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T-Mobile payment system leaves users vulnerable, report says

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T-Mobile’s new smartphone-based payment system won’t adequately protect users from mistakes, theft and fraud, according to Consumers Union, the publisher of Consumer Reports magazine.

T-Mobile last week announced its so-called Direct Carrier Billing, which will let T-Mobile users buy content off the Web using a T-Mobile account, allowing users to avoid the hassle of entering credit card numbers every time they buy something online. The service will be available later this month, the company says.

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But critics say consumers should be careful. Legal protections limit users’ liability if their credit and (to a lesser extent) debit cards are used to make unauthorized purchases, but transactions with T-Mobile phones are not afforded the same protections. In general, once consumers report unapproved transactions on their cards, they are liable for the first $50 but no more.

With T-Mobile’s system, however, if you find a huge charge you didn’t make, you must rely on the good faith of T-Mobile, said Michelle Jun, a senior attorney at Consumers Union. That means the company has discretion to approve a refund -- or not.

‘What happens if someone ends up with a big bill that doesn’t reflect what they actually bought?’ Jun said. ‘It’s basically up to you and the carrier to see what comes of it -- there aren’t any protections that guarantee you won’t be on the hook.’

If consumers refuse to pay, Jun said, they could face late charges or collection fees -- a situation they are protected from when disputing credit card charges.

T-Mobile said it was preparing a response to the Consumers Union report. We will update this post when it arrives.

The company also pointed to a news release from the announcement of its Direct Carrier Billing service, which notes that ‘payments that are processed using direct carrier billing will be secured and monitored by both T-Mobile and the billing service partners,’ and that the system is subject to ‘extensive fraud controls.’

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-- David Sarno

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