NEW YORK (MainStreet) Last week cell phone carrier T-Mobile made news for overcharging its customers by hundreds of millions of dollars in a scheme known as "cramming," placing misleading or unauthorized charges on a telephone bill. On Monday the Federal Trade Commission expanded its enforcement of this issue, announcing additional charges against a group of scammers for similar misconduct. The defendants, allegedly led by two men named Burton Katz and Jonathan Smyth, also face enforcement for operating a text spam and robocall ring.
Katz and Smyth allegedly tricked consumers into giving out their phone numbers by sending out texts promising free $1,000 gift cards or iPad prizes. When recipients followed the links they were taken to a series of web pages with hoops to jump through in order to claim their prize, even down to a small graphic telling users how close they had gotten. Part of the multi-step process (which never ended in prize money) requested the user to enter his or her phone number, triggering an automatic $9.99 monthly charge on their phone bill under the guise of a premium text message service.
With cramming so much in the news lately, it's worth knowing what this multi-million dollar scam industry is all about.
What is it?
"If consumers did not agree to a charge and it appears on their telephone bill, than that charge has been crammed," said Steve Wernikoff, an attorney with the FTC.
In shorthand, the scammer "crams" a charge onto the bill. The scammer hides this payment within the dense language of a cell phone bill, disguised by innocuous terms such as "service charge" or "membership fee." Since most users neither know nor pay attention to all of the line items on their monthly statement, the crammed charge often goes unnoticed. Your carrier then takes a cut of the payment, as it does for all third party charges, leading to T-Mobile's current problem for allowing schemes such as this.
How does it happen?
Cramming has traditionally worked through intermediaries called aggregators. When any merchant (legitimate or otherwise) wanted to charge cell phone users, the merchant sent the bill to an aggregator who sent it on to the carrier. This arm's-length transaction made it much easier for scammers to operate as they never actually had to legitimize themselves to the cell phone companies.
The actual scam generally happens one of two ways, Wernikoff explained. Some con artists, like Katz and Smyth are alleged to have done, attempt to trick consumers into approving charges without realizing it. In their trail of fake prize websites, the defendants actually inserted small print explaining that users were signing up for a $9.99 per month premium text messaging service, but worked hard to hide it. The goal was to make it appear that users were simply filling out a form to claim a free prize while having some patina of legitimacy to fall back on.
Not all crammers bother with that much subtlety, however. Some just find a list of phone numbers and send out a bill.
"In some cases, consumers have claimed that they have absolutely no idea how the charge appeared on their telephone bill," Wernikoff said. "They don't recall visiting a website, they don't recall anything about the company that appeared on their bill... [We had] two other recent cases, one against a company called Wise Media and another against a company called Tato. In both cases the FTC alleged that at least some consumers were literally just charged without any rhyme or reason at all."
In an attempt to crack down on this type of scam the major cell phone carriers have agreed to drop third party billing for text message services. As so-called premium text services have typically been the major gateway for crammed charges, Wernikoff indicated that this should go a long way toward preventing future scams.
How can you protect yourself?
Even though the death of premium text aggregators has cut down on cramming, consumers should still take care.
"We definitely recommend that consumers review their telephone bills carefully, like they should be reviewing their credit card bills, for any charges that they don't recognize," Wernikoff said. "One of the things in the T-Mobile complaint that the FTC has alleged was that T-Mobile made it difficult because their telephone bills were very complicated for consumers to read. The telephone bills were not very clear about what charges were for."
If odd charges or ambiguous service fees appear, or if your bill increases unexpectedly, don't hesitate to contact the carrier and ask for details.
Consumers should also be careful about where they enter their information. Although giving out your cell phone number is not dangerous in and of itself, it also requires some forethought. If a site seems suspicious or asks for information seemingly at random, there might be a problem.
Cramming has become much less of an issue now that carriers have agreed to crack down on the practice, especially with the example of T-Mobile whose problems are only beginning, but it's still worth watching out for suspicious activity.
--Written for MainStreet by Eric Reed, a freelance journalist who writes frequently on the subjects of career and travel. You can read more of his work at his website www.wanderinglawyer.com.