Consumer complaints about crammers -- companies that use deceptive and unfair tactics to cram charges on consumers' phone bills --- are rising rapidly, according to the Federal Trade Commission. In the past 10 months, 6,000 consumers from across the country have contacted the agency to complain about mystery charges on their monthly telephone bills. And today the FTC announced two separate actions in its latest law enforcement strike against "crammers."
"The problem of cramming represents the latest in a growing array of scams that exploit new telephone technologies and the deregulated telephone billing system," Teresa M. Schwartz, Deputy Director of the FTC's Bureau of Consumer Protection, said.
According to the FTC, cramming ranks fifth among the most frequent consumer complaints reported to the agency's Consumer Response Center. "We believe that the 6,000 consumers who have contacted us represent only a fraction of the consumers who have been scammed by crammers. More disturbing is the likelihood that many consumers have been 'crammed' and don't know it," Schwartz continued.
She urged consumers to study their telephone bills and understand each charge on them. "Consumers need to be especially wary of charges from companies they've never heard of and, if uncertain, they can call the local phone company. Second, if consumers are billed for services by someone other than their local phone company, the bill should identify the source of these charges and provide a telephone number for billing inquiries."
Schwartz noted that the common theme in today's enforcement actions is the telephone billing system. "In the deregulated telecommunications market, the billing system is now used to bill for a range of telephone-related products and services." In the cases filed by the FTC, she explained, companies were able to place charges onto phone bills using billing aggregators, which take information from vendors and convert it into the electronic format that in turn enables the local phone companies to include it in phone bills. In one of the enforcement actions, Schwartz said the FTC alleges that a company used a sweepstakes scam to deceive consumers into agreeing to monthly charges via the phone bill. The deceptively promoted form was, on closer examination, an agreement to pay $4.95 a month for the company's services.
The specific charges in both cases include allegations that the companies violated Section 5 of the FTC Act, which prohibits unfair and deceptive practices, by making false and misleading representations about their services.
International Telemedia Associates, Inc.
This case targets a so-called "billing aggregator" and a vendor of audio entertainment. Billing aggregators open the gate to the telephone billing and collection system for vendors, some of whom are ethical, but others of them seek only to use this novel system for fraudulent purposes. Billing aggregators act as intermediaries between vendors of various services and the local phone companies. In this case, the FTC was granted a temporary restraining order against International Telemedia Associates, Inc. (ITA) and two corporate officers, Arjuna Diaz, a.k.a., Ronald P. Diaz, and Gerard Robert Engle, and Online Consulting Group, Inc., and David Peterson, Jr., an Online officer.
Online allegedly advertised "free matching" services with "local singles" in newspapers throughout the country, urging consumers to call a toll-free number. When Online received a call to its toll-free number, it asked the caller where he was calling from and what sort of person he wanted to meet, told him that Online would have a "local single" return the call, and then hung up. Shortly thereafter, the consumer began receiving return calls from purported "local singles." Online did not adequately disclose in the first call, or during any of the return calls, that there was a charge or the amount of the charge. Nevertheless, when the consumer later received his telephone bill, he was shocked to find exorbitant charges -- described as collect or direct calls from a number in Deerfield Beach, Florida -- billed to his telephone number at the rate of about $4 per minute. Many consumers were charged hundreds of dollars on their phone bills for Online's audio entertainment service delivered through return calls.
ITA, the "billing aggregator," allegedly played a key role to enable Online to spring this unpleasant surprise on the consumer. ITA received from Online billing information that Online generated when consumers called their toll-free numbers. ITA then forwarded this billing data to the local exchange carriers to be included on consumers' phone bills. Online used automatic number identification (ANI) equipment to generate this billing data. ANI technology identifies the telephone number from which the call originates, but cannot identify the caller, and cannot determine whether a caller is the line subscriber for the line from which the call originates. Because of the shortcomings of ANI as a basis for billing, in numerous instances, ITA caused line subscribers to be charged on their phone bills for Online services ordered and received by someone else using their telephones without authorization. Legally, this is as indefensible as it would be for any other retailer to bill a line subscriber for goods or services delivered to some other caller's house, simply because the caller used the line subscriber's telephone to place the order.
According to the Commission's complaint, ITA not only took care of billing for Online, and forwarded to Online consumer payments collected by the local phone companies; it also handled complaints about charges for Online's services. ITA's name and toll-free number for billing inquiries appeared prominently on the ITA page of the consumer's telephone bill. Many consumers allegedly had difficulty in reaching ITA, and once they succeeded in doing so, found ITA not very responsive. Allegedly, ITA had the contractual authority to forgive Online charges, but often told consumers that only Online could make that decision.
The complaint alleges a number of specific deceptive or unfair practices that violate Section 5 of the FTC Act. First, the complaint alleges that Online falsely represented that its matching service was free, and that it failed to disclose material information about the cost of its audio entertainment services. Second, the complaint alleges that both Online and ITA falsely represented that a line subscriber to a telephone line is legally obligated to pay for audio entertainment services, simply because his telephone was used to call Online's toll-free number. Third, the complaint alleges that both Online and ITA unfairly billed consumers for unauthorized charges. Billing and collection efforts aimed at line subscribers who have not accessed or purchased Online's audio entertainment service are unfair when Online's service is accessible through unblockable 800 numbers and is delivered through unblockable return calls and line subscribers cannot reasonably avoid these billing and collection efforts. Finally, the complaint alleges that Online violates the Commission's 900-Number Rule by using toll free numbers in a manner that results in the calling party being called back collect for the provision of audio information or simultaneous voice conversation services.
Hold Billing Services, Ltd.
The FTC's action against Hold Billing Services, Ltd., and six other defendants contains allegations similar to those made against ITA and Online. In this case, Hold Billing Services, Ltd. is the billing aggregator. The vendor in this matter is Veterans of America Association (VOAA), which sells a package of benefits to its members.
According to the FTC's complaint filed in U.S. District Court for the Western District of Texas in San Antonio, VOAA marketed its memberships to consumers by conducting sweepstakes or prize promotions at local shopping malls, convention centers and fairgrounds. To enter VOAA's sweepstakes, consumers filled in a form asking for their name, address and telephone number. The complaint charges that VOAA's contest displays and forms do not clearly disclose that VOAA construes a completed form as an order for its services. In addition, the FTC alleges that VOAA does not clearly disclose that the charges for VOAA's services will appear on the monthly billing statement for the telephone number the consumer places on the form.
The complaint alleges that VOAA transmits the consumer's telephone number to Hold Billing and Hold Billing sends this data to the local phone companies, which place the charge on the consumer's monthly telephone bill. According to the complaint, none of the defendants verify or confirm that a person who fills out a form is actually the line subscriber for the telephone number submitted on the form.
The FTC alleges that it is difficult to reach a representative of Hold Billing to discuss or dispute the charges. In addition, according to the complaint, in many instances, representatives of Hold Billing or VOAA have told line subscribers they are legally responsible for the charges, regardless of who, if anyone, ordered and received the service.
Don't Get Crammed
Here are some tips to help consumers avoid cramming scams.
For More Information
Consumers with questions about cramming can call the FTC's Cramming Information Line at 202-326-3134; TDD: 1-866-653-4261; or write: Federal Trade Commission, Consumer Response Center, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. Or visit us at http://www.ftc.gov on the Internet.
The Commission vote to file each complaint was 4-0.
NOTE: The Commission files a complaint when it has "reason to believe" that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the defendant has actually violated the law. The case will be decided by the court.
Copies of the complaints and consumer education material about 800 and 900 numbers, including a new consumer brochure titled "Cramming: Mystery Phone Charges," are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-FTC-HELP (202-382-4357); TDD for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.
(FTC File Nos. International Telemedia Associates, 982-3030; Hold Billing Services, Ltd, 982-3089)
(Civil Action Nos. International Telemedia Associates, 1 98-CV-1935; Hold Billing Services, Ltd., SA98CA0629FB)