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Valparaiso Univ. Law School

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Monday, April 22, 2013

Phone "Bill Cramming" and Consent

The FTC recently charged a company, Wise Media, with unfair and deceptive business practices. The FTC complaint alleges that Wise Media charged unwitting mobile phone users for “premium" text services, or junk text messages (horoscopes, love tips, other “useful” information…) that consumers never authorized.  The practice is referred to as “bill cramming,” and consumers  often failed to notice the indefinitely recurring charges of, in this case, $9.99/month.  Even when they did and sent a text to “stop” the messages, the company often failed to comply with the request. 

Consumers often miss these charges because they aren’t aware that their mobile phone bills contain charges by third parties and because the charges are not clearly indicated.  The result?  Wise Media has made millions of dollars by surreptitiously charging consumers.

What I find particularly interesting and troubling is the potential interaction of contract law in the area of electronic contracts and consumer protection.  What distinguishes a deceptive business practice (although not necessarily an unfair one) from a “hard bargain” is consent. The FTC complaint, for example, was filed because the charges were “unauthorized” by consumers - they were signed up "seemingly at random" without consumer "knowledge or permission."  The FTC has, in my view, done a pretty terrific job of protecting consumers given the lack of resources and the wide range of consumer-harming activities out there.  Courts have not done so well.  What happens where contractual “consent” (such as in the form of a clickwrap”) is obtained for an unfair practice, such as bill cramming?  What if the consumer had clicked "I agree" on a clickwrap to the premium service?  Would the contract law notion of “consent” mean that the consumer had authorized the “premium text” service, even when we all know that nobody reads clickwraps and browsewraps?  Or would the commonsense version of consent championed by the FTC prevail?

I talk about this disjunction between, what I refer to as “wrap contract doctrine” (since, let's face it, the digital contract cases are not consistent with traditional contract doctrine despite what Easterbrook and others claim) and the FTC’s more commonsense approach to consumer perception and business practices in my forthcoming book on wrap contracts.  (Did you know a plug was coming?  I actually didn’t but there it is.)  The conclusion I reached was that there appears to be a disconnect between contract law notions of “reasonable notice” and the FTC’s notion of “reasonable notice” (which I find more reasonable….)  The takeaway for businesses – just because you obtain consent for a particular business practice via an online contract which may meet the surreal standards of contractual consent set forth by courts doesn’t mean that the practice in question won’t be viewed as an “unfair and deceptive” one by the FTC.

[Nancy Kim] 

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