Consumer protections lacking for mobile payments charged to phone accounts

Most cell phone and tablet users can purchase digital
goods and charge them to their monthly bill or prepaid phone account.  

But they may not get the protections they need to limit
their financial liability if something goes wrong with the transaction. The
protections consumers receive will vary depending on their wireless carrier’s
policies and what’s in their cell phone contract, according to a new analysis
by Consumers Union. 

“Consumers using mobile payments should get the same
strong protections they currently enjoy when they make purchases with a credit
card or debit card,” said Michelle Jun, senior attorney for Consumers
Union, the nonprofit advocacy arm of Consumer Reports.


In May 2011, Consumers Union called on the top wireless
carriers to strengthen their contracts to protect consumers in the event that
their phone is lost or stolen or if a merchant makes a billing mistake or the
customer is not satisfied with a purchase. 

The consumer group urged the carriers to provide the same
strong protections guaranteed by law when consumers use a credit card or debit
card. In addition, Consumers Union pressed the companies to provide consumers
across the country with the same protections California phone customers are
entitled to receive as a result of regulations issued by the state’s Public
Utilities Commission (PUC). 

Since May, Consumers Union has been in communication with
representatives from AT&T, Sprint, T-Mobile, and Verizon Wireless to find
out how they handle disputed mobile payment transactions.  All four
carriers maintain that they provide ample protections for consumers.  

However, Consumers Union found that the protections these
carriers provide fall short of what consumers get when they use credit cards
and debit cards or when California consumers report a disputed charge on their
phone accounts. 

In addition, many of the protections that wireless carrier
representatives described to Consumers Union are not disclosed in customer
contracts, making it difficult to know whether consumers can count on these
safeguards when problems arise.

“As new mobile payment options become available,
consumers are better off sticking to services linked to credit cards or debit
cards, which come with strong protections required by law. If wireless carriers
want consumers to have confidence in direct carrier billing programs, they
should strengthen their contracts with the protections consumers need,”
said Jun. 

Below is a summary of the protections that Consumers
Union analyzed and what is provided by the top wireless carriers:

Limit liability when phones are lost or stolen:  A
credit card customer’s liability is limited to no more than $50 for
unauthorized charges.  In practice, credit card issuers usually shield
customers from any financial liability for fraudulent charges.  Verizon
Wireless’ contract makes clear that its customers are not liable for charges
related to a lost or stolen phone.  Contracts for AT&T, Sprint, and
T-Mobile protect customers from fraudulent charges made after a phone is
reported lost or stolen but consumers may be on the hook for charges made
before making a report.  

Limit liability for disputed charges:  If a billing
error appears on a monthly credit card statement, there is no liability for the
customer as long as the customer reports the error within 60 days.
 “Billing error” also includes a dispute with a merchant about
the delivery or acceptability of goods or services.  While all four
wireless carriers insist they provide refunds for billing errors or when
customers are unhappy with purchases, these rights are not clearly disclosed in
their contracts.

Re-credit pre-paid customers within 10 days for disputed
charges:  After a consumer reports a fraudulent transaction involving a
debit card, the bank must either complete its investigation within 10 business
days or provisionally re-credit the consumer’s funds within that time.  AT&T,
Sprint, and T-Mobile indicated that they strive to provide prompt refunds but
none guarantee in their contracts that pre-paid customers will get a
provisional refund within ten days after reporting fraudulent charges.
 Verizon Wireless does not allow customers with pre-paid phone accounts to
make mobile payment charges. 

Give customers the right to withhold payments for
disputed charges: California’s PUC rule gives phone customers in that
state the right to withhold payment of disputed charges while an investigation
is conducted and requires investigations to be completed within 30 days.
 Sprint’s contract indicates that customers don’t have to pay for disputed
charges as long as they are reported within 60 days.  AT&T said that
it gives all customers the right to withhold payments during an investigation
but its contract only discloses this right to Californians.  T-Mobile
discloses these rights for California customers but not for customers living in
other states.  Verizon Wireless’ contract allows customers to withhold
payment for charges related to lost or stolen phones but it does not indicate
that consumers have this same right for other kinds of disputed charges.


Enable customers to set a cap on mobile payment
charges:  The California PUC rule allows consumers to block third party
charges on their accounts.  All four wireless carriers allow customers to
block third party charges but AT&T and Sprint do not disclose this right in
their contracts.  AT&T, Sprint and Verizon Wireless set their own
dollar limits on allowable charges (AT&T has a $100 limit per month
per line while Sprint and Verizon Wireless limit charges to
$25 per month per line).  AT&T enables consumers to set their own
limits but charges $4.99 per line each month to do so.

By Team
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