthly basis (Letter from Assistant
General Counsel, Verizon Wireless, to Senate Commerce Committee
Majority Counsel, at 5-6 (July 12, 2013)).
Monitoring of third-party vendors through consumer complaint
and refund thresholds; \68\ and
---------------------------------------------------------------------------
\68\ Letter from Vice President--Government Affairs, Sprint Nextel,
to Chairman John D. Rockefeller IV, at 5-6 (June 28, 2013); Letter from
Vice President, Federal Legislative Affairs, T-Mobile USA, to Chairman
John D. Rockefeller IV, at 4-5 (June 28, 2013); Letter from Executive
Vice President, Federal Relations, AT&T, to Chairman John D.
Rockefeller IV, at 4-5 (July 2, 2013); Letter from Assistant General
Counsel, Verizon Wireless, to Senate Commerce Committee Majority
Counsel, at 8 (July 12, 2013).
Offering consumers the option to block third-party purchases
that, when implemented, restrict the purchase of any third-
party content billed to a customers' mobile device.\69\
---------------------------------------------------------------------------
\69\ Letter from Vice President, Federal Legislative Affairs, T-
Mobile USA, to Chairman John D. Rockefeller IV, at 6 (July 11, 2012);
Letter from Vice President--Government Affairs, Sprint Nextel, to
Chairman John D. Rockefeller IV, at 4 (June 28, 2013); Letter from
Executive Vice President, Federal Relations, AT&T, to Chairman John D.
Rockefeller IV, at 7 (July 2, 2013); Letter from Assistant General
Counsel, Verizon Wireless, to Senate Commerce Committee Majority
Counsel, at 1 (July 12, 2013). Consumers are often made aware of these
options at the time of purchase of a wireless plan, during customer
service calls regarding the appearance of unauthorized charges on a
bill, and on the carriers' websites.
Three of the four carriers said they also have used ``first call''
resolution of consumer cramming complaints, in which the consumer is
generally refunded their money on the first complaint call.\70\
---------------------------------------------------------------------------
\70\ Letter from Vice President--Government Affairs, Sprint Nextel,
to Chairman John D. Rockefeller IV, at 4 (June 28, 2013); Letter from
Assistant General Counsel, Verizon Wireless, to Senate Commerce
Committee Majority Counsel, at 6 (July 12, 2013); Update from AT&T, to
Chairman John D. Rockefeller IV, at 2 (Mar. 11, 2013).
---------------------------------------------------------------------------
IV. Committee Findings on PSMS Third-party Wireless Cramming
Similar to telecom industry assurances about self-regulation of
landline billing, from the outset of the Committee's review of cramming
on wireless bills, the four major wireless carriers--AT&T, T-Mobile,
Verizon, and Sprint--told the Committee that their procedures and
practices effectively insulate consumers from cramming on charges
incurred through the PSMS system. In July 2012 letters to the
Committee, carriers characterized this voluntary system as a ``robust
process designed to protect customers from unscrupulous actors,'' \71\
asserting that it provides consumers ``simplicity and security,'' \72\
that the outcome has been a ``consistent, secure, and reliable
experience'' for the consumer,\73\ and that carriers have ``every
incentive to avoid losing a customer due to unauthorized third-party
charges.'' \74\ In July 2013 letters to the Chairman, all four carriers
asserted that they had only strengthened their anti-cramming
practices.\75\
---------------------------------------------------------------------------
\71\ Letter from Vice President, Federal Legislative Affairs, T-
Mobile USA, to Chairman John D. Rockefeller IV, at 3 (July 11, 2012).
\72\ Letter from Executive Vice President, Federal Relations, AT&T,
to Chairman John D. Rockefeller IV, at 1 (July 11, 2012).
\73\ Letter from Vice President--Government Affairs, Sprint Nextel,
to Chairman John D. Rockefeller IV, at 2 (July, 11 2012).
\74\ Letter from General Counsel, Verizon Wireless, to Chairman
John D. Rockefeller IV, at 1 (July 11, 2012).
\75\ Letter from Assistant General Counsel, Verizon Wireless, to
Senate Commerce Committee Majority Counsel, at 10-12 (July 12, 2013);
Letter from Vice President--Government Affairs, Sprint Nextel, to
Chairman John D. Rockefeller IV, at 6-8 (June 28, 2013); Letter from
Vice President, Federal Legislative Affairs, T-Mobile USA, to Chairman
John D. Rockefeller IV, at 6-7 (June 28, 2013); and Letter from
Executive Vice President, Federal Relations, AT&T, to Chairman John D.
Rockefeller IV, at 7-11 (July 2, 2013).
---------------------------------------------------------------------------
Over this same time period, major industry associations echoed
these assurances.\76\ In June 2012 comments to the Federal
Communications Commission, CTIA-The Wireless Association said that
``the wireless industry is already successfully engaged in voluntary
initiatives to prevent cramming,'' calling unauthorized third-party
wireless billing a ``de minimis'' problem.\77\ Similarly, the Mobile
Marketing Association asserted in May 2013 that the CTIA and MMA rules
``are very effective.'' \78\
---------------------------------------------------------------------------
\76\ See, e.g., Comments of CTIA--The Wireless Association, Federal
Communications Commission, CC Docket No. 98-170 (June 25, 2012);
Commentary of Mike Altschul, General Counsel, CTIA--The Wireless
Association, Federal Trade Commission, Mobile Cramming, An FTC
Roundtable (May 8, 2013).
\77\ Comments of CTIA--The Wireless Association, Federal
Communications Commission, CC Docket No. 98-170, at 1-2 (June 25,
2012).
\78\ Commentary of Cara Frey, General Counsel, Mobile Marketing
Association, Federal Trade Commission, Mobile Cramming, An FTC
Roundtable (May 8, 2013).
---------------------------------------------------------------------------
However, documents and other information the Committee obtained and
reviewed over the course of its inquiry indicate that--just as with
landline cramming--industry has gained substantial profits from third-
party wireless billing while providing consumers inadequate protections
against deceptive and fraudulent charges on their wireless bills. This
section details the findings of the Committee majority staff.
A. Carriers Have Profited Tremendously from Third-Party Wireless
Billing
It has been estimated that third-party wireless billing activities
likely constitute a multi-billion dollar industry.\79\ The evidence
reviewed by the Committee staff for a sample time frame between 2011
and 2013 supports that analysis.
---------------------------------------------------------------------------
\79\ Commentary of Jim Greenwell, Chief Executive Officer and
President, BilltoMobile, Federal Trade Commission, Mobile Cramming, An
FTC Roundtable (May 8, 2013) (estimating the volume of such billing to
be between $2 to $3 billion).
---------------------------------------------------------------------------
For example, one carrier reported that nearly $250 million worth of
PSMS charges were charged to its customers' accounts in 2011 alone,
while another reported over $375 million in total charges for the same
year.\80\ In addition, information provided by billing aggregators to
the Committee shows that the combined revenues of content providers
that had relationships with four top aggregators over 2011-2013 totaled
over $1.2 billion.\81\ This amount--while substantial--does not reflect
the entirety of the third-party wireless billing market, as multiple
other aggregators were operating in the PSMS market during this time
period,\82\ and other non-PSMS third-party billing mechanisms were
emerging as well.\83\
---------------------------------------------------------------------------
\80\ Letters from Carrier Representatives to Chairman John D.
Rockefeller IV (July 2012).
\81\ Four out of five aggregators provided revenues of content
providers to the Committee. Letter from Head of Corporate Affairs and
Communications, Ericsson Inc., to Chairman John D. Rockefeller IV (Apr.
19, 2013); Letter from Chief Administrative Officer and General
Counsel, Motricity, Inc., to Chairman John D. Rockefeller IV (May 25,
2013); Letter from Attorney, Mobile Messenger, to Chairman John D.
Rockefeller IV (Apr. 21, 2014); mBlox Response to Chairman John D.
Rockefeller IV (Apr. 21, 2014).
\82\ Response letters from carriers listed many aggregators. Letter
from Executive Vice President, Federal Relations, AT&T, to Chairman
John D. Rockefeller IV, at 3 (July 11, 2012); Letter from General
Counsel, Verizon Wireless, to Chairman John D. Rockefeller IV, at
Attachment A (July 11, 2012); Letter from Vice President--Government
Affairs, Sprint Nextel, to Chairman John D. Rockefeller IV, at 4 (July
11, 2012); Letter from Vice President, Federal Legislative Affairs, T-
Mobile USA, to Chairman John D. Rockefeller IV, at 1 (July 11, 2012).
\83\ See, e.g., Commentaries of Jim Greenwell, Chief Executive
Officer and President, BilltoMobile, and Martine Niejadlik, Compliance
Officer and Vice President of Customer Support, Boku, Federal Trade
Commission, Mobile Cramming, An FTC Roundtable (May 8, 2013).
---------------------------------------------------------------------------
Further, information provided by the California Public Utility
Commission (CPUC) shows that in 2012, over $191 million worth of third-
party charges were placed on consumers' wireless bills in California
alone--and California has been estimated to constitute about 10 percent
of the wireless market in the United States. Extrapolating and applying
the California data across all 50 states, over a span of years, it is
likely these numbers would climb into the billions.\84\
---------------------------------------------------------------------------
\84\ Comments of California Public Utilities Commission, Federal
Communications Commission, CC Docket No. 98-170, at 20 (Nov. 18, 2013).
---------------------------------------------------------------------------
Information provided to the Committee by individual carriers
indicates that major carriers reaped hundreds of millions of dollars
annually from their role in placing third-party charges on wireless
phone bills. Contracts reviewed by the Committee show that the carriers
generally collected 30 percent to 40 percent of the total value of the
charges placed.\85\ Individual charges are generally small--most often
ranging from $1 to $20, with frequent reports of a $9.99 recurring
monthly charge. However, the high volume of these charges yields
substantial cumulative revenues. For example, one carrier reported
processing over 120 million individual third-party transactions on
consumer wireless bills in 2011.
---------------------------------------------------------------------------
\85\ Committee staff reviewed a number of contracts between billing
aggregators and wireless carriers that outlined the payment
arrangements.
---------------------------------------------------------------------------
In addition to the carriers' revenue shares, contracts reviewed by
Committee staff show that certain carriers have collected additional
fees that could also add to their profits. For example, one carrier
also collected ``Excessive Premium Campaign Refund Rate Fees.'' These
additional fees allow the carrier to charge $10.00 per customer care
call once a content provider's refund rate exceeded 15 percent per
month.\86\ Another carrier has imposed fees ranging from $25,000 to
$100,000 where providers experience billing issues which include high
levels of refunds.\87\
---------------------------------------------------------------------------
\86\ Sample aggregator contract provided to the Senate Commerce
Committee (000179).
\87\ Sample aggregator contract provided to the Senate Commerce
Committee (000066-000067).
---------------------------------------------------------------------------
B. Wireless Cramming has Likely Cost Consumers Hundreds of Millions of
Dollars
The evidence reviewed by Committee staff indicates that wireless
cramming has likely cost consumers hundreds of millions dollars over
the past several years. This assessment is based on a review of data
regarding refund rates, consumer complaint information provided by
carriers and billing aggregators regarding unauthorized third-party
charges, and a number of studies and law enforcement actions that have
quantified the extent of wireless cramming.
1. Refund Rates
Beginning in 2011, the California Public Utilities Commission
(CPUC) required wireless carriers to provide data about refunds made
directly to consumers. Numbers provided by CPUC show that between 2011
and 2013, carriers returned over $60 million in refunds to customers
out of $495 million in total third-party wireless charges, just with
respect to California wireless consumers.\88\ While industry argues
that refund rates are a ``flawed metric'' because refunds can be made
for reasons other than cramming,\89\ CPUC explained its rationale for
using this measure as follows:
---------------------------------------------------------------------------
\88\ Between 2011 and 2013, carriers reported refunding $60,037,906
out of $495,134,687 in total wireless charges, including $25,095,834 in
2011, $23,250,885 in 2012, and $11,691,187 in 2013, with total billed,
including $173,644,442 in 2011, $191,302,355 in 2012, and $130,187,888
in 2013. Comments of California Public Utilities Commission, Federal
Communications Commission, CC Docket No. 98-170 (Nov. 18, 2013) and e-
mail from CPUC Representatives to Senate Commerce Committee Majority
Counsel (Apr. 23, 2014).
\89\ See Reply Comments of CTIA--The Wireless Association, Federal
Communications Commission, CC Docket No. 98-170, at 5 (Dec. 16, 2013)
(arguing that ``refund amounts and refund rates are flawed metrics for
assessing instances of unauthorized charges on wireless bills. Carriers
have consumer-friendly refund policies that cover a variety of
situations and transactions--much more than just unauthorized third-
party charges.'').
[W]e use refunds as a proxy for complaints because when we had
complaint reporting, we would end up in endless semantic
digressions around the meaning of the word complaint. So refund
is something a little more tangible and we assume that in most
cases refunds are not made out of the blue but in relation to
some expression of dissatisfaction by the customer.\90\
---------------------------------------------------------------------------
\90\ Commentary of Chris Witteman, Senior Staff Counsel, California
Public Utilities Commission, Federal Trade Commission, Mobile Cramming,
An FTC Roundtable (May 8, 2013).
CPUC also notes that this approach addresses concerns carriers have
expressed that ``tallying subscriber complaints of unauthorized charges
would be excessively burdensome.'' \91\
---------------------------------------------------------------------------
\91\ Letter from Consumer Affairs Branch, California Public
Utilities Commission, to Senate Commerce Committee Majority Counsel
(Jan. 31, 2013).
---------------------------------------------------------------------------
As noted earlier, the CPUC numbers concern activity on wireless
accounts solely in California, which reflects approximately 10 percent
of the total U.S. wireless market.\92\ If the rate of refunds and total
charges billed reported to the CPUC were applied nationwide, the total
refunds would likely have been well over $200 million out of $1.9
billion in 2012 alone. Even assuming that a portion of the refunds
reported to the CPUC are not related to cramming, these numbers provide
substantial evidence that cramming on wireless bills has been a serious
problem.
---------------------------------------------------------------------------
\92\ Calculation of this percentage was based on the total number
of wireless subscriber connections in California (34 million), and the
United States (326.4 million) in 2012, as reported by CPUC and CTIA
respectively. California Public Utilities Commission, 2012 Annual
Report (Feb. 1, 2013); CTIA--The Wireless Association, Wireless Quick
Facts (last updated June 2014) (online at http://www.ctia.org/your-
wireless-life/how-wireless-works/annual-wireless-industry-survey).
Committee staff was unable to compare California and national wireless
subscriber numbers for 2013, as CPUC's 2013 Annual Report did not
include the number of wireless subscriber connections in California.
---------------------------------------------------------------------------
Industry argues that numbers of refunds is not an accurate tool to
assess the incidence of cramming due to the carriers very liberal
refund policies. However, one carrier was able to provide a rough
breakdown of refunds specifically attributable to complaints that
charges were unauthorized--a category they titled ``Authorization of
Charge Disputed''--and the results are still high. This carrier
reported that 28.1 percent of total refunds issued in 2012 constituted
the ``Authorization of Charge Disputed'' category.\93\ If this
percentage were applied to the $200 million figure estimated above to
reflect total nationwide wireless refunds for 2012, refunds
attributable to cramming for that year would top $50 million nationwide
in one year alone. Based on this analysis, over time, wireless cramming
has likely cost American consumers hundreds of millions of dollars.
---------------------------------------------------------------------------
\93\ Letter from T-Mobile USA, to Chairman John D. Rockefeller IV,
at 5 (June 28, 2013).
---------------------------------------------------------------------------
2. Consumer Complaint Data
Consumers also reported on wireless cramming via complaints to
Federal and state law enforcement as well as to carriers and billing
aggregators. One billing aggregator reported receiving over 7,000
contacts from consumers in 2012 alone, over 30 percent of which
involved requests for refunds.\94\ A FTC review of complaints from the
Consumer Sentinel database, one of the major national resources for
compiling local, state, and Federal consumer complaints, showed over
2,000 complaints of unauthorized charges on wireless bills between 2010
and 2013.\95\
---------------------------------------------------------------------------
\94\ mBlox Response to Senate Commerce Committee (Mar. 25, 2014)
(chart titled ``U.S. Cases (Jan-1-2012-March-31-2013)'').
\95\ Federal Trade Commission, Consumer Sentinel Network Data Book
for January--December 2012, at 84 (Feb. 2013) (showing 784 complaints
for mobile unauthorized charges in 2010); Federal Trade Commission,
Consumer Sentinel Network Data Book for January-December 2013, at 84
(Feb. 2014) (showing complaints for mobile unauthorized charges was 626
in 2011, 714 in 2012, and 363 in 2013).
---------------------------------------------------------------------------
In addition, in a 2013 survey conducted by the Office of the
Attorney General of Vermont, 60 percent of respondents reported that
the third-party charges found on their wireless telephone bills were
unauthorized.\96\
---------------------------------------------------------------------------
\96\ Center for Rural Studies at the University of Vermont, Mobile
Phone Third-Party Charge Authorization Study (May 5, 2013). Following
the release of survey results, CTIA engaged an expert to conduct an
analysis of the Vermont Study. The analysis highlighted concerns with
the methodology used for the study. The analysis was submitted to the
Federal Trade Commission by CTIA on June 24, 2013.
---------------------------------------------------------------------------
Industry representatives have argued that complaint numbers were
low and that the incidence of cramming on wireless bills was
insignificant.\97\ However, consumer complaint tallies likely reflect
numbers far lower than actual cramming occurrences. Evidence shows that
consumers are frequently unaware that third-party charges are appearing
on their telephone bills. FTC Commissioner Maureen Ohlhausen elaborated
on this point as follows:
---------------------------------------------------------------------------
\97\ See, e.g., Federal Communications Commission, CC Docket No.
98-170, Comments filed by AT&T, Inc. (July 20, 2012), (Dec. 16, 2013);
T-Mobile USA Reply Comments (July 20, 2012); and Verizon Wireless (June
25, 2012).
Indeed, we are aware of thousands of consumer complaints about
unauthorized charges on wireless bills. And we believe that
these complaints may well under represent the problem or under
report the problem. From surveys done in the landline cramming
context, we know that many consumers are unaware that third
parties can place charges on their phone bills. We also know
that consumers often fail to spot unauthorized charges on their
bills. They may simply look at the overall bill amount and pay
in full without doing a line-by-line review; or they may read
the bill and fail to spot the charges because they're buried
deeply within the bill or listed in generic sounding
categories, such as premium services.\98\
---------------------------------------------------------------------------
\98\ Opening Remarks by Commissioner Maureen Ohlhausen, Federal
Trade Commission, Mobile Cramming, An FTC Roundtable (May 8, 2013).
Committee staff review of consumer complaints substantiates this
viewpoint. Individual consumers often reported only finding the charges
after paying them for extensive periods of time. For example, one
consumer complained, ``I was billed for 18 months for $9.99 ($10.76
after taxes) for something I had no clue about and up till [sic] today
when I reviewed my bill I noticed these charges.'' Another consumer
reported, ``Having automatically paid my bills for one year, I
unfortunately just learned I was paying for unsolicited text messages
for over a year.'' \99\
---------------------------------------------------------------------------
\99\ Sprint Nextel Response to Chairman John D. Rockefeller IV
(Mar. 22, 2013).
---------------------------------------------------------------------------
Indeed, the complaint filed by the FTC against T-Mobile alleges
that the bill statements received by customers did not adequately
disclose PSMS charges.\100\ Customers reviewing their bill online
allegedly could not see these charges by viewing a summary of the
charges; only by clicking a series of links could they find premium
service charges.\101\ Figure III below is a graphic from the FTC
complaint in this case illustrating how the charges allegedly were
shown on the consumers' paper statements.
---------------------------------------------------------------------------
\100\ Complaint for Permanent Injunction and Other Equitable
Relief, Federal Trade Commission v. T-Mobile USA, Inc., W.D. Wa., at 4-
9 (No. 2:14-cv-00967) (July 1, 2014).
\101\ Id. at 5-6.
---------------------------------------------------------------------------
FIGURE III: T-MOBILE BILL SUMMARY \102\
Premium charges were not individually listed in the summary section
of the bill. Though they were itemized in a ``Premium Services''
section several pages into the bill, the information was presented in a
way that did not adequately explain that the charge was for a recurring
subscription service authorized by the consumer.\103\ If these
allegations are true, it is entirely possible that many consumers over
a number of years had paid for third-party charges they did not
authorize.
---------------------------------------------------------------------------
\102\ Id. T-Mobile recently represented to Committee majority staff
that the company has changed the way these charges are depicted in
their wireless bills. Briefing by T-Mobile USA to Senate Commerce
Majority Staff (July 17, 2014).
\103\ FTC v. T-Mobile, supra note 100, at 6-9.
---------------------------------------------------------------------------
3. State and Federal Actions
The charges detailed in numerous state and Federal law enforcement
actions also underscore the broad consumer impact of wireless cramming.
These cases have charged that consumers have been victims of cramming
schemes costing them hundreds of millions of dollars. For example:
In 2011, the Attorney General of Texas filed a lawsuit
against Eye Level Holdings, LLC, alleging that the defendants
collected millions of dollars through the placement of
unauthorized charges on the wireless telephone bills of
thousands of Texas residents.\104\
---------------------------------------------------------------------------
\104\ Plaintiff's Original Verified Petition and Application for Ex
Parte Temporary Restraining Order, Temporary Injunction, and Permanent
Injunction, Texas v. Eye Level Holdings, LLC, et al., Tex. D. Ct.,
Travis County (No. 1:11-cv-00178) (Mar. 11, 2011).
In 2013, Wise Media and its owners agreed to settle FTC
allegations that they caused more than $10 million in consumer
harm by placing unauthorized recurring $9.99 monthly fees on
consumers' wireless bills.\105\
---------------------------------------------------------------------------
\105\ Press Release, Mobile Crammers Settle FTC Charges of
Unauthorized Billing, Federal Trade Commission (Nov. 21, 2013) (online
at http://www.ftc.gov/news-events/press-releases/2013/11/mobile-
crammers-settle-ftc-charges-unauthorized-billing).
In June 2014, a district court issued a stipulated order for
a monetary judgment totaling over $150 million in a case
brought by FTC alleging defendants used deceptive websites to
cram consumer's wireless bills.\106\
---------------------------------------------------------------------------
\106\ Press Release, Operators of Massive Mobile Cramming Scheme
Will Surrender More than $10 M in Assets in FTC Settlement, Federal
Trade Commission (June 13, 2014) (online at: http://www.ftc.gov/news-
events/press-releases/2014/06/operators-massive-mobile-cramming-scheme-
will-surrender-more-10m). The judgment was partially suspended based on
defendants' inability to pay the full amount.
In July 2014, the FTC charged T-Mobile with placing third-
party charges on consumers' wireless bills despite clear
warnings that the charges were unauthorized, and engaging in
billing practices that made it difficult for consumers' to
discern fraudulent charges, alleging that these practices cost
consumer millions of dollars in injury.\107\
---------------------------------------------------------------------------
\107\ Complaint for Permanent Injunction and Other Equitable
Relief, Federal Trade Commission v. T-Mobile USA, Inc., W.D. Wa. (No.
2:14-cv-00967) (July 1, 2014).
Indeed, review of 2011-2013 data provided to the Committee by major
billing aggregators regarding revenue generated by content provider
clients shows that many of the top revenue generators in this time
frame were ultimately the subject of state or Federal enforcement
actions. According to this data, the subjects of enforcement actions
generated approximately 23.5 percent of total revenue reported to the
Committee for this time period--$289,037,831 of $1.2 billion.\108\
---------------------------------------------------------------------------
\108\ Defendants named in state and Federal enforcement action
include: Jesta Digital, Bullroarer, Mobile Media Products, Bune, Wise
Media, Tatto, Eye Level Holdings, Anacapa Media LLC, Tendenci Media,
Bear Communications LLC, MDK Media, Mundo Media, SE Ventures, GMK
Communications, MindKontrol Industries LLC, and Network One Commerce
Inc. Federal Trade Commission v. Jesta Digital, LLC, also d/b/a
JAMSTER, D.D.C. (No. 1:13-CV-01272) (Aug. 20, 2013); Federal Trade
Commission v. Tatto, et al., C.D. Cal (No. 2:13-cv13-8912-DSF-FFM)
(Dec. 5, 2013); Federal Trade Commission v. Wise Media, LLC, et al.,
N.D. Ga. (No. 1:13cv1234) (Apr. 16, 2013); Texas v. Eye Level Holdings,
LLC, et al., Tex. D. Ct., Travis County (No. 1:11-cv-00178) (Mar. 11,
2011); Texas v. Mobile Messenger U.S. Inc., et al, Tex. D. Ct., Travis
County (Nov. 6, 2013); Federal Trade Commission v. MDK Media, Inc., et
al., C.D. Cal (No. 2:14-cv-05099-JFW-SH) (July 3, 2014).
---------------------------------------------------------------------------
In short, the cumulative evidence revealed by enforcement actions,
consumer complaints, refund rates, and studies, indicates that hundreds
of millions of dollars in crammed charges have been placed on
consumers' wireless bills over the past several years.
C. Carriers Were on Notice about Cramming and Other Vendor Problems
Carriers should have known at least as early as 2008 that consumers
were complaining of cramming on their wireless bills. Beginning in
2008, the Florida Attorney General entered into enforcement settlements
with Cingular (AT&T), Verizon, Sprint, and T-Mobile over allegations
that unauthorized charges had been placed on their consumers'
bills.\109\ These settlements created a ``best practices'' regime
intended to ensure that consumers were receiving clear and conspicuous
prices and terms of the content being purchased before such charges
could be placed on a consumer's wireless bill.\110\
---------------------------------------------------------------------------
\109\ AT&T Settles with Florida AG Over Mobile Content Ads, Mobile
Marketer (Mar. 3, 2008); T-Mobile $600k Settlement with Florida AG
Affects All Mobile Content Marketing, Mobile Marketer (July 22, 2010);
Sprint Settles Cell Phone Cramming Charges in Florida, Consumer Affairs
(Oct. 8, 2010).
\110\ See, e.g., Verizon Settlement with Florida AG Affects All
Marketing of Mobile Content, Mobile Marketer (June 29, 2009); In the
Matter of Verizon Wireless LLC and Alltel Communications, LLC,
Assurance of Voluntary Compliance at 5-13 (June 16, 2009).
Specifically, the settlements resulting from the Florida actions
require that certain provisions be included in the contracts between
the carriers and any companies that ``advertise, aggregate billing for,
offer and/or sell mobile content.'' These include: (1) a prohibition on
using words like ``free,'' ``complimentary,'' ``without charge'' or
other similar terms without clear and conspicuous disclosure that the
consumer will have to pay for a subscription in order to receive the
content; (2) specifications for font size and color on all consumer
disclosures for web-based advertising for mobile content; and (3)
certain price and billing disclosures must be made ``above the fold''
on the mobile ``submit'' and ``PIN submit'' pages. In addition to these
best practices, the settlements also required the carriers to establish
monetary compensation programs for consumers who had experienced
unauthorized third-party billing charges. Id. at 4-10, 13-14.
---------------------------------------------------------------------------
According to CTIA, shortly after the last settlement was signed in
October 2010,\111\ this best practice regime was incorporated into the
mobile billing standards against which the industry audited vendors for
compliance.\112\ The CTIA audit reports that followed indicated that,
three years after the Florida enforcement cases sounded the alarm about
wireless cramming, the overwhelming majority of vendors allowed to
charge consumers on wireless billing platforms were not meeting basic
standards.
---------------------------------------------------------------------------
\111\ Briefing by CTIA--The Wireless Association to Senate Commerce
Committee Majority Staff (June 3, 2014).
\112\ See Part III.B.1, supra.
---------------------------------------------------------------------------
For example, with respect to the monthly reports CTIA provided
carriers summarizing in-market auditing, the January 2011 report showed
a failure rate of nearly 100 percent for marketing offers tested--or
``intercepted''--by the auditors.\113\ Virtually all of the failures
\114\ were for violations classified by CTIA as ``severity level one,''
meaning ``serious consumer harm.'' \115\ While monthly industry audit
reports after January 2011 showed declining numbers of compliance
failures, it was not until September 2011 that more interceptions were
reported to have passed than failed.\116\ And in January 2012, audits
still showed a 25 percent failure rate.\117\ After August 2012, the
reports indicated passage rates of 95 percent or higher, meaning that
95 percent of offers tested complied with CTIA guidelines.\118\
---------------------------------------------------------------------------
\113\ WMC Global for CTIA--The Wireless Association, In-Market
Monitoring Update January 2011, at 2 (Jan. 2011). According to the
report, 18,304 offers were tested. Id. at 3. A copy of this report is
attached as Exhibit A. In May 2011, the monthly in-market auditing
reports began including specific breakdowns of premium messaging
testing results and standard rate testing results, but the January 2011
report does not provide that breakdown. CTIA has represented to the
Committee that the PSMS testing in January 2011 had a failure rate of
97 percent.
\114\ The January 2011 In-Market Monitoring Update showed that
99.57 percent of interceptions failed at severity level 1. Id. at 3.
\115\ CTIA--The Wireless Association, Mobile Commerce Compliance
Handbook, Version 1.0, at 6 (June 4, 2012). For example, the most
common of the January 2011 violations concerned the ``no account holder
authorization disclosure'' requirement concerning how to disclose that
the account holder must authorize purchases. In-Market Monitoring
Update January 2011, at 2 (Jan. 2011); CTIA--The Wireless Association,
Mobile Commerce Compliance Handbook, Version 1.0 at 8 (June 4, 2012)
(describing standards).
\116\ According to the September 2011 report, 49 percent of the
interceptions failed while 51 percent passed. WMC Global for CTIA--The
Wireless Association, In-Market Monitoring Update September 2011, at 3
(Sept. 2011).
\117\ WMC Global for CTIA--The Wireless Association, In-Market
Monitoring Update January 2012, at 3 (Jan. 2012).
\118\ See, e.g., WMC Global for CTIA--The Wireless Association, In-
Market Monitoring Update September 2012, at 3 (Sept. 2012) (showing 96
percent of interceptions passed); WMC Global for CTIA--The Wireless
Association, In-Market Monitoring Update October 2012, at 3 (Oct. 2012)
(showing 97 percent of interceptions passed), WMC Global for CTIA--The
Wireless Association, In-Market Monitoring Update December 2012, at 3
(Dec. 2012) (showing 98 percent of interceptions passed). Copies of
relevant portions of the January 2012 and December 2012 reports are
attached at Exhibit A.
---------------------------------------------------------------------------
D. Industry Self-Regulation Has Left Gaps In Consumer Protection
1. The Double Opt-In Safeguard Was Porous
Many of the voluntary policies and practices industry instituted to
protect against cramming in the PSMS system are similar to those
industry touted in the landline context.\119\ However, as with law
enforcement actions in the 2000s involving landline cramming,\120\ a
series of recent state and Federal law enforcement cases concerning
wireless cramming have highlighted potential vulnerabilities with
industry's voluntary consumer protection system. In particular, recent
actions raise concerns regarding the effectiveness of the double opt-in
authorization.
---------------------------------------------------------------------------
\119\ For example, similar to the policies described above, for
third-party billing on landline phones, phone companies instituted
policies providing for screening of vendors, the option for consumers
to block third-party billing, and customer complaint thresholds that
trigger corrective action. For a detailed discussion of industry self-
regulation initiatives to address cramming on wireline phone bills see
Senate Committee on Commerce, Science, and Transportation, Staff Report
on Unauthorized Third-Party Charges on Telephone Bills, at 30-33 (July
12, 2011).
\120\ Id. at 4-5.
---------------------------------------------------------------------------
As discussed above, industry representatives have argued that a key
protection against wireless cramming that was not present in the
landline context is the ``double opt-in'' requirement,\121\ as it
involves affirmative steps by the consumer that are ``immediate,''
``current,'' and ``actionable'' before billing can be activated.\122\
However, several cases brought at the state and Federal level in the
last few years have detailed multiple ways content providers have
circumvented the double opt-in. For example:
---------------------------------------------------------------------------
\121\ Comments of CTIA--The Wireless Association, Federal
Communications Commission, CC Docket No. 98-170, at 2 (June 25, 2012);
Letter from General Counsel, Verizon Wireless, to Chairman John D.
Rockefeller IV, at 2 (July 11, 2012) (noting there is no analogue to
the double opt-in in the wireline billing context).
\122\ Commentary of Mike Altschul, General Counsel, CTIA--The
Wireless Association, Federal Trade Commission, Mobile Cramming, An FTC
Roundtable (May 8, 2013).
According to an FTC action brought in December 2013, content
providers operated a scam in which they billed consumers for
services that were not authorized through the use of misleading
websites. The complaint cites as an example a website that
offered to sign up consumers for Justin Bieber concert tickets
if consumers provided their phone number, and alleges
defendants likely used that phone information to sign up the
consumer for services without their knowledge.\123\
---------------------------------------------------------------------------
\123\ Complaint for Permanent Injunction and Other Equitable
Relief, Federal Trade Commission v. Tatto, et al., C.D. Cal (No. 2:13-
cv13-8912-DSF-FFM) (Dec. 5, 2013).
According to the complaint in a separate FTC action brought
in April 2013, consumers received unsolicited text messages
from a third-party vendor and were charged on their wireless
bills for the vendors' services regardless of whether the
consumers had ignored the text message or had responded via
text message that they did not want the services.\124\
---------------------------------------------------------------------------
\124\ Complaint for Permanent Injunction and Other Equitable Relief
and Exhibits, Federal Trade Commission v. Wise Media, LLC, et al., N.D.
Ga. (No. 1:13cv1234) (Apr. 16, 2013).
A complaint brought by the Attorney General of Texas in 2011
claimed that the defendants used deceptive websites to entice
consumers to enter their wireless telephone numbers. According
to the complaint, defendants' websites would come up as
prominent sponsored links when consumers entered generic search
queries for information on topics such as ``song lyrics.''
Defendants' link would not mention subscriptions or costs, and
if consumers clicked on the link they would be taken to a page
where they were encouraged to enter their phone number with
prominent instructions such as ``enter your cell phone number
to access the lyrics'' without any clear and conspicuous
disclosures that consumers were in fact signing up for paid
subscription services. The complaint further alleged that, to
conceal this flawed enrollment process from regulators,
carriers, and consumers re-visiting the site, defendants
created ``dummy'' websites that included larger, brighter, and
clearer disclosures on the service cost and subscription
nature.\125\
---------------------------------------------------------------------------
\125\ Plaintiff's Original Verified Petition and Application for Ex
Parte Temporary Restraining Order, Temporary Injunction, and Permanent
Injunction, Texas v. Eye Level Holdings, LLC, et al., Tex. D. Ct.,
Travis County (No. 1:11-cv-00178) (Mar. 11, 2011). The case settled in
2012.
In another case brought by the Attorney General of Texas,
defendants allegedly worked around the ``double opt-in'' requirement
through the following process depicted with the accompanying graphics
reproduced in Figure IV below.\126\ An online search for Olive Garden
coupons would turn up a link for a 50 percent discount coupon, without
disclosures regarding any fees or subscriptions charged for
enrolling.\127\
---------------------------------------------------------------------------
\126\ Plaintiff's Original Petition, Texas v. Mobile Messenger U.S.
Inc., et al., Tex. D. Ct., Travis County, at 12 (Nov. 6, 2013).
\127\ Id.
---------------------------------------------------------------------------
FIGURE IV: INTERNET SEARCH PRODUCING PSMS WEBSITE
Consumers who tried to download the coupon were required to enter
their personal information including mobile phone number (see depiction
of this screen in Figure V below). The complaint alleged that, by
entering their mobile phone numbers, consumers unknowingly authorized a
$9.99 per month subscription service providing monthly horoscopes.\128\
Consumers were not provided clear disclosures regarding the actual
offer of the subscription service or its relevant terms and conditions
unless consumers scrolled down.\129\
---------------------------------------------------------------------------
\128\ Id. at 14-15.
\129\ Id. at 15.
---------------------------------------------------------------------------
FIGURE V: WEBSITE DRAWING CONSUMERS INTO PSMS CAMPAIGN
In this case, the Texas Attorney General also alleged that content
providers lured unknowing consumers to subscribe for deceptive PSMS
campaigns through the use of website addresses that contained common
typos and misspellings of the addresses of legitimate websites. These
websites would encourage consumers to share personal information
including their phone numbers in exchange for a promised gift
card.\130\
---------------------------------------------------------------------------
\130\ Id. at 18-22.
---------------------------------------------------------------------------
Industry representatives have underscored that wireless cramming
enforcement cases have involved conduct that circumvents consent
mechanisms, and that generally the double-opt in mechanism was
sound.\131\ However, conduct described in the above cases allegedly
continued for time periods as long as several years, indicating
substantial weaknesses in the wireless industry's ability to root out
abuses of consumer authorization requirements.
---------------------------------------------------------------------------
\131\ See, e.g., Commentary of Mike Altschul, General Counsel,
CTIA--The Wireless Association, Federal Trade Commission, Mobile
Cramming, An FTC Roundtable (May 8, 2013) (stating that the negative
option, where companies would instruct the consumer to reply ``stop''
or be charged, in the double opt-in process, which was utilized by many
of the subjects in law enforcement proceedings, was ``not compliant
with the industry best practices'' and use of this negative option was
``not playing by the rules''). See also Commentary of John Bruner,
Chief Operating Officer, Aegis Mobile, Federal Trade Commission, Mobile
Cramming, An FTC Roundtable (May 8, 2013) (stating, ``[W]hat we see in
the market is not a violation of the double opt-in where it's being
skipped necessarily. What we usually see is that consumers are either,
through stacked marketing or deceptive advertising, double opting in
and not realizing that they had purchased something. And, so, you know,
the process, the physical process itself seems to be a very sound
process for purchase. It's more the method leading up to getting a
consumer to perform that function.'').
2. Tolerance for High Consumer Refund Rates Raises Questions about
Carrier
---------------------------------------------------------------------------
Commitment to Preventing and Addressing Cramming
All four major carriers cited consumer refund thresholds as a tool
for spotting potential vendor misconduct. However, the thresholds and
response actions triggered by breach of these thresholds varied widely
in the policies carriers described to the Committee.\132\ Documents
produced to the Committee by billing aggregator Mobile Messenger
regarding a subset of its vendors provided a further window into the
role that refund threshold policies played in the industry's oversight
of the PSMS billing system.\133\ Review of these documents revealed
that carriers saw extremely high refund rates and high monthly refund
totals for some vendors and were not consistent in how they followed up
on red flags concerning vendor misconduct.
---------------------------------------------------------------------------
\132\ See Section IV.B.1 for discussion of industry and consumer
advocate views on the significance of refund rates.
\133\ Mobile Messenger Subpoena Response to Chairman John D.
Rockefeller IV (Mar. 31, 2013), (Apr. 21, 2014), (Apr. 22, 2014).
Because documents produced to the Committee concerned a small number of
vendors, findings of this review provide a sample rather than a
comprehensive review of carrier practices, and a review of
communications relating to other vendors would be necessary to draw
broad conclusions about an individual carrier's practices generally.
---------------------------------------------------------------------------
a. Carrier Policies on Refund Thresholds
Verizon Wireless, AT&T, Sprint, and T-Mobile established different
refund threshold levels for triggering additional vendor review, and
their policies also varied regarding specific prescribed follow-up
steps. For example, Verizon Wireless's policy provided that if the
refund rate for any one program in any month is between 5 percent and
7.99 percent, all PSMS campaigns managed by that vendor would be
suspended, and if the refund rate exceeded 8 percent, all PSMS
campaigns of the vendor would be terminated.\134\ Billing aggregator
documents indicate that the policy applied to shortcodes on Verizon's
network was that suspension for refunds between 5 percent and 7.99
percent meant a bar on acquiring new subscribers for a period of 90
days.\135\ The policy applicable once refunds exceeded 8 percent
involved both a bar on new subscribers and a requirement that existing
subscribers be unsubscribed for shortcodes with subscriptions that
brought in an average revenue of at least $5000 over the previous three
months.\136\
---------------------------------------------------------------------------
\134\ Letter from Assistant General Counsel of Verizon Wireless, to
Senate Commerce Committee Majority Counsel, at 8 (July 12, 2013).
\135\ E-mail from Mobile Messenger Sales Employee to Mobile
Messenger Account Manager (May 30, 2013) (with subject line: ``05/29/
2013 Refund Report for AT&T/Sprint/T-Mobile/VZW (Anacapa)'') (AG-MM-
COMM-043461-043464).
\136\ Id.
---------------------------------------------------------------------------
AT&T, on the other hand, stated that it did not have a static
threshold for refund rates but rather it adjusted the threshold ``over
time to account for changes in the overall refund rate as observed.''
\137\ The company further stated it had a general disciplinary policy
that could involve ``suspending or de-provisioning the short code, and/
or terminating the content provider'' from the carrier's network, but
these steps were not tied to specific threshold violations.\138\
Billing aggregator documents indicate that as of May 2013, the policy
applied to shortcodes on AT&T's network was to ``enforce a 30-day
suspension on any shortcode with a combination of a failed audit and a
refund rate of 18 percent.'' \139\
---------------------------------------------------------------------------
\137\ Letter from Executive Vice President, AT&T, to Chairman John
D. Rockefeller IV, at 4 (July 2, 2013).
\138\ Id.
\139\ E-mail from Mobile Messenger Sales Employee to Mobile
Messenger Account Manager (May 30, 2013) (with subject line: ``05/29/
2013 Refund Report for AT&T/Sprint/T-Mobile/VZW (Anacapa)'') (AG-MM-
COMM-043461-043464).
---------------------------------------------------------------------------
Sprint reported that its policy provided for a ``combination of
metrics'' including refund rates to assess noncompliance, and was
penalizing with ``lower revenue share'' those aggregators that work
with vendors demonstrating noncompliance or a refund rate greater than
10 percent.\140\ According to billing aggregator documents from May
2013, the policy applied to shortcodes on Sprint's network was that a
refund rate between 0 percent and 7 percent meant incentives and
bonuses might apply; refunds between 7.01 percent and 12 percent
merited a ``normal payout;'' and refunds greater than 12.01 percent
meant Sprint would apply a ``25 percent penalty on the average monthly
retail revenue . . . for the three-month period and risk of code
termination.'' \141\
---------------------------------------------------------------------------
\140\ Letter from Vice President, Government Affairs, Sprint
Nextel, to Chairman John D. Rockefeller IV, at 5 (June 28, 2013).
\141\ E-mail from Mobile Messenger Sales Employee to Mobile
Messenger Account Manager (May 30, 2013) (with subject line: ``05/29/
2013 Refund Report for AT&T/Sprint/T-Mobile/VZW (Anacapa)'') (AG-MM-
COMM-043461-043464).
---------------------------------------------------------------------------
Finally, T-Mobile stated that its refund threshold was 15 percent,
at which point aggregator partners and vendors would be ``penalized
financially in accordance with the terms of the aggregator's
contract.'' \142\ Additional detail provided by billing aggregator
documents indicates that the policy applied to shortcodes on T-Mobile's
network was that T-Mobile would charge a vendor $10 for each refund/
customer care call after refund rate surpassed 15 percent;\143\ in
addition, T-Mobile would apply a multi-step ``Refund Performance
Improvement Plan'' (PIP) if a vendor's refund rate exceeded 15 percent
and involved at least $10,000 in ``excessive refund fees.''
---------------------------------------------------------------------------
\142\ Letter from Vice President, Federal Legislative Affairs, T-
Mobile USA, to Chairman John D. Rockefeller IV, at 5 (June 28, 2013).
\143\ E-mail from Mobile Messenger Sales Employee to Mobile
Messenger Account Manager (May 30, 2013) (with subject line: ``05/29/
2013 Refund Report for AT&T/Sprint/T-Mobile/VZW (Anacapa)'') (AG-MM-
COMM-043461-043464).
---------------------------------------------------------------------------
The documents indicate that the PIP program involved placing the
vendor on a ``watch list'' for 12 months for remediation steps before
T-Mobile would terminate the campaign.\144\ Once on the watch list, the
vendor had three months to address the high refund rate or else in
month four, new subscribers would be suspended for a one-month period.
The vendor could resume new subscriptions in month five after this
suspension, and had three additional months to address the refund rate.
If, after month seven, the vendor still qualified for the ``watch
list,'' the PIP program applied a two-month suspension of new
subscribers in months eight and nine. The vendor could resume new
subscriptions in month 10, but the campaign at issue would be
terminated after month 12 if the vendor still met PIP criteria.\145\
---------------------------------------------------------------------------
\144\ E-mail from Mobile Messenger Account Manager to Vendor
Employee (Aug. 4, 2011) (with subject line: ``FW: Client Alert--Carrier
Alert: T-Mobile--Modifications to Their Refund Performance Improvement
Plan'') (AG-MM-COMM-016777-016779).
\145\ Id.
---------------------------------------------------------------------------
It is worth noting that even the lowest stated refund threshold
rates of 5 percent-7.99 percent that were set forth in policies
carriers described to the Committee are substantially higher than the
threshold used for chargebacks levels on consumer credit card bills as
a trigger for follow-up with the merchant whose chargebacks are at
issue. For example, under VISA's chargeback policy, merchants will
receive a notification and request for explanation if the ratio of
transactions charged back to total transactions exceeds 1 percent,
where the merchant has had over 100 transactions and 100 chargebacks in
that month.\146\
---------------------------------------------------------------------------
\146\ Briefing by VISA Representatives to Senate Commerce Committee
Majority Staff (July 10, 2014).
---------------------------------------------------------------------------
Documents received by the Committee from Mobile Messenger included
a number of examples demonstrating the follow up actions taken by
carriers after adverse audit findings or other red flags regarding
particular shortcodes.\147\ However, documents also indicated there
were instances where carriers were lax in overseeing or enforcing their
own stated policies. This issue is illustrated in an e-mail chain
between AT&T and Mobile Messenger in October 2013 when AT&T sent Mobile
Messenger a notice of termination for content provider Anacapa, a
client of Mobile Messenger, due to ``excessive CTIA Sev 1 [severity 1]
audit failures.'' \148\
---------------------------------------------------------------------------
\147\ See, e.g., Letter from Verizon Wireless Director to Mobile
Messenger Compliance & Consumer Protection Employee (Oct. 20, 2011)
(AG-MM-COMM-030220-22) (describing that Ontario Corp. had ``repeatedly
violated the requirements applicable to premium messaging campaigns''
and ``given the repeated and serious nature of the violations, Verizon
Wireless ha[d] decided that all premium messaging campaigns managed by
the content provider must be terminated''); Spreadsheet created by
Mobile Messenger listing status on several shortcodes of Sprint (last
saved Aug. 10, 2011) (AG-MM-COMM-021051) (noting 5 terminated codes and
several codes that were temporarily suspended); E-mail from AT&T Senior
Account Manager to Mobile Messenger Employees (Jan. 14, 2013) (AG-MM-
COMM-125203-4) (noting AT&T termination of all short codes associated
with AVL marketing); E-mail from T-Mobile Compliance to Mobile
Messenger Employees (Oct. 4, 2013) (AG-MM-COMM-143991) (noting 3
shortcodes that received 3 strikes under T-Mobile's PIP policy and
directing Mobile Messenger employees to ``immediately terminate all
billing and related services currently operating'' and the short
codes).
\148\ E-mail from WMC Global AT&T Account Manager to Mobile
Messenger Employees (Oct. 15, 2013) (AG-MM-COMM-057077-057080). This
document is attached at Exhibit B.
---------------------------------------------------------------------------
In the course of the e-mail chain, an AT&T representative gives
more explanation for the termination. He begins by noting that when
Anacapa requested access to AT&T's billing platform in November 2012,
Anacapa ``did not pass our internal vetting process, . . . and we
rejected them from running PSMS campaigns.'' \149\ However, AT&T
nonetheless let one of the Anacapa shortcode campaigns have access to
the AT&T billing platform, as in fact AT&T had ``failed to reject''
that shortcode. Anacapa was able to bill consumers on AT&T's platform
well into 2013, despite two AT&T suspensions of the Anacapa shortcode
in the first part of 2013. Further, in May 2013 AT&T ``drafted'' a
termination notice but again ``failed to deliver'' it.\150\ The October
2013 e-mail summary also noted that AT&T had found that Anacapa had
received twenty severity 1--``serious consumer harm''--audit findings
across several of its shortcodes from October 2012 to October 2013,
including two Severity 1 findings on the shortcode that was apparently
erroneously allowed to use the AT&T network.\151\
---------------------------------------------------------------------------
\149\ E-mail from AT&T Mobility Marketing Manager to Mobile
Messenger Employees (Oct. 16, 2013) (AG-MM-COMM-056884-056885).
\150\ Id.
\151\ Id.
b. Some Vendors Had Exceedingly High Refund Rates that at Times Spanned
---------------------------------------------------------------------------
Several Months
Documents reviewed by the Committee regarding a subset of vendors
who contracted with billing aggregator Mobile Messenger indicate that
some vendors experienced high monthly refund rates that in some cases
topped 50 percent of monthly revenues and amounted to hundreds of
thousands of dollars in refunds in a single month. For example, in a
July 2011 Mobile Messenger e-mail to vendor representatives, Mobile
Messenger employees reported violations of T-Mobile thresholds on 11
different shortcodes for the preceding month, including one shortcode
with a 50.5 percent refund rate and $55,974 in refunds for the month,
and others with 43.7 percent, 38.4 percent, and 36.1 percent rates. The
refunds for the 11 listed shortcodes totaled over $450,000 that
month.\152\
---------------------------------------------------------------------------
\152\ E-mail from Mobile Messenger Compliance & Analytics to
NeoImage Employees (July 5, 2011) (AG-MM-COMM-112226-112227) (the 11
shortcode refunds totaled $457,252.29). A copy of this e-mail is
attached at Exhibit C. As indicated by this e-mail and other Mobile
Messenger documents, NeoImage personnel had e-mail addresses at
``mundomedia.com.'' See also Mobile Messenger Spreadsheet Response to
Subpoena Item 2a and 2c (AG-MM-COMM-001128) (Apr. 21, 2014) (listing
company directors with e-mail addresses, including NeoImage personnel
with mundomedia.com addresses).
---------------------------------------------------------------------------
A similar Mobile Messenger e-mail notification to vendor
representatives in October 2012 notes that 11 shortcodes had exceeded
AT&T's 18 percent refund threshold in the preceding month, including
one shortcode with a refund ratio of 56.8 percent and $124,759 in
refunds for the month, another with a ratio of 31.4 percent and
$100,949 in refunds. The 11 shortcode refunds that month together
totaled nearly $600,000.\153\ Documents indicate that other carriers
also had high refund rates and high refund totals.\154\
---------------------------------------------------------------------------
\153\ E-mail from Mobile Messenger Account Management Employee to
NeoImage Employees (Oct. 9, 2012) (AG-MM-COMM-585462-585463) (the 11
shortcode refunds totaled $594,479). This e-mail is attached at Exhibit
C.
\154\ See, e.g., E-mail notification from Mobile Messenger
Compliance & Analytics to NeoImage Employees (Oct. 4, 2011) (AG-MM-
COMM-024918-024919) (noting that 8 of their shortcodes violated
Sprint's threshold, with the highest rate at 28.79 percent and the
refunds for all 8 totaling over $600,000 for the three-month period);
E-mail from Mobile Messenger Compliance & Analytics to NeoImage
Employees (June 7, 2011) (AG-MM-COMM-099369) (indicating that 6
shortcodes had refund rates exceeding Verizon's thresholds in May, with
the highest rate reported as 22.23 percent and refunds for all 6
totaling over $340,000). These e-mails are attached at Exhibit C.
---------------------------------------------------------------------------
Documents also show that refund rates on the same shortcode at
times exceeded carrier thresholds for a number of months at a time. For
example, Mobile Messenger sent e-mails to vendor representatives
notifying them that refunds on shortcode 67145 exceeded AT&T's
threshold in February 2012 (with a 33.9 percent refund rate);\155\
March 2012 (40.6 percent);\156\ and May 2012 (18.1 percent).\157\
Mobile Messenger sent similar notification e-mails that refunds on
shortcode 85820 exceeded T-Mobile's threshold in December 2010 (20.06
percent);\158\ February 2011 (34.13 percent);\159\ and March 2011
(31.13 percent).\160\
---------------------------------------------------------------------------
\155\ E-mail from Mobile Messenger Compliance Analytics to NeoImage
Employees (Mar. 9, 2012) (AG-MM-COMM-590211-590212).
\156\ E-mail from Mobile Messenger Compliance Analytics to NeoImage
Employees (Apr. 2, 2012) (AG-MM-COMM-584986-584987).
\157\ E-mail from Mobile Messenger Compliance Analytics to NeoImage
Employees (June 5, 2012) (AG-MM-COMM-568009-568010). The Mobile
Messenger document production did not appear to include an AT&T excess
refund rate notification for the month of April 2012.
\158\ E-mail from Mobile Messenger Compliance Analytics to NeoImage
Employees (Jan. 11, 2011) (AG-MM-COMM-060591).
\159\ E-mail from Mobile Messenger Compliance Analytics to NeoImage
Employees (Mar. 3, 2011) (AG-MM-COMM-146312-146313).
\160\ E-mail from Mobile Messenger Compliance Analytics to NeoImage
Employees (Apr. 4, 2011) (AG-MM-COMM-220607-220608).
c. Case Study on Vendor with High Refund Rates: Variation in Carrier
Response Underscores Broad Latitude Afforded by the Self-
---------------------------------------------------------------------------
Regulatory System
Documents indicate that different carriers employed different
practices regarding follow-up on red flags such as high refund rates
and adverse audit findings associated with shortcodes. For example, in
October 2011, Verizon wrote to Mobile Messenger regarding several
shortcodes used by Mobile Messenger client NeoImage.\161\ This group of
shortcodes also included certain shortcodes that appeared on high
refund rate notices sent by Mobile Messenger to vendor employees
concerning all four major carriers in 2011.\162\
---------------------------------------------------------------------------
\161\ Letter from Verizon Wireless Director to Mobile Messenger
Compliance & Consumer Protection Employee (Oct. 20, 2011) (AG-MM-COMM-
032198-032199) (listing shortcodes 91097, 33999, 72449, 40684, 25692,
89147, 88922, 21500, 86358, 56255, 53405, and 62131).
\162\ E-mail from Mobile Messenger Compliance & Analytics to
NeoImage Employees, Subject: Notice: AT&T Refund Ratio Exceeded (Mar.
2, 2011) (AG-MM-COMM-145222-145223) (showing shortcode 89147 February
refund rate was 45.52 percent); E-mail from Mobile Messenger Compliance
& Analytics to NeoImage Employees, Subject: Notice: AT&T Refund Ratio
Exceeded (Apr. 4, 2011) (AG-MM-COMM-220637-220638) (showing shortcode
91097 March refund rate was 50.65 percent); E-mail from Mobile
Messenger Compliance & Analytics to NeoImage Employees, Subject:
Notice: Sprint Refund Ratio Exceeded (Aug. 1, 2011) (AG-MM-COMM-012239)
(noting shortcode 53405 April 2011-June 2011 refund ratio was 31.67
percent and 56255 was 15.95 percent); E-mail from Mobile Messenger
Compliance & Analytics to NeoImage Employees, Subject: Notice: Verizon
Refund Ratio Exceeded--June 2011 (July 5, 2011) (AG-MM-COMM-112223-
112224) (noting June refund rate for 56255 was 10.74 percent, 33999 was
15.52 percent, 86358 was 11.8 percent, and 88922 was 11.15 percent); E-
mail from Mobile Messenger Compliance & Analytics to NeoImage
Employees, Subject: Notice: T-Mobile Refund Ratio Exceeded (Sept. 2,
2011) (AG-MM-COMM-290976-290977) (noting shortcode 33999 August refund
rate was 19.05 percent).
---------------------------------------------------------------------------
Verizon's October 2011 letter requested that, because of ``the
repeated and serious nature'' of content provider violations of
requirements concerning premium messaging campaigns, ``all of the
premium messaging campaigns managed by the content provider must be
terminated,'' and Verizon Wireless ``will not consider reactivation of
the shortcodes, or any new campaigns from the content provider.'' \163\
The Verizon letter required the content provider to block all new
subscriptions to the code and opt-out enrolled customers on a rolling
basis ``at the time their subscriptions otherwise would be renewed.''
\164\
---------------------------------------------------------------------------
\163\ Letter from Verizon Wireless Director to Mobile Messenger
Compliance & Consumer Protection Employee (Oct. 20, 2011) (AG-MM-COMM-
032198-032199).
\164\ Id.
---------------------------------------------------------------------------
Consistent with this letter, billing statements for Mobile
Messenger client NeoImage indicate that Verizon ceased allowing
NeoImage shortcodes to bill on its platform starting in late 2011.\165\
However, the billing statements also indicate that the three other
major carriers and many others continued to allow NeoImage to charge
their customers through March 2013, the last date of statements
provided to the Committee for NeoImage. In 2012, NeoImage charged a
total of over $10 million to consumers' wireless bills across different
carrier platforms.\166\
---------------------------------------------------------------------------
\165\ See, e.g., Mobile Messenger, Settlement Statement for
NeoImage December 1, 2011-December 31, 2011, at 10 (Jan. 2012) (showing
a $11.25 balance due for Verizon Wireless); Mobile Messenger,
Settlement Statement for NeoImage January 1, 2012-January 31, 2012, at
10 (Feb. 2012) (showing a $10.75 due for Verizon Wireless); Mobile
Messenger, Settlement Statement for NeoImage March 1, 2012-March 31,
2012, at 7 (Apr. 2012) (Verizon does not appear on the statement).
\166\ Mobile Messenger, Settlement Statement for NeoImage Jan. 1,
2012-Jan. 31, 2012 (Feb. 2012) (AG-MM-042772-042781); Mobile Messenger,
Settlement Statement for NeoImage Mar. 1, 2012-Mar. 31, 2012 (Apr.
2012) (AG-MM-585109-585115); Mobile Messenger, Settlement Statement for
NeoImage Apr. 1, 2012-Apr. 31, 2012 (May. 2012) (AG-MM-562235-562241);
Mobile Messenger, Settlement Statement for NeoImage May 1, 2012-May 31,
2012 (June. 2012) (AG-MM-568311-568318); Mobile Messenger, Settlement
Statement for NeoImage June 1, 2012-June 31, 2012 (July. 2012) (AG-MM-
563935-563941); Mobile Messenger, Settlement Statement for NeoImage
July 1, 2012-Aug. 31, 2012 (Sept. 2012) (AG-MM-588084-588098); Mobile
Messenger, Settlement Statement for NeoImage Sept. 1, 2012-Sept. 31,
2012 (Oct. 2012) (AG-MM-192132-102137); Mobile Messenger, Settlement
Statement for NeoImage Dec. 1, 2012-Dec. 31, 2012 (Jan. 2013) (AG-MM-
591730-591735) (Mobile Messenger's production to Committee staff was
missing settlement statements for several months for 2012 so NeoImage's
total charge of $10 million is a conservative total).
---------------------------------------------------------------------------
The billing statements produced by Mobile Messenger indicate that a
number of carriers also continued to allow NeoImage to charge on their
platforms for activity on several of the specific shortcodes that
Verizon terminated in October 2011. For example, the statement for
January 2012 shows that, with respect to campaigns on shortcode 89147,
$107,000 in charges were placed with AT&T, $33,800 with T-Mobile, and
$21,700 with Sprint.\167\ With respect to the same shortcode, the March
2012 billing statement showed $81,100 in charges placed with AT&T,
$20,600 with T-Mobile, and $16,300 with Sprint.\168\ Documents also
indicate that in January 2012 refunds on this same shortcode exceeded
refund thresholds for both T-Mobile and AT&T, with a 15.7 percent
refund ratio for T-Mobile,\169\ and a 19.01 percent refund rate for
AT&T.\170\
---------------------------------------------------------------------------
\167\ Mobile Messenger, Settlement Statement for NeoImage Jan. 1,
2012-Jan. 31, 2012, at 3, 5, 7 (Feb. 2012).
\168\ Mobile Messenger, Settlement Statement for NeoImage Mar. 1,
2012-Mar. 31, 2012, at 2, 3, 4 (Apr. 2012).
\169\ E-mail from Mobile Messenger Compliance Analytics to NeoImage
Employees (Feb. 2, 2012) (with subject line: Notice: T-Mobile Refund
Ratio Exceeded) (AG-MM-COMM-040764-040765).
\170\ E-mail from Mobile Messenger Compliance Analytics to NeoImage
Employees (Feb. 2, 2012) (with subject line: Notice: AT&T Refund Ratio
Exceeded) (AG-MM-COMM-040831-040832).
---------------------------------------------------------------------------
This example regarding NeoImage shortcodes illustrates that
carriers had wide discretion in responding to indicia of vendor
problems such as high refund rates.
3. Carriers Placed Questionable Reliance on Billing Aggregators as
Oversight
Partners
In submissions to the Committee in 2012 and 2013, a number of major
carriers emphasized the important and reliable role that billing
aggregators played in ensuring that vendors comply with consumer
authorization requirements and other industry standards. Sprint noted
that in its experience, the company's ``reward/penalty system
influences aggregators to work only with reputable content providers
and to ferret out non-compliant PSMS campaigns.'' \171\ AT&T assured
the Committee that ``in November 2012 the double opt-in procedures of
all then existing Billing Aggregators were reviewed and certified'' as
compliant with the company's consent management program.\172\ And T-
Mobile asserted last June that ``we are aware of no information that
aggregator partners have played any role in cramming or otherwise
facilitating improper third-party billing.'' \173\
---------------------------------------------------------------------------
\171\ Letter from Vice President--Government Affairs, Sprint
Nextel, to Chairman John D. Rockefeller IV, at 7 (July 11, 2012).
\172\ Letter from Executive Vice President, Federal Relations,
AT&T, to Chairman John D. Rockefeller IV, at 7 (July 2, 2013).
\173\ Letter from Vice President, Federal Legislative Affairs, T-
Mobile USA, to Chairman John D. Rockefeller IV, at 3 (June 28, 2013).
---------------------------------------------------------------------------
Major billing aggregators contacted in the Committee's inquiry also
attested to their role in the industry's compliance system. For
example, Mobile Messenger, one of the leading aggregators, underscored
that it is ``committed to consumer protection,'' with a ``dedicated
compliance team'' to review and test vendor campaigns,\174\ and that
the company has spent ``considerable resources'' to ensure that the
subscription and billing process and the company's content provider and
advertiser clients abide by the ``robust'' industry guidelines.\175\
---------------------------------------------------------------------------
\174\ Mobile Messenger Narrative Response to Chairman John D.
Rockefeller IV (May 24, 2013) (MM Confidential 000004, 000050).
\175\ Mobile Messenger Narrative Response to Chairman John D.
Rockefeller IV (May 24, 2013) (MM Confidential 000050).
---------------------------------------------------------------------------
However, the allegations in the November 2013 action by the Texas
Attorney General \176\ raise serious questions about the effectiveness
of aggregators as partners to carriers in combatting cramming as well
as how closely carriers were scrutinizing aggregator practices. As
noted above, in this action, the Texas AG alleged that Mobile Messenger
was part of a ``deceptive scheme'' to trick consumers into signing up
for unwanted ``services'' including ringtones, weekly text messages
containing horoscopes and celebrity gossip, and coupons. According to
the complaint, Mobile Messenger actively assisted content providers
with circumventing consumer protections that carriers implemented,
including the double opt-in and thresholds relating to consumer
complaints and audit reports.\177\
---------------------------------------------------------------------------
\176\ Plaintiff's Original Petition, Texas v. Mobile Messenger U.S.
Inc., et al., Tex. D. Ct., Travis County (Nov. 6, 2013). This case
remains open at the time of this report.
\177\ Id.
---------------------------------------------------------------------------
In addition, Mobile Messenger documents reviewed by Committee staff
about a subset of Mobile Messenger vendors underscore that the company
was in a position to see red flags about worrisome shortcodes and
vendors from both the industry-wide audits as well as from reports of
individual carrier refund rates and vendor penalties.\178\ And yet, in
the case study discussed above, after one of the major carriers in
October 2011 cut off all business with a vendor that had raised non-
compliance concerns and been the subject of high refund rates across
major carriers, Mobile Messenger continued doing business with the same
vendor through 2013.\179\ Such actions raise questions about whether
Mobile Messenger served as a rigorous oversight partner with carriers
in weeding out vendors with records of non-compliance with industry
standards.
---------------------------------------------------------------------------
\178\ See, e.g., E-mail from Mobile Messenger Account Manager to
NeoImages Employees (Aug. 24, 2011) (AG-MM-COMM-022790-022795) and E-
mail from Mobile Messenger Sales Employee to Mobile Messenger Account
Manager (May 30, 2013) (AG-MM-COMM-043461-043464) (cataloguing refund
rates across major carriers for different vendors); Letter from Verizon
Wireless Director to Mobile Messenger Compliance & Consumer Protection
Employee, Re: Urgent Resolution of Violations (Oct. 20, 2011).
\179\ See discussion supra at Section IV.D.2.c; see also Assignment
of Rights and Amendment Among Neo Images, Inc., and Subscriber
Management Services, LLC and Mobile Messenger US, Inc. (signed March
19, 2012) (AG-MM-COMM 001964-2031).
---------------------------------------------------------------------------
V. Emerging Third-party Wireless Billing Technologies and Potential
Consumer Protection Issues
Though commercial PSMS billing has now virtually ended among the
major carriers,\180\ it is still possible for consumers to buy digital
content online and bill those purchases to their wireless phone
accounts. This is generally called the ``direct carrier billing''
payment option. Direct carrier billing is now offered by a variety of
U.S. companies for music, applications, games, movies, and television
shows, from retailers such as Sony, Facebook, Skype, and Rhapsody.\181\
---------------------------------------------------------------------------
\180\ Some carriers still support PSMS billing for charitable
donations and political contributions. Briefing by Verizon Wireless to
Senate Commerce Committee Majority Staff (July 16, 2014); Briefing by
Sprint Nextel to Senate Commerce Committee Majority Staff (July 16,
2014); Briefing by T-Mobile USA to Senate Commerce Majority Staff (July
17, 2014).
\181\ Comments of CTIA--The Wireless Association, Federal
Communications Commission, CC Docket No. 98-170, at 4 (Nov. 18, 2013).
---------------------------------------------------------------------------
Direct carrier billing for social media and gaming purchases
increased 30 percent year-over-year from 2009-2012.\182\ This option
could become even more widely available in the future, for goods and
services outside of digital content. According to CTIA, additional
entities ``currently using or planning to adopt'' third-party billing
include ``major news organizations, companies offering video streaming,
gaming companies, parking services, and even pizza delivery services.''
\183\
---------------------------------------------------------------------------
\182\ Id. at 3 (citing Study: Popularity of Direct Carrier Billing
on the Rise, Mobile Payments Today (Sept. 4, 2012).
\183\ Id. at 4-5.
---------------------------------------------------------------------------
In discussions with Committee majority staff, carriers have
differentiated between two methods of direct carrier billing: the
``storefront'' approach and the ``billing aggregator'' approach. In the
``storefront'' approach, consumers are given the option of billing
their wireless account when making a purchase from a digital
distribution platform that offers applications, music, movies, and
games created by any number of vendors.\184\ Under this billing model,
the carriers rely on the company offering the digital distribution
platform to vet the vendors who create the digital content offered in
their store.\185\ One example of the ``storefront'' billing method is
the Google Play store. Since 2011, consumers have been able to make
purchases from the Google Play store and bill them to their wireless
account.\186\
---------------------------------------------------------------------------
\184\ Briefing by Verizon Wireless to Senate Commerce Committee
Majority Staff (July 16, 2014).
\185\ Briefing by Google to Senate Commerce Committee Majority
Staff (July 11, 2014); Briefing by Verizon Wireless to Senate Commerce
Committee Majority Staff (July 16, 2014); Briefing by Sprint Nextel to
Senate Commerce Committee Majority Staff (July 16, 2014); Briefing by
T-Mobile USA to Senate Commerce Committee Majority Staff (July 17,
2014).
\186\ Briefing by Google to Senate Commerce Committee Majority
Staff (July 11, 2014).
---------------------------------------------------------------------------
Outside of the storefront approach, direct carrier billing is also
an option for a number of additional vendors who utilize billing
aggregators in order to place the charges on consumers' wireless
accounts. In this model, both the carriers and aggregators vet each
vendor before the vendor is permitted to bill consumers on their
wireless accounts.\187\ A handful of these billing aggregators have
emerged to act as middlemen between vendors and wireless carriers.\188\
---------------------------------------------------------------------------
\187\ Briefing by Boku to Senate Commerce Committee Majority Staff
(June 23, 2014); Briefing by BilltoMobile to Senate Commerce Committee
Majority Staff (Feb. 24, 2014); Briefing by Verizon Wireless to Senate
Commerce Committee Majority Staff (July 16, 2014); Briefing by Sprint
Nextel to Senate Commerce Committee Majority Staff (July 16, 2014);
Briefing by T-Mobile USA to Senate Commerce Committee Majority Staff
(July 17, 2014).
\188\ Examples include, among others, Boku, a San Francisco-based
company, and BilltoMobile, a San Jose-based company, both of which
contract with major U.S. wireless carriers. See BilltoMobile, Home Page
(online at http://www.billtomobile.com/); Briefing by BilltoMobile to
Senate Commerce Committee Majority Staff (Feb. 24, 2014); Boku, Home
Page (online at http://www.boku.com/); Briefing by Boku to Senate
Commerce Committee Majority Staff (June 23, 2014).
---------------------------------------------------------------------------
With respect to direct carrier billing, to date there are no
industry-wide best practices or central monitoring similar to what was
in place for PSMS. Instead, oversight of direct carrier billing occurs
at the individual carrier level.\189\ Policies described by several
major carriers in briefings to Committee majority staff include the
following features, among others:
---------------------------------------------------------------------------
\189\ Briefing by CTIA--The Wireless Association to Senate Commerce
Committee Majority Staff (June 3, 2014); Briefing by Sprint Nextel to
Senate Commerce Committee Majority Staff (July 16, 2014); Briefing by
Verizon Wireless to Senate Commerce Committee Majority Staff (July 16,
2014); Briefing by T-Mobile USA to Senate Commerce Committee Majority
Staff (July 17, 2014).
Clear disclosures by the content provider to the consumer
---------------------------------------------------------------------------
regarding the terms of purchase;
Clear designation of third-party vendor purchases on
consumers' phone bills; and
Carrier monitoring of refund rates and consumer complaints.
Some carriers also said they place caps on third-party purchases from
$25 to $80 per month, and for consumers that have more than one
wireless line on their plan these caps apply per line.\190\
---------------------------------------------------------------------------
\190\ Briefing by Sprint Nextel to Senate Commerce Committee
Majority Staff (July 16, 2014); Briefing by Verizon Wireless to Senate
Commerce Committee Majority Staff (July 16, 2014).
---------------------------------------------------------------------------
As of now, direct carrier billing is primarily an option for
digital content and only represents a small fraction of purchases made
via computers and smartphones.\191\ However, as noted by the CTIA in
comments to the FCC, U.S. companies are increasingly offering direct
carrier billing for purchases.\192\ Direct carrier billing is a more
widely utilized form of purchase internationally \193\ and with the
continued growth in the unbanked and underbanked population in the
United States, it is conceivable that direct carrier billing could
become a more widely utilized payment option in the future.
---------------------------------------------------------------------------
\191\ Briefing by Boku to Senate Commerce Committee Majority Staff
(June 23, 2014); Briefing by Federal Reserve Bank to Senate Commerce
Committee Majority Staff (July 18, 2014).
\192\ See n. 181, supra.
\193\ Briefing by Boku to Senate Commerce Committee Majority Staff
(June 23, 2014); Briefing by Federal Reserve Bank to Senate Commerce
Committee Majority Staff (July 18, 2014).
---------------------------------------------------------------------------
Currently, major carriers assert that they are seeing minimal
indicia of consumer complaints involving direct carrier billing,
including very few consumer complaints and refund rates around 1
percent-1.5 percent.\194\ However, in light of the extensive evidence
of cramming that has occurred to date in both the landline and wireless
contexts, and the potential that a growing number of consumers may use
this payment option in the future, this staff report recommends that
industry and policymakers:
---------------------------------------------------------------------------
\194\ Briefing by Sprint Nextel to Senate Commerce Committee
Majority Staff (July 16, 2014); Briefing by Verizon Wireless to Senate
Commerce Committee Majority Staff (July 16, 2014); Briefing by T-Mobile
USA to Senate Commerce Committee Majority Staff (July 17, 2014).
Vigilantly monitor evolving third-party billing practices to
make sure that bad actors do not find ways to penetrate
---------------------------------------------------------------------------
barriers to cramming on these new systems; and
Evaluate consumer protection gaps that occurred in the
landline and PSMS contexts to establish consistent policies
going forward that will provide consumers with appropriate
transparency in the third-party billing process and a clear
avenue of recourse where unauthorized charges occur.
Exhibit A
______
______
______
______
______
______
______
______
______
Exuibit B
Exhibit C
Senator Blumenthal. Both this report and the Committee's
earlier report on landline cramming make it abundantly clear
that telephone carriers were not doing enough to protect their
consumers from fraud. The key question is whether they are
doing enough now. The carriers gave third-party access to their
customers' bills, collected their cut, and then failed to make
sure that the third parties were acting honestly. The massive
fraud we have documented in these reports happened right under
the telephone companies' noses. In the cases of both wireline
and wireless cramming, the telephone companies had plenty of
notice that crammers were placing fraudulent charges on their
customers' bills. Thousands of consumers complained to both the
companies and to State and Federal law enforcement agencies
about this problem. And I know I received a lot of those
complaints. I am sure that the FTC and Attorney General Sorrell
and my colleagues did as well.
The Federal Trade Commission and Attorneys General brought
case after case, enforcement action after enforcement action
against crammers. When confronted with evidence of widespread
fraud in their billing systems, the telephone carriers promised
to tighten their rules and do a better job of protecting
customers. But then the crammers seemed to go back to business
as usual.
The telephone companies acted decisively only after the
evidence of fraud became overwhelming and undeniable. In 2011,
the major wireline carriers agreed to end third-party billing,
and in November 2013, less than a year ago, the four major
wireless carriers, AT&T, Sprint, T-Mobile, and Verizon, agreed
to end third-party PSMS billing.
Do not get me wrong. I do not think the telephone companies
were happy or content that crammers were defrauding their
customers. But they almost certainly welcomed the revenue that
third-party billing was generating for them. The committee
staff report released today found that the wireless carriers
received 30 to 40 percent--30 to 40 percent of each charged
that third parties placed on their customers' bill through
PSMS. For every $9.99 monthly charge placed on a bill, the
carriers kept $3 to $4. Their financial incentive to allow
third-party billing seems to conflict with their responsibility
to protect their customers from fraud. They may not have been
happy about it, but the fraud sure benefited them.
While the telephone carriers have discontinued certain
types of third-party billing, their systems are still open for
business. As we will hear today, the carriers are experimenting
with new direct carrier billing techniques. I hope we will not
be sitting here in several months or several years and
discussing how they too failed to protect consumers from fraud.
The time for effective action is now. The notice has been
abundant that consumers are suffering, and I hope that these
new measures will be truly effective.
I am now happy to yield to the Ranking Member, Senator
Thune.
STATEMENT OF HON. JOHN THUNE,
U.S. SENATOR FROM SOUTH DAKOTA
Senator Thune. Well, thank you, Mr. Chairman, for holding
this hearing to discuss the unauthorized charges on mobile
phone bills and the findings of Chairman Rockefeller's wireless
cramming investigation. I commend the Chairman and staff for
shining a light on these abuses.
I understand, Senator Blumenthal, that you are graciously
filling in for him today and appreciate that.
Mobile payments are a growing way for consumers to pay for
goods and services. Third-party billing is one way that
consumers can take advantage of new technologies and customer
conveniences. There are legitimate uses for this manner of
billing. For instance, consumers can provide money to
charities, support a political cause, or download the newest
song or app and bill the purchase directly to their mobile
telephone bill. Yet, despite the industry efforts to implement
protections and state and Federal regulations in place to
prevent cramming, unscrupulous actors have been able to game
the system to take advantage of third-party billing.
Of course, cramming is not a new phenomenon. In the late
1990s Congress devoted a lot of time and attention to the issue
of cramming on landline phone bills. This committee held a
hearing on that issue again in 2011, highlighting the
Chairman's investigation into cramming on landline phone bills
and demonstrating the persistence of the problem.
Some states have enacted laws to limit third-party billing
in an effort to prevent cramming on landline phones, and most
of the major phone carriers have ended most types of third-
party billing on landline phone bills. More recently, however,
concerns have been raised about fraud on wireless phone bills,
the topic of today's hearing and the chairman's more recent
investigation.
There are three key parties involved in placing third-party
charges on consumers' wireless phone bills: the third-party
content provider, the billing aggregator, and the phone
carrier. From what I have seen, there are some content
providers and even some aggregators that appear to be bad
actors, but all of the parties involved could do more to
protect consumers from cramming. While cramming has been
identified as a problem, it has been challenging to accurately
measure how many consumers have been affected by cramming.
I appreciate that the wireless carriers and their
association, CTIA, have taken a number of actions to prevent
cramming of third-party charges on wireless phone bills.
Significantly, this past November, the carriers decided to end
most so-called premium SMS programs, which billed customers for
text messages related to topics like daily horoscopes and
sports alerts. In addition, at least one carrier has recently
decided to end browser-based direct carrier billing. These
steps show the carriers treat this issue seriously, but we will
be asking whether they should do more.
At the same time, it is important to underscore the
extraordinary innovation and economic dynamism in the wireless
communications space. The owners of approximately 188 million
smart phones in this country spend more time with their mobile
devices each day than they do going online with a laptop or a
PC. While we must strive to protect consumers from fraud, we
must also make sure that we do so in a way that does not stifle
innovation.
I look forward to hearing from CTIA, who is here today
representing the wireless carriers, to discuss how the industry
is working to address these issues. I also look forward to
hearing from FTC Commissioner McSweeny, who is here for the
first time since her confirmation; Mr. LeBlanc of the FCC; and
Attorney General Sorrell. The FTC, FCC, and State Attorneys
General play a key role in fighting cramming with their law
enforcement efforts and by educating consumers about carrier
billing.
I also want to thank the South Dakota Public Utilities
Commission and the South Dakota Attorney General, Marty
Jackley, for their work in this area to better protect
consumers. One recent government survey found that the Midwest
is the most wireless connected region in the country, with 44
percent of Midwesterners living in cell phone-only homes. This
underscores the importance to my constituents of addressing
wireless cramming.
This hearing presents a good opportunity to recognize the
good that everyone at the witness table is already doing to
combat cramming. Industry, Congress, Federal agencies, and
State Attorneys General all need to continue to work together
on this issue to ensure that consumers are informed and
protected against bad actors.
I want to thank our witnesses for appearing here today, and
I look forward to your testimony.
Thank you, Mr. Chairman.
Senator Blumenthal. Thank you very, very much, Senator
Thune.
I will introduce the witnesses, and then we will hear from
you in this order.
First of all, welcome to Commissioner McSweeny, your first
appearance since your swearing in in April of this year. Prior
to joining the Commission, Commissioner McSweeny served as
Chief Council for Competition Policy and Intergovernmental
Relations for the United States Department of Justice,
Antitrust Division. She has a long and distinguished career in
public service, serving as a Deputy Assistant to the President
and Domestic Policy Advisor to the Vice President and a number
of other positions in public service where she has significant
experience in areas of competition and antitrust, as well as
women's rights, domestic violence, judicial nominations,
immigration and civil rights. She is a graduate of Harvard
University and Georgetown University Law School.
Attorney General Sorrell has served in Vermont as the
Attorney General there since--I am trying to remember--in June
of----
Mr. Sorrell. 1997.
Senator Blumenthal.--1997. I knew it was about 13 years
that we served together. And before that, he was a prosecutor
and distinguished law enforcement officer. He received the
National Association of Attorney General Kelly Wyman Award
given annually to the outstanding Attorney General and served
as president of that organization for a year between 2004 and
2005. He is a graduate of the University of Notre Dame, magna
cum laude, and Cornell Law School. And I know he knows a lot
about this subject because I have worked with him on it and
appreciate your being with us today.
Travis LeBlanc, who is the Acting Chief of the Enforcement
Bureau of the Federal Communications Commission, is a graduate
of Princeton University and the Yale Law School, among other
institutions, and has served, before his present position, in
the California Attorney General's Office as Special Assistant
Attorney General in charge of the enforcement bureau--I am
sorry--as Special Assistant Attorney General in charge of
technology, high-tech crime, privacy, antitrust, and health
care issues. And he also advised the California Attorney
General on significant appellate and constitutional matters.
Mr. Altschul, Michael Altschul, is Senior Vice President
and General counsel of CTIA, The Wireless Association. He has
served in that capacity since September of 1990, if I am not
mistaken, and was a trial attorney in the Antitrust Division of
the United States Department of Justice between 1980 and 1990.
Before then, he was in private practice. He is a graduate of
Colgate University and New York University Law School.
We welcome you all. We thank you for all of your public
service. All of you have been involved in public service. And
if we can begin with you, Commissioner McSweeny.
STATEMENT OF HON. TERRELL McSWEENY, COMMISSIONER, FEDERAL TRADE
COMMISSION
Commissioner McSweeny. Thank you very much, Senator
Blumenthal and Ranking Member Thune and Senator Johnson, for
inviting me here today. I am Terrell McSweeny and I am the
newest member of the Federal Trade Commission.
I appreciate the opportunity to appear here today and also
the leadership that this committee has shown on mobile cramming
and, indeed, on cramming generally.
I also want to thank the other witnesses for their
perspectives and for the collaboration the Federal Trade
Commission has received from the Federal Communications
Commission and State Attorneys General in addressing this
important consumer protection issue.
For more than 15 years, the Commission has been working
with Congress to stop fraudsters that place unauthorized
charges on consumers' telephone bills. The FTC began targeting
landline cramming in the late 1990s and since then has brought
more than 30 cases resulting in hundreds of millions of dollars
in judgments.
As consumers have migrated to smart phones and mobile
payment systems, we have turned our attention to the problem of
unauthorized charges on mobile phone accounts. Mobile cramming
scams can take a variety of forms. Sometimes consumers are
tricked into subscribing for services by third-party merchants
who use false pretenses to collect their telephone numbers,
such as promises of free concert tickets or $1,000 gift cards.
In other cases, consumers are targeted by deceptive ads. In one
example, consumers were targeted with an ad for virus
protection software for their phone and instead were subscribed
to ring tones for $9.99 a month.
Generally, these unauthorized subscriptions are
automatically renewed and the charges for them are racked up
month after month. Frequently consumers are unaware that they
are being billed for third-party services because charges are
often difficult to locate on phone bills, and it is rarely
clear that they are unassociated with phone service. And many
consumers who have prepaid accounts or auto-pay bills do not
receive bills at all or may not routinely inspect them.
Since the spring of 2013, the Federal Trade Commission has
brought six enforcement actions aimed at combating these types
of mobile cramming scams. We have obtained stipulated orders in
three of these matters with judgments totaling more than $160
million.
Earlier this month, the Trade Commission announced our
first case against a telecommunications company, T-Mobile. In
that case, the FTC is alleging that T-Mobile deceptively
described cramming charges on phone bills and unfairly
continued to charge customers even after it became aware of
telltale signs that charges were unauthorized.
These enforcement actions reinforce that basic consumer
protections apply in the mobile environment just as they do in
the brick-and-mortar world.
Along with our law enforcement efforts, the Commission has
engaged with industry and consumer advocates to develop
recommendations to better protect consumers while enabling
innovation and access to mobile payment systems. In a report
issued this week, the Commission staff recommends that carrier
and industry participants take the following additional steps
to reduce fraud and improve reliability of mobile carrier
billing.
First, they should make it clear to customers and consumers
that they can block all third-party charges on their accounts
if they wish to.
Second, they should ensure that advertising, marketing, and
opt-in processes for third-party charges are not deceptive.
Third, they should take action when refund requests,
complaints, and other factors indicate a merchant is cramming
unauthorized charges.
Fourth, they should clearly delineate third-party charges
on bills.
And fifth, the industry should implement effective and
consistent dispute resolution for consumers who wish to dispute
charges or obtain refunds.
As consumers increasingly turn to their mobile phones as
payment mechanisms, it is critical that carriers and other
industry participants proactively address mobile cramming.
Unfortunately, crammers have been able to come up with
creative and evolving ways to harm consumers. That is why the
FTC remains committed to working with this committee and with
Members of Congress and our State and Federal partners such as
the State Attorneys General and the Federal Communications
Commission to continue our efforts to shut down scammers as
they appear.
I am pleased to answer any questions.
[The prepared statement of Commissioner McSweeny follows:]
Prepared Statement of The Federal Trade Commission
I. Introduction
Chairman Rockefeller, Ranking Member Thune, and members of the
Committee, my name is Terrell McSweeny, and I am a Commissioner at the
Federal Trade Commission (``FTC'' or ``Commission'').\1\ I appreciate
this opportunity to appear before you today to discuss the Commission's
experience addressing mobile cramming. I am pleased to be testifying
alongside my partner at the Federal Communications Commission, with
which the FTC has worked collaboratively to combat the problem of
mobile cramming. I also would like to commend this Committee and you,
Mr. Chairman, for the work you have done to investigate and address
this important consumer protection issue.
---------------------------------------------------------------------------
\1\ While the views expressed in this statement represent the view
of the Commission, my oral presentation and responses to questions are
my own and do not necessarily reflect the view of the Commission or any
Commissioner.
---------------------------------------------------------------------------
Mobile cramming is the act of placing unauthorized third-party
charges on mobile phone accounts. It occurs when consumers are signed
up and billed for third-party services, such as ringtones and recurring
text messages containing trivia or horoscopes, without the consumers'
knowledge or consent. Companies that place crammed charges sometimes
obtain consumers' phone numbers without any contact with consumers.
Other times, these entities use deceptive means to obtain consumers'
mobile phone numbers--such as in connection with offering free prizes--
and then begin charging their phone accounts for recurring third-party
charges for purported services unrelated to the offer. These
unauthorized charges often appear buried in phone bills and have
generic descriptors such as ``usage charges.'' As a result, many
consumers do not notice the charges or do not understand that they are
unrelated to their phone service. Moreover, some consumers have prepaid
accounts and do not receive bills at all, while others auto-pay their
bills and therefore may not routinely inspect them. And many consumers
do not even receive the services for which they are being charged.
Mobile cramming is a significant problem that threatens to
undermine confidence in the developing payment method known generally
as ``carrier billing,'' which offers consumers the opportunity to
charge goods and services to their mobile phone accounts. As
stakeholders have noted, carrier billing of third-party charges may be
particularly beneficial for unbanked and underbanked consumers.
Additionally, consumers have used text messages to donate funds to a
charitable organization, with the charge placed on their mobile phone
account. As carrier billing has developed, however, fraud has become a
significant problem for consumers.
For the past two decades, one of the Commission's top priorities
has been ensuring that consumer protections keep pace with
technological developments, including emerging mobile products and
services, while encouraging innovations that benefit consumers and
businesses. In the past few years the Commission has focused on mobile
cramming as a key consumer protection issue.\2\ Among other things,
since the spring of 2013, the Commission has brought five mobile
cramming cases against merchants, resulting in substantial monetary
judgments.\3\ And, earlier this month, the Commission filed its first
action against a telecommunications company, T-Mobile USA, for mobile
cramming.\4\ These actions all reinforce the basic principle that a
company must obtain a consumer's express, informed consent before
placing charges on their bills--which applies to the mobile environment
just as it does to brick-and-mortar companies.
---------------------------------------------------------------------------
\2\ The FTC has jurisdiction under the FTC Act over market
participants engaged in third-party billing. See FTC v. Verity Int'l,
Ltd., 443 F.3d 48, 59-60 (2d Cir. 2006); In re Detariffing of Billing
and Collection Servs., 102 F.C.C.2d 1150 30-34 (1986).
\3\ To date, defendants have stipulated to final judgments,
partially suspended based on inability to pay, totaling more than $160
million. See FTC v. Wise Media, LLC, No. 1:13-cv-1234-WSD (N.D. Ga.
2013); FTC v. Jesta Digital, LLC, No. 1:13-cv-01272 (D.D.C. 2103); FTC
v. Tatto, Inc., No. 2:13-cv-08912-DSF-FFM (C.D. Cal. 2013). See also
FTC v. Acquinity Interactive, LLC, No. 14-60166-CIV (S.D. Fla.)
(amended complaint filed June 16, 2014); FTC v. MDK Media, Inc., No.
2:14-cv-05099-JFW-SH (C.D. Cal.) (complaint filed July 3, 2014).
\4\ FTC v. T-Mobile USA, Inc., No. 2:14-cv-00967 (W.D. Wash. filed
July 1, 2014).
---------------------------------------------------------------------------
In addition to its enforcement work, the Commission has recommended
the adoption of certain baseline consumer protections,\5\ encouraged
public dialogue among industry stakeholders through a public roundtable
in May 2013,\6\ and, just this week, authorized the release of a Bureau
of Consumer Protection staff report providing additional information
about mobile cramming and discussing recommended approaches to address
it.\7\
---------------------------------------------------------------------------
\5\ See Reply Comment of the Federal Trade Comm'n, Fed. Commc'ns
Comm'n CG Docket No. 11-116 (July 20, 2012), at 7, 12, available at
http://www.ftc.gov/sites/default/files/documents/advocacy_documents/
ftc-reply-comment-federal-communications-commission-concerning-
placement-unauthorized-charges/120723crammingcomment.pdf [hereinafter
``FTC Reply Comment''].
\6\ See Fed. Trade Comm'n, Mobile Cramming Roundtable (May 8,
2013), available at http://www.ftc.gov/news-events/events-calendar/
2013/05/mobile-cramming-ftc-roundtable [hereinafter ``Roundtable''].
\7\ See Fed. Trade Comm'n Staff, Mobile Cramming: An FTC Staff
Report (2014), available at http://www.ftc.gov/system/files/documents/
reports/mobile-cramming-federal-trade-commission
-staff-report-july-2014/140728mobilecramming.pdf [hereinafter ``Mobile
Cramming Report''].
---------------------------------------------------------------------------
This testimony begins with an overview of the Commission's and this
Committee's work to address landline cramming, which has provided the
foundation for the Commission's recent efforts to address mobile
cramming. The testimony then discusses publicly available evidence
regarding the scope of the mobile cramming problem, and the
Commission's recent enforcement actions to combat it. Finally, the
testimony discusses the recommendations in the FTC staff report
released this week.
II. Landline Cramming
As this Committee has recognized, the issue of unauthorized third-
party billing on landline phone bills has been a problem for well over
a decade. The Committee's investigation and 2011 staff report have
played critical roles in illuminating this important consumer
protection issue. Indeed, the Committee's staff report estimated that
landline cramming has likely cost consumers billions of dollars.\8\
---------------------------------------------------------------------------
\8\ See Majority Staff of S. Comm. on Commerce, Sci., & Transp.,
Office of Oversight & Investigations, Unauthorized Charges On Telephone
Bills, (July 12, 2011), at ii, available at http://
www.commerce.senate.gov/public/?a=Files.Serve&File_id=3295866e-d4ba-
4297-bd26-571665f40756.
---------------------------------------------------------------------------
The FTC has brought more than 30 enforcement actions under Section
5 of the FTC Act to halt landline cramming practices and provide
restitution to consumers.\9\ These cases have resulted in tens of
millions of dollars in refunded charges and stringent court orders to
prevent future cramming violations. Over the years, the FTC also has
worked closely with Federal and state partners, including State
Attorneys General and the Federal Communications Commission, to combat
the problem, and has engaged in consumer and business education to
raise awareness about the issue. In addition, the FTC has sought input
on the problem from industry participants, consumer groups, and other
stakeholders, including by holding a workshop devoted to cramming in
2011.\10\ Based on this multi-faceted experience, the FTC has advocated
a number of measures to address landline cramming.\11\
---------------------------------------------------------------------------
\9\ See, e.g., FTC v. Hold Billing Servs., Ltd., No. 98-cv-00629-FB
(W.D. Tex.) (contempt motion filed Mar. 28, 2012); FTC v. Inc21.com
Corp., 745 F. Supp. 2d 975 (N.D. Cal. 2010), aff'd, 2012 WL 1065543
(9th Cir. Mar. 30, 2012); FTC v. Nationwide Connections, Inc., No. 06-
80180 (S.D. Fla. Sept. 18, 2008) (stipulated order).
\10\ Fed. Trade Comm'n, Examining Phone Bill Cramming: A Discussion
(May 11, 2011), available at http://www.ftc.gov/bcp/workshops/cramming.
\11\ See Comment of the Fed. Trade Comm'n, Fed. Commc'ns Comm'n CG
Docket No. 11-116 (Oct. 24, 2011), at 5-6, available at http://
www.ftc.gov/os/2011/12/111227crammingcom
ment.pdf.
---------------------------------------------------------------------------
III. FTC Enforcement Actions
Over the past few years, it has become apparent that unauthorized
third-party charges were appearing not only on landline bills but also
on mobile accounts. The use of mobile devices has grown so rapidly
that, according to industry, mobile devices now outnumber people in the
United States.\12\ Building on its experience in the landline arena,
the Commission has looked closely at how cramming has spread to mobile
accounts. The Commission devoted a portion of the FTC's 2011 cramming
workshop to the topic of mobile cramming, filed a comment in an FCC
proceeding in July 2012 recommending certain baseline consumer
protections,\13\ and held a separate roundtable in May 2013
specifically to address mobile cramming.\14\ FTC staff also addressed
the issue in its April 2013 report on mobile payments.\15\ Further,
this week, the Commission released a staff report on mobile cramming
recommending best practices for industry to prevent and remedy mobile
cramming.\16\
---------------------------------------------------------------------------
\12\ See, e.g., Cecilia Kang, A Nation Outnumbered By Gadgets,
Washington Post, Oct. 12, 2011, available at http://
www.washingtonpost.com/business/economy/a-nation-outnumbered-by-
gadgets/2011/10/11/gIQAhjdhdL_story.html.
\13\ See FTC Reply Comment, supra note 5.
\14\ See Roundtable, supra note 6.
\15\ See Fed. Trade Comm'n Staff, Paper, Plastic . . . or Mobile?
An FTC Workshop on Mobile Payments (2013), at 7-8, available at http://
www.ftc.gov/sites/default/files/docu
ments/reports/paper-plastic-or-mobile-ftc-workshop-mobile-payments/
p0124908_mobile_payme
nts_workshop_report_02-28-13.pdf.
\16\ Mobile Cramming Report, supra note 7.
---------------------------------------------------------------------------
As noted above, since the spring of 2013, the Commission also has
brought six enforcement actions to prevent mobile cramming and provide
restitution for injured consumers. Thus far, the Commission has
obtained strong relief in the three actions that have been fully or
partially resolved:
Tatto, Inc. & Bullroarer, Inc. In this case, the FTC alleged
that a widespread mobile cramming operation engaged in
deceptive and unfair practices, for example by running web
advertisements that promised consumers a chance to win prizes
such as free Justin Bieber tickets and then solicited their
phone numbers.\17\ Consumers did not receive the Justin Bieber
tickets, but rather, as the Commission has alleged, it is
likely that consumers were signed up for the defendants'
subscription plans.\18\ The primary corporate defendants and
their operator have agreed to a partially suspended judgment of
more than $150 million.\19\
---------------------------------------------------------------------------
\17\ Complaint for Permanent Injunction and Other Equitable Relief,
at 10, FTC v. Tatto, Inc., No. 2:13-cv-08912-DSF-FFM (C.D. Cal. Dec. 5,
2013), available at http://www.ftc.gov/sites/default/files/documents/
cases/131216bullroarercmpt.pdf.
\18\ See id.; Memorandum In Support of Plaintiff's Ex Parte
Application For Temporary Restraining Order With An Asset Freeze and
Other Equitable Relief, And Order to Show Cause Why A Preliminary
Injunction Should Not Issue, at 12, FTC v. Tatto, Inc., No. 2:13-cv-
08912-DSF-FFM (C.D. Cal. Dec. 5, 2013).
\19\ See Stipulated Order for Permanent Injunction and Monetary
Judgment Against Defendants Tatto, Inc., Shaboom Media, LLC, Bune, LLC,
Mobile Media Products, LLC, Chairman Ventures, LLC, Galactic Media,
LLC, Virtus Media, LLC, and Lin Miao, FTC v. Tatto, Inc., No. 2:13-cv-
08912-DSF-FFM (C.D. Cal. June 11, 2014), available at http://
www.ftc.gov/system/files/documents/cases/140613bullroarerstiporder.pdf.
The judgment was partially suspended based on defendants' inability to
pay, but the defendants that have settled to date have surrendered more
than $10 million in assets to be used for restitution.
Jesta Digital, LLC. In this case, the FTC alleged that the
defendant lured consumers into purchasing a monthly
subscription for ringtones using deceptive virus scan ads.\20\
According to the complaint allegations, some consumers saw
banner ads on their mobile devices while playing a popular
mobile app that falsely claimed a virus had been detected.
Clicking on the ad led to a screen with a button stating ``Get
Now'' above the phrase ``Protect your Android [phone] today.''
Consumers who clicked ``Get Now,'' and then a button on a
subsequent page marked ``Subscribe,'' were then subscribed to
the $9.99 per month ringtone subscription plan, though the
nature and cost of the subscription were never adequately
disclosed. Indeed, some consumers were subscribed even if they
clicked on parts of the screen other than the ``subscribe''
button. Moreover, if consumers actually attempted to subscribe
and download Jesta's so-called anti-virus software to their
mobile devices, the download often failed. To obtain consumers'
purported authorization for the charges, Jesta used a process
known as WAP or Wireless Access Protocol billing,\21\ which
captures consumers' phone numbers from a mobile device. Thus,
consumers never even entered their phone numbers prior to being
billed.\22\ Under the terms of the settlement, the company must
provide refunds to injured consumers and pay an additional $1.2
million to the FTC.\23\
---------------------------------------------------------------------------
\20\ Complaint for Permanent Injunction and Other Equitable Relief,
at 8-25, FTC v. Jesta Digital, LLC, No. 1:13-cv-01272 (D.D.C. Aug.
20, 2013), available at http://www.ftc.gov/sites/default/files/
documents/cases/2013/08/130821jestacmpt.pdf [hereinafter ``Jesta
Digital Complaint''].
\21\ WAP opt-in involves consumers responding to an offer displayed
on the mobile web by clicking on a confirmation button from the phone
two separate times. This process captures the consumer's phone number
without the need for the consumer to enter it manually.
\22\ See Jesta Digital Complaint, supra note 20, at 8-28.
\23\ See Stipulated Final Order for Permanent Injunction and
Monetary Judgment Against Jesta Digital, LLC, FTC v. Jesta Digital,
LLC, No. 1:13-cv-01372 (D.D.C. Aug. 23, 2013).
Wise Media LLC. The FTC filed suit in April 2013 against the
merchant Wise Media, LLC, which purported to sell recurring
subscriptions to text message services providing ``love tips,''
horoscopes, diet tips, and similar kinds of ``alerts'' for
$9.99 a month.\24\ The company claimed that consumers signed up
for the services by entering their information into websites,
receiving PIN codes by text messages, and inputting the PINs
into the websites. The FTC alleged that many consumers did not
notice the charges, which were often buried in their phone
bills, including, in at least one consumer's case, on page 18
of the consumer's bill.\25\ Consumers who discovered the
charges widely reported that they had never heard of Wise Media
or signed up for the services; the FTC alleged that consumers
were simply billed without authorization.\26\ In November 2013,
a court entered a stipulated order with a judgment for more
than $10 million and a ban that prohibits Wise Media from
placing charges on mobile phone bills altogether.\27\
---------------------------------------------------------------------------
\24\ Complaint for Permanent Injunction and Other Equitable Relief,
at 7-8, FTC v. Wise Media, LLC, No. 1:13-cv-1234-WSD (N.D. Ga. Apr. 16,
2013), available at http://www.ftc.gov/sites/default/files/documents/
cases/2013/04/130417wisemediacmpt.pdf.
\25\ Memorandum in Support of Motion for Temporary Restraining
Order, at 6, 10-11, FTC v. Wise Media, LLC, No. 1:13-cv-1234-WSD (N.D.
Ga. Apr. 16, 2013) [hereinafter ``Wise Media TRO Memo''].
\26\ Id. at 6-9.
\27\ Stipulated Order for Permanent Injunction and Monetary
Judgment Against Defendants Brian M. Buckley and Wise Media, LLC, at 4-
6, FTC v. Wise Media, LLC, No. 1:13-cv-1234-WSD (N.D. Ga. Nov. 22,
2013), available at http://www.ftc.gov/sites/default/files/documents/
cases/131121wisemediabuckleystip.pdf.
The Commission is litigating two similar actions against content
providers. In FTC v. Acquinity Interactive, LLC, the Commission alleges
that crammers sent text messages promising free $1,000 gift cards and
iPads as a way to deceive consumers into ``confirming'' their phone
number and entering PINs on a website; this resulted in consumers being
signed up for unwanted premium text messaging services and incurring
charges of $9.99 per month on their mobile phone accounts.\28\ In
another case, against MDK Media, Inc., the Commission alleges that a
content provider similarly used the lure of ``free'' gift cards to
collect consumers' phone numbers and crammed consumers for subscription
services such as horoscope alerts.\29\
---------------------------------------------------------------------------
\28\ Amended Complaint for Permanent Injunction and Other Equitable
Relief, FTC v. Acquinity Interactive, LLC, No. 14-60166-CIV (S.D. Fla.
June 16, 2014), available at http://www.ftc.gov/system/files/documents/
cases/140707revenuepathcmpt.pdf.
\29\ Complaint for Permanent Injunction and Other Equitable Relief,
FTC v. MDK Media, Inc., No. 2:14-cv-05099-JFW-SH (C.D. Cal. July 3,
2014).
---------------------------------------------------------------------------
Earlier this month, the Commission filed suit against T-Mobile USA,
alleging that it unlawfully charged consumers for unauthorized monthly
text message subscriptions offered by third-party merchants.\30\ The
complaint alleges that T-Mobile deceptively described these charges on
its phone bills in a manner that made it difficult for consumers to
discover them. For example, T-Mobile's online bill summaries lumped
third-party charges into a line item labeled ``Use Charges'' that could
include charges for both T-Mobile's own text services and for third-
party charges.\31\
---------------------------------------------------------------------------
\30\ See Press Release, FCC Investigates Cramming Complaints
Against T-Mobile (July 1, 2014), available at http://www.fcc.gov/
document/fcc-investigates-cramming-complaints-against-t-mobile.
\31\ See Complaint for Permanent Injunction and Other Equitable
Relief, FTC v. T-Mobile USA, Inc., No. 2:14-cv-00967, 11-20 (W.D.
Wash. July 1, 2014) [hereinafter ``T-Mobile Complaint'']
---------------------------------------------------------------------------
Additionally, according to the complaint, T-Mobile continued to
charge consumers even after becoming aware of telltale signs that the
charges were unauthorized. The complaint alleges that T-Mobile's own
internal documents showed that consumers increasingly were calling T-
Mobile to complain about unauthorized third-party charges. It also
alleges that large numbers of consumers sought refunds and the refund
rate--the ratio of refunds to charges billed for a particular period of
time such as a month--for some subscriptions was as high as 40 percent
in some months. Further, the complaint states that T-Mobile continued
to bill consumers for charges from third-party merchants for years
after those merchants were the subject of law enforcement or other
legal action for cramming, and after news articles and industry alerts
detailed cramming behavior and other deceptive behavior by those
merchants. On the same day the FTC filed its complaint, the FCC
announced that it had opened its own investigation into T-Mobile's
practices in regard to cramming.\32\
---------------------------------------------------------------------------
\32\ See id., 21-36.
---------------------------------------------------------------------------
A number of lessons can be drawn from these actions, as well as the
enforcement actions brought by our state law enforcement partners.\33\
First, many entities have been able to cram charges onto mobile phone
accounts using similar practices, and the amount of money at stake has
been substantial. The Wise Media, Jesta Digital, and Tatto/Bullroarer
cases alone involved settlements totaling more than $160 million.
---------------------------------------------------------------------------
\33\ State law enforcement actions are discussed in more detail at
pages 11-12 of the Mobile Cramming Report, supra note 7. The fact
patterns described by the states are similar to those described in the
Commission's actions.
---------------------------------------------------------------------------
Second, the level of consumer complaints and refund requests has
understated the overall harm. Carriers have received a large number of
complaints and refund requests related to third-party charges on mobile
accounts, but the evidence indicates that many consumers do not notice
the unauthorized charges, which often are buried in their mobile phone
bills and, as alleged in the T-Mobile matter, appear under non-
descriptive headers mixed in with charges for phone services.\34\
Further, consumers with prepaid mobile phone accounts do not receive a
bill at all; unauthorized charges are simply deducted from their
available balance of minutes.
---------------------------------------------------------------------------
\34\ See Mobile Cramming Report, supra note 7, at 14-15, 17-18.
---------------------------------------------------------------------------
Third, even when consumers notice unauthorized charges and have
requested refunds, they have reported difficulties obtaining refunds
from carriers. Many complain that carriers refuse to give more than two
months' worth or other limited amounts of refunds, even if consumers
learn that crammed charges have appeared on their bills for longer
periods of time.\35\ In other instances, carriers have told consumers
to contact the merchant for a refund, a request that the merchant often
denies.\36\
---------------------------------------------------------------------------
\35\ Id. at 14, 33.
\36\ See Wise Media TRO Memo, supra note 25, at 11-12; Mobile
Cramming Report, supra note 7, at 14.
---------------------------------------------------------------------------
IV. Staff Recommendations on Best Practices to Address Mobile Cramming
The Commission has advocated certain baseline consumer protections
to combat mobile cramming, and the staff report released this week
provides staff's additional recommendations for industry best
practices. Stakeholders in the mobile billing industry generally have
relied on a set of voluntary guidelines to attempt to address cramming,
but as demonstrated above, these have not been effective in stopping
cramming.\37\
---------------------------------------------------------------------------
\37\ Until recently, the Mobile Marketing Association (``MMA''), a
trade association that promotes mobile marketing, had taken the lead in
publishing best practices for merchants who wish to place charges on
mobile phone bills using Premium SMS, but the MMA itself did not
enforce those best practices. See Mobile Cramming Report, supra note 7,
at 23-25.
---------------------------------------------------------------------------
In making its recommendations, Commission staff considered how the
mobile carrier billing industry has evolved. Until recently, the
dominant type of carrier billing has been ``Premium SMS'' billing.
Premium SMS typically involves a text-messaging component, whereby a
consumer purportedly authorizes charges by texting a particular five or
six-digit number known as a ``short code.'' Since the adoption of
smartphones with advanced mobile web browsing capabilities and the
greater use of mobile apps, there has been an increasing use of other
forms of third-party billing arrangements, known as ``direct carrier
billing'' arrangements. In direct carrier billing arrangements, a
consumer does not necessarily need to send or receive a text message to
initiate or complete a transaction that is billed to a mobile account.
Instead, a consumer can initiate a transaction on a mobile website or
within a mobile app, and the merchant can have the charge placed on the
consumer's mobile account through back-end arrangements that involve
the mobile carriers. In late 2013, after the Commission had held its
mobile cramming roundtable and Federal and state agencies had brought
numerous law enforcement actions highlighting the prevalence of mobile
cramming, the four largest mobile carriers stated their intention to
discontinue one form of third-party billing--Premium SMS billing for
commercial transactions.\38\ Direct carrier billing, in contrast, is
expected to continue growing, and it appears likely to supplant Premium
SMS as the preferred mode of carrier billing. Regardless of the type of
carrier billing involved, it is important for companies to provide
basic consumer protections.
---------------------------------------------------------------------------
\38\ See, e.g., Ina Fried, AT&T, Sprint, T-Mobile, Verizon Dropping
Most Premium Test Service Billing in Effort to Combat Fraud,
AllThingsD.com, Nov. 21, 2013, http://allthingsd.com/20131121/att-
sprint-t-mobile-verizon-all-dropping-most-premium-text-service-billing-
in-effort-to-combat-fraud/.
---------------------------------------------------------------------------
Providing consumers the option to block third-party charges
The Commission has advocated that mobile providers give consumers
the option to block all third-party charges from their mobile phone
accounts.\39\ Providing a blocking option would significantly benefit
consumers who wish to avoid third-party charges while imposing minimal
costs to consumers who wish to use their mobile accounts for third-
party billing. At activation, consumers should be informed that third-
party charges may be placed on their accounts, and they should be given
the opportunity to block all charges at that time. This option should
be clearly and prominently disclosed to consumers while the accounts
are active, including on the carriers' websites.
---------------------------------------------------------------------------
\39\ See FTC Reply Comment, supra note 5, at 12.
---------------------------------------------------------------------------
Staff also suggests that carriers should consider offering
consumers the ability to block or allow only specific providers, or to
block commercial providers only, as this may benefit consumers who wish
to use their mobile accounts for only certain kinds of third-party
charges. Allowing more granular blocking would permit consumers to
continue to authorize third-party charges such as charitable or
political donations.\40\
---------------------------------------------------------------------------
\40\ Mobile Cramming Report, supra note 7, at 22.
---------------------------------------------------------------------------
Strategies for Detecting and Preventing Mobile Cramming
Industry participants have adopted a range of strategies to attempt
to detect and prevent mobile cramming. The staff report discusses many
of these in detail and recommends best practices for improvement. These
strategies address two key issues: avoiding deceptive practices that
lead to unauthorized charges on mobile accounts, and ensuring that
consumers are providing express, informed consent to third-party
charges on mobile accounts.
The staff report notes that merchants are responsible in the first
instance for ensuring that their practices--including any advertising,
marketing, and opt-in processes--are not deceptive, pursuant to the FTC
Act. Further, information about price is important to consumers and
should be disclosed clearly and conspicuously before charging a
consumer's telephone account for a good or service.\41\ Thus, at a
minimum, pricing information should be on the same page and immediately
next to the purchase or buy button, entry of a PIN, or other invitation
for a consumer to agree to a charge for a product or service.
Additionally, advertising and purchase confirmation screens should
clearly disclose that the charge is being billed to a specific
telephone account. While industry guidelines have in the past focused
extensively on the text-message based Premium SMS opt-in process, the
basic consumer protection principles outlined in the report should
apply regardless of the type of carrier billing used.
---------------------------------------------------------------------------
\41\ See Fed. Trade Comm'n Staff, Revised.com Disclosures: How to
Make Effective Disclosures in Digital Advertising (2013), at 10,
available at http://www.ftc.gov/sites/default/files/attachments/press-
releases/ftc-staff-revises-online-advertising-disclosure-guidelines/
130312
dotcomdisclosures.pdf.
---------------------------------------------------------------------------
The staff report also recommends that carriers and billing
intermediaries should implement reasonable procedures to scrutinize
risky or suspicious merchants and terminate or take other appropriate
steps against companies engaging in unlawful practices. For example,
the report recommends that if a carrier or billing intermediary
discovers that a merchant has run a campaign containing deceptive
advertising, or discovers the merchant engaged in unauthorized billing
on landline phones, the carrier or intermediary should closely monitor
other campaigns run by that third party or its affiliates to ensure
compliance.\42\ Carriers and intermediaries can use monitoring
techniques that compensate for known tactics that fraudsters use to
evade detection of deceptive advertisements and sign-up processes.
Industry participants also can adopt a policy of terminating serious
and repeat offenders.\43\
---------------------------------------------------------------------------
\42\ Mobile Cramming Report, supra note 7, at 26-27.
\43\ While there are costs to effective monitoring, there are also
substantial benefits to both industry and to consumers. Industry
participants can lower expenses related to the processing of refund
requests and handling of customer complaints. And consumers avoid being
crammed with unauthorized charges.
---------------------------------------------------------------------------
Additionally, the report recommends that industry take stronger
steps to ensure that consumers have opted-in to charges as represented
by merchants. In Premium SMS, mobile carriers typically have relied on
the merchant's representation--passed on by the billing intermediary--
that a consumer opted-in to a charge. However, as the enforcement
actions described above demonstrate, those representations are often
unreliable. One option is to move toward more centralized control of
the consumer opt-in process and authorization records, which appears to
be the trend for at least some part of the industry.\44\
---------------------------------------------------------------------------
\44\ See Mobile Cramming Report, supra note 7, at 28-30.
Centralization may shift some compliance costs, in the short term, from
the merchants to carriers and billing intermediaries. However, it
should benefit consumers and industry participants by making it more
difficult for unscrupulous merchants to place unauthorized charges and
by streamlining dispute resolution when a consumer claims a charge was
unauthorized.
---------------------------------------------------------------------------
Finally, the staff report notes that monitoring consumer refund
requests, and taking appropriate action when there are indications of
unauthorized charges, can be a highly effective means of detecting and
stopping cramming. Businesses providing other payment mechanisms use
similar approaches to root out unauthorized charges. For example,
credit card networks typically investigate merchants with chargeback
rates of 1 percent, a threshold that is less than one-tenth of the
refund rates seen in the cramming context.\45\ While refund rates may
differ across different types of payment methods, a representative from
the Mobile Giving Foundation has suggested that charitable donations
charged to a mobile bill and processed through the Foundation typically
have a refund rate of under 1 percent overall.\46\
---------------------------------------------------------------------------
\45\ See id. at 13-14 For example, in the Wise Media case, the
monthly refund rates for some services on one carrier were as high as
40 percent. Wise Media TRO Memo, supra note 24, at 10.
\46\ See Fed. Trade Comm'n, Mobile Cramming Roundtable Transcript
(May 8, 2013), J. Manis, Mobile Giving Foundation, at 58, available at
www.ftc.gov/sites/default/files/documents/public_events/
Mobile%20Cramming%20Roundtable/30508mob.pdf.
---------------------------------------------------------------------------
Adequate Disclosure of Third-Party Charges
Another important step in preventing cramming is ensuring that
consumers are adequately informed of all third-party charges on their
accounts. Carriers should clearly and conspicuously disclose all
charges for third-party services in a non-deceptive manner. In
particular, the name of the third-party service and any associated bill
heading should relate to the product offered and not suggest an
affiliation with the carrier's service. And, in order for carriers to
make these disclosures, billing intermediaries and merchants should
provide accurate information about these charges to them.
For consumers who auto-pay their bills, and may be especially
unlikely to review the charges, or consumers who have prepaid phone
plans, staff has urged carriers to consider whether a separate
notification of third-party charges is warranted.
Consumer Dispute Protections and Refunds
The Commission has explained that mobile carriers should provide a
clear and consistent process for customers to dispute suspicious
charges on their mobile accounts and obtain reimbursement.\47\ And
indeed, FTC enforcement actions show that it is difficult for consumers
to obtain refunds, and that refunds often are limited to only some
months' worth of charges, even when consumers discover they incurred
crammed charges for a longer time period.\48\ A clear and consistent
process is particularly important in this context because no Federal
statutory protections have been applied to consumer disputes about
unauthorized charges placed on mobile carrier accounts. Consumers
therefore have different dispute rights when using carrier billing than
when using other payment mechanisms. For example, consumers have
dispute resolution rights and liability limits for unauthorized credit
card charges under Regulation Z, including a right to withhold payment
while the dispute is pending, \49\ and for unauthorized debit card
charges under Regulation E, including a requirement that funds debited
in an unauthorized transaction be returned to a consumer's account
within ten days, pending further investigation.\50\
---------------------------------------------------------------------------
\47\ FTC Reply Comment, supra note 5, at 12.
\48\ Mobile Cramming Report, supra note 7, at 14, 33.
\49\ See 12 C.F.R. Sec. Sec. 1026.12, 1026.13.
\50\ See 12 C.F.R. Sec. Sec. 1005.6, 1005.11.
---------------------------------------------------------------------------
The staff report further suggests that mobile carriers also can do
more to provide redress to consumers who have been crammed. For
example, in the landline billing context, industry members have stated
that consumers can withhold payment on disputed charges during the
dispute period without a cut-off in phone service or accrual of
interest. Industry should extend this protection to the mobile billing
context, and inform consumers about it. The staff report also suggests
that carriers be more proactive in notifying consumers when a third
party's billing activities are terminated for unauthorized charges, in
order to allow them to request a refund if appropriate.
V. Conclusion
Thank you for the opportunity to provide the Commission's views on
mobile cramming. The Commission is committed to protecting consumers
from mobile cramming and we look forward to continuing to work with the
Committee and Congress on this important issue.
Senator Blumenthal. Thank you, Commissioner.
Attorney General Sorrell?
STATEMENT OF HON. WILLIAM H. SORRELL,
ATTORNEY GENERAL, STATE OF VERMONT
Mr. Sorrell. Senator Blumenthal, Ranking Member Thune,
thank you for inviting me to be here today to participate in
this hearing and to speak from the perspective of the State
AGs.
I do want to make it clear that although Vermont is the
lead state in a 47-state effort right now to combat wireless
cramming, that I am speaking only on behalf of myself today.
It was over 10 years ago that Vermont started addressing
the problem of landline cramming, and our focus was on the
third-party providers and not on the carriers. But from
enforcement actions and settlements, we have recouped for
25,000 Vermonters over $2 million in refunds. If you want to
take Vermont at two-tenths of 1 percent of the U.S. population
and look at that nationally, just from the companies that we
looked at and have settled with, that would be over 125 million
Americans and over $1 billion lost to landline cramming. And
that is just from those companies that we have taken action
against.
Ultimately, self-regulation, we realize, did not work in
the landline cramming arena, and our State legislature banned
essentially all third-party charges on landlines.
And then about 3 years ago, our office with other AGs
turned to the wireless arena. But instead of going at the
third-party providers, we focused on the four large cell phone
or wireless carriers. And we conducted a survey in Vermont
involving all Vermonters with third-party charges on their cell
phone bills on the part of two large carriers over a two-month
period in the summer of 2012. We retained the University of
Vermont Center for Rural Studies to conduct the survey, and
what that survey turned up was that approximately 60 percent of
those Vermonters with third-party charges from those carriers
on their cell phone bills during those 2 months--they had been
crammed. They did not know the charges were there. They were
not availing themselves of those charges.
And perhaps more compelling is the fact that 80 percent of
those surveyed were not aware that charges on their cell phone
bill were not exclusively for services provided by their own
carrier.
And other AG's have found similar results as they have
looked at this issue in their States.
Now, as you and the Ranking Member have pointed out, there
has been some progress in that the four big carriers last
November essentially got out of the PSMS business, and
consequently, complaints to us have sort of fallen off a cliff.
But we are very much looking forward and wanting to avoid
recurrences of wireless cramming in the future and also be
aware of new methodologies, new technologies, and opportunities
for consumers to be scammed. So we want to protect going
forward. We also want to see that those customers who have been
crammed are made whole by their carriers, and we hope that
there will be enhanced consumer education efforts to avoid
recurrences going forward.
This is a national problem. We very much hope that the
Federal regulators will step up and be aggressive and, if
appropriate, that the Congress will take action to better
protect American consumers going forward. In the wireless
arena, self-regulation has failed, and with my Federal partners
and the Congress, we need to step up.
Thank you very much.
[The prepared statement of Mr. Sorrell follows:]
Prepared Statement of Hon. William H. Sorrell, Attorney General,
State of Vermont
Summary
Chairman Rockefeller, Ranking Member Thune, and members of the
Committee, thank you for the opportunity to testify today. The
placement of unauthorized charges on telephone bills, also known as
``cramming,'' has victimized many of my constituents in Vermont, and
many of your constituents as well, including consumers, small
businesses, and even large organizations. Cramming is a practice of
significant interest to me, and one that the Vermont Attorney General's
Office has been combatting, on behalf of Vermonters and citizens
nationwide, for well over a decade.
Cramming is a huge, nationwide problem that has been pervasive in
both landline and mobile telecommunications and has cost American
consumers many billions of dollars. Cramming involves consumers being
charged amounts on their phone bills without authorization, usually for
goods and services ``sold'' by third-party vendors ranging from $9.99
to $24.99 \1\ per month that the consumer neither requested nor used.
Among the things that make cramming so pernicious and persistent is the
continuing lack of consumer awareness that their trusted telephone
carriers are able and willing to place charges on their telephone bills
for goods and services sold by disreputable third parties. Not only do
consumers not expect unanticipated third-party charges on their bill,
they rarely recognize the charges that do appear on their bills as
unauthorized third-party charges. Those few consumers that do detect
unauthorized third-party charges--at least with respect to mobile
cramming--have not consistently been able to obtain full refunds from
their carriers or the carriers' third-party partners.
---------------------------------------------------------------------------
\1\ These dollar amounts are typical for crammed charges on mobile
phones.
---------------------------------------------------------------------------
A number of regulatory approaches have proven to be ineffective in
curbing cramming. In both the landline and mobile contexts, the
telecommunications industry has largely been permitted to engage in
``self-regulation.'' As this laissez-faire approach evinced its failure
with respect to landline cramming, Vermont tried a notice-regime,
requiring consumers to be notified in writing before receiving a third-
party charge from their landline carrier. It is under these failed
policies that cramming blossomed into the national, industry-wide,
multi-billion dollar problem law enforcement officials and regulators--
and, increasingly, consumers--across the country are familiar with
today.
Cramming is a Huge Problem that has Cost Consumers Many Billions of
Dollars
As the Committee is well aware, cramming has been recognized by
many for its size and cost to consumers. In July 2011, this Committee
concluded that landline cramming--a problem that had then been in
existence for over a decade--had cost consumers a ``substantial
percentage'' of $2 billion annually in ``recent years.'' \2\ In 2012,
Consumer Reports estimated that landline and mobile cramming together
could be costing American consumers up to $2 billion per year.\3\
---------------------------------------------------------------------------
\2\ S. Comm. On Commerce, Sci. and Transp., 112th Cong.,
Unauthorized Charges on Telephone Bills: Staff Report for Chairman
Rockefeller (July 12, 2011).
\3\ Beware of Bogus Phone Bill Fees; Consumers Could Be Losing Up
to $2 Billion a Year, Consumer Reports, August 2012, available at
http://www.consumerreports.org/cro/magazine/2012/08/beware-of-bogus-
phone-bill-fees.
---------------------------------------------------------------------------
Based upon Vermont's experience, if anything, these estimates of
consumer loss are low. To date, as a result of my Office's
investigations into dozens of third-party merchants and billing
aggregators involved in landline cramming, 25,000 Vermonters have
recouped nearly $2.3 million in crammed landline charges.\4\ My Office
has no reason to believe that these companies disproportionately
targeted Vermont consumers. Moreover, there are many more such
companies that perpetrated cramming that my Office has not
investigated.\5\ Thus, it is reasonable to conclude that approximately
1.25 million Americans have lost a staggering $1.15 billion to the
entities Vermont has investigated and settled with to date alone and
that these figures represent just a fraction of total consumer loss due
to landline cramming.\6\
---------------------------------------------------------------------------
\4\ Press Release, Office of the Attorney General of Vermont, A.G.
Settles Case for $1.6 Million in Ongoing Effort to Combat ``Cramming''
(Nov. 12, 2013), available at http://ago.vermont.gov/focus/news/a.g.-
settles-case-for-$1.6-million-in-ongoing-effort-to-combat-cramming.php.
\5\ Unauthorized Charges on Telephone Bills: Why Crammers Win and
Consumers Lose: Hearing before the S. Comm. on Commerce, Sci., and
Transp., 112th Cong. 112-171 (2011) [hereinafter Hearing] (statement of
Elliot Burg, Senior Assistant Atty Gen., State of Vermont).
\6\ See State & County QuickFacts, Vermont, United States Census
Bureau (July 8, 2014), http://quickfacts.census.gov/qfd/states/
50000.html (estimating United States and Vermont populations for 2013).
---------------------------------------------------------------------------
On the wireless side, the magnitude of consumer loss is equally
daunting. As the Committee may be aware, my Office recently retained
the University of Vermont's Center for Rural Studies to conduct a
survey to determine the mobile cramming rate in Vermont for the
customers of two major wireless carriers--that is, the proportion of
third-party charges placed on mobile phones that were unauthorized.\7\
Through the study, a sample of 2,400 Vermonters who had third-party
charges placed on their mobile telephone bills during August and/or
September of 2012 were contacted by my Office; we asked them about
5,388 third-party charges for a total of $43,250.96 that had been
placed on their mobile phone bills over the course of those two months.
Over 60 percent of the surveyed consumers reported the charges were
crammed, bringing consumer losses over a two month period for these
2,400 Vermonters alone to over $25,950.58. Extrapolating nationwide,
the Vermont survey suggests a similar survey done on a national scale
would reveal that a sample of 1.2 million Americans lost $12,975,290 to
mobile cramming during August and September of 2012 alone. My Office
believes that carriers started placing third-party charges on mobile
phone bills in Vermont as early as 2006. Even if only 5 percent of
American consumers have ever experienced third-party charges on their
mobile phone bills, consumer losses for mobile cramming alone may have
exceeded $10 billion between 2007 and 2013.\8\
---------------------------------------------------------------------------
\7\ See Jane Kolodinsky, Mobile Phone Third-Party Charge
Authorization Study: Vermont, Center for Rural Studies at the
University of Vermont (May 5, 2013). available at http://
ago.vermont.gov/assets/files/Mobile%20Phone%20Third-
Party%20Charge%20Authorization%20
Study.pdf
\8\ Based on the 84 months from January 2007 through December 2013;
while my Office's understanding is that the practice of placement of
third-party charges on mobile telephones began as early as 2004, we are
not aware of cramming complaints predating 2006.
---------------------------------------------------------------------------
Cramming is a Pervasive, Nationwide and Industrywide Problem
This Committee is well aware of the depth and breadth of the
landline cramming problem; I expect the Committee's work in recent
years has uncovered the fact that mobile cramming is similarly nation
and industrywide. Vermont, like other jurisdictions around the country,
fielded an increasing number of consumer complaints about mobile
cramming from 2006 to 2013.\9\ While these complaints are voluminous,
it is generally believed that they represent only a very small fraction
of the consumers who have been improperly charged for third-party goods
and services on their mobile phone bills.\10\ Nevertheless, consumer
complaints implicate the entire third-party charge industry; naming
more than a dozen mobile carriers and hundreds of third parties,
including content providers and billing aggregators.\11\
---------------------------------------------------------------------------
\9\ Letter from Nat'l Ass'n of Att'ys Gen. to Donald Clark, Sec'y,
Fed. Trade Comm'n 2-3 (June 24, 2013) (on file with Fed. Trade Comm'n),
available at: http://www.ftc.gov/sites/default/files/documents/
public_comments/2013/06/564482-00015-86106.pdf [hereinafter Letter].
\10\ Id.
\11\ Id.
---------------------------------------------------------------------------
Importantly, mobile cramming is a problem that victimizes consumers
no matter what mobile carrier they choose. Indeed, in a recent study of
over 750 consumer complaints received by 28 jurisdictions, several
state attorneys general discovered that 14 mobile carriers were
implicated in cramming. Moreover, the following themes of consumer
complaints were consistent across those carriers as well as across the
country, and across time:
Typically, consumers complain of having been signed up for a
premium text messaging subscription service (or ``PSMS''
subscription) without their knowledge or authorization, costing
them $9.99 or more on their mobile phone bill each month.
Some of these subscriptions purport to be for goods such as
ringtones and wallpaper, but many more are for ``alerts''--a
service in which the content provider purports to send periodic
texts to the consumer with information about weather, traffic,
news, or sports, for example, or with inspirational messages,
horoscopes, celebrity gossip, or trivia.
Consumers typically complain that they do not desire and do not
use the goods and services for which they are being billed.
Some consumers report that they do not even receive the alerts
for which they have been charged.
While consumers can sometimes recall having gotten spam text(s)
or having entered their mobile phone numbers into a website
immediately prior to being signed up for a subscription service
(often to receive a ``free'' good or service), just as often--
if not more often--consumers simply have absolutely no idea how
they came to be signed up for the subscription.
Consumers are often crammed by more than one content provider
and, many times, after they have already asked their mobile
carrier to place a block on their account to stop third party
billing altogether.
Consumers that detect that they have been crammed on their
mobile phone bills typically do so after they have been paying
for a subscription service for several months.
Even consumers who do not text and have no access to the
Internet (and thus, cannot have opted in to a third party good
or service through a typical method) report having been
crammed. Too often, these consumers are elderly.\12\
---------------------------------------------------------------------------
\12\ Letter, supra note 9, at 3--4.
These are the very same issues my Office hears about when it
communicates with Vermont consumers about mobile cramming.\13\ Thus, it
should come as no surprise that my Office believes that many of the
allegations contained in the Federal Trade Commission's recent
complaint against T-Mobile are representative of behaviors engaged in
by carriers throughout the industry.\14\
---------------------------------------------------------------------------
\13\ Id. at 4, 6.
\14\ See Complaint, Fed. Trade Comm'n v. T-Mobile USA, Inc., No.
2:14-cv-00967 (W.D. Wash. July 1, 2014), available at http://
www.ftc.gov/system/files/documents/cases/140701tmobile
cmpt.pdf (alleging, inter alia, that T-Mobile charged consumers for
unauthorized third-party subscriptions despite clear indications that
the charges were unauthorized, that T-Mobile retained a significant
portion of the revenue obtained through such charges, and that T-Mobile
bills obscured the nature and source of such charges on consumers'
mobile telephone bills).
---------------------------------------------------------------------------
Most Third-Party Charges are Crammed Charges
It is my Office's conclusion that most third-party charges are
crammed charges. My Office has conducted three consumer surveys
regarding cramming since the Fall of 2011. According to these surveys,
in excess of 60 percent of third party charges are unauthorized
(``crammed''). As stated above, according to our 2013 mobile third
party authorization study, over 60 percent of third-party charges on
mobile phone bills were crammed charges. Previously, in the fall of
2011, my Office spoke to over 100 Vermont consumers by phone about
their experience with third-party charges on their mobile telephone
bills; a full 92 percent of the consumers said the charge was crammed,
while only 8 percent of the consumers reported that the charge was
authorized.\15\ Finally, nearly 90 percent of consumers surveyed in
connection with my Office's first landline billing aggregator
investigation reported that the third-party charges on their landline
bills were unauthorized.\16\ We are aware of no studies that contradict
these findings.
---------------------------------------------------------------------------
\15\ Letter, supra note 9, at 4.
\16\ Hearing, supra note 5, at 2.
---------------------------------------------------------------------------
Third-Party Charges have Enriched Industry while Offering Consumers
Little Value
It is no secret that the landline and mobile telecommunications
industries have profited to the tune of billions of dollars from
placing third-party charges on landline and mobile telephone bills.\17\
And yet, consumers have gained very little as a result. Consumers not
only report that they are crammed for third-party services that they
did not want or authorize, but that they would have no reason to value
such offerings. A number of the landline consumers my Office spoke to
in connection with our first landline billing aggregator investigation
indicated they had no reason to order the voice-mail service for which
they were charged; the respondents gave such explanations as, ``[I]
have an answering machine [and so] would never use this service,'' ``I
had voice-mail from the phone company [and] did not need [another
service],'' and ``[I] can't imagine agreeing to voice-mail since we
have always had a personal voice recorder.'' \18\ Further, 73 percent
of the consumers my Office interviewed in 2011 said they would have had
no reason to purchase the goods or services for which they were billed
on their mobile phone--for example, one consumer had been charged for
stock alerts, but owned no stocks and did not follow the market.\19\
Finally, while consumers typically complain they do not desire and do
not use the goods and services for which they are charged on their
phone bills, some consumers report they have not even received the
goods and services for which they have been charged.\20\ It is,
therefore, of no surprise that there was no consumer outcry following
the mobile carriers' decision to exit the Premium Short Message Service
(``PSMS'') platform--widely believed to be responsible for the lion's
share of the mobile cramming problem--in November of 2013. Likewise, my
Office has received no negative feedback from consumers following
Vermont's passage of the 2011 ban on most third-party charges on
landline bills. The only logical conclusion: contrary to industry
talking points,\21\ very few, if any, consumers received any real value
from this billion-dollar industry.
---------------------------------------------------------------------------
\17\ S. Comm. On Commerce, Sci. and Transp., 112th Cong., supra
note 2, at iii; Complaint, Fed. Trade Comm'n v. T-Mobile USA, Inc., No.
2:14-cv-00967, at 3-4.
\18\ Hearing, supra note 5, at 2.
\19\ Letter, supra note 9, at 4.
\20\ Id. at 3.
\21\ Michael F. Altschul, Senior Vice President and Gen. Counsel,
CTIA: The Wireless Association, Fed. Trade Comm'n Workshop: Bill Shock
and Cramming (Apr. 17, 2014, 9:00 AM) http://www.fcc.gov/events/
workshop-bill-shock-and-cramming.
---------------------------------------------------------------------------
Cramming goes Undetected by Consumers
Cramming is a particularly serious problem because consumers do not
know the underlying activity--the placement of third-party charges on
phone bills--is happening. Consumers do not expect third-party charges
to appear on their phone bills because they do not understand it is
possible for third parties to charge them this way. Often third-party
charges appear on phone bills without the consumer having taken any
action at all. This problem is exacerbated by the fact that such
charges are not readily discernible on the billing statements.
The data consistently show that consumer awareness about the third-
party charges on their landline and mobile telephone bills is very low
in Vermont. According to our 2013 mobile cramming survey, in excess of
78 percent of the consumers reported that, prior to receiving the
survey, they had been unaware they could be billed for goods and
services provided by third parties on their mobile phone bills.\22\ In
my Office's 2011 mobile cramming survey, significantly more than half
of the consumers did not know that the third-party charge was on their
bill until they were informed of the charge by my Office, nor did they
know that they could be billed for third-party goods and services on
their mobile phone bills prior to being informed of the charge in
question.\23\ Finally, according to the consumers surveyed in
connection with my Office's first landline aggregator investigation,
only 27.4 percent of consumers noticed the third-party charge on their
landline bills within three months of being charged.\24\
---------------------------------------------------------------------------
\22\ Kolodinsky, supra note 7, at 8.
\23\ Letter, supra note 9, at 4.
\24\ Hearing, supra note 5, at 2.
---------------------------------------------------------------------------
The national picture is no different; consumers often do not know
how they came to be signed up for third-party charges on their phone
bills. A recent national mobile-cramming complaint analysis indicated
the following were among the themes of consumer complaints:
While consumers can sometimes recall having gotten spam text(s)
or having entered their mobile phone numbers into a website
immediately prior to being signed up for a subscription service
(often to receive a ``free'' good or service), just as often--
if not more often--consumers simply have absolutely no idea how
they came to be signed up for the subscription.
Consumers that detect that they have been crammed on their
mobile phone bills typically do so after they have been paying
for a subscription service for several months.
Even consumers who do not text and have no access to the
Internet (and thus, cannot have opted in to a third party good
or service through a typical double opt-in method) report
having been crammed. Too often, these consumers are
elderly.\25\
---------------------------------------------------------------------------
\25\ Letter, supra note 9, at 3-4.
Consumers also routinely report that they do not understand their
mobile phone bills and/or they find it difficult to detect the source
of the third-party charges appearing on their bills.\26\ Some consumers
have even complained of having been crammed by third parties whose
names (or whose subscription/product names) make it very difficult to
detect that a third party was involved.\27\ Consumers often express
confusion about their mobile phone bills, and report that they had no
idea they could be charged on their mobile phone bills for goods and
services provided by third parties.\28\ As a result, consumers are
typically charged on their mobile phone bills for third-party
subscriptions for multiple months before they recognize they have been
crammed.\29\
---------------------------------------------------------------------------
\26\ Id. at 7.
\27\ Id. at 3, n. 4 (explaining that national consumers named the
following third parties and/or campaigns in their complaints: ``General
Texting,'' ``General Texting Co.,'' ``General Texting, LLC,'' ``General
Texting.com,'' ``Premium Axcess,''[sic], ``Premium Customer Care,''
``Premium SMS,'' ``Premium Text Messaging,'' ``Text Savings,'' and
``Text Savings, LLC.'').
\28\ Letter, supra note 9, at 7.
\29\ Id.
---------------------------------------------------------------------------
Consumers Do Not Obtain Full Refunds for Cramming
At least with respect to mobile cramming, consumer experience with
obtaining refunds is inconsistent. While some consumers are able to get
full refunds from their mobile carrier, many are not.\30\ Vermont
consumers have likewise reported mixed success with obtaining refunds
from their mobile carriers; while some are able to obtain full refunds,
others are only able to obtain a partial refund.\31\ Still others are
unable to get any refund from their mobile carrier, or are promised
refunds they never receive.\32\ Consumers also report that carriers
refer them to the third-party content provider to seek refunds, and/or
that they are unable to reach the content provider, or, if they do
reach the content provider, are unable to get a full, or even partial,
refund.\33\
---------------------------------------------------------------------------
\30\ Id. at 3-4.
\31\ Id. at 6.
\32\ Id.
\33\ Id. at 3-4.
---------------------------------------------------------------------------
The Time is Ripe for a New Approach
After over a decade of fighting landline cramming with enforcement
actions against third-party merchants and billing aggregators, my
Office successfully advocated for legislation prohibiting most third-
party charges on landline telephone bills.\34\ This statutory approach
takes account of actual consumer expectations--i.e., that consumers do
not anticipate they will be charged on their phone bills for third-
party goods and services--is straightforward to enforce, and does not
interfere with other methods of receiving payment for services
provided.\35\ Most importantly, we believe the law has worked.\36\
---------------------------------------------------------------------------
\34\ See 9 Vt. Stat. Ann. tit. 9 Sec. 2466 (2014) (prohibiting most
third-party charges from being placed on Vermonters' landline telephone
bills).
\35\ Hearing, supra note 5, at 4.
\36\ In the approximate two years since the ban became effective,
my Office has received no more than 2 complaints about unauthorized
third-party charges on landline bills that postdate the ban.
---------------------------------------------------------------------------
My Office decided to take another approach when turning our
attention to mobile cramming. After launching dozens of investigations
into third-party content providers and mobile billing aggregators, my
Office began pursuing carriers for billing for unauthorized charges,
first on behalf of Vermont, and then on behalf of--now--46 states.\37\
In November of 2013, the Nation's four largest mobile carriers--
Verizon, AT&T, Sprint and T-Mobile--decided to stop charging their
customers for commercial PSMS, a platform which accounted for the
majority of third-party charges on mobile phones, and for the
overwhelming majority of cramming complaints.\38\ My Office believes
that billing for commercial PSMS has now ceased industry-wide, and has
heard from Offices around the country that mobile-cramming complaints
have slowed to a trickle, no doubt as a result. While the mobile
carriers' exit of PSMS is undoubtedly very positive for consumers, it
was a voluntary move on the part of industry and carries with it no
guarantee of future action with regard to PSMS or other, similar
platforms such as Direct to Consumer Billing (``DCB''). Non-PSMS mobile
cramming complaints are few in number, but do exist.\39\ Moreover, we
expect platforms, such as DCB, that are more appropriate for
consumption by consumers with smartphones (rather than feature phones,
to which PSMS was keyed) to be on the rise.
---------------------------------------------------------------------------
\37\ See Press Release, Office of the Attorney General of Vermont,
AT&T Mobility, Sprint and T-Mobile Will Stop Billing Problematic Third-
Party Charges (November 21, 2013), available at http://ago.vermont.gov/
focus/news/att-mobility-sprint-and-t-mobile-will-stop-billing-
problematic-third-party-charges.php (referring to a then-45-state
matter).
\38\ Id.; Ina Fried, AT&T, Sprint, T-Mobile, Verizon Dropping Most
Premium Text Service Billing in Effort to Combat Fraud, All Things D
(November 21, 2013), http://allthingsd.com/20131121/att-sprint-t-
mobile-verizon-all-dropping-most-premium-text-service-billing-in-
effort-to-combat-fraud/.
\39\ Note also that my Office's 2013 study was of all third-party
charges, and not just PSMS charges.
---------------------------------------------------------------------------
It is my opinion that a new approach would be appropriate on a
Federal level as well. While my Office's legislative advocacy has
effectively stopped landline cramming in Vermont, we believe our law-
enforcement leadership has merely pressed the ``pause'' button on
mobile cramming. As we look forward to a world that becomes more
mobile-device oriented, the time is right for all of us to take stock
of the major lessons learned--the potential for enormous consumer loss,
low consumer awareness about the practice, the difficulty of getting
consumer redress--to ensure that cramming does not fool us again.
Senator Blumenthal. Thank you very much, Attorney General
Sorrell.
Mr. LeBlanc?
STATEMENT OF TRAVIS LeBLANC,
ACTING CHIEF, ENFORCEMENT BUREAU,
FEDERAL COMMUNICATIONS COMMISSION
Mr. LeBlanc. Senator Blumenthal, Ranking Member Thune, and
Senator Johnson, my name is Travis LeBlanc. I am the Acting
Chief of Enforcement at the Federal Communications Commission.
Thank you for the opportunity to appear before you to highlight
the FCC's efforts to deter, disrupt, and dismantle cramming,
the fraudulent practice of placing unexpected or unauthorized
charges on consumers' telephone bills.
Cramming is a significant problem, causing countless
consumers to unwittingly open their wallets for products and
services they never wanted. A report released in 2011 by
Chairman Rockefeller showed that phone companies placed
approximately $2 billion in third-party charges on their
subscribers' landline bills each year and that most of these
charges were unauthorized. In many of these cases, consumers
were unaware that they had been crammed because charges were
buried in multi-page bills, not clearly described, or small
enough in amount to go unnoticed. As consumers embrace
paperless billing and automated payments, the propensity
increases for cramming to go undetected. Consumers' increased
reliance on mobile phones makes the problem of cramming even
thornier.
Today 90 percent of American adults have cell phones and a
majority own smart phones. These phones are used not only for
calls but also for a wide array of purchases in the real and
virtual world. While the adoption of new mobile technologies
and services presents exciting new opportunities for consumers,
it also creates new opportunities for crammers who, I should
add, target not only adult consumers but also children, small
businesses, nonprofits, and religious organizations. We must
make sure that our consumer protections keep up with new
technologies and billing practices.
Since 2010, of the thousands of cramming complaints the FCC
has received, the proportion of those about unauthorized
charges on wireless bills has grown from 15 to 58 percent. To
be clear, these are complaints from consumers who believe they
were crammed. Yet, because so many consumers do not even know
they have been crammed, these numbers are just the tip of the
iceberg.
As the Federal agency with primary oversight of the
Nation's telephone carriers, the FCC has approached the problem
of cramming comprehensively using a combination of enforcement,
regulation, and consumer education. The Commission has taken 14
enforcement actions since 2010 against carriers for placing
unauthorized charges on consumers' phone bills. These actions
amount to approximately $123 million in monetary forfeitures,
settlements, and refunds to injured consumers. Just in the last
2 weeks, we have taken three actions against carriers involving
over $10.5 million in proposed penalties and payments to the
Treasury.
A prime area for mobile cramming enforcement involves
carriers who have charged their own subscribers via premium
text messages around $10 a month for unauthorized third-party
services such as horoscopes and stock quotes. This is the
alleged fraudulent activity at issue in the FCC's cramming
investigation of T-Mobile and the Federal Trade Commission's
complaint against it. We have no reason to believe that T-
Mobile was the only carrier to engage in this conduct. To
leverage our shared expertise and resources, the Federal
Communications Commission worked collaboratively with the FTC
on the T-Mobile investigation, and we look forward to
continuing our partnerships with the FTC, State Attorneys
General, and other law enforcers in the future.
We have also targeted our enforcement toward mobile and
landline carriers who place unauthorized charges for their own
services on customers' bills and, of course, carriers who act
as third-party crammers by placing unauthorized charges on
other carriers' bills. This month, we entered into a $1.2
million settlement with Assist 123 for allegedly placing
unauthorized PSMS charges for subscription services like movie
listings and lottery results on consumers' wireless and
landline phone bills.
On the regulatory side, the FCC adopted truth-in-billing
rules 15 years ago designed to help consumers detect cramming
or other fraud in connection with their telephone bills. The
Commission has now asked whether it should prohibit carriers
from billing for third-party products and services unless the
subscriber expressly opts in, whether it should ban carriers
from charging for any third-party products and services, and
whether it should expand all of the existing truth-in-billing
rules to wireless carriers so that third-party charges are more
conspicuous to consumers. It is expected that the FCC will
consider any rule changes within the next several months.
On the education side, the FCC has been engaging consumers
through written and video guides, tip sheets, and other
materials aimed at empowering them to identify and report
cramming. The Commission has also held a comprehensive public
workshop on cramming in 2013, and to keep abreast of new and
emerging kinds of cramming, as well as new carrier billing
practices, the FCC is planning to host a workshop or similar
event on these topics in the next 6 months.
In sum, through its enforcement, regulatory, and consumer
education efforts, the FCC is using its authority to protect
consumers from these unauthorized charges, and we will continue
to do so whenever and wherever crammers exploit innovative
communications technologies, consumer trust, and the
pocketbooks of American families.
Senator Blumenthal, Ranking Member Thune, and members of
the Committee, it has been an honor to appear before you today,
and I look forward to answering your questions.
[The prepared statement of Mr. LeBlanc follows:]
Prepared Statement Travis LeBlanc, Acting Chief, Enforcement Bureau,
Federal Communications Commission
Chairman Rockefeller, Ranking Member Thune, and members of the
Committee, I am Travis LeBlanc, Acting Chief of the Enforcement Bureau
at the Federal Communications Commission. Thank you for the opportunity
to appear before you to highlight the FCC's efforts to combat the
harmful practice of placing unexpected or unauthorized charges on
consumers' telephone bills, a practice known as cramming.
The Cramming Problem
Cramming is a significant problem, and one that, by its nature, has
caused countless consumers to unwittingly open their wallets for
products and services they never wanted. A report released in 2011 by
Chairman Rockefeller after a year-long investigation of cramming on
landline telephone bills showed that telephone companies placed
approximately $2 billion worth of third-party charges on their
subscribers' bills each year, and that most of these charges were
unauthorized.\1\ Fifteen to twenty million U.S. households are
estimated to have been victims of cramming on their landline telephone
bills,\2\ and most do not even know it. Historically, many consumers
have been completely unaware that their carriers are permitted to
charge them for third-party products and services, and do not know to
look for third-party charges on their telephone bills. Even those who
are aware of the possibility often fail to spot unauthorized charges on
their bills, because the charges have been hidden from scrutiny: they
have been buried in multi-page bills, not clearly described, or small
enough in amount to go unnoticed.\3\ Consumer deception is a hallmark
of cramming. The Commission took action in 2012 to help wireline
consumers detect--or simply avoid--cramming, but unfortunately
consumers continue to be crammed.
---------------------------------------------------------------------------
\1\ Unauthorized Charges on Telephone Bills, U.S. Senate Committee
on Commerce, Science & Transportation, Office of Oversight &
Investigations, Majority Staff, Staff Report for Chairman Rockefeller
(rel. July 12, 2011), available at http://www.commerce.senate.gov/
public/?a=Files
.Serve&File_id=3295866e-d4ba-4297-bd26-571665f40756.
\2\ Empowering Consumers to Prevent and Detect Billing for
Unauthorized Charges (``Cramming''), Report and Order and Further
Notice of Proposed Rulemaking, 27 FCC Rcd 4436, 4437 (2012) (``FCC
Cramming Order'').
\3\ Id. at 4444.
---------------------------------------------------------------------------
Today's hearing is about the fact that cramming is not just a
problem for those with landline telephones. Since 2010, the FCC has
received more than 5,000 complaints about cramming, and the proportion
of those about unauthorized charges on wireless bills has grown from
about 15 percent in 2008-2010 to 58 percent in 2013. Because so many
consumers do not even realize that they have been crammed, or lack the
time or knowledge to complain to the FCC, these numbers represent just
the tip of the iceberg. A 2012 analysis by the Illinois Citizens
Utility Board found that the percentage of fraudulent third-party
charges on Illinois consumers' wireless bills skyrocketed in just one
year, from about 26 percent to 51 percent.\4\ It is critical that
cramming on wireless bills not be overlooked, especially now, when
Americans are becoming increasingly reliant on their mobile phones. The
Pew Research Center estimates that 90 percent of American adults have a
cell phone, including 74 percent of Americans 65 and over.\5\ According
to the Centers for Disease Control and Prevention, two in five U.S.
households have ``cut the cord'' entirely from their landline phones
and are using only mobile phones.\6\
---------------------------------------------------------------------------
\4\ Citizens Utility Board, Analysis: Frequency of Cellphone
``Cramming'' Scam Doubles in Illinois, CUB Concerned Wireless Customers
Targeted as Landline Law Tighten (Dec. 4, 2012), available at http://
www.citizensutilityboard/pdfs/NewsReleases/20121204_CellPhoneCram
ming.pdf.
\5\ Pew Research Internet Project, Cell Phone and Smartphone
Ownership Demographics, available at http://www.pewinternet.org/data-
trend/mobile/cell-phone-and-smartphone-ownership-demographics/.
\6\ Centers for Disease Control and Prevention, National Center for
Health Statistics, Wireless Substitution: Early Release of Estimates
From the National Health Interview Survey, July-December 2013, (July
2014), available at http://www.cdc.gov/nchs/data/nhis/earlyrelease/
wireless201407.pdf.
---------------------------------------------------------------------------
Crammers are predators. They evolve with consumers. As consumers
migrate to wireless phones and away from landlines, we expect that the
same kind of predators that profited from unauthorized landline charges
will look to wireless bills for new and creative ways to defraud
consumers. Today, a majority of Americans (58 percent) have a
smartphone.\7\ The rise in wireless phone dependence introduces new
ways for bad actors to profit from sneaky billing practices. This is
because modern smartphones are not just phones that facilitate only
voice communications, but sophisticated handheld computers that enable
consumers to engage in a wide array of activities, from interactive
gaming, to buying a coffee in a cafe, to shopping online from wherever
they are. Consumers with Android phones, for example, can charge all of
their app purchases to their phone bills, a form of direct-carrier
billing.\8\ The more consumers' mobile phone bills become like credit
card bills--reflecting a host of different purchases--the more
difficult it may become to spot unauthorized charges.
---------------------------------------------------------------------------
\7\ Pew Research Internet Project, Cell Phone and Smartphone
Ownership Demographics, available at http://www.pewinternet.org/data-
trend/mobile/cell-phone-and-smartphone-ownership-demographics/.
\8\ See, e.g., Ingrid Lunden, ``Amazon's Carrier Billing Deal With
Bango To Kick In This Year--Changes For The Appstore And Amazon
Ahead?,'' TechCrunch, Mar. 20, 2013, available at http://
techcrunch.com/2013/03/20/amazons-carrier-billing-deal-with-bango-to-
kick-in-this-year
-changes-for-the-appstore-and-amazon-ahead/; Kevin Parrish, ``Google
Play Offers Option to Charge Purchases to Your Bill,'' Tom's Guide, May
3, 2012, available at http://www
.tomsguide.com/us/Google-Play-Carrier-Billing-AT-T-Android-Sprint,news-
15070.html.
---------------------------------------------------------------------------
If there is any good news, it is that in 2012, major landline
carriers announced that they would discontinue most third-party
billing,\9\ and in 2013, major wireless carriers followed suit,\10\ at
least with respect to third-party billing via premium short messaging
services, or PSMS. Perhaps as a result of these agreements and
increased government scrutiny, cramming complaints are trending
downward. Of course, to the extent that the practice of cramming
decreases due to private sector commitments, that is commendable.
Unfortunately, that has not proven to be a silver bullet to the heart
of cramming; we have not seen the practice of cramming cease entirely.
Therefore, strong enforcement is still needed and perhaps additional
regulation as well. Protecting consumers is the common goal that we all
share, and the FCC stands ready to use the full spectrum of its
authority to thwart bad actors and prevent consumers from being
defrauded.
---------------------------------------------------------------------------
\9\ Press Release, U.S. Senate Committee on Commerce, Science, &
Transportation, Another Major Phone Company Agrees to End Third-Party
Billing on Consumer Phone Bills (Mar. 28, 2012), available at http://
www.commerce.senate.gov/public/index.cfm?p=PressReleases&Content
Record_id=0245033e-6fe4-420d-8ed3-cdb39ed6537f.
\10\ Press Release, Office of the Vermont Attorney General, AT&T
Mobility, Sprint, and T-Mobile Will Stop Billing Problematic Third-
Party Charges (Nov. 21, 2013), available at http://www.atg.state.vt.us/
news/att-mobility-sprint-and-t-mobile-will-stop-billing-problematic-
third-par
ty-charges.php.
---------------------------------------------------------------------------
The FCC's Role in Combatting Cramming
As the Federal agency with primary oversight of the Nation's
telephone carriers, the FCC approaches the problem of cramming through
a combination of enforcement, regulation, and consumer education. On
the enforcement side, the Commission has taken fourteen enforcement
actions since 2010 for placing unauthorized charges on consumers' phone
bills. Collectively, these actions are valued at no less than
$122,750,000, including monetary forfeitures the Commission has sought
to impose, payments the FCC has ordered enforcement targets to make to
the U.S. Treasury in connection with settlements, and refunds the FCC
has ordered the targets to make to injured consumers. Just in the last
two weeks, the FCC has taken three of these enforcement actions, which
proposed over $10.5 million in penalties and payments to the U.S.
Treasury.
On the regulatory side, the FCC has adopted ``truth-in-billing''
rules designed to help consumers detect cramming or other unauthorized
activities associated with their phone service, and is considering
expansion of the rules. It is expected that the Commission will
consider any rule changes within the next several months. We also
anticipate that the Commission will conduct a workshop or similar event
in light of continually evolving third-party billing technologies and
practices. And on the education side, the FCC has been engaging
consumers through written and video guides, tip sheets, and other
materials aimed at empowering them to identify and report cramming.
The FCC's power to address cramming comes from its statutory
authority over carriers. The Communications Act of 1934 is the FCC's
enabling statute, and Section 201(b) is one of its cornerstones. That
section declares unlawful all ``unjust and unreasonable'' charges and
practices ``for and in connection with'' an ``interstate or foreign or
communication service by wire or radio.'' \11\ Over fifteen years ago,
the FCC found that cramming constituted an unjust and unreasonable
practice.\12\ Section 201(b), as well as Section 258, the anti-slamming
provision of the Act, are the sources of authority for its truth-in-
billing rules.
---------------------------------------------------------------------------
\11\ 47 U.S.C. Sec. 201(b).
\12\ Long Distance Direct Direct, Inc., Notice of Apparent
Liability for Forfeiture, 14 FCC Rcd 314 (1998).
---------------------------------------------------------------------------
Enforcement
Under the Communications Act, the FCC has a variety of enforcement
tools available to achieve compliance. Most often, the FCC initiates a
forfeiture proceeding for violations of the Communications Act,
including Section 201(b). Generally speaking, the first step in the
process is for the FCC to issue a notice of apparent liability for
forfeiture, or NAL. The Communications Act authorizes the FCC to impose
a penalty of up to $160,000 for each violation, or each day of a
continuing violation, up to a maximum of $1,575,000 for a continuing
violation. Typically, the FCC proposes a forfeiture of $40,000 for each
apparent cramming violation, although in recent cases it has
substantially increased that amount for egregious violations. The
Enforcement Bureau is generally open to settling a matter in lieu of
initiating a forfeiture proceeding. As a condition of settlement, the
FCC may require a carrier to reimburse consumers who were injured by
its unlawful practices.
The FCC's cramming enforcement actions have arisen from three basic
kinds of bad conduct. The first is what I will call ``billing carrier
cramming,'' and involves a carrier, either landline or wireless,
billing its own subscriber for a third-party product or service. In
connection with mobile service in the United States, this has most
often involved the carrier charging its subscribers, via PSMS, around
$10 per month for services such as flirting tips, horoscopes, lottery
results, and stock quotes. This is the alleged fraudulent activity at
issue in the FCC's recently-announced investigation of T-Mobile, and
the Federal Trade Commission's complaint in Federal district court
against the carrier.\13\ The FCC and the Federal Trade Commission
worked collaboratively on this investigation in order to harmonize our
respective enforcement as well as to leverage our respective expertise.
T-Mobile allegedly crammed hundreds of millions of dollars of PSMS
charges onto its subscribers' phone bills from third parties whom the
carrier knew, or should have known, did not have authorization to bill
its subscribers. Indeed, some of the third parties had refund rates, or
``charge-backs,'' of 40 percent, and some had been sued for fraud. We
are pleased with our collaboration with the Federal Trade Commission on
the T-Mobile investigation and look forward to continuing to partner
with the Federal Trade Commission in the future.
---------------------------------------------------------------------------
\13\ Press Release, Federal Communications Commission, FCC
Investigates Cramming Complaints Against T-Mobile, (rel. July 1, 2014),
available at http://transition.fcc.gov/Daily_
Releases/Daily_Business/2014/db0701/DOC-327998A1.pdf.
---------------------------------------------------------------------------
The second type of FCC cramming enforcement action is what I will
call ``third-party carrier cramming.'' It involves a fraudulent carrier
placing an unauthorized charge for its own product or service on a
consumer's phone bill issued by another carrier, typically the
consumer's local phone bill. Fraudulent conduct of this type was at
issue, in four NALs the Commission released in 2011, which collectively
proposed forfeitures of nearly $12 million.\14\ These third-party
carriers assessed charges for their own ``dial-around'' long-distance
service of around $10-15 per month on consumers' local phone bills.
Each of the third-party carriers assessed its charges on at least tens
of thousands--if not hundreds of thousands--of bills for the service in
the year preceding the enforcement action. When the FCC investigated
how many consumers the carriers had actually provided service to during
that time, incredibly, two of the carriers disclosed that they had
serviced only about 20 to 25 consumers, and the other two carriers
could or would not answer the question. Further, earlier this month,
the FCC settled with another carrier, Assist 123, LLC, for allegedly
placing unauthorized PSMS charges for subscription services like
directory assistance, movie listings, driving directions, and lottery
results, on consumers' landline and wireless phone bills. The
settlement requires Assist 123 to pay $1.3 million to the U.S.
Treasury.\15\
---------------------------------------------------------------------------
\14\ Cheap2Dial Telephone, LLC, Notice of Apparent Liability for
Forfeiture, 26 FCC Rcd 8863 (2011) ($3,000,000); Main Street Telephone
Co., Notice of Apparent Liability for Forfeiture, 26 FCC Rcd 8853
(2011) ($4,200,000); Norristown Telephone Co., LLC, Notice of Apparent
Liability for Forfeiture, 26 FCC Rcd 8844 (2011) ($1,500,000); VoiceNet
Telephone, LLC, Notice of Apparent Liability for Forfeiture, 26 FCC Rcd
8874 (2011) ($3,000,000).
\15\ Assist 123, LLC, Order, 2014 WL 3512917 (Enf. Bur. 2014).
---------------------------------------------------------------------------
Another flavor of ``third-party carrier cramming'' is often
connected with ``slamming''--the unauthorized switch of a consumer's
preferred carrier. In the last fourteen months, the FCC has issued five
NALs against carriers for apparently switching or attempting to switch
consumers' long-distance service through deceit and trickery, and then
charging the consumers for a new carrier's service they did not
authorize or want. Collectively, the NALs proposed forfeitures of
nearly $28 million.\16\ According to the NALs, the modus operandi for
most of these third-party carriers involved their agents cold-calling
consumers, pretending to be affiliated with a consumer's existing
provider, offering improved or upgraded service, recording the consumer
supposedly authorizing such improved or upgraded service with the
existing provider, and then using that ``authorization'' to switch, or
attempt to switch, the consumer's existing long-distance service to the
third-party carrier. In several of these cases, the FCC found the
conduct so egregious that it proposed additional penalties beyond
doubling or tripling the ``base'' forfeiture of $40,000 for cramming.
Indeed, in one enforcement action that the FCC took this month, the
agency found that the carrier, Optic Internet Protocol, Inc.,
apparently not only may have tricked consumers to obtain purported
authorization, but also fabricated the recordings it offered to
regulatory authorities as proof of authorization.
---------------------------------------------------------------------------
\16\ Optic Internet Protocol, Inc., Notice of Apparent Liability
for Forfeiture, 2014 WL 3427582 (rel. July 14, 2014) ($7,620,000):
Central Telecom Long Distance, Inc., Notice of Apparent Liability for
Forfeiture, 2014 WL 1778549 (rel. May 5, 2014) ($3,960,000); U.S.
Telecom Long Distance, Inc., Notice of Apparent Liability for
Forfeiture, 29 FCC Rcd 823 (2014) ($5,230,000); Advantage
Telecommunications Corp., Notice of Apparent Liability for Forfeiture,
28 FCC Rcd 6843 (2013) ($7,600,000); Consumer Telecom, Inc., Notice of
Apparent Liability for Forfeiture, 28 FCC Rcd 17196 (2013)
($3,560,000).
---------------------------------------------------------------------------
In some of the slamming/cramming cases, the FCC has alleged that
the rogue carrier also billed consumers directly for its service,
because the rogue carrier was not successful in pushing its charges
onto the consumers' local exchange carrier bill. Conduct of this type
does not involve cramming for unauthorized third-party charges, because
the carrier is placing the charge for its own service on its own bill.
This conduct nevertheless involves placing an unauthorized charge on a
telephone bill, and the FCC has found that it also constitutes an
unjust and unreasonable practice that violates Section 201(b) of the
Communications Act.\17\
---------------------------------------------------------------------------
\17\ See, e.g., Advantage Telecommunications Corp NAL., supra note
16.
---------------------------------------------------------------------------
Since 2010, the FCC has pursued two major wireless carriers for
allegedly placing unauthorized charges for their own services on their
own bills. Both cases involved the carriers allegedly charging their
subscribers for data services the subscribers did not expressly
authorize.\18\ The FCC ordered both carriers to notify affected
customers of the applicable charges, to offer refunds, and to make a
payment to the U.S. Treasury in lieu of a penalty. One of the cases
required the carrier to refund at least $52.8 million to affected
consumers, and to pay $25 million to the U.S. Treasury.
---------------------------------------------------------------------------
\18\ AT&T, Order & Consent Decree, 27 FCC Rcd 13492 (Enf. Bur.
2012); Cellco Partnership d/b/a Verizon Wireless, Order & Consent
Decree, 25 FCC Rcd 15105 (Enf. Bur. 2010).
---------------------------------------------------------------------------
Rulemaking/Regulation
The FCC is also addressing cramming on the regulatory side. Fifteen
years ago, the FCC adopted its first ``truth-in-billing'' rules, in
order to help consumers detect cramming, slamming, and other fraud in
connection with their telephone bills and telecommunications services.
In 2009, the FCC issued a Notice of Inquiry to explore whether, and if
so, how, to amend its ``truth-in-billing'' rules; in 2011, in response
to continued cramming problems, the FCC issued a Notice of Proposed
Rulemaking to strengthen its rules; and in 2012, the agency in fact did
so.\19\ Among other things, the current ``truth-in-billing'' rules
require both landline and wireless carriers to clearly and
conspicuously: (1) identify the name of each service provider
associated with a billed charge; (2) identify any change in any service
provider from the preceding billing cycle; (3) provide a brief, non-
misleading, plain language description of the services billed; and (4)
display a toll-free number for subscribers to dispute, or inquire
about, any billed charge. The ``truth-in-billing'' rules also require
landline--but not wireless--carriers to: (1) separate charges by
service provider; (2) set forth charges from third parties for non-
telecommunications services in a distinct section of the bill; and (3)
notify subscribers that the carrier offers subscribers the opportunity
to block third-party charges on their bills, if in fact the carrier
does so.\20\
---------------------------------------------------------------------------
\19\ See FCC Cramming Order, supra note 2.
\20\ 47 C.F.R. Sec. 64.2400-2401.
---------------------------------------------------------------------------
When the FCC strengthened its rules in 2012, it also issued a
Further Notice of Proposed Rulemaking on whether it should expand the
coverage of the rules still more. The FCC asked whether it should
expand all of the existing rules to wireless carriers; whether it
should prohibit carriers from assessing charges for third-party
products and services on a subscriber's bill absent the subscriber
expressly opting in; or whether it should altogether ban carriers from
assessing charges for third-party products and services, at least on
the same bills that contain charges for regulated telecommunications
services. The FCC asked for additional comment on these and other
issues last year, with the comment period officially closing in
December 2013. The FCC is now poised for action in that docket, and
expects to consider any rule changes within the next several months.
To keep abreast of new and emerging kinds of cramming as well as
new carrier billing technologies and practices, the FCC is also
planning to host a workshop or similar event on these topics in the
next six months.
Consumer Education
In addition to its enforcement and regulatory work, the FCC also
works to educate consumers about cramming. The agency has issued both
printed and video consumer guides, as well as tip sheets on how to
identify and report cramming.\21\ The Commission also held a
comprehensive public workshop on cramming in 2013. These outreach
efforts, many of which involved close coordination with groups such as
AARP, are intended to alert consumers to the fact that their carriers
may charge them for third-party products and services on their
telephone bills, and encourage consumers to review their bills
carefully each month, paying attention to even small charges, as well
as the descriptions offered for all charges, and who is responsible for
them. The materials also encourage consumers to call their carriers
about any charges they question, and any provider identified on the
bill associated with such charges. In addition, our consumer education
materials explain the FCC's ``truth-in-billing'' rules in plain
English, and tell consumers how to file complaints with not only the
FCC, but also the Federal Trade Commission and state public service
commissions.
---------------------------------------------------------------------------
\21\ Federal Communications Commission, Cramming: Unauthorized,
Misleading, or Deceptive Charges Placed on Your Telephone Bill (last
visited July 24, 2014), available at http://www.
fcc.gov/guides/cramming-unauthorized-misleading-or-deceptive-charges-
placed-your-telephone-bill; Federal Communications Commission, Cramming
Tip Sheet for Consumers (last visited July 24, 2014), available at
http://www.fcc.gov/encyclopedia/cramming-tip-sheet-consumers.
---------------------------------------------------------------------------
Enforcement Bureau Reforms
The FCC is proud of these strong enforcement actions, which are
deterring cramming, but we will continue our commitment to do more to
protect consumers. Since I joined the FCC four months ago, my first
priority has been to make sure the great people and resources of the
Enforcement Bureau are used as effectively and efficiently as possible.
The Enforcement Bureau is embracing a modern enforcement philosophy
that says we need to be smarter about how to deploy our limited
resources. In many instances, that means working more closely and more
frequently with our fellow law enforcement partners at the Federal and
state levels, just as we have in the cramming context.
We are focused on ensuring the widest possible compliance with the
law and rules that have the most impact on Americans in the 21st
Century. For example, America's growing reliance on wireless phones
leaves them increasingly vulnerable to unlawful privacy-invading
robocalls and text-message spam. Cellular and Global Positioning System
(GPS) jammers that can disrupt critical infrastructure and public
safety networks are more and more widely available and must also
continue to be the focus our enforcement efforts. And the recently
announced Strike Force within the Enforcement Bureau will combat fraud,
waste, and abuse in the Universal Service Fund (USF). It is our duty to
vigorously protect the integrity of the USF programs by ensuring that
program funds are used for their intended purposes.
We are also in the vanguard of the FCC's Commission-wide Process
Reform efforts. For many outside the Commission, our most significant
efforts in this area are already evident in our firm commitment to
speedy resolution of both routine and significant matters. The reforms
we have already adopted, and those in process, will ensure that the
Commission's team of prosecutors will have the best chance at doing the
most good for the greatest number of Americans.
Fundamentally, we are creating an Enforcement Bureau that is an
efficient and smart prosecutorial unit. We are striving to be data-
driven, nimble, creative, strategic and collaborative. Ultimately, I
hope this will be good for consumers, good for industry, and just plain
good government.
Conclusion
The FCC is the Nation's Federal regulatory authority over
telecommunications carriers, and Congress has empowered the agency to
combat unjust and unreasonable practices by carriers, as well as to
adopt rules governing the conduct of carriers. Through its enforcement,
regulatory, and consumer education work, the FCC is actively using
these powers to address cramming and other unlawful acts by carriers
that place unexpected and unauthorized charges on consumers' phone
bills. We look forward to continued cooperation with the Committee and
other regulatory authorities at both the Federal and state levels
toward the common goal of protecting consumers from these unjust and
unauthorized charges.
Senator Blumenthal. Thank you very much.
Mr. Altschul?
STATEMENT OF MICHAEL F. ALTSCHUL,
SENIOR VICE PRESIDENT AND GENERAL COUNSEL,
CTIA--THE WIRELESS ASSOCIATION
Mr. Altschul. Thank you, Senator Blumenthal, Ranking Member
Thune, and members of the Committee. On behalf of CTIA, thank
you for the opportunity to participate in today's hearing and
address the steps the wireless industry has taken and is taking
to address cramming.
At the outset, I want to be clear. CTIA and its members
share the Committee's concern, the regulators' concern, and the
public's concern about cramming. Placing an unauthorized,
misleading, or deceptive third-party charge on a consumer's
wireless bill is wrong and simply not acceptable.
That is why in November 2013, wireless carriers ended their
support of premium SMS services except for charitable and
political giving and inmate calling services. Moreover,
carriers allow customers to block all third-party charges and
have worked to make it easier for consumers to obtain refunds
for unauthorized or fraudulent charges.
CTIA originally became involved in the industry's efforts
police premium SMS through the association's role as the common
short code administrator. As I think you know, common short
codes are used by commercial entities ranging from Dunkin'
Donuts to Walmart, as well as by noncommercial entities,
including government, charities, and political campaigns. From
their start, users of common short codes issued by CTIA have
been subject to written, publicly available guidelines
administered both by the Mobile Marketing Association and CTIA.
Not only do these guidelines reflect broadly accepted consumer
best practices, between 2008 and 2010 these guidelines were
incorporated as industry requirements in a series of State
consent actions.
It is fair to say that CTIA and its carrier members
discovered that trust alone was not sufficient to ensure
compliance with these guidelines. The industry stepped up its
efforts from trust to trust but verify through industry and
individual carrier monitoring of all short code campaigns. And
then when fraudsters went to great lengths to evade these
monitoring efforts, CTIA added vetting to its monitoring
efforts to confirm the identity of content providers and root
out known offenders.
Although the annual complaint rates published by the FCC,
FTC, and provided by State Attorneys General do not suggest a
significant problem in this area as a result of both its own
investigations and the Federal and State enforcement actions,
the industry recognized that wireless customers and carriers
were being victimized by determined fraudsters who crafted
elaborate schemes to defeat the industry's self-regulation and
third-party monitoring. Accordingly, wireless carriers chose to
discontinue support for premium short code campaigns, as you
have noted, in late last year except for the charitable and
political campaign donations.
CTIA continues to monitor and vet all common short code
leases and lessees. When monitoring identifies a problem, that
information is sent to the carriers so they may take corrective
action. These efforts and the national carriers' decisions to
end support for premium short code campaigns should combine to
significantly reduce the opportunity for third parties to use
carrier billing platforms as a tool to commit fraud.
With the elimination of premium short codes for commercial
campaigns, the remaining opportunities for third-party charges
to appear on wireless bills are limited to instances involving
direct carrier billing. Although CTIA has no direct involvement
in this area, it is our understanding that each of the carriers
employs stringent vetting and safeguards to guard against abuse
of this process, and as reported to this committee and included
in the staff report, there have been very few consumer
complaints associated with direct carrier billing and refund
rates are around 1 to 1.5 percent.
As this committee's staff report recommends, the wireless
industry is prepared to vigilantly monitor evolving third-party
billing practices to make sure that bad actors do not find ways
to penetrate barriers to cramming on direct carrier billing and
other new systems, evaluate consumer protection gaps that have
occurred in the context of landline and PSMS to establish
consistent policies going forward that will provide consumers
with appropriate transparency to the process and a clear avenue
of recourse where unauthorized charges occur.
Moreover, the wireless industry already has adopted many of
the recommendations proposed by the Federal Trade Commission
staff report, including giving consumers the option of blocking
all third-party charges on their phone accounts, monitoring
advertisements and vetting merchants to ensure that
advertising, marketing, and opt-in processes are not deceptive
and the price information is clearly disclosed, ensuring that
consumers provide their express informed consent to charges
before it is billed to their mobile bill, as well as
investigating and taking appropriate action when consumer
complaints indicate a merchant may be cramming charges.
And we look forward to considering other ways to make
third-party charges more clear and conspicuous on carrier bills
and enabling consumers to dispute suspicious charges and obtain
refunds for unauthorized charges through a clear and consistent
dispute resolution process.
So thank you again for this opportunity to address your
concerns and address the steps the wireless industry has taken
to safeguard wireless consumers from unauthorized, misleading,
or deceptive charges.
[The prepared statement of Mr. Altschul follows:]
Prepared Statement of Michael F. Altschul, Senior Vice President and
General Counsel, CTIA--The Wireless Association
On behalf of CTIA--The Wireless Association, thank you for the
invitation to participate in today's hearing. At the outset, I want to
be clear--CTIA and its members share the Committee's concern about
cramming. Placing an unauthorized, misleading, or deceptive third party
charge on a consumer's wireless bill is wrong and simply not
acceptable. That's why, in November of 2013, wireless carriers ended
their support of Premium SMS services, except for charitable and
political giving and inmate calling services. Moreover, carriers allow
customers to block all third-party charges and have worked to make it
easier for consumers to obtain refunds for unauthorized or fraudulent
charges.
CTIA became involved in the industry's efforts to police Premium
SMS and the associated carrier billing for these services through the
Association's role as the Common Short Code Administrator. Common Short
Codes allow mobile users to engage and interact with a brand or service
by using a short five-digit address to send text messages to a mobile
application. CTIA, as the Common Short Code Administrator, assigns
Common Short Codes to applicants allowing a single code to be used for
the same application across multiple wireless service providers. Common
short codes are used by commercial entities ranging from Dunkin Donuts
to Wal-Mart, as well as by non-commercial entities, including
government, charities, and political campaigns.
Short code campaigns can be employed to provide life saving
information. For example, the Federal Emergency Management Agency's
text message program offers regular safety tips for specific disaster
types and allows for a search to find the nearest shelters and disaster
recovery centers by texting ``43362'' (``4FEMA'').\1\ Another highly
successful program is the Text4Baby campaign that has leveraged the
power of mobile technology to help more than 700,000 new mothers and
expectant women keep themselves and their babies healthy since the
program's creation.\2\ Not all short code campaigns are so serious--
they also can be used for purposes as varied as voting for one's
favorite player or summoning an usher during a Major League baseball
game.
---------------------------------------------------------------------------
\1\ http://www.fema.gov/text-messages
\2\ https://www.text4baby.org/.
---------------------------------------------------------------------------
While the overwhelming majority of short code campaigns involve no
charge other than the carrier's standard rate for SMS messages, short
codes also can enable users to support charities or political
candidates. For example, the American Red Cross employed common short
code 90999 to raise money for disaster relief in the wake of the
Haitian earthquake in 2010, with donors contributing more than $43
million. A 2012 study by the Pew Internet and American Life Project
found that 1 in 10 Americans has made a charitable donation through a
text message.\3\ Similarly, after the Federal Elections Commission
granted limited approval for Federal candidates, political committees,
and political parties to collect political contributions through text
message campaigns, the Obama for America and the Romney campaigns began
using common short codes to solicit small dollar donations via mobile
devices.\4\ Each of these programs was, and remains, opt-in for
consumers. Short codes have also been employed by state Departments of
Correction to enable collect calls placed by inmates to be completed
and billed to the mobile phone of the called party,\5\ often a family
member, who may be among the nearly 40 percent of American adults who
have chosen to go ``wireless-only'' and forego subscribing to a
wireline telephone.\6\
---------------------------------------------------------------------------
\3\ Pew Internet and American Life Project, REAL TIME CHARITABLE
GIVING, (Jan. 12, 2012), available at http://pewinternet.org/ /media//
Files/Reports/2012/Real%20Time%20Cha
ritable%20Giving.pdf at 2.
\4\ http://www.huffingtonpost.com/2012/08/23/obama-text-message-
donations_n_1824250
.html and http://www.newsmax.com/Politics/Romney-text-messages-
donations/2012/08/31/id/450534/.
\5\ http://www.txtcollect.com/.
\6\ http://www.cdc.gov/nchs/data/nhis/earlyrelease/
wireless201407.pdf at 2.
---------------------------------------------------------------------------
From their start, commercial, charitable, and political uses of
common short codes issued by CTIA have been subject to written,
publicly available guidelines administered both by the Mobile Marketing
Association \7\ and CTIA.\8\ Carriers have looked to the ``connection
aggregators'' who link content providers to wireless carriers to
supervise and enforce the consumer best practices and carrier-specific
practices. In 2008, a year in which the Federal Communications
Commission received only about 345 wireless cramming complaints from
the Nation's then 270 million wireless customers,\9\ the wireless
industry, both individually and through CTIA, began independent
monitoring of all short code campaigns to detect any violations of the
consumer best practices.
---------------------------------------------------------------------------
\7\ http://www.mmaglobal.com/files/bestpractices.pdf.
\8\ http://www.ctia.org/docs/default-source/default-document-
library/industry-best-practices.pd
f?sfvrsn=0, http://www.ctia.org/docs/default-source/default-document-
library/guidelines-for-mo
bile-giving-via-wireless-carrier-s-bill.pdf?sfvrsn=0 and http://
www.ctia.org/docs/default-source/default-document-library/guidelines-
for-federal-political-campaign-contributions-via-wireless-carrier-s-
bill.pdf?sfvrsn=0.
\9\ Empowering Consumers to Prevent and Detect Billing for
Unauthorized Charges (``Cramming''), Report and Order and Further
Notice of Proposed Rulemaking 27 FCC Rcd 4436 (rel. April 27, 2012)(at
para. 20).
---------------------------------------------------------------------------
Over the next few years, the number of consumer wireless complaints
filed with both the Federal Communications Commission and the Federal
Trade Commission remained low and continued to decrease even with the
significant growth in the number of wireless connections. While neither
the FCC \10\ nor FTC \11\ complaint data suggested there was a
significant problem in this area, the industry recognized that both
wireless customers and their carriers were being victimized by
fraudsters who crafted elaborate schemes to defeat the industry's self-
regulation and third-partying monitoring. Where problems were alleged
or identified, CTIA and its member companies worked with law
enforcement officials to identify solutions and shut down entities that
pursued cramming schemes. \12\
---------------------------------------------------------------------------
\10\ Id. at para. 20-21. The last time the FCC directly reported
wireless-related cramming figures was in 2002--at which time there were
92 complaints. Since then, wireless-related cramming complaints were
too few to be included in the FCC's quarterly reports on Informal
Complaints and Inquiries.
\11\ The FTC's 2013 Consumer Sentinel report lists the number of
complaints about ``Mobile: Unauthorized Charges or Debits'' for 2011,
2012, and 2013 as 626, 714, and 363. See http://www.ftc.gov/system/
files/documents/reports/consumer-sentinel-network-data-book-january-
december-2013/sentinel-cy2013.pdf at 84. To put those numbers in
context, in 2011 there were 306,300,207 active subscriber units, so
complaints averaged 2.0 per million subscribers. In 2012, the wireless
industry served 321,716,905 active subscriber units, with complaints
amounting to 2.2 per million subscribers. In 2013, subscribership rose
to 326,914,000 active subscriber units, meaning complaints represented
1.1 per million subscribers, or just 0.0001 percent and a decline of 49
percent from 2012.
\12\ See, for example, the statement by the Texas Attorney General,
https://www.texasattor
neygeneral.gov/oagnews/release.php?id=4576, and the cases brought
against Mobile Messenger, https://www.texasattorneygeneral.gov/
newspubs/releases/2013/Mobile-Messenger-POP.pdf, and Eye Level
Holdings, https://www.texasattorneygeneral.gov/newspubs/releases/2011/
030911eye
levelholdings_pop.pdf.
---------------------------------------------------------------------------
As a further safeguard to consumers, beginning in February 2012,
CTIA contracted with an outside vendor to verify information supplied
to the Common Short Code Administration registry by companies seeking
to lease short codes for premium SMS campaigns. CTIA's vendor uses
numerous commercially-available databases such as Lexis/Nexis, Dun &
Bradstreet, and the Better Business Bureau to confirm that the Content
Provider displayed in the registry represents a legitimate company and
is identified correctly in the registry. This vetting service satisfies
the requirement of the California Public Utilities Commission that
carriers be responsible for the content of their bills. Any
discrepancies discovered during the vetting process are communicated
directly to the carriers. Although the national carriers chose to
discontinue support for premium short code campaigns in late 2013,\13\
CTIA has expanded the scope of its vetting to include all common short
code lessees.
---------------------------------------------------------------------------
\13\ Ina Fried, ``AT&T, Sprint, T-Mobile, Verizon Dropping Most
Premium Text Service Billing in Effort to Combat Fraud,'' All Things D
(Nov. 21, 2013), available at http://allthingsd.com/20131121/att-
sprint-t-mobile-verizon-all-dropping-most-premium-text-service-billing-
in-effort-to-combat-fraud/#ina-ethics and http://www.atg.state.vt.us/
news/att-mobility-sprint-and-t-mobile-will-stop-billing-problematic-
third-party-charges.php.
---------------------------------------------------------------------------
In addition to this front-end vetting, CTIA continues to work with
outside vendors to ensure that codes are used in compliance with the
applicable guidelines. When monitoring identifies problems, that
information is sent to the carriers so they may take corrective action.
These efforts and the national carriers' decisions to end support for
premium short code campaigns (with the limited exceptions for charities
and political campaigns) should combine to significantly reduce the
opportunity for third-parties to use carrier billing platforms as a
tool to commit fraud.
With the carriers' decisions to no longer support premium short
codes for commercial campaigns, the remaining opportunities for third-
party charges to appear on wireless bills are limited to instances
involving direct carrier billing. Although CTIA has no first-hand
knowledge of carrier practices in this area, it is our understanding
that each of the national carriers employs stringent vetting and
safeguards to guard against any abuse of the process.
Thank you for the opportunity to participate in today's discussion.
Senator Blumenthal. Thanks very much, Mr. Altschul.
I have a few questions. Then I will turn to Senator Thune.
As all of you are aware, the third-party wireless billing
has involved three major players: the carriers, the third-party
vendors, and the billing aggregators that act as middlemen. In
this business, there is a lot of finger-pointing as to who is
to blame, where the buck should stop. And law enforcement cases
have now alleged wrongdoing at every stage of that billing
process from vendors to billing aggregators to the recent
action that you mentioned, Commissioner, by the FTC against T-
Mobile. But all of that finger-pointing may not be of much
benefit to consumers.
So the question is: where should the buck stop? Since the
wireless carriers control the billing platform and they have
ongoing relationships with their customers and they have been
taking $3 to $4 out of every $10 vendors charge to consumers on
this platform, Mr. Altschul, should the buck not stop with the
wireless carriers?
Mr. Altschul. The carriers will take responsibility for
charges on their bills and urge their customers to look at
their bills carefully and call the carrier if they have any
questions or if they detect anything that is suspicious on a
bill.
Senator Blumenthal. If they were making less money, would
there be a greater incentive to take stronger action?
Mr. Altschul. Well, the amount that is collected, as you
know from the fact that the carriers have discontinued the
service, has not influenced the carriers' decisions to, first
and foremost, protect their consumers. And carriers, of course,
whatever they choose independently to charge, also have costs
associated with providing this service. The carriers provide
their own independent monitoring and vetting, in addition to
the industry's efforts. There are costs associated with what
they call onboarding and activating these systems in their
billing systems and maintaining support. So what is collected
and what is kept can be very different charges.
Senator Blumenthal. Let me ask the others on the panel
whether that level of revenue and the percentage that the
wireless carriers make on those charges serves as a
disincentive to take more effective action. And conversely,
what kind of incentives would lead perhaps to the wireless
carriers to take more effective action?
Commissioner McSweeny. I would start by saying that in the
Federal Trade Commission's view, carriers and all of the
participants in the sector have a role to play here. And
certainly we believe that while some steps that have been taken
are very promising, there are additional steps that are
necessary and that should be taken to protect consumers.
As you point out, there are some questions about whether
there are perverse incentives here, and I would also add that I
have seen estimates that direct carrier billing is expected to
grow. So while PSMS may have stopped, there is certainly some
prospect here for a very vibrant direct carrier billing
industry going forward.
Accordingly, we think the carriers have a role to play in
protecting consumers and in improving the integrity of this
kind of billing process both by ensuring better dispute
resolution and consistent dispute resolution processes, but
also by making it clear to consumers that they can block third-
party charges and by taking steps to terminate or scrutinize
merchants that may be involved in cramming unauthorized charges
on their phone bills.
Senator Blumenthal. Attorney General Sorrell?
Mr. Sorrell. Thank you, Senator.
First, in answer to your question, the buck stops with the
carriers. There are others responsible, but that is where the
buck stops. It is the carriers that decided to contract with
the third-party providers and to pass along their bills and, as
you suggested, keep 30 to 40 cents on the dollar of every
payment made by the carriers' customers.
I am pleased to hear Mr. Altschul say that the carriers
will take care of their customers when they call and question
charges on their bills. But the reality has been very mixed in
the past on this. Some carriers had a rather robust
reimbursement mechanism. Others would reimburse only 2 months
no matter how long the $9.99, the $20, or $29.99 a month was on
customers' bills and being paid. And some of the carriers
referred their own customers to the third-party providers. In
my view, for recurring monthly charges, the carriers should be
obligated to confirm their customers' consent to those
billings. And I do not think there is any question but that the
hundreds of millions dollars, if not billions of dollars, that
the carriers have made as their share of their customers being
crammed is a huge incentive for them to look the other way.
Senator Blumenthal. Mr. LeBlanc, do you want to add
something?
Mr. LeBlanc. I will keep it short. I will echo the comments
of Commissioner McSweeny, as well as Attorney General Sorrell,
and also just to mention one further point which is the
carriers here actually are acting as the platform for these
charges. And as the platform, they bear a responsibility to
ensure that the conduct that is taking place on their platform,
that it is not deceiving and defrauding their customers. So we
completely agree with our fellow law enforcement partners that
the carriers bear accountability.
Senator Blumenthal. Thank you.
My time has expired. I am going to come back to some of
these questions and also give Mr. Altschul an opportunity to
respond if he wishes. And I will turn to Ranking Member Thune.
Senator Thune. Thank you, Mr. Chairman.
Commissioner McSweeny, the FTC's complaint in the T-Mobile
case states that the FTC and the FCC have ``concurrent
enforcement jurisdiction over mobile telephone companies'
billing and collection of third-party charges for non-
telecommunications services,'' but it does not cite to any
authority for that statement. Given the so-called common
carrier exception, could you explain the authority for this
claim in the FTC's complaint?
Commissioner McSweeny. The FTC has jurisdiction over
carriers when they are engaged in non-common carrier activities
such as billing for third-party services, which is the conduct
at issue in this case. It is established by the relevant case
law.
Senator Thune. Are there other activities that the FTC
might characterize as a non-telecommunications activity by the
carriers that the FTC would then claim jurisdiction over?
Commissioner McSweeny. I would hesitate to give you an
exhaustive list, but I imagine hypotheticals in which carriers
are billing for third-party services. For example, if a carrier
wants to put billing for a weight loss product on their phone
bill, then we would consider that kind of conduct covered by
the FTC Act.
Senator Thune. Mr. LeBlanc, in your opinion, what
independent agency is best equipped to regulate and enforce
wireless cramming matters for telecommunications carriers?
Mr. LeBlanc. Well, as Senator Blumenthal pointed out at the
beginning, there are a number of different entities that are
involved in any cramming. There are the third-party content
providers. There are the aggregators, as well as the carriers.
At the FCC, we have primary jurisdiction over the carriers. We
do not have the ability under our authority to reach the third
parties which the FTC, for example, does, as well as our
partners at the State level as well. So from our perspective,
we think that it is necessary that you have Federal FTC, FCC,
as well as State involvement to get to all three parties.
Senator Thune. But in your view, though, the FCC is best
equipped to deal with the carrier component of that.
Mr. LeBlanc. Certainly on the regulatory side, there is no
question about it, Ranking Member Thune. We are the only
authority that has the ability to promulgate regulations to
prevent and to respond to this through rulemaking. On the
enforcement side, we have worked very much over the last 4
years in fact in particular on cramming at the carrier level,
and we are going to continue to vigorously enforce in that
area.
Senator Thune. Mr. Altschul, the Chairman's report on
wireless cramming discusses emerging third-party wireless
billing technologies such as the practice known as ``direct
carrier billing.'' Is this ``direct carrier billing'' practice
being widely used by the wireless carriers?
Mr. Altschul. At present, the most popular and prevalent
use is for billing for purchases made on various web app
stores, in particular, Google Play. And when the customer goes
to the Google Play store, Google presents the customer with a
number of payment options, including credit cards and direct
carrier billing, and presents and walks the customer through a
number of screens and disclosures to obtain their knowing
consent to the direct carrier billing.
Senator Thune. Should we be concerned that this practice
will have the same risk of cramming for consumers as premium
text messaging did?
Mr. Altschul. I think everyone needs to be vigilant to make
sure that this remains a safe and trusted payment vehicle. But
as you know, as mentioned in the reports that came out this
week, the Federal Reserve Bank of Boston and others have noted
that there are many consumers who are unbanked or under-banked
and a mechanism such as direct carrier billing provides a
mechanism, another on-ramp to many of these Internet and
information services.
Senator Thune. And it appears that the burden is on the
consumer to identify unauthorized charges on their bills. The
FTC in its recently released report--recommended that when a
carrier terminates a third-party's billing activities for
unauthorized charges, the carrier also should notify consumers
who incurred charges from the third party to inform them about
the termination so that they can request a refund.
What is CTIA's response to this recommendation by the FTC's
staff? And should carriers do more, such as sending an e-mail
or making a phone call, to proactively alert customers of
potentially fraudulent activity?
Mr. Altschul. Well, first, we endorse the recommendation.
It seems to be universal that customers need to look at their
bills, whether they are paper, online, and be aware and be
prepared to call and question any charges they do not
recognize.
Second, with respect to carrier activities, I think the
record in these reports shows that in certain instances
carriers have done just that. Carriers actually are at a bit of
a disadvantage in that they do not know which of their
consumers may or may not have opted into existing programs.
Some of these programs may strike those of us in this room as
not of much value, but not just in your home states but at the
Georgetown Safeway, take a look when you go through the
checkout counter at the horoscopes, the tabloids, the other
magazines that sell exactly the same kind of content that had
been marketed through these carrier billing mechanisms. And
there is a legitimate interest among many Americans for these
services. The carriers just are not in a position to know who
has been defrauded. Certainly they are not in as good a
position as the customer when they look at their bill.
Senator Thune. But should they do more in the form of e-
mails, phone alerts, just to be proactive?
Mr. Altschul. Well, again, in appropriate cases, they have
done this and they certainly should continue to do it. Yes.
Senator Thune. Mr. Chairman, thank you. My time has
expired.
Senator Blumenthal. Thank you very much.
Senator Johnson?
STATEMENT OF HON. RON JOHNSON,
U.S. SENATOR FROM WISCONSIN
Senator Johnson. Thank you, Mr. Chairman.
Ms. McSweeny and Mr. LeBlanc, both of you in your testimony
talked about enforcement actions. So it sounds like this is
being regulated, it is being enforced. Is there any authority
that you do not have to conduct proper enforcement? I will
start with you, Ms. McSweeny.
Commissioner McSweeny. Thank you, Senator.
I think we are using the enforcement authority that we have
appropriately to combat scammers, and we do have adequate
authority. I would note there is no civil penalty authority in
this area for the FTC, but we have been able to take action to
stop conduct and to get consumer redress.
Senator Johnson. Mr. LeBlanc, do you feel you have full
authority? Is there anything else you would need in law?
Mr. LeBlanc. Senator Johnson, we are right now at the
Commission looking at promulgating revised rules with respect
to cramming. Those rules are asking questions about whether or
not to block all third-party charges, whether to permit opt-in,
whether to apply the same truth-in-billing rules that we use in
the landline context to the wireless context. We look forward
to the resolution of that in the next several months. That
would offer us new opportunities to look at new avenues that we
would have.
Senator Johnson. But, again, you are going to write the
regulations. You believe you have the authority to write those
regulations and enforce them?
Mr. LeBlanc. Yes.
Senator Johnson. Mr. Altschul, would the industry challenge
that authority?
Mr. Altschul. We have filed comments questioning the FCC's
existing authority over non-telecommunications services and
billing for such services. I notice in Mr. LeBlanc's prepared
testimony, he rests his authority or the Federal Communications
Commission's authority over billing in Title II of the
Communications Act. That is the so-called common carrier
provision. And as Senator Thune raised in his questions, that
does create a tension between the overlapping jurisdiction
between the agencies here.
Senator Johnson. So you would question the authority then?
To resolve this by regulation----
Mr. Altschul. Without detouring into the old debate about
net neutrality and what should be Title II and not Title III,
whether billing services for non-communications services are
properly characterized as a communications service or not could
stand to be clarified. Yes.
Senator Johnson. In both the testimony of Attorney General
Sorrell and I believe Mr. LeBlanc, they both claimed that the
majority of third-party charges were cramming. Do you agree
with that?
Mr. Altschul. I do not, in my role in the association, have
visibility into the universe of charges. But, no, I think that
there have been many, and I would say the majority of charges
have been charges that consumers have accepted and opted into.
I am not denying that there has been cramming and that any
cramming is too much cramming.
Senator Johnson. But do you think that may be an
overstatement that the majority of third-party charges are
cramming?
Mr. Altschul. That strikes me as an overstatement, yes.
Senator Johnson. What type of standards or what type of
screening do the carriers provide to try and limit this?
Mr. Altschul. Well, as documented not just in my testimony
but in both the Federal Trade Commission and Senate Commerce
Committee staff reports that were released this week, the
industry, both through the association and individually,
contracts with third-party auditors. The auditors do three
kinds of auditing of every premium SMS and standard SMS
message. They monitor the marketing to make sure that marketing
has all the necessary disclosures, does not misuse the word
``free,'' and provides meaningful notice and opportunity to
consent and----
Senator Johnson. Let me just stop you. Those disclosures
can be very long. Right? They are probably contained in a very
long statement that people just click.
Mr. Altschul. Well, the Federal Trade Commission actually
has published some very helpful guidance on how to use the word
``free,'' how big the asterisk has to be. And we have boiled
down these disclosures so they can fit on the first screen that
the customer looks at. And the Florida Assurance of Voluntary
Compliance, which is a form of consent decrees, really
specified how these can be done in a way that at least the
Florida AG thought would protect consumers.
Senator Johnson. I interrupted you.
Mr. Altschul. Well, that is the first monitoring is media
monitoring.
The second monitoring is that for every short code--and we
now have the standard codes that are still being used on the
networks--the monitoring firms subscribe. They make sure all
the necessary disclosures--if somebody sends stop to stop a
subscription service, that the service is stopped and likely do
that on a monthly basis.
And finally, the industry has added last year vetting of
every applicant for a short code because we were, frankly,
deceived and burned by a scheme where repeat offenders hid
their identity, went around the United States, used mail box--
post office boxes and employee names rather than corporate
names to get additional codes when their prior codes had been
cutoff. So now we confirm that every applicant is a brick-and-
mortar operation. We can find them in established directories
on the Internet and so on.
So those are the three kinds of monitoring the industry
does for SMS messages. And I understand it is very similar to
what the monitoring carriers are doing for direct carrier
billing.
Senator Johnson. Thank you.
Thank you, Mr. Chairman.
Senator Blumenthal. Thanks very much.
Senator Nelson?
STATEMENT OF HON. BILL NELSON,
U.S. SENATOR FROM FLORIDA
Senator Nelson. Ladies and gentlemen, just so you know
where I am coming from, as the former elected regulator of
insurance products in Florida, I actually worked with our fraud
division against insurance companies that billed for, charged
for insurance services that the customer did not ask for, could
not afford. And as a result, we sent some people to jail. Now,
you need to know where I am coming from. So I do not have a lot
of patience when I hear on somebody's wireless service that
they are getting billed for things that they do not want or do
not know about.
Now, could we require consumers to affirmatively opt in to
allow third-party billing of services at the time they execute
a contract for wireless services? What do you think?
Commissioner McSweeny. Well, Senator, I think it is a great
question. I would point out that in the Federal Trade
Commission's view, we think there are a lot of legitimate uses
for mobile carrier billing, and that many consumers will want
to take advantage of them.
What is very important here, though, is that consumers have
adequate information, that they understand clearly that they
have the right in many cases to block third-party charges for a
phone if they elect to, and that they be able to take a look at
their bill and understand where the third-party charges are and
who they are from. Very often, they really do not have adequate
transparency to see that the charge is unrelated to their phone
service. So it is difficult to identify on the bill. And the
information is not clearly presented around rights to block
third-party charges.
I would also note that there is inconsistent dispute
resolution among the carriers when customers do identify
problems. So we really are urging clearer and more consistent
dispute resolution, which would be consistent with the kinds of
measures that are present in other industries.
Senator Nelson. Do you think there ought to be an
independent consumer ombudsman at your agency to resolve
consumer complaints?
Commissioner McSweeny. I think it is a very interesting
proposal and one that I would have to give more thought to. At
the moment, I think the Commission is doing a good job using
its enforcement powers to go after scammers where we see them,
to respond quickly to consumer complaints, and to provide
consumer education material, which I think is very, very
valuable. It is important for people to understand that right
now, they are their own first line of defense against these
kinds of practices, and that if you see something on your bill
that you do not understand, you can contact your carrier, or
you can contact the FTC, and we will respond.
Senator Nelson. I am not sure that there is enough public
awareness. And that is one of the reasons, thanks to the
chairman and Chairman Rockefeller and the Ranking Member, that
we are having this hearing.
What do you think about an independent ombudsman, Mr.
LeBlanc?
Mr. LeBlanc. The independent ombudsman is a very
interesting idea, Senator. The concern that we see right now
from the enforcement perspective at the FCC is that consumers
do not have substantial protections when it comes to dispute
resolution. In the credit card industry, for example, if a
consumer has a dispute about something on their credit card
bill, they have certain rights. They have a right to dispute
the billing errors by notifying the credit card companies. They
can have a right to withhold payment for damaged goods, for
example. Here there are no such rights when they have an actual
concern about something. And so it is helpful certainly to have
an additional person, an ombudsman or the FTC, the FCC, State
Attorneys General, State public utilities commissions that are
there that they can go to to complain when they believe that
they have been charged for unauthorized charges.
Senator Nelson. When you have that many choices, I cannot
keep up with that. That is only one. I go to the next one.
Let me give you an example. A $9.99 a month charge for
daily horoscopes or celebrity gossip. It was very cleverly
designed. It is small enough that consumers may have missed it
when they were paying their bill, and taking $9.99 from
consumers month after month really adds up. So when you
multiply these charges across millions of customers, you can
see how this can become such a big industry.
So, Commissioners, tell me. Would any of you want to
comment about how a small charge like $9.99 or less a month can
make a big impact on consumers?
Commissioner McSweeny. I think it absolutely does make a
big impact, especially as you point out, it is very easy for
consumers to rack up these charges month after month before
even recognizing that they are being crammed, if they do at
all. And in some cases, the charges may be more than $9.99 or a
consumer may be experiencing cramming from more than one third
party.
We have had recent cases where we have indications that
more than a million consumers have been charged, and there have
been hundreds of millions in consumer harm associated with the
conduct. So I think it is very significant, sir.
Mr. LeBlanc. I would add to that, Senator, that in 2011
Chairman Rockefeller released a report on cramming that found
that it added up to $2 billion annually. That is a lot of
money. A lot of Americans in this country live paycheck to
paycheck. These charges we are finding are ones that very few
people even notice. Many people are not even aware that third-
party billing is possible on their telephone bill. So it is of
great concern that $9.99 adds up and they are unable to
actually get all of these removed, if they catch it 2, 3, 4
years down the road.
Mr. Altschul. One solution which the Federal Trade
Commission report recommends and the industry supports is to
move the disclosure and consent process away from the merchant
to the aggregator or the carrier so that there is clear
responsibility for obtaining and maintaining the record of the
customer's consent to be charged for whatever service is on
their bill.
Senator Nelson. That sounds like a good suggestion. What do
you think, Attorney General Sorrell?
Mr. Sorrell. I am not so sure about the aggregator. The
buck stops with the carrier, as I said earlier, and for
recurring charges, I think the carrier should be the one to
have to confirm the consent.
But, you know, quite apart from putting these third-party
charges in a separate section of the bill so someone knows that
it is a service that is not afforded by the carrier, for the
real scam artist they had names like ``Text Savings'' or ``Text
Savings, LLC.'' And I think the worst case I have heard or
maybe the best depending on your perspective where the Texas
AG's Office found a bill that--the third-party bill was
``refund.'' So for those minority of consumers who are aware
that third-party charges may be on their bill, these scam
artists were masking what they were doing with what they put on
the bill, and the carriers took a blind eye in passing along
``refund'' on their customers' bills when it was not a refund.
It was a charge.
Senator Blumenthal. Thank you, Senator Nelson.
Senator Markey?
STATEMENT OF HON. EDWARD MARKEY,
U.S. SENATOR FROM MASSACHUSETTS
Senator Markey. Thank you, Mr. Chairman, very much and
thank you for holding today's very important hearing.
So let us be clear. The practice of cramming, forcing
consumers to pay for fraudulent charges on their phone bills,
costs consumers dearly. Cramming is wrong. Cramming is
scamming. It is that simple.
Our focus today should be entirely on how to stop fraud now
and in the future.
My first question. We are talking a lot today about
cramming on wireless phone bills, which is very important. But
what about the potential for abuse on broadband bills or on
bills for bundled services where consumers pay for a telephone,
broadband, and TV in one bill? Plenty of opportunity for
cramming and scamming.
Mr. LeBlanc, is the FCC taking steps to look into whether
broadband, bundled services is an emerging problem today?
Mr. LeBlanc. Senator Markey, crammers are predators. They
evolve with consumers. Wherever consumer bills are, they are
likely to try to pop up if third-party charges are allowed. We
are trying to keep up and get in front of the crammers as they
evolve. There is no question that to the extent that we are
talking about wireless bills today, which include mobile
broadband as part of the bill, that the investigation we have
into T-Mobile, as well as the Assist 123 case that we recently
did this month, show that there are concerns on wireless bills.
Senator Markey. Is the FCC looking right now at your rules,
your enforcement strategies with regard to bundled services,
broadband, telephone, TV, and then the cramming that occurs as
part of the bill? Are you looking at that right now?
Mr. LeBlanc. We just put out last week an enforcement
advisory about transparency in the commercial terms of service
around mobile and broadband.
Senator Markey. And broadband.
Mr. LeBlanc. And broadband. And we indicated that we are
going to focus enforcement in that area.
Senator Markey. OK.
Ms. McSweeny, do you want to talk about what the Federal
Trade Commission is doing with regard to broadband cramming?
Commissioner McSweeny. I would say I think the Federal
Trade Commission believes that we have the authority to take
action to protect consumers from fraud and from unfair
practices. And we believe that these protections extend to the
mobile environment and beyond, just as they exist in the brick
and mortar world.
Senator Markey. Mr. Sorrell, we have industries that take
actions with voluntary guidelines on the books, which are
always good for good people. They do not have the murder
statute on the books for my mother or yours. They are not going
to be committing murders, only for the bad people. That is why
you have laws on the books.
So how do you feel about that as to its adequacy of
ensuring that the bad actors in this space are not still free
to act in anti-consumer ways, knowing that any sanction is
voluntary and industry-driven rather than having a governmental
sword behind the threat if they violate the consumer
protections which we are trying to advance?
Mr. Sorrell. Thank you, Senator.
Self-regulation in Vermont's experience did not work in the
landline cramming arena, and it has not worked in the wireless
arena. Where there are bad actors, there must be regulatory
efforts to identify them and hold them accountable.
Senator Markey. I want to give you, Mr. Altschul, a chance
to talk about that issue, voluntary versus mandatory, just so
that all the good players in the wireless sector are not tarred
by the actions of a few.
Mr. Altschul. Thank you, Senator.
Well, first, I could not agree more. These crammers and
fraudsters are predatory and they do move from one service to
another. As one door shuts, they try another.
We do support voluntary efforts. Our experience, with
hindsight always being 20/20, is we built a wall. The bad guys
came over it with a ladder. We raised the wall. The bad guys
came back with a taller ladder, and so on and so forth. So I
think that with that experience, the industry is responsible
for protecting its consumers in the first instance.
There is no shortage of enforcement agencies at the Federal
and State level. They have said today--and we know from their
enforcement actions--they are energetic. They have ample
enforcement authority to go after bad guys, and we support
that. In fact, the industry and the association has assisted
them in those efforts.
Senator Markey. May I ask one final question, Mr. Chairman?
Thank you.
And it is a related subject and it is that I am the House
author of the Telephone Consumer Protection Act of 1991, and I
feel as strongly today as I did 2 decades ago that consumers
should not be subject to intrusive calls from telemarketers,
whether they are at home or on their mobile phones. By banning
most autodial and prerecorded calls to landlines and mobile
phones and establishing the Do-Not-Call List, which I am very
proud of, the law created a zone of privacy that remains
popular with consumers to this day. As a matter of fact, every
consumer every time they get a call from somebody they do not
know, they say how did they get my number. So they are
conditioned now to think that they do not have a right to call
someone who is not receptive to it.
For the Federal Trade Commission and the FCC, please tell
me about your efforts to enforce this law and keep up with the
changing technologies that seek to circumvent these
protections. It seems to be increasing as a problem once again.
Mr. LeBlanc. Senator Markey, I recognize that you were the
driver of the Do-Not-Call law, and thank you for your
commitment to it.
There is no question that to date even the number one
complaint that we get at the FCC is Do-Not-Call, by far,
consumer complaints. We just recently in the last 3 months took
the largest enforcement action under Do-Not-Call that we have
taken in our history where we settled a case for $7.5 million
with a carrier and we continue to aggressively enforce the TCPA
there, as well as in the robo call context.
Senator Markey. I can only encourage you to be even more
aggressive. It really ticks people off.
Ms. McSweeny?
Commissioner McSweeny. Senator, I would just second our
appreciation for the TCPA as an important pro-consumer law, and
I would add that we are very proud of our track record on Do-
Not-Call at the FTC--we have more than 200 million people
signed up, I think, by last count--and take the responsibility
of continuing to protect those consumers very seriously. We are
trying to work with technologists to address the robocall
problem that typically tries to thwart the Do-Not-Call
registry, and we are taking new steps to try to address those
issues.
Senator Markey. And if I could just say this. We all grew
up kind of conditioned to our phone in our living room ringing,
and it could be somebody soliciting us. And we have a law
saying do not solicit anymore. But when your cell phone rings,
you are saying to yourself, well, the only people who have my
number are my family and my friends. How did you get my number?
And it just ticks people off. So the more aggressive you can
be, I think the happier the American people will be.
Thank you, Mr. Chairman.
Senator Blumenthal. Senator Klobuchar, I am sure, has some
questions. I will just give her a chance to be seated. And if
you like, I can fill in time or I can yield to you.
Senator Klobuchar. Well, if you are just filling in, I can
handle it.
Senator Blumenthal. I have got some questions.
Senator Klobuchar. Why do you not go ahead.
Senator Blumenthal. You know, I think that this testimony
has been very valuable, and I want to elaborate on some of the
questions that have been asked.
First of all, the comparison inevitably has to be made to
the other payment mechanisms that encounter similar problems
with unauthorized charges. And they voluntarily, for example,
credit card networks, typically investigate merchants when
there are charge-backs, when there are requests for refunds
above a certain rate. In other words, for any one of these
chargers, whether valid or invalid, if there are refund
requests above a certain rate, they investigate. For the credit
card networks, that threshold is 1 percent. For the wireless
carriers, my understanding is that it is 10 times as high, 10
percent, or higher, which indicates a much less vigorous level
of vigilance.
I think you mentioned, Commissioner, that you thought
greater scrutiny was one answer here, and perhaps that is what
you meant by that answer. You did not elaborate on it, but you
do in your testimony mention those numbers, and I am wondering
whether perhaps you can elaborate on that point.
Commissioner McSweeny. I think it is a very important
point, and in some of our cases, we have actually seen refund
rate requests at 40 percent which is, as you point out,
significantly higher than you see in other industries. So we do
think that there needs to be much more scrutiny both by
intermediaries and by carriers of merchants that have high
refund rates and a much more consistent and aggressive approach
to terminating those merchants or reviewing their activities.
Senator Blumenthal. Mr. Altschul, does that not make sense
to you that there should be investigative efforts, intense
scrutiny when refunds are higher than 1 or 2 percent?
Mr. Altschul. I agree. Actually the statements of the State
AG in Texas thanked the industry for working with the State's
efforts in the cases that that Attorney General brought.
Senator Blumenthal. But apparently the industry practice is
very different from that one instance.
Mr. Altschul. The Committee staff's own report released
today indicates that for direct carrier billing for charitable
campaigns, it is 1 percent or less and for direct carrier
billing, it is 1 to 1.5 percent, which is in the range that you
have described for credit card investigations.
Senator Blumenthal. I want to come back to this area of
questioning, but I will yield to Senator Klobuchar.
STATEMENT OF HON. AMY KLOBUCHAR,
U.S. SENATOR FROM MINNESOTA
Senator Klobuchar. Oh, thank you very much, Senator
Blumenthal. Thank you for holding this hearing and thank you,
Senator Thune.
Two years ago, as I know you have discussed--I am sorry I
was away chairing a hearing, contact lenses actually, with the
Antitrust Subcommittee. But two years ago, the FCC finally took
additional regulatory action on wireline cramming following up
on pressure from this committee, and one of the things that I
was concerned about at the time, while I thought the action was
important, that there were not protections put in place for
wireless customers. And as I said in my filing at the FCC at
the time, quote, with more and more households cutting the cord
on their landline phones, the FCC should take all necessary
steps to prevent crammers from finding new opportunities with
wireless bills.
While I am encouraged that the FCC recently refreshed its
record on truth-in-billing regulations in relation to wireless
protections, we need to continue to look for ways to address
the current and future evolution of crammers and actions that
need to be taken.
I am a cosponsor of Senator Rockefeller's Fair Telephone
Billing Act, which would address cramming as we know on
wireline phones, and I hope this committee can work together to
pass this legislation and continue to look at action on
wireless cramming as well.
I guess I will start with you, Mr. LeBlanc, as well as Mr.
Sorrell. In 2012, the FCC updated its truth-in-billing rules,
which included protections for consumers from wireline
cramming, as I just noted. However, the argument was made that
there was not enough evidence of cramming on wireless. Two
years later, it is extremely clear that wireless cramming is a
huge problem, and the FCC still has not expanded cramming
protections for wireless.
Mr. LeBlanc, will the FCC take regulatory action this year
to protect wireless consumers from cramming, and what about
some kind of additional enforcement action?
Mr. LeBlanc. Thank you, Senator Klobuchar, and thank you
very much for your comments as well that you filed with the FCC
over the last couple years.
The record in that matter closed in December 2013, and we
anticipate that it will be ready for a decision within the next
several months. So we are hopeful that we will see a change.
Some of the issues that are presented to the Commission right
now involve whether all third-party charges should be banned
entirely, also whether we should have an opt-in process, and
then finally ensuring that the truth-in-billing rules that
apply in the landline context also apply in the wireless
context. So it is ripe right now for a decision and we hope to
have an answer within the next several months.
On the enforcement side, we are vigorously tailoring our
enforcement resources toward the issues that affect average
Americans today in the 21st century. And there is no question
that the wireless space and cramming concerns in that space are
those issues. We have just recently announced the investigation
of T-Mobile, and we have no reason to believe that T-Mobile was
the only wireless carrier that was engaging in cramming.
Senator Klobuchar. Thank you. And I was aware of that
action. Thank you.
Attorney General, do you think there should be more action
here on the Federal level on the wireless issue?
Mr. Sorrell. Thank you, Senator. As the lead state of a 47-
state effort to try to----
Senator Klobuchar. That would be called a softball.
[Laughter.]
Mr. Sorrell. But I already hit it earlier before you came
in. So I will just hit it again.
It is a huge problem and there is some good news in that
the major carriers have gotten out of the PSMS business, and
complaints to us have fallen off at the State level about
wireless cramming. But now our focus is, one, trying make our
constituents who have been crammed whole for the wrongs of the
past, but also to work with Federal regulators to assure that
there is not a recurrence of wireless cramming or a close
cousin using new technologies going forward.
Senator Klobuchar. And then, Commissioner McSweeny, you
mentioned in your testimony, as did the Attorney General, that
consumers are not aware that their cell phone carriers are able
to add third-party charges to their bills and that they are not
checking their bills, which is always an issue. I remember
doing an event on this in Minnesota and I found like some math
teacher, of course, checked his bill and figured it out, and a
Lutheran minister. He also checked.
How long do you think it takes the average consumer to
notice an unauthorized charge on their account, and how are you
working to better inform consumers? And how under-reported do
you think wireless cramming is?
Commissioner McSweeny. I think the six cases that the FTC
has brought so far address mobile cramming--and I would say
stay tuned. I am sure we will have more. Two things are very
important here. One, the vast majority of customers who have
been crammed do not realize it. So we are, I think, seeing the
proverbial tip of the iceberg. And two, people really are
having a hard time getting redress and getting refunds if they
are lucky enough to identify charges that may be on their
account.
So we think consumer education is very important. We have
consumer education materials available. But as you point out,
they recommend people review their bill and try to identify any
charges that they do not understand. This can be very
complicated, and in most cases, identifying third-party charges
on bills is almost impossible. They generally look like phone
bill charges. So we recommend people take that step. We hope
they do. We are available as a resource at the FTC. Of course,
the FCC is a resource, as well as our State Attorneys General.
And we are urging industry to really take a look and try to
make these kinds of third-party services more clear to
consumers on their bills.
Senator Klobuchar. Do you know what the average charge is
for one of these cramming, whether it is wireline or wireless?
What do you think the costs are? I know it is hundreds of
millions of dollars. But how often did they get the full
refund?
Commissioner McSweeny. Well, what we typically see are
subscription services that range from $9.99 to $14.99 a month.
But, again, people can be crammed by multiple third parties. So
they may be billed more than just that $9.99. And very often it
takes some time for consumers to even realize it is occurring
to them. So it can occur and accumulate over a matter of months
or even years.
We have heard cases and had cases where people tried to get
refunds and have not succeeded or have only gotten a couple of
months' worth. So that is a significant problem.
Senator Klobuchar. All right. Well, we encourage you to
keep working on this. I think you know our Attorney General in
Minnesota, Laurie Swanson, has been very aggressive about these
cases and worked hard on them, and we have done some of this
work together. I am glad that Senator Blumenthal as a former
Attorney General understands how important it is as well. So we
will continue to push on this issue. But thank you very much,
all of you, for being here.
Senator Blumenthal. Returning to the question I was about
to ask you--and I appreciate your comment that your belief is
that there are investigative efforts in some areas after the
threshold reaches a percentage and a half. I take it then that
you would not object to a requirement that there be
investigative scrutiny after, let us say, a 2 percent----
Mr. Altschul. The devil is always in the details. Certainly
not. I would be certainly willing to look into it.
One of the interesting things in the Vermont consumer
survey that Attorney General Sorrell mentioned--and it was
filed in the FCC docket--is how often in the customer responses
you discover that a lot of these charges were what sometimes
are called teachable moments in families with family plans. And
the survey response indicates that a child on a family plan
made a charge without the parents' consent. This is a serious
issue. It is in violation of FTC rules, though maybe not a
conflict because the users may be over 13. So not all of the
refunds are attributed to lack of knowledge, just maybe
perhaps, as I said, lack of adult supervision.
So that is why a refund rate per se is a very crude metric.
And if that is the metric, you may find carriers being less
liberal with their refund policies to stay under that line.
That is a not a desire that the industry wants, and I am sure
the Committee wants.
Senator Blumenthal. I would not set the threshold at the
level of refunds. I would set it at the level of requests for
refunds. And I take it that you would not, barring viewing some
of the details, object to, let us say, 2 or 3 percent.
Mr. Altschul. No. In fact, the actual numbers in the public
record from the monitoring or the reports received by the FCC
and Federal Trade Commission and the State AG's over a period
of 4 years are below that number, and yet that number, as we
have heard today, does not necessarily indicate the scope of
the problem. So that is why the devil is in the details.
Senator Blumenthal. OK. Well, maybe we will work on some of
the details.
Comparing again the consumer disputes in this area as
compared to some others, as you know, when a consumer disputes
a vendor charge on their phone bill, they have far less
protections--far fewer protections than a consumer who disputes
a credit card charge. Those consumers have a statutory right to
reasonable investigation of the dispute and they cannot be
penalized for a bad credit report for failing to pay the charge
during the investigation, unlike consumers who dispute a vendor
charge on a phone bill.
Let me ask the members of the panel whether perhaps those
same protections in the credit card or credit charge area
should be extended to charges on phone bills.
Mr. Sorrell. In my view that makes sense, Senator.
Commissioner McSweeny. I would note that the FTC's view is
to suggest continued voluntary regulation at this point and a
series of steps that we believe the industry and carriers
should take. Personally, I would be very interested in working
with you on that issue.
Senator Blumenthal. Thank you.
Mr. LeBlanc?
Mr. LeBlanc. Senator, I would echo both Attorney General
Sorrell, as well as Commissioner McSweeny, and say it is
squarely a policy question that should definitely be
considered.
Mr. Altschul. If I might add.
Senator Blumenthal. Yes, please.
Mr. Altschul. While not an expert in payment mechanisms, I
am sufficiently aware it is a mess of different levels of
protection. And if this committee and Congress has the
appetite, what they should do is take on the entire range of
credit cards, debit cards, prepaid cards, charges to all kinds
of additional third-party mechanisms because the current
landscape is a total mess of differing and sometimes
conflicting rights and obligations.
Senator Blumenthal. Well, I am not sure how to interpret
that answer. You would not object but only if it is more far-
reaching?
Mr. Altschul. You have chosen to compare the credit cards
with the protections that consumers have. That is just one of
the existing regulatory schemes that exists for payment
mechanisms today. There are other payment mechanisms which
exist which have very similar rules and regulations as carrier
billing which, as we have heard today, the Federal Trade
Commission and Federal Communications Commission oversees.
Senator Blumenthal. Well, let me take another area that is
very comparable to yours. In the landline industry, industry
members have stated that consumers can withhold payment on
disputed charges. Is that true in the wireless area?
Mr. Altschul. It is not part of the FCC's truth-in-billing
rules, and that was because the FCC found that wireline
service, at least at the time, was something that households
had and had a right to without interruption. Wireless--there
were additional choices and very low barriers to getting
additional wireless service.
Senator Blumenthal. Would you object to that rule as
applied to your industry?
Mr. Altschul. Once again, the devil is in the details. But
certainly I think the industry would be open to discussing.
Senator Blumenthal. Do you, by the way, have evidence that
you could give us? I know you disputed the contentions made by
the members of the panel that the majority of charges are
unrequested. Do you have facts or data or studies that you
could submit?
Mr. Altschul. I do not. The one study, as we all know, that
is in the record is from Vermont. Our association has filed
some comments in the FCC docket just pointing out some of the
flaws in that study. But that study itself indicates that there
are a lot of reasons and a lot of inconsistent reasons why
these charges show up on customer bills.
Senator Blumenthal. Do you have a number that you can
attribute to unauthorized or----
Mr. Altschul. I do not.
Senator Blumenthal. So on what basis are you disputing that
the majority are unrequested or unauthorized?
Mr. Altschul. As I believe I represented, it is my belief,
based on my experience and the experience of my peers and
friends, that the majority of charges on customer bills are
charges that customers have opted into and consented to. I know
I have looked at my charges. I hope you have looked at your
bills as well.
Senator Blumenthal. You described this problem as de
minimis, I think, before the FTC not all that long ago.
Mr. Altschul. We described the number of complaints
received by the FTC as de minimis.
Senator Blumenthal. Do you still believe it is de minimis?
Mr. Altschul. Based on what we said at the time, the number
of complaints reported by the agencies remain de minimis. The
scope of the problem has been demonstrated to be significant,
and that is why the industry has discontinued their support of
premium SMS charges.
Senator Blumenthal. You agree that it is significant?
Mr. Altschul. Significant, yes.
Senator Blumenthal. Attorney General Sorrell, I am not sure
whether it has been mentioned yet, but I think you did in your
testimony say that in Vermont these third-party charges were
actually banned by statute on landlines.
Mr. Sorrell. On landline, yes, Senator.
Senator Blumenthal. In your testimony, you also call for
a--and I am quoting--new approach. What about the idea of
banning third-party charges on wireless?
Mr. Sorrell. I think given what is happening in the
marketplace and how smart phones I believe are now a majority
of cell phones in America, that I am concerned that an outright
ban would have unintended consequences that might well be
harmful to consumers. An opportunity for one to block all
third-party charges on their phone or to block certain types of
charges makes sense to me, but I would be concerned that if I
took the position that what we have done in landline should
also apply to the wireless arena, that although it would take
care of a lot of bad actions by a lot of bad actors, that it
might also tend to harm consumers and the economy going
forward.
Senator Blumenthal. Well, I tend to agree with you. I do
not know whether any other members of the panel would have
observations.
Commissioner McSweeny. I would agree and second what the
Attorney General said. I think from the FTC's perspective and
certainly my personal perspective, there are a lot of
innovations in mobile carrier billing right now that are very
beneficial to consumers. And at the moment, one of the primary
gaps here is the fact that consumers may have the ability to,
but do not know that they can, block these third-party
transactions if they wish to. Again, they may not wish to
because they may be taking advantage of that service, but then
it can be very difficult for them to see where the third-party
charges are showing up in their bills. And as we have
discussed, they do not have the same consistent dispute
resolution procedures available to them, should they wish to
dispute the charges.
Senator Blumenthal. I am going to turn to Senator
Klobuchar. I apologize. I did not know that you had more. I am
sorry.
Senator Klobuchar. No. I am just listening, believe it or
not. The usual line in the Senate: everything has been said,
but I have not said it. I am not using that today.
[Laughter.]
Senator Klobuchar. You have been saying everything in a
very good way.
Senator Blumenthal. Thank you.
I have just a few more questions. The Commission actually
has advocated, as you point out in your testimony, that
consumers have the right to block these charges on a selective
basis, in part perhaps to avoid the kind of teaching moments
that Mr. Altschul has raised. I think that recommendation was
made back in 2012. Can you bring us up to date as to what the
FTC's position is now?
Commissioner McSweeny. It is my understanding--and I would
defer to Mr. Altschul on this--that most of the carriers
provide this as an option. And we articulate this in the report
we released this week. Very few consumers are aware of it, and
the information about the option is not readily available. So
the FTC does include it in consumer education materials, and we
think it is a valuable option, especially perhaps if you want
to make sure that a phone a young person in your family has
access to cannot include third-party charges on it. But it is
not widely used and I think that is because people really do
not understand that it is available or what it even means.
Senator Blumenthal. A lot of these issues really seem to
come back to consumers knowing what they are doing, paying
attention, being educated. And I hope that this hearing will
play at least some part in raising awareness, but I think with
all due modesty, outside of this building, outside of
Washington, D.C., there are probably very few people who will
be watching their bills more closely simply because we had this
hearing today. And so I think there are a number of areas where
we can work together to ensure that consumers are not only
educated but better protected.
And Attorney General Sorrell has very commendably and
interestingly suggested that a new approach is necessary in
this area. And I would welcome more specific ideas from the
State Attorneys General, from the FTC, and the FCC, and of
course, from the industry as to how we can do better.
If there are no other questions from the panel, we will
keep the record open for 2 weeks.
I want to thank the staff for its really excellent work on
the report that was released today. It is a profoundly
important document, and rather than listen to me talk about it,
I hope people will read it. I hope the American public looks at
it. I hope it gains greater currency because it is truly eye-
opening and important.
So record will remain open for two weeks. We welcome other
comments.
And with that, the hearing is adjourned.
[Whereupon, at 4:30 p.m., the hearing was adjourned.]
A P P E N D I X
Response to Written Question Submitted by Hon. Cory Booker to
Hon. Terrell McSweeney
Question. When it comes to consumer education, which mobile
stakeholders should bear the responsibility for ensuring consumers are
adequately informed about billing practices and equipped with the tools
needed to challenge unauthorized activity on their phone bills? Is this
incumbent on the carriers, or do others bear responsibility, as well?
Answer. All of the stakeholders in the mobile ecosystem should play
a role in ensuring that consumers are adequately informed about billing
practices and equipped with the tools needed to challenge unauthorized
charges, and carriers can play a particularly important role in
providing their customers with adequate information about third-party
charges.
For instance, third-party providers of services charged to mobile
bills should clearly and conspicuously disclose the cost of their
services to consumers up front, and advertising and purchase
confirmation screens should clearly disclose that the charge is being
billed to a specific telephone account. Merchants also should ensure
that the means used to obtain authorization for such charges is not
deceptive. Billing intermediaries can take steps to ensure that
consumers have consented to the charges placed on their bills, such as
by scrutinizing risky or suspicious merchants.
Mobile carriers should take a lead role in ensuring that consumers
are adequately informed, because they are uniquely situated in several
respects. Mobile carriers are the only parties that can and should
inform consumers at the time that they sign up for service that charges
for third-party services may be placed on their telephone bills.
Carriers can also give consumers the ability to block third-party
charges from their bills, and inform consumers of that option at sign-
up and while the accounts are active. And mobile carriers are
responsible for the format and content of the telephone bills that
consumers receive, so they are in the best position to ensure that
third-party charges are clearly disclosed.
Carriers are also the natural first point of contact for consumers
who wish to inquire or complain about third-party charges, so they
should develop fair and efficient dispute resolution procedures and
refund policies to address such complaints.
To assist industry efforts to combat mobile cramming and educate
consumers, the FTC has issued consumer education materials and a Staff
Report on Mobile Cramming that includes recommended best practices for
industry members. See http://www.consumer.ftc.gov/articles/0183-
mystery-phone-charges; http://www.consumer.
ftc.gov/blog/hiding-plain-sight; http://www.ftc.gov/reports/mobile-
cramming-fede
ral-trade-commission-staff-report-july-2014.
______
Response to Written Questions Submitted by Hon. John Thune to
Hon. Terrell McSweeny
Question 1. Is the recent T-Mobile cramming case the first time the
FTC has taken enforcement action against a telecommunications carrier?
Answer. The T-Mobile case is the first enforcement action the FTC
has brought against a telecommunications carrier for deceptive or
unfair practices under the FTC Act.
Question 2. Do you believe the exemption from the FTC's
jurisdiction of communications common carriers inhibits the FTC's
consumer protection mission? Please explain your answer.
Answer. While the FTC's jurisdiction over telecommunications
companies when they are engaged in non-common carrier activities like
billing for third-party services is well supported, the exemption
encourages telecommunications companies to contend otherwise, leaving
the matter open to litigation. Furthermore, non-common-carrier
activities can be mingled with common-carrier activities (such as
pricing and advertising of bundled services). These issues can inhibit
our consumer protection mission. The common carrier exemption can also
frustrate effective consumer protection under FTC principles when
dealing with advertising, marketing, and billing practices for common
carrier activities.
Question 3. Do you believe the communications common carrier
exemption is outdated or should be repealed?
Answer. Yes, the common carrier exception was implemented in the
1930s, at a time when telephone companies provided basic services that
were heavily regulated monopolies. That economic and regulatory model
no longer applies. Today, consumers would be better served by the
repeal of the common carrier exemption. As communications technologies
and platforms have continued to evolve, market participants may offer a
range of communications-related services to consumers, some of which
are subject to common carrier requirements under the Communications Act
but many of which are not. Consumers should expect and receive the same
protections against unfair or deceptive acts or practices in the
context of common carrier services as in other services.
Question 4. Would repealing the communications common carrier
exemption lead to duplicative jurisdiction with the FCC? Why or why
not? Please explain your answer.
Answer. The FTC and the FCC already share concurrent jurisdiction
in certain areas, such as mobile cramming by telecommunications
companies. The two agencies cooperate and coordinate with one another,
which furthers consistency and allows each agency to use its own
statutory tools to combat serious problems like mobile cramming that
have caused many millions of dollars of harm. For example, the FTC Act
provides the FTC with the authority to seek equitable injunctive and
monetary relief for consumers--including refunding money that was
unfairly or unjustly taken, while the Communications Act gives the FCC
authority to impose monetary forfeiture on a party that is paid to the
U.S. Treasury.
Question 5. Wouldn't repealing the communications common carrier
exemption lead to potentially inconsistent enforcement activities by
the FTC and the FCC, which could undermine effective guidance to
industry and ultimately the protection of consumers of
telecommunication services? Please explain your answer.
Answer. The FTC and the FCC coordinate with each other to make sure
that we are sending consistent messages to the industry and maximizing
the effective use of our resources. Further, in areas that cause
serious consumer harm, such as mobile cramming, it is important that
each agency has the ability to use the different tools in its arsenal
to combat the problem, such as consumer redress for the FTC and civil
penalties for the FCC. It is important to note that concurrent
jurisdiction is common. For example, we share jurisdiction with the
CFPB over a wide swath of industries. We coordinate by, for example,
notifying each other of investigations and other activities to avoid
``double-teaming'' a particular target. The presence of two agencies
acting to address serious consumer protection issues has worked well,
providing ``more cops on the beat.'' For example, just last month the
FTC and the CFPB announced a joint Federal and state law enforcement
sweep, which targeted companies peddling fraudulent mortgage relief
schemes to distressed homeowners. By combining resources, the agencies
were able to engage in more robust enforcement in an area causing
significant consumer injury. Similarly the two agencies coordinate with
each other to provide guidance to industry. For example, in June 2013,
the FTC and the CFPB co-hosted a roundtable to examine the flow of
consumer data throughout the debt collection process. In a similar
fashion, we also work cooperatively with the FDA and the Department of
Justice in areas where we have concurrent jurisdiction.
Question 6. The FTC's complaint in the T-Mobile case states that
the FTC and the FCC have ``concurrent enforcement jurisdiction over
mobile telephone companies' billing and collection of third-party
charges for non-telecommunications services,'' but does not cite to any
authority for this statement. During the hearing, you stated that this
authority is established by ``relevant case law,'' but did not specify
any cases.
Please provide citations to any and all statutes, regulations, and
case law that you believe establish the FTC's authority, and explain
why the FTC believes these cases, statutes, and regulations establish
the FTC's authority to sue T-Mobile notwithstanding the common carrier
exemption.
Answer. I expect this issue to be fully briefed in the T-Mobile
litigation depending on the arguments raised by the defendant. In the
interim, I am attaching the brief filed by the agency in FTC v. Verity
Int'l Ltd., 194 F. Supp. 2d 270 (S.D.N.Y. 2002) that discussed this
issue. In that case, the court found that the FTC has jurisdiction over
a billing aggregator placing charges on consumers' telephone bills,
explaining that ``the better considered authorities . . . agree that
whether an entity is a common carrier for regulatory purposes depends
on the particular activity at issue.'' Id. at 274-75; aff'd 443 F.3d 48
(2d Cir. 2006).
Question 7. Two of your colleagues on the Commission, Commissioner
Wright and Commissioner Ohlhausen, have indicated they believe that
``the FTC's competencies as an antitrust enforcement and consumer
protection agency, combined with the expertise it has developed in
matters related to the Internet and broadband access, position the FTC
well to deal with the difficult legal, economic, and technological
issues related to net neutrality.'' Do you agree with this statement?
Please explain your answer.
Answer. The issue of net neutrality raises a host of complicated
legal, technical, and economic issues. We look forward to seeing how
the FCC addresses them in its proceeding. While antitrust enforcement
is vital to protecting a competitive marketplace, it is not always the
most effective way to address policy issues in the economy. Sometimes
the public interest is best protected through a combination of
antitrust enforcement and well-designed regulation.
Attachment
______
Response to Written Questions Submitted by Hon. Cory Booker to
Travis LeBlanc
Question 1. When it comes to consumer education, which mobile
stakeholders should bear the responsibility for ensuring consumers are
adequately informed about billing practices and equipped with the tools
needed to challenge unauthorized activity on their phone bills?
Answer. Consumers have a direct relationship with their carriers,
and they trust that their carriers' bills will be accurate. Therefore,
as a good business measure, all carriers should timely and adequately
inform their customers about their billing practices and equip them
with tools needed to challenge unauthorized activity on their phone
bills. Additionally, third parties who place charges on consumers'
phone bills and any other entities that have direct relationships with
consumers by providing goods or services directly to consumers should
also bear this responsibility. This is particularly important as the
mobile ecosystem prepares to embrace new innovations that would allow
consumers to pay for third party goods and services through their phone
bill.
To help empower consumers in a world that is increasingly dependent
on wireless communications, the FCC is currently considering a
rulemaking that could extend wireline ``cramming'' rules to the
wireless industry. For instance, wireline phone companies are required
to place third-party charges in a separate section on customer bills
and prominently disclose options for blocking such charges. The record
was recently refreshed, and the FCC is now poised for action in that
docket within the next several months.
Question 2. Is this incumbent on the carriers, or do others bear
responsibility, as well?
Answer. As discussed above, mobile carriers and the third parties
who place charges on consumers' phone bills should bear responsibility
for ensuring consumers are adequately informed about billing practices
and equipped with the tools needed to challenge unauthorized activity
on their phone bills. Additionally, these duties should also apply to
any other entities that have direct relationships with consumers
wherein consumers pay for goods or services through their phone bill.
Also, as the Federal agency with primary oversight of the Nation's
telephone carriers, the FCC approaches the problem of cramming through
regulation, enforcement, and consumer education. It is important that
we continue to educate consumers about third-party charging practices
and how to respond to unauthorized charges on wireless bills. The FCC
engages consumers through written and video guides, tip sheets, and
other materials that empower consumers to prevent cramming, or identify
and report it if it occurs. For example, the FCC held a public workshop
in 2013 that brought together industry members, consumer advocates, and
regulators to focus more attention on the cramming problem and offer
consumers practical tips. We also partner in our outreach efforts with
groups representing populations particularly vulnerable to cramming,
such as AARP.
______
Response to Written Questions Submitted by Hon. John Thune to
Travis LeBlanc
Question 1. Do you believe the exemption from the FTC's
jurisdiction for communications common carriers frustrates effective
consumer protection with regard to billing practices in the
telecommunications industry? Please explain your answer.
Answer. I do not believe that the exemption from the FTC's
jurisdiction for communications carriers frustrates effective consumer
protection with regard to billing practices in the telecommunications
industry. Over the years, the FCC has taken many enforcement actions to
protect consumers from deceptive billing practices in the
telecommunications industry. These actions have proposed forfeiture
penalties, as well as required carriers to redress injured consumers
and adopt rigorous compliance plans. The FCC has also adopted truth-in-
billing rules to protect consumers from deceptive billing practices,
and initiated a proceeding that considers the expansion of existing
protections for consumers. The FCC expects to conclude this proceeding
in the next several months. As a result, the exemption from the FTC's
jurisdiction for common carriers does not frustrate effective consumer
protection because the FCC is acting to protect consumers of
telecommunications services.
Question 2. Do you believe the communications common carrier
exemption is outdated or should be repealed? Please explain your
answer.
Answer. I do not believe that the communications common carrier
exemption is outdated or should be repealed. The FCC is the Federal
agency with the expertise and experience to serve as the primary
regulatory and enforcement oversight authority for the Nation's
telecommunications carriers. For decades, the FCC has exercised this
authority through a combination of regulation, enforcement, and
consumer education. The regulations that the FCC has adopted continue
to protect consumers while also ensuring that all the people of the
United States have rapid, efficient, and nationwide communications
services with adequate facilities at reasonable charges. While the
portfolio of enforcement actions that the Commission takes have evolved
over time with changes in technology and industry practices, the
Commission and the Enforcement Bureau are fully committed to ensuring
that the Communications Act as well as the FCC's rules and regulations
are efficiently and effectively enforced to protect American consumers
in the 21st Century.
Question 3. Do you believe the FCC should remain the agency with
primary jurisdiction over the telecommunications industry?
Answer. Yes.
Question 3a. Would repealing the communications common carrier
exemption alter the jurisdiction of the FCC? Please explain your
answer.
Answer. I do not believe that the communications common carrier
exemption should be repealed. That being said, the FCC's jurisdiction
is not tied to the FTC Act. As a result, repealing the common carrier
exemption in the FTC Act would not alter the FCC's jurisdiction.
However, granting another Federal agency jurisdiction over the
activities of common carriers increases the risk of inconsistent
actions by the agencies as well as inconsistent requirements for
regulatees.
Question 4. Does the communications common carrier exemption need
to be repealed or modified in order to better enable the FCC and the
FTC to work together to protect consumers of telecommunication
services? Please explain your answer.
Answer. No. It is not necessary to modify or repeal the common
carrier exemption in the FTC Act in order to better enable the FCC and
the FTC to work together to protect consumers of telecommunications
services. The FCC and the FTC regularly collaborate and cooperate to
protect consumers. For example, as discussed at the hearing, the FCC
and the FTC coordinated our enforcement activities with respect to T-
Mobile's alleged cramming via premium short messaging services. Our two
agencies worked collaboratively on that investigation in order to
harmonize our respective enforcement as well as to leverage our
respective expertise. As other examples of our effective working
relationship, the FCC has taken enforcement action against prepaid card
providers for deceptive marketing based on FTC referrals; we have
participated in each other's workshops on areas of mutual interest; and
the agencies meet and confer routinely on Do-Not-Call and robocall
enforcement. We at the FCC are pleased with our collaborations with the
FTC and look forward to continuing to partner with the FTC in the
future.
Question 5. As you know, call completion is a significant problem
in rural America. To date, however, only three companies have reached
agreement on consent decrees to address the issues, and persistent
problems continue. Why has the Commission not taken more forceful and
widespread enforcement action in this area?
Answer. I agree that rural call completion has been a significant
problem; it can interfere with an individual's ability to communicate
with family and friends, seek help in an emergency, and conduct
important business. As a result of the Commission's investigations,
Level 3, Windstream, and Matrix made substantial payments to the U.S.
Treasury and agreed to institute comprehensive compliance plans
designed to ensure future compliance with the Commission's rules. These
investigations also informed the Commission's rural call completion
rulemaking, which resulted in the adoption of the new rules that
require providers to record, retain, and report to the Commission call
completion data for long distance calls. When these rules go into
effect, the data that providers file should highlight which providers
have unacceptably low call completion rates and facilitate the
Commission's ability to take additional enforcement action on an
ongoing basis. In addition, the data collection should deter call
completion problems by informing providers about their own performance,
as well as the performance of each of their intermediate providers.
Question 6. The Commission adopted record keeping and reporting
requirements in the Fall of 2013 to address the call completion issue,
but the rules have not been implemented. To the extent investigative
efforts are hampered by the lack of records, why have the rules not yet
gone into effect--nine months after they were adopted?
Answer. Pursuant to the Paperwork Reduction Act (PRA), any rules
that necessitate ``information collections'' from 10 or more entities,
such as the recordkeeping, retention, and reporting requirements
adopted in the Fall of 2013, must obtain Office of Management and
Budget approval before taking effect. Although the Commission received
OMB pre-approval for the collection proposed in the Notice of Proposed
Rulemaking, the Rural Call Completion Order that the Commission adopted
modified, and in some respects expanded, the recordkeeping, retention
and reporting burdens. The revised scope of the final rules generated
additional PRA comments. The Commission is currently working on a
submission to OMB that: (1) addresses the arguments raised during this
separate notice and comment process; and (2) is designed to obtain
prompt approval from OMB.
Question 7. Many believe that call completion problems can be
traced to sub-standard intermediate providers. What will the Commission
do to ensure that only quality intermediate providers are used to route
calls and why has the Commission not taken enforcement action against
poor performing intermediate providers?
Answer. The Commission has taken enforcement action against
intermediate providers. Each of the three companies that have entered
into consent decrees with the Commission--Level 3, Windstream, and
Matrix--acts as an intermediate provider and carries significant
quantities of wholesale traffic. Matrix primarily serves as an
intermediate provider for other carriers. Level 3 is subject to
potential additional penalties for substandard performance as an
intermediate provider under the terms of its consent decree if its
wholesale call completion rates to rural areas are more than five
percentage points below its wholesale call completion rates to non-
rural areas.
Moreover, the Commission's new rules require covered long distance
providers to record and retain detailed information regarding call
completion rates for each intermediate provider that the long distance
provider uses to terminate calls to rural areas. Many long distance
providers did not previously record this information. After the new
rules take effect, identifying sub-standard performance among
intermediate providers should be easier for long distance providers.
This should deter them from using intermediate providers that perform
poorly.
The new rules should also facilitate future enforcement actions by
the Commission, which can request data regarding individual
intermediate provider performance from long distance providers.
Moreover carriers may be liable for call completion problems caused by
the intermediate providers they employ. The 2012 Rural Call Completion
Declaratory Ruling stated that ``it is an unjust and unreasonable
practice in violation of section 201 of the [Communications] Act for a
carrier . . . to fail to ensure that intermediate providers, least-cost
routers, or other entities acting for or employed by the carrier are
performing adequately.'' This is in accordance with section 217 of the
Act, which provides that carriers are liable for the acts of their
agents or other persons acting on their behalf. By holding the
originating providers responsible for rural call completion problems
stemming from the actions of their intermediate providers, the rules
encourage originating providers to choose their downstream providers
more carefully, with a better eye toward call completion rates.
In addition, covered providers can reduce their recordkeeping,
retention, and reporting burdens by using fewer than two intermediate
providers. If a long distance provider choosing this option experiences
call completion problems, it should be able to quickly identify and
remove the problematic intermediate provider.
Prospectively, the Rural Call Completion Order sought comment on
whether the Commission should extend its recordkeeping and reporting
rules to intermediate providers, and whether we should impose
certifications or other obligations on such entities. We are currently
analyzing the comments.
Question 8. When the Commission issued its rural call completion
report and order, it requested comment on additional rules. When will
the Commission issue an order addressing the additional proposals?
Answer. Since releasing the Rural Call Completion Order, the
Commission has received comments and ex parte presentations on the
record suggesting additional steps and proposals that might improve
rural call completion rates or reduce reporting burdens. We are
analyzing the record to determine the best path forward.
______
Response to Written Question Submitted by Hon. Cory Booker to
Michael F. Altschul
Question. With fewer people using landlines, the number of
wireless-only households is growing, particularly among young and low-
income people. Cramming is a deeply troubling and deceptive practice
that seems to be keeping pace with this significant growth in mobile
technology. Additionally, as the use of legitimate billing of third-
party services (such as apps and downloads) increases, it seems as
though the mobile space presents additional challenges for consumers
and their ability to discern unauthorized charges on their cell-phone
bills. I am pleased to see the FTC issued recommendations to carriers
on how to combat mobile cramming. What is the industry's response to
the recommendations the FTC outlined?
Answer. You are quite correct that the number of wireless-only (and
wireless-primary) households is growing. The Center for Disease
Control's National Center for Health Statistics has tracked wireless-
only households, and the percentages of adults and children under 18
who live in wireless-only households, for most of the past decade.
According to its 2013 survey (reporting on data through December 2012),
nearly 40 percent of Americans have chosen to `cut the cord' and live
exclusively in wireless only homes. Overall, your state lags the Nation
in the movement toward wireless-only households, although Essex County
appears to be very close to the national average, with 40.2 percent of
adults 18 and over living in wireless-only households.
As I testified to on June 30, the wireless industry already has
adopted many of the FTC's recommendations. Commercial, charitable, and
political uses of common short codes issued by CTIA are subject to
written, publicly available consumer protection guidelines. Moreover,
CTIA monitors advertisements to ensure compliance with these guidelines
and that advertising and price information is clearly disclosed. As a
further safeguard to consumers, beginning in February 2012, CTIA
contracted with an outside vendor to verify information supplied to the
Common Short Code Administration registry by companies seeking to lease
short codes for premium SMS campaigns. CTIA's vendor uses numerous
commercially-available databases such as Lexis/Nexis, Dun & Bradstreet,
and the Better Business Bureau to confirm that the Content Provider
displayed in the registry represents a legitimate company and is
identified correctly in the registry. When monitoring identifies
problems, that information is sent to the carriers so they may take
corrective action. These efforts and the national carriers' decisions
to end support for premium short code campaigns (with the limited
exceptions for charities and political campaigns) should combine to
significantly reduce the opportunity for third-parties to use carrier
billing platforms as a tool to commit fraud. In addition, wireless
companies provide customers the ability to block all third party
charges (see: AT&T: http://www.att.com/shop/wireless/services/
purchase_blocker-sku6800254.html#fbid=pwxABFfDn2W; Sprint: http://
support.sprint.com/support/article/Find_out_about_Premium_Messaging
/case-cx832318-20091116-
142129?ECID=vanity:premiummessaging&question_box=
block billing&id16=block billing; T-Mobile: http://support.t-
mobile.com/docs/DOC-2745?cm_sp=THE%20SOURCE_Support-_-
Upgrades%20%26%20Planscontent_
blocking_txt; Verizon: https://wbillpay.verizonwireless.com/vzw/nos/
safeguards/SafeguardProductDetails.action?productName=serviceblock).
Wireless carriers are reviewing all of the Commission's recommendations
with the shared goal of protecting consumers from deceptive
advertisements and fraud, and helping dispute unauthorized charges and
obtain refunds through a clear and consistent dispute resolution
process.
______
Response to Written Questions Submitted by Hon. John Thune to
Michael F. Altschul
Question 1. Is the recent T-Mobile cramming case the first time the
FTC has taken enforcement action against a telecommunications carrier?
Answer. To CTIA's knowledge, it is the first time the FTC has taken
enforcement action against a telecommunications carrier for a carrier-
provided service. The FTC has brought actions against carriers for
violations of the Fair Credit Reporting Act (FCRA).
Question 2. Do you believe the current exemption from the FTC's
jurisdiction for communications common carriers frustrates effective
consumer protection and industry guidance with regard to billing
practices in the telecommunications industry?
Answer. Currently, the FCC imposes Truth-in-Billing requirements on
telecommunications carriers. If Congress eliminated the FTC's common
carrier exemption while keeping the FCC's rules in place, wireless
carriers would be subject to two potentially conflicting sets of
Federal requirements administered by two different Federal agencies.
Such an outcome would lead to consumer and carrier confusion, and would
frustrate effective consumer protection. In addition, dual Federal
regulation would result in increased costs to taxpayers by funding two
agencies to do similar work, while at the same time increasing
compliance costs for carriers, also likely to be passed on to
consumers.
Question 3. Do you believe the communications common carrier
exemption is outdated or should be repealed? Please explain your
answer.
Answer. Any determination affecting the common carrier exemption in
the FTC Act should await the outcome of the current ``Net Neutrality''
debate and the regulatory status of carrier services. Any changes to
agency authority over communications carriers should ensure that there
is not dual Federal regulation and that Federal authority preempts
state authority.
Question 4. Do you believe repealing the communications common
carrier exemption would alter the jurisdiction of the FCC? Please
explain your answer.
Answer. While repealing the common carrier exemption by itself
would not alter the FCC's jurisdiction, such an outcome should
logically be coupled with a change in the FCC's jurisdiction in order
to avoid dual Federal regulation.
Question 5. Do you believe repealing the communications common
carrier exemption is necessary to enable the FTC and FCC to work
together to protect consumers of telecommunications services?
Answer. No. Repealing the exemption without altering the FCC's
jurisdiction could create two potentially conflicting Federal regimes,
which could undermine coordinated FTC and FCC actions to protect
consumers.