Today, the Federal Trade Commission announces two law enforcement cases against "crammers" -- companies that use deceptive and unfair tactics to "cram" charges on consumers' phone bills. They represent the latest in a growing array of scams that exploit new telephone technologies, and the deregulated telephone billing system. In these cases, consumers were dismayed to find charges on their telephone bills for calls they never made or authorized, and for services they never ordered.
Why and how does this happen? Consider the scams in our two cases: The first involves two companies: Online Communications, based in Deerfield Beach, Florida, and International Telemedia Associates, Inc. (ITA). In this case, Online ran advertisements in newspapers across the country, offering "free" matching services with "local singles." They directed interested persons to call an 800 telephone number which was answered by an Online representative. After asking about the kind of person the caller would like to meet, Online allegedly promised to have a local single return the call. Shortly thereafter, return calls would begin from purported "local singles."
The scam would come to light at the end of the month when charges for these return calls would show up on telephone bills as "collect calls" from Deerfield Beach, Florida at a rate of $3.99 per minute. The charges, typically $75 per call, could amount to several hundreds of dollars. Often, the consumer who was billed had never made any call. In many cases someone else had used his phone to place the 800 call and to receive the call backs; in other cases, no one had access to the consumer's phone, and no one could have placed the 800 call or received call backs. Commission staff estimates consumer losses from this scam at $5 million.
How could this happen? Part of the answer is new technology; the other part is the telephone billing system.
In this scheme, the technology supporting the scam is called Automatic Number Identification (ANI) which, like caller ID, can capture the phone number of the originating call. Hence, once Online received the first 800 number call for a consumer, it had that telephone number for purposes of billing the later return calls from Deerfield Beach.
It should be noted that with ANI, it is the telephone number alone that is the basis for the later charge on the telephone bill; no matter who made the call on that line, even if the person whose phone is used has not given his permission or knows nothing about the call.
The telephone billing system is also a factor in these scams. In the deregulated telecommunications market, the billing system is now available for a range of telephone-related products and services. Online was able to get its charges onto phone bills through ITA -- a billing aggregator -- which takes information from companies like Online and converts it into the electronic format that in turn enables local phone companies to include it in phone bills. In this case, ITA did even more: it allegedly fielded all of the complaints from telephone subscribers who found Online's charges on their phone bills.
In its lawsuit, the FTC alleges that Online falsely claimed that its service was free, failed to disclose its cost, and violated the Commission's 900# Rule, which forbids the use of 800 or toll free numbers in connection with the sale of telephone information by return or collect call. The FTC also alleges that both ITA and Online falsely claimed that telephone subscribers were legally obligated to pay charges for these collect calls.
The federal court in Atlanta has entered a temporary restraining order halting ITA and Online's allegedly deceptive and unfair scheme, freezing Online's assets, and appointing a temporary receiver to take control of Online's business. A hearing on the FTC's motion for a preliminary injunction is being held today.
The second case we are announcing today involves the Veterans of America Association, or VOAA, a Pennsylvania-based company, which the FTC alleges used a sweepstakes scam to deceive consumers into agreeing to monthly charges via the phone bill. The sweepstakes entry form asked for the name, address and telephone number of the entrant. Applicants filled out forms for themselves, and for friends and relatives to give them a chance too to win.
The catch? The deceptively promoted sweepstakes entry form was, on closer examination, an application for VOAA membership with an obligation to pay $4.95 a month for its services. On the back of the form and in very small print was a statement that these monthly charges would appeared on the phone bill of the person whose phone number was written on the form. The friends and relatives, as well as those who filled out the forms for themselves, soon found on their telephone bills a $4.95 charge for "voicemail" service.
Hold Billing, the other defendant in this case, served not only as the billing aggregator that prepared the electronic billing tape so that these charges could appear on consumers' phone bills, also fielded complaints from consumers who discovered the VOAA charges on their bills.
The Commission staff estimates that consumer losses in this scam were over $2 million. We suspect that many consumers never caught on to VOAA's alleged cramming. The charges are not large. Consumers may not notice them on their increasingly crowded telephone bill or may not understand them and therefore may still be paying their monthly charges.
The FTC has asked the federal court in San Antonio, Texas, where Hold is based, to enter a preliminary injunction against this allegedly-deceptive scheme. We are waiting for the court to set a date for that hearing.
How big is the cramming problem? In the past 10 months, the FTC's Consumer Response Center has received nearly 6,000 consumer complaints about cramming; it is the fifth most often complained of consumer problem in that period. We believe this number represents only a fraction of the consumers who have been scammed by crammers. In fact, we are concerned that many consumers have been crammed and don't know it.
Now, we are going to hear from two consumers who were crammed.
1. This may not be an exact transcript of Ms. Schwartz's remarks.