WASHINGTON, D.C. – Senator John D. (Jay) Rockefeller, IV, Chairman of the U.S. Senate Committee on Commerce, Science, and Transportation, today announced a Full Committee hearing on Wednesday, July 30, 2014, at 2:45 p.m. titled, “Cramming on Wireless Phone Bills: A Review of Consumer Protection Practices and Gaps.”
Over two decades ago, phone companies began allowing third-party vendors to place charges on consumer phone bills for products unrelated to phone service such as photo storage. From the early days of this practice, industry representatives have promised to protect consumers against unauthorized third party charges. However, the Committee’s 2010-11 review of third-party billing on landline phones found that “cramming” – where fraudulent charges are placed on consumers’ phone bills – had been occurring for several decades and was estimated to have cost consumers billions of dollars.
In light of increasing consumer use of mobile phones and emerging evidence of cramming in this context, Chairman Rockefeller in 2012 opened an inquiry to examine the scope of wireless cramming and industry practices to protect consumers against unauthorized charges on their wireless bills. The hearing will review findings of the Chairman’s wireless cramming inquiry and examine consumer protections as carrier billing technologies and practices continue to evolve.
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Chairman John D. Rockefeller IV
Today’s hearing is about a practice known as “cramming,” where consumers get charged on their phone bills for goods and services they never agreed to purchase.
The companies that put these bogus charges on phone bills know that consumers don’t always notice small charges when we pay our monthly bills. Some consumers have continued paying these charges for months – or even years – before noticing they were being ripped off.
Cramming has been a problem for several decades now – ever since the phone companies opened up their billing platforms to allow third-party vendors to charge consumers for goods and services unrelated to their phone service.
For as long as they have been giving outside parties access to their customers’ bills, the major phone companies have assured Congress and the public that they are protecting their customers from this type of billing fraud.
But unfortunately we have found that not to be the case.
In 2010, this Committee launched a year-long review of cramming on landline phones. And what we discovered was troubling: it turned out that, despite industry’s claims, over a billion dollars of unauthorized charges likely had made their way onto consumers’ phone bills.
After the Committee reported publicly on its review, the major phone companies announced they would voluntarily stop allowing third party charges on consumers’ landline phone bills. But those same companies did not make the same promise for their rapidly growing wireless phone business.
When we started asking whether cramming was happening on wireless phone bills, AT&T, Sprint, T-Mobile and Verizon told us they were not repeating the mistakes of the past. Industry representatives said that their voluntary policies and practices provide – and I quote – a “robust process designed to protect customers from unscrupulous actors,” and that cramming on wireless phones has been “de minimis.”
There is now overwhelming evidence that these statements were just not true - cramming on wireless phones has been widespread and has caused consumers substantial harm.
Our review of wireless cramming has focused largely on a wireless phone billing technique known as the premium short code messaging system – or “PSMS” – which involves use of text messages to place charges on consumers’ phone bills.
These types of charges often involved products such as ringtones, horoscopes, or celebrity gossip text message updates – and have been the primary focus of the cramming complaints that consumers have made to the FTC, the FCC, and state regulators in recent years.
My staff has summarized the findings of the Committee’s review in a report titled “Cramming on Mobile Phone Bills” that I would like to enter into the Committee record.
Specifically, this report finds:
- Third-party wireless billing has been a billion dollar industry that has yielded tremendous profits for the four largest wireless carriers, AT&T, Sprint, T-Mobile, and Verizon – their cut was often 30-40 percent of each vendor’s charge;
- Wireless cramming likely cost consumers hundreds of millions of dollars. I would hardly call that a “de minimis” harm;
- The wireless industry was on notice about significant wireless cramming problems by the late 2000’s – yet they let the abuses continue;
- Documents obtained by the Committee include examples of carriers allowing vendors with repeatedly high monthly consumer refund rates – which at times topped 50 percent of monthly revenues – to continue to bill consumers.
- There is also evidence that the carriers placed questionable reliance on middlemen companies known as “billing aggregators” that helped the third parties place charges on consumers’ telephone bills.
Late last year, the Attorney General of Texas filed suit against one of these middlemen companies, Mobile Messenger, alleging outrageous abuses. Within weeks of this action, the major wireless carriers did an abrupt about-face. They quickly announced that they would stop most PSMS wireless billing. This was a long-overdue, but welcome step.
But this story isn’t over. The major wireless carriers continue to allow third-parties to use methods other than PSMS to place charges on consumers’ wireless bills. Consumers are now using these newer billing methods to purchase digital goods such as game apps, which is a market that has been growing rapidly in recent years.
We haven’t yet heard a lot of complaints that these newer billing methods are allowing scammers to place unauthorized charges on phone bills. But given this industry’s dismal track record, we need to watch these practices carefully.
I am pleased to see that representatives from the federal and state agencies that have led the fight against cramming are with us today. I look forward to having a good discussion today about how we can turn your outstanding enforcement work into policies that will keep these bogus charges off our phone bills for good.
Ranking Member John R. ThuneMcSweeny responses to Thune QFRs (20.79 KB)Travis LeBlanc Responses to QFRs (1.81 MB)CTIA responses to Thune QFRs (216.81 KB)
I would like to thank Chairman Rockefeller for holding this hearing to discuss unauthorized charges on mobile phone bills and the findings of his wireless cramming investigation. I commend the chairman and his staff for shining a light on these abuses. I understand that Senator Blumenthal has graciously offered to serve in his place as chair.
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 charity, support a political cause, or download the newest song or app, and bill the purchase directly to their mobile telephone bill.
Yet, despite 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 phone 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’ll be asking whether they should do more.
At the same time, it’s important to underscore the extraordinary innovation and economic dynamism in the wireless communications space. The owners of the approximately 188 million smartphones in this country spend more time with their mobile devices each day than they do going online with a laptop or 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 would like to thank the South Dakota Public Utilities Commissioners 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 of the country, with 44 percent of Midwesterners living in cellphone-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.Thank you to our witnesses for appearing today. I look forward to your testimony.
Witness Panel 1
The Honorable Terrell McSweenyCommissionerFederal Trade Commission (FTC)
The Honorable William SorrellAttorney GeneralState of Vermont
Travis LeBlancActing Chief, Enforcement BureauFederal Communications Commission (FCC)
Michael AltschulSenior Vice President and General CounselCTIA - The Wireless Association