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AT&T Settles 'Cramming' Claim With FTC for $105 Million

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By Mark Wilson, Esq. on October 09, 2014 12:25 PM

Here's a lesson for companies: Trying to deceive customers into paying for bogus things they never ordered will cost you. First, the FTC said it would go after T-Mobile. Now, it's settled with AT&T for $105 million.

Cram It, AT&T

"Mobile cramming" is the practice of charging the customer for a service the customer didn't ask for, according to the FTC. Apparently, AT&T was incentivized to help the practice along, thanks to the 35 percent cut of the cramming charges it received from third parties that sent customers unwanted texts, ringtones, or other minutiae (referred to as "premium short message services" or PSMS).

But wait: There's more. Not only did AT&T charge customers for unwanted services, it disguised the nature of these charges on customers' bills. "Though the FCC and FTC found that AT&T did identify these charges on customers' billing statements, the product descriptions were sometimes as vague as 'Variety Texts.' AT&T received complaints that these charges were unauthorized, and it's alleged that AT&T was at times unable to provide proof that they had been," reported The Verge.

The crammed charges in the T-Mobile cases were similar; one bill identified the charges only as "usage charges," without ever specifying what they were.

Is This a Business Model?

Unlike T-Mobile, which called the FTC's lawsuit "unfounded and without merit," AT&T quickly accepted responsibility and didn't miss a good P.R. opportunity, telling Boy Genius Report that it "discontinue[d] billing for premium SMS content in December 2013 and was the first carrier in the United States to do so."

According to a Staff Report from the Senate Committee on Commerce, Science, and Transportation, phone companies were on notice as early as 2008 that regulators were on to the crammers' tactics. Some tactics were relatively benign: For example, when a customer bought a ringtone, he didn't read in the fine print that he'd be billed or signed up for a monthly service. Other tactics were blatantly fraudulent, like sending unsolicited texts that proceeded to bill the customer whether or not he opted out of the service.

Cramming continued until November 2013, when the Texas' attorney general sued Mobile Messenger, one of the major billing aggregators. Suddenly, the big four phone companies "abruptly announced they would virtually eliminate PSMS billing on their platforms."

A $105 million settlement, though, still means that AT&T probably made money on the venture: The Staff Report says that "one carrier reported that nearly $250 million worth of PSMS charges were charged to its customers' accounts in 2011 alone."

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