Customers have likely paid hundreds of millions in dollars in phony charges on their cellphone bills, according to a new report from a Senate committee. Contrite wireless carriers and outraged public officials agree this is a travesty, and now the industry insists an ugly chapter in the history of American telecommunications is over.
If that’s true, it would be an abrupt halt to a practice that has been going on for almost 20 years, despite consistent assurances from phone companies that there was nothing to worry about. This type of fraud, known as cramming, was made possible when phone companies began allowing other companies to charge services directly to phone bills. This includes such things as weather and gaming services, online photo storage, and, apparently, all kinds of stuff that people hadn’t realized they signed up for at all. Because phone bills have never been paragons of clarity and transparency, clever scammers had little trouble hiding charges somewhere in the back pages.
The cramming issue rose to prominence last month when the Federal Trade Commission sued T-Mobile for phony billing that dated back to 2009. T-Mobile (TMUS) dismissed the complaint as “unfounded and without merit.” All four major carriers cut off the premium text message services that had carried the fraudulent charges last November. Wireless carriers continue to allow third-party billing.
The Senate Commerce Committee discussed the issue Wednesday, although it wasn’t the first such hearing. That happened in the late 1990s, when phone companies operating landlines assured Congress they could cut off fraudulent charges without any extra government regulations. The back and forth persisted until 2012, with the charges piling up until the major landline phone carriers agreed to stop supporting third-party charges on their customers’ bills at all.
The problem hasn’t gone away. The FCC has made 14 enforcement actions worth $122 million since 2010, including three actions that resulted in $10.5 million in penalties and payments to the U.S. Treasury in the past two weeks. This could be evidence of the ingenuity of the crammers. But the wireless industry had had its warnings. The Senate report found that some carriers allowed vendors to keep billing people even though more than half of their charges were being refunded due to complaints. The incentives are certainly a bit muddy, given that carriers keep 30 to 40 percent of the money that third-party vendors charge to people’s phone bills.
William Sorrell, Vermont’s attorney general, told the Senate committee that government intervention was the only way to keep the carriers honest. “Ultimately we realized that self-regulation did not work in the landline arena,” he said. While the wireless industry is arguing things will be different this time around, its own attempts to monitor activity on its networks has been flawed at best.