Washington, DC - In the story of Aladdin, something as small as a lantern housed a mighty force. Aladdin got his three wishes, but he also unleashed the genie's mercurial power.

Like Aladdin's lamp, mobile devices offer incalculable benefits, but certain forms of billing create the risk that consumers will get zapped with unauthorized charges. We can't offer three wishes, but Mobile Cramming: An FTC Staff Report suggests five best practices for the payment option known as “carrier billing.” If you have clients in this industry, how do they measure up?

Carrier billing is the process that allows charges for goods or services to be placed directly on a mobile phone account. That can be beneficial in a lot of contexts – for example, donating to charity via a text or helping people without bank accounts or credit cards transact day-to-day business.

But there are risks, too. Just ask the legion of consumers who have found monthly charges on their bills for services they didn’t authorize – horoscopes, ringtones, trivia tidbits, and the like. It’s called cramming and the FTC has responded with lawsuits against dozens of defendants, reaching settlements totaling more than $160 million.

We asked law enforcers, consumer groups, and industry members to ponder the problem. Last year, after a national roundtable hosted by the FTC and a stack of state and federal lawsuits, the four largest mobile carriers said they planned to discontinue one form of third-party billing – premium SMS billing for commercial transactions.

As industry members implement other kinds of carrier billing arrangements, it’s important that they’re designed with fundamental consumer protection principles in mind. That’s why the FTC staff report recommends five best practices for the industry.

  1. Consider giving consumers the option to block third-party charges.  People should have that choice from the get-go. Carriers also should clearly and prominently tell customers about options for blocking third-party charges while accounts are active, including on carriers’ websites. Another recommendation: Give people the ability to block (or allow) specific providers, or to block just commercial providers.    
  2. Honor long-standing truth-in-advertising principles.  That includes clear and prominent upfront information about opt-ins and pricing. Another part of that picture: Carriers should have reasonable procedures in place to spot questionable practices, take appropriate steps against merchants acting illegally, and scrutinize potential partnerships before doing business with repeat offenders.
  3. Charges shouldn’t be placed on consumers’ bills unless they’ve given their express, informed consent.  “But consumers said it was OK.” Shady operators say that all the time. That’s why it’s important to have reliable record-keeping to support the claim that consumers affirmatively approved the charges. Furthermore, carriers should implement policies to investigate and take appropriate action when consumer complaints, refund requests, or other factors suggest a tip-off to a cramming rip-off.
  4. Charges for third-party services should be clearly shown on consumers’ bills.  Carriers also should consider ways to make third-party billing more transparent to consumers. One option: separate subtotals for carrier charges vs. third-party charges. Perhaps people who auto-pay their bills could get a separate heads-up notification about third-party charges. Customers with prepaid phones should be notified, too, since they don’t get monthly bills.
  5. Carriers should set up effective ways for consumers to dispute charges.  Consumers say they often get a double whammy when trying to challenge cramming. First, they’re hit with the unauthorized charge. Then comes the hassle of dealing with their carrier to get help with a refund. The staff report suggests that where possible, carriers should grant consumer refund requests for recurring unauthorized charges that the carrier concludes were crammed, including refunds for the same recurring charge in previous months. When a carrier cuts off a third party’s billing activities due to unauthorized charges, the carrier should notify consumers who incurred charges from the third party to allow them to ask for their money back.

Read the full staff report for more on recommended best practices.