U.S. cellphone users frequent victims of 'cramming': Senate study

Charges often originate from companies that provide celebrity gossip, ring tones or similar services


WASHINGTON (Reuters) - U.S. mobile phone users have likely paid hundreds of millions of dollars in unauthorized charges "crammed" onto their bills, according to a report released by the U.S. Senate Commerce Committee on Wednesday to coincide with a hearing on the topic.

"Scammers figured out a way to beat the system," Senator Richard Blumenthal, a Connecticut Democrat, said at the hearing. "They have been absolutely relentless in doing so."

The cramming often originates with small companies that provide celebrity gossip, ring tones or similar services.

But the money is collected by cellphone providers, including Verizon, AT&T, T-Mobile US Inc or Sprint, owned by SoftBank Corp, which typically keep 30 to 40 percent of the revenue, the staff report found.

"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," the report found.

Speaking at the hearing for the carriers, Michael Altschul of CTIA - the Wireless Association, said that companies agreed that putting unauthorized charges on wireless bills was "wrong and simply not acceptable."

He said carriers had also been "victimized by fraudsters who crafted elaborate schemes to defeat the industry’s self-regulation and third-partying monitoring."

In November, AT&T Mobility, Sprint, T-Mobile US and Verizon said they would stop billing for a certain type of charge, premium SMS messages.

Vermont Attorney General Bill Sorrell, who led the states' push against the practice, said that decision made a difference. "Complaints to us have fallen off a cliff," Sorrell said.

Even so, another form of billing, direct carrier billing, was on the rise, said FTC Commissioner Terrell McSweeny.

McSweeny urged the companies to institute basic protections for consumers to prevent abuse of this type of billing, such as cutting off companies with high complaint rates and spelling out on wireless bills exactly what consumers are paying for.

In early July, a federal court in California shut down six companies accused of cramming more than $100 million in unauthorized charges on consumers' cellphone bills, according to the FTC.

The FTC also filed a complaint against T-Mobile, the fourth-largest U.S. wireless carrier, on July 1 accusing the company of charging customers for subscriptions to services, like flirting tips, which they never requested. It is asking the company to refund the unauthorized charges.

T-Mobile CEO John Legere said that the FTC had "sensationalized" the problem.

In statements, both Sprint and AT&T said they take seriously the problem of cramming seriously. Both also said that they refunded money to customers who had been cramming victims.

For the full Commerce Committee report see: http://tinyurl.com/lmwffv2

(Reporting by Diane Bartz; Editing by Ros Krasny, Dan Grebler and Bernard Orr)


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