Phone carriers have big incentive to allow cramming

AT&T agreed this week to shell out $105 million in penalties and refunds for what regulators said were “hundreds of millions of dollars” in unauthorized charges billed to wireless customers.

But what makes this settlement — the largest ever for bogus phone charges — even more extraordinary is that phone companies continue to insist that they’re doing everything possible to protect consumers.

They’re not. Far from it.

“State law says that a telephone bill may only contain authorized charges,” said Lindsay Brown, a staff attorney with the Office of Ratepayer Advocates, the consumer-watchdog arm of the California Public Utilities Commission.

“If a telephone bill contains any unauthorized charges, that is not in compliance with the law,” she said.

Most people would read “authorized charges” as fees approved in advance by customers. Thus, the onus is on phone companies, as gatekeepers of customers’ bills, to ensure that a third-party charge is kosher before payment can be sought.

But that’s not how the phone companies see it. They consistently have staked out the position that it’s up to consumers to spot unauthorized charges on their bills.

Once the problem is reported, the companies say, they’re more than happy to do something about it.

That places the burden squarely on consumers to comb through each and every bill in search of questionable charges. Many people might not spot such fees. Some might not even make the effort.

These sneaky charges, often for $9.99, might be listed on bills as “service fee,” “voice mail,” “calling plan” or simply “membership.” They typically recur month after month.

“It’s a flawed business model,” said Joe Ridout, consumer services manager with the advocacy group Consumer Action. “You shouldn’t have to defend yourself from these charges. You should be able to just tell your phone company that you don’t want them.”

Here’s the thing: The phone companies would rather see these charges on your bill. And there’s a simple reason for that.

“They make money from them,” Ridout said.

In AT&T’s case, the Federal Trade Commission said the company received at least 35% of each of the unauthorized charges that appeared on people’s bills.

Considering that hundreds of millions of dollars were billed, according to the commission, AT&T’s take could have been at least $100 million.

As part of its settlement, AT&T Mobility will pay $20 million in penalties and fees to all 50 states and the District of Columbia, along with a $5-million penalty to the Federal Communications Commission.

It also will pay $80 million to the Federal Trade Commission to provide refunds to wireless customers.

Alex Carey, an AT&T spokesman, said the company always has had “rigorous protections in place” to safeguard customers. Nevertheless, he said, it decided to cut its ties with third-party text message and ring tone providers.

“We reached a broad settlement to resolve claims that some of our wireless customers were billed for charges from third parties that the customers did not authorize,” Carey said.

In fact, phone companies have fought regulators every step of the way when it comes to giving consumers more control over unauthorized charges.

When the FCC proposed new billing rules in 2011, AT&T argued that third-party charges are good for consumers and good for the U.S. economy.

“Making it more difficult for a customer to purchase and consume third-party content not only risks cutting off customers from innovative products and from the convenience of their portable devices, it also potentially subjects a burgeoning industry of entrepreneurs and job creators to financial distress,” AT&T told the agency.

Verizon Wireless told the FCC that it would be too much of a hassle for people to have to agree in advance to a charge any time they wanted a third-party service.

“This additional step would be inconvenient for customers and could deter them from participating in the mobile marketplace,” the company said.

In reality, that additional step is precisely what consumers want and would make them feel considerably more confident about participating in the mobile marketplace.

The biggest change federal regulators came up with was to require that phone companies notify customers of any options available for blocking third-party charges. That’s obviously not good enough.

Here are two easy fixes for so-called cramming, or placement of unauthorized charges on people’s bills:

First, require all phone companies to confirm with customers that a charge is authorized. That could mean sending out an automated email any time such a charge is received from a third party and before it’s included on a bill.

Second, eliminate the phone companies’ piece of the action. That is, prohibit them from receiving a percentage of any third-party charges.

That one change alone would likely wipe out cramming because AT&T, Verizon and their ilk would no longer have a financial incentive to screw over their customers.

AT&T customers who were billed for unauthorized charges since January 2009 will now be notified that they’re eligible for some money back.

If you’d rather be proactive, and I’d suggest this is probably the way to go, you can submit a refund claim on the FTC’s website or contact the settlement administrator at (877) 819-9692.

David Lazarus’ column runs Tuesdays and Fridays. He also can be seen daily on KTLA-TV Channel 5 and followed on Twitter @Davidlaz. Send your tips or feedback to david.lazarus@latimes.com.