COMMENTS OF THE OHIO CONSUMERS' COUNSEL
Robert S. Tongren, in his capacity as the Ohio Consumers' Counsel (OCC) on behalf of the residential telephone consumers of the State of Ohio, respectfully submits these comments to the Federal Trade Commission's (FTC or Commission) Notice of Proposed Rulemaking (Notice) in the above-captioned proceeding.(1) The OCC has legislative authority to represent the residential utility consumers of Ohio pursuant to Chapter 4911 of the Ohio Revised Code.
In order to combat the practice of "cramming," the Commission has proposed amending its Trade Regulation Rule (900-Number Rule or the Rule) concerning the advertising and operation of pay-per-call services that was promulgated pursuant to the Telephone Disclosure and Dispute Resolution Act of 1992. Among other things, the Notice proposes to broaden the scope of the Rule, to require that pay-per-call providers take additional steps to ensure the person being billed for the telephone-billed purchase has consented to the charge, to expand the definition of "billing entity" for dispute resolution purposes, and to strengthen restrictions on misleading advertising and deceptive billing.
Cramming and similar telephone abuses have become serious problems for telephone users. In fact, the National Consumer League last year listed cramming as the number one scam reported to the National Fraud Information Center. Slamming was second. See "Phone Scam has 'Crammed' Sweepstakes out of Number One Spot, Top Five Scams of 1998 Released," National Consumer League Press Release, June 11, 1998. Ohio had the ninth largest number of cramming complaints in the nation. Id.
Some consumers have faced bills for hundreds, even thousands, of dollars due to unauthorized pay-per-call and other telephone services. For example, in November 1998 the OCC's Consumer Services Division intervened for one consumer who was billed for over $200 in calls made to a psychic service by a minor living in the consumer's household. In December 1998 another consumer complained of a bill for $1,500 in 900-number and long distance calls to Hong Kong that the consumer never made. The severity of these types of charges is heightened by the fact that in about 40 states consumers can be disconnected from their local telephone service if they fail to pay these charges when they appear on their phone bills. Although the Federal Communications Commission (FCC) and several local telephone companies have taken steps to combat cramming, the FTC also has an important role. The proposed changes to the 900 Number Rule would help prevent these types of abuses.
The OCC supports the Commission's efforts to reduce the likelihood of abuse - especially cramming - by the pay-per-call industry. The measures proposed by the Commission will help provide greater protection for consumers. The OCC urges the Commission to adopt its proposed changes to the 900 Number Rule. However, the OCC recommends some changes to a few aspects of the proposed rule.
REDUCING UNAUTHORIZED CHARGES
The Commission has proposed to strengthen the Rule's requirement concerning presubscription agreements. Notice at 58528. Under the proposed rule, an audiotext provider must have a contractual arrangement with the calling party before allowing access, and must send the party a written statement of all material terms and conditions of the agreement along with a personal identification number (PIN). Id.
This proposal is a much-needed step toward reducing unauthorized charges. It would achieve a result similar to the FCC's Letter of Authorization that is required to be sent to telephone subscribers who switch long distance carriers. Having a presubscription agreement in hand would help provide a consumer with notice concerning an audiotext provider's services.
However, the OCC believes that adding three provisions to the Rule would increase its effectiveness. First, it should be made clear that the PIN cannot be activated when the individual makes the initial contact with the provider. This would prevent persons other than the individual responsible for paying the telephone bill from using the service before the agreement has been sent. For example, one consumer in Ohio was recently billed for a 900-number service that was authorized by a contractor working at the consumer's residence. Had the provider given a PIN to the contractor when the call was made, the contractor could continue to charge 900-number services to the consumer's phone. The Commission should guard against this circumstance.
Second, the Commission should require audiotext vendors to notify the person in whose name the telephone is listed that someone in the household has contracted for the vendor's services. Because the cost of the service is billed to the telephone number and not to the individual, there is a great potential for abuse. The OCC has received numerous complaints regarding roommates who have charged hundreds of dollars to a subscriber's phone number, then moved out, leaving the subscriber with a large phone bill. Moreover, because vendors' billing operations would associate a PIN with a telephone number and not an individual, someone could continue to charge services to his former roommate's number even after moving out. Except for unlisted numbers, telephone companies provide updated databases on subscribers' numbers. It would be very simple for vendors to ascertain whether the telephone number is in the name of the individual who has contracted for a service and, if not, send a notice to the person in whose name the telephone number is listed.
Third, the Commission should provide additional protection against unauthorized purchases made by minors in a household. For example, 16 C.F.R. §308.2(e) defines "customer" as "any person who acquires or attempts to acquire goods or services through a telephone-billed purchase, or who receives a billing statement for a telephone-billed purchase." This definition is too broad because it allows vendors to bill charges for unauthorized purchases made by minors. In addition, the only provisions in the Rule addressing minors deal with prohibiting advertising to children under 12 unless the service is a bona fide educational service,(2) providing services to children under 12 unless the service is a bona fide educational service,(3) and requiring disclaimers in advertising(4) and the preamble message(5) that callers under the age of 18 must have the permission of a parent or legal guardian in order to complete the call. This does not prevent a minor from entering into a presubscription agreement and obtaining a PIN. The Commission should require audiotext vendors to take additional steps to determine whether an underage caller has obtained proper permission before issuing a PIN.
The Commission has proposed dispute resolution procedures for consumers who believe they have been erroneously charged for a pay-per-call service. The proposed rule provides that once a consumer has communicated the dispute to the billing entity, the billing entity must within 40 days send a written acknowledgment to the customer that the disputed amount need not be paid, correct any billing error and credit the customer's account for any disputed amount and related charges, and conduct a reasonable investigation that may include contacting the customer, vendor, service bureau or providing carrier. Notice at 58565. However, it may be possible for collection efforts to continue despite the credit. Id.
While the OCC generally supports this procedure, some adjustments should be made to it. First, customers often do not detect unauthorized charges in the first or second billing cycle, and therefore should be given a longer time period to detect billing errors. The OCC urges the Commission to expand the time period to at least 90 days. Second, forty days is an inordinate amount of time for the billing entity to send a written acknowledgment. At least one, and possibly two, additional billing cycles would have passed. This time frame should be shortened to no more than 20 days.
Third, there seems to be some inconsistency between proposed §308.20(c) and §308.20(f). The latter makes it clear that the customer need not pay and that collection efforts could take place only on undisputed amounts. The former makes no statement on the customer's obligation to pay and states that collection efforts may occur - presumably even on disputed amounts - despite the credit. The Commission should reconcile these two sections. On this issue, the OCC urges the Commission to prohibit collection activities by the vendor, service bureau, or providing carrier until after the billing entity's investigation. Several customers in Ohio have received numerous collection letters from vendors after the customers notified their local phone company about unauthorized charges. Such actions cause consumers confusion and needless anxiety. The Commission should take steps to prevent similar occurrences.
The Commission's proposed revision to the 900 Number Rule would provide much-needed consumer protection. The OCC urges the Commission to adopt its proposed rule, with the above-mentioned modifications.
Terry L. Etter
March 9, 1999
1.Notice of Proposed Rulemaking, FTC File No. R611016, 63 Fed. Reg. 58524 (October 30, 1998).
2. See 16 C.F.R. §308.5.
3. See 16 C.F.R. §308.11.
4. See 16 C.F.R. §308.4(d).
5. See 16 C.F.R. §308.9(a)(4).