Combating "cramouflage": What businesses can learn from the FTC's latest mobile case
Call it "cramouflage" — unauthorized (and unexplained) charges that show up on people's mobile phone bills. Regardless of whether consumers use cell phones, land lines, or two cans tied together with string, it’s illegal to bill them without their express consent. That’s always been the law. It’s the law now. And we’ll go out on a limb and predict it’ll always be the law. A settlement involving "cramouflage" charges is the FTC's latest foray against deception in the mobile marketplace.
According to the lawsuit, Georgia-based Wise Media billed people for horoscopes, “love tips,” and other text message content without their authorization. A little background on how mobile phone billing has become a new kind of payment system offers insights into how the FTC says the defendants violated the law.
Cell phone bills can include charges for “premium SMS” services provided by companies other than a consumer’s mobile carrier. The company offering the service — the content provider — often includes in its ads instructions on how to order via text by using a five- or six-digit “short code.” The content provider typically enters into agreements with a third party — the aggregator — to place charges on specific mobile carriers’ bills using those codes.
Here's how it works when the transaction is legit. A consumer requests the service (a game, for example) and expressly agrees to pay. The content provider then delivers the digital content and collects the charge by having it placed on the person’s bill. If the nature of the transaction is clearly disclosed up front and the consumer expressly authorizes the charge, the deal is hunky-dory.
But in the case of Wise Media, the FTC says that things were neither hunky nor dory. According to the complaint, unlike a legitimate content provider, Wise Media didn’t get consumers’ knowing agreement to pay for the horoscopes and “love tips.” Instead, the lawsuit alleges the defendants simply used the short codes to cram charges on consumers’ cell phone bills and cashed in when people went ahead and paid.
In some instances, Wise Media sent texts to people suggesting they had subscribed to the service. Not surprisingly, many consumers — getting a text from a company they’d never heard of about a service they didn't sign up for — simply ignored the message as spam. But even when consumers responded via text that they didn’t want the service, the FTC says the defendants continued to bill them over and over (and over) again.
According to the complaint, the defendants took steps to disguise the true nature of what was going on by using abbreviations and short-hand descriptions on consumers’ bills that masked the source of the charge. A phrase like “27140 HoroGenie Alert” didn’t give people much to go on, especially when the bill didn’t include Wise Media’s name or phone number. But the FTC says that even Sherlockian consumers who finally tracked down the company often didn’t get promised refunds.
The settlement prohibits the defendants from placing charges on consumers’ phone bills or helping others do that. The order against Wise Media and CEO Brian Buckley includes a judgment of close to $11 million. Due to their inability to pay the total, the judgment will be partially suspended, but Mr. Buckley will surrender nearly all of his assets and any remaining corporate assets. The order against Winston DeLoney and his company, Concrete Marketing Research, includes a $175,817 judgment.
The message for businesses: One thing is for certain. The FTC’s battle against cramming, bogus billing, and other forms of deception and unfairness in the mobile marketplace is ongoing.