Companies that illegally "crammed" unauthorized charges for a variety of services onto consumers' telephone bills and claimed that consumers had to pay the charges, even though they neither purchased the services nor authorized the charges, have agreed to settle Federal Trade Commission allegations that their unfair and deceptive practices violated the FTC Act and the FTC's 900-Number Rule. The proposed settlements would:
- bar the defendants from illegally billing consumers in the future;
- require one defendant, New Century Equity Holdings Corp., Inc. to give up $350,000 in ill-gotten gains; and
- require the other defendants, Enhanced Services Billing, Inc. (ESBI), and Billing Concepts, Inc. (BCI), to provide notices to consumers that their bills may contain unauthorized charges for website design and other enhanced services, to inform consumers how to obtain a refund, and to provide refunds.
ESBI and BCI each served as "billing aggregators." Billing aggregators open the gate to the telephone billing and collection system for vendors, and act as intermediaries between the vendors and the local phone companies, contracting with the local phone companies to have charges on behalf of their client vendors placed on consumers' telephone bills and to have the local telephone companies collect those charges from consumers. Once the charges are collected by the phone companies, the billing aggregators, after taking their fee, pass the revenues back to their client vendors. Although billing aggregators' services allow consumers to use their phone services as a payment mechanism, they are also susceptible to abuse if the billing aggregators fail to adequately police the practices of vendors who may engage in fraudulent billing.
ESBI and BCI were subsidiaries of New Century Equity Holdings Corp., formerly known as Billing Concepts Corporation from 1996 until October 23, 2000. ESBI and BCI are currently owned by Platinum Equity, L.L.C. Although not a defendant, Platinum Equity has agreed to comply with the provisions of the settlement with its subsidiaries ESBI and BCI to the extent that Platinum Equity or its divisions, affiliates, successors or assigns bill consumers for any "enhanced service" - basically, anything other than common carrier telecommunications services - on consumers' telephone bills.
The FTC's complaint, filed with the settlements, charged:
- that ESBI falsely represented that consumers were legally obligated to pay charges on their telephone bills for web sites and other items they had not ordered or authorized others to order for them;
- that ESBI unfairly attempted to collect - or arranged for local phone companies to collect - payment of charges from consumers for web sites and other items they had not ordered and that consumers were unable to prevent ESBI from causing such unauthorized charges to appear on their phone bills;
- that BCI falsely represented that consumers were legally obligated to pay charges on their telephone bills for an activation fee and monthly minimum fees for a calling card, when the consumers had neither asked for the card nor authorized anyone else to ask for it on their behalf; and
- that BCI unfairly attempted to collect - or arranged for local phone companies to collect - payment of charges for an activation fee and monthly minimum fees for a calling card that consumers had not ordered and that the consumers were unable to prevent BCI from causing such unauthorized charges to appear on their phone bills.
The complaint also alleged that, acting as a billing aggregator for vendors of 900-Number services, BCI violated the FTC's 900-Number Rule. According to the complaint, many consumers contacted BCI to complain that 900-number charges on their phone bills were not incurred by anyone calling from the consumers' phone, and offered convincing evidence to support that assertion. Yet, in such cases, the complaint alleges, BCI failed to perform a reasonable investigation to determine whether the charges were valid, and continued to attempt to collect. The 900-Number Rule prohibits a company from attempting to collect any disputed amount until the company has completed an investigation or refunded the charges.
The proposed settlements with the defendants bar future violations of the 900-Number Rule. They would also bar the defendants from placing charges on a consumer's phone bill when they "know or should know" the consumer did not authorize the charge; from making misrepresentations, in connection with the provision of customer service, that consumers owe money for telephone-billed goods or services they did not authorize; prohibit them from submitting billing records from vendors they "know or should know" do not obtain express authorization for each telephone-billed good or service; and require that when the defendants submit information to local phone companies to cause charges to appear on consumers' phone bills, they must provide the phone companies with an accurate description of the goods or services being billed, and a toll-free complaint number. The proposed settlement with New Century requires the company to turn over $350,000 in ill-gotten gains. The proposed settlement with defendants ESBI and BCI also requires them to provide notices to consumers who receive bills for enhanced services after the date of the Order, informing them that their bills may contain unauthorized charges, that the FTC has entered into a settlement with the defendants, and providing a toll-free number (1-800-555-ESBI), an e-mail address and a street address, any of which consumers can use to request refunds. The defendants also would be required to inform consumers about the terms and conditions for obtaining a refund, and to provide refunds. Both proposed settlements also contain record keeping provisions to allow the FTC to monitor compliance.
The Commission has set up a hotline for consumers to call with questions about the case or the refund procedure. It is (202) 326-3060.
The Commission vote to refer the complaint and settlements to the Department of Justice for filing was 4-0, with Chairman Timothy J. Muris not participating. The complaint and proposed consent judgments were filed in U.S. District Court for the District of Columbia on August 1,2001 by the Department of Justice at the request of the FTC. The proposed settlements are subject to court approval.