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.

“But we found that consumer rights can vary widely between wireless carriers and the protections carriers claim to provide are often nowhere to be found in customer contracts.”

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.

Consumers Union urges carriers to provide stronger protections

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,” said Jun.  ”If wireless carriers want consumers to have confidence in direct carrier billing programs, they should strengthen their contracts with the protections consumers need.”

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.

For more details, see How Top Wireless Carriers Compare on Consumers Protections for Mobile Payments.  For Consumers Union’s mobile payment tips for consumers, see:  Mobile Payments Tip Sheet: What Can Consumers Do Now