The Federal Trade Commission today announced its first case against mobile phone "cramming," going after defendants who allegedly took in millions by sending consumers pricey unauthorized text messages featuring horoscopes, love tips and other information.
The case is part of the FTC's new focus on consumer protection issues arising from the tremendous growth of mobile technology.
In a suit filed April 16 in U.S. District Court for the Northern District of Georgia, the FTC charged Wise Media, its CEO and co-owner Brian Buckley and another co-owner, Winston Deloney, with violating Section 5 of the FTC Act, which bans unfair or deceptive practices. The complaint also names Deloney's company Concrete Marketing as a relief defendant, alleging that it "received hundreds of thousands of dollars in monetary transfers" from Wise Media.
According to the FTC, the defendants placed unauthorized third-party charges for "premium" texts on people's mobile phone bills and hoped they'd pay them without noticing. For example, Wise Media offered a subscription text service called "HoroscopeGenie" which sends people three horoscopes a week - and costs $9.99 a month on an automatically recurring basis.
"Defendants charge many consumers for Wise Media's purported services by placing charges on the consumers' mobile phone bills, without the consumers ever knowingly signing up for such services," the complaint states.
When consumers did notice the charges—which showed up on their phone bills with cryptic names like "27140 HoroGenie Alert"—and attempted to dispute them, the process was "difficult and often unsuccessful," according to the FTC.
The FTC asked the court to freeze the defendants' assets and shut their operations down. The FTC also wants the court to force the defendants to give up their "ill-gotten gains," to be used for refunds for consumers who were scammed.
The concept of cramming is not new. Cramming has been an issue with landline phone bills for years, but this is the first FTC case involving mobile phones.
“As more and more consumers move to mobile phones, scammers have adapted to this new technology, and the commission will continue its efforts to protect consumers from their unlawful practices," FTC head Edith Ramirez said in a news release.
In comments filed with the Federal Communications Commission last year, the FTC wrote that cramming "poses a serious problem for American consumers." The agency urged the FCC to require wireless providers to include specific protections for consumers using wireless devices – most notably, the ability to block all third-party charges from companies such as Wise Media.
The FTC in its complaint noted that phone companies in the past year have frequently refunded Wise Media charges to consumers who complained.
"By mid- 2012, one major phone company had even terminated Wise Media based on its excessive refund rates," according to the complaint. "Another terminated WiseMedia as well while providing consumer refunds that ultimately amounted to over 55% of all charges."
A Wise Media representative could not be reached for comment.