Cramming: How Your Phone Company Helps Steal Billions

Photo (cc) by poppet with a camera

A few days ago I called AT&T to ask about some unusual data charges on my cell bill. I’d recently loaded a beta operating system onto my phone, so the fact that more data was used than normal wasn’t exactly a complete surprise. But what the customer service representative at AT&T uncovered was.

As part of my bill, I was charged $5.98 a month for reoccurring subscriptions to Wheel of Fortune and Pac Man. There are only a few things wrong with that…

  1. As an iPhone user, all games I purchase are sold through Apple’s App Store and are not charged to my phone bill.
  2. Unless I’ve been suffering from fugue states, I never authorized subscriptions to either game.
  3. Who would ever pay for a monthly subscription to Pac Man or Wheel of Fortune?

It turns out I was the victim of “cramming.”

In the 1990s, telephone companies began to allow third-party vendors access to their billing platforms. These partnerships were supposed to increase convenience for consumers by turning your phone number into a credit card. The hope was something like: You call up a pizza place, order a pizza, and the charge shows up on your phone bill at the end of the month.

Within just a few years, by the late 1990s, this method of billing had been thoroughly abused by crooks who began adding unauthorized charges directly to consumers’ phone bills. The abuse became so rampant that the government and telephone companies both agreed dramatic changes to the third-party billing system were needed to address the problem of cramming.

The two big players at the time were the FCC and the United States Telephone Association. Both advocated a deregulated, voluntary approach, through which telephone companies would self-regulate their third-party billing infrastructure and remove any companies that were simply scamming consumers. Congress gave them exactly what they wanted.

And so, for the past 15 years or so, telecommunications companies have been self-regulating the practice of cramming. How are they doing? A 2011 Senate Commerce Committee report titled “Unauthorized Charges on Telephone Bills” states what you probably already suspect:

Over a decade later, thousands of consumers still regularly complain to the Federal Trade Commission (FTC) and the FCC about cramming, while state and federal authorities continue to bring law enforcement actions against individuals and companies for cramming.

Theoretically, it should be simple for a telephone company to cut off billing access to crammers. After all, they must first be approved by your telephone company before they’re able to add charges to your bill. So why aren’t the phone companies doing anything to protect you?

Third-party billing is a billion dollar industry. Telephone companies place approximately 300 million third-party charges on their customers’ bills each year, which amount to more than $2 billion worth of third-party charges on telephone bills every year.

Three hundred million third-party charges add up when you consider that phone companies rake in $1 to $2 for facilitating each. Over the past decade, telecommunications companies have made more than $1 billion in revenue with the third-party billing system. AT&T, Qwest, and Verizon alone have earned more than $650 million since 2006.

Because telephone companies generate revenue by placing third-party charges on their customers’ bills, telephone companies profit from cramming. Documents reviewed by the Committee staff show that some telephone company employees feel financial pressure to approve third-party vendors even though the companies appear to be crammers.

Think about it this way: If you were running a business that earned millions of dollars a year simply by allowing outside companies to use your system to bill customers, would you stop?

While there may be legitimate companies using the third-party system, there aren’t many. The Senate committee found almost all third-party charges had never been authorized, meaning the system is essentially in place for the sole purpose of charging you money you didn’t agree to pay.

Committee staff has spoken with more than 500 individuals and business owners whose telephone bills included third-party charges. Not one person said the charges were authorized. Law enforcement agencies have reported similar findings when conducting surveys for their own cramming investigations.

And crammers will target anyone, anywhere. Third-party billers have added unauthorized charges onto everything from 911 systems, to emergency phones in elevators and bank vaults. They’ve targeted the dead, children’s hospitals, and government agencies, and “Third-party vendors even crammed unauthorized charges for voice mail services onto AT&T’s own telephone lines.”

The United States Post Office recently audited its phone bills and found almost $550,000 in unauthorized third-party charges. The United States Naval Station in San Diego, Calif., found $11,000 worth in one quarter in 2009. And Los Angeles County found $306,000 of unauthorized charges on its AT&T landline telephone bills since November 2009.

I was able to get my crammed charges removed by the customer service representative I spoke with, no questions asked. But many others have had a different experience. If you’ve found unauthorized charges on your bill that your phone company is unwilling to remove, or is incorrectly stating that they legally cannot remove, let us know by posting in the comments below. Then contact the Better Business Bureau or your state’s attorney general.

Cramming works because so many of us simply don’t notice the unauthorized charges, or believe them to be some sort of federally mandated fee. They’re not. Make sure to check your phone bill carefully every month.

On my AT&T wireless bill, third-party charges are buried under a section called “Total Credits, Adjustments & Other Charges,” right next to the Regulatory Cost Recovery Charge and the Federal Universal Service Charge (I suspect, to make them appear more legitimate). They’re listed as “Mobile Purchases & Downloads Charges.”

A permanent fix to cramming

So what can you do to permanently end the practice of cramming? I would say “complain to your telephone company,” but that doesn’t seem to do any good.

While telephone companies regularly tell their regulators and the media that their cramming complaint rates are low, internal documents reviewed by Committee staff show that the companies understand cramming is a major customer service problem. The companies have received hundreds of thousands of complaints in which consumers used words like “fraud,” “scam,” “theft,” “hoodwinked,” “shocked,” “disgusted,” “upset,” “stealing,” “bad business,” “taking advantage,” “disappointed,” and “unethical” to describe their experiences with third-party billing.

It seems telephone companies have been self-regulating their third-party billing system long enough. At best, they’re terrible at it. At worst, they’re facilitating the theft of billions of dollars a year from the American public.

Contact your representatives in Congress (here’s a recent story that tells you how) and urge them to impose regulations on the telecommunications industry’s third-party billing system. Remind them that they work for the people of the United States and not the telco industry.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

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