FTC Highlights Efforts to Combat Telephone Bill "Cramming"

Agency's Law Enforcement and Consumer Education Efforts Target Fifth Most Complained About Practice

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In Congressional testimony today the Federal Trade Commission highlighted its law enforcement and consumer education efforts to combat the growing number of consumer complaints about "cramming" -- the practice of causing unauthorized charges for a variety of goods or services to appear on consumers' telephone bills.

"The possibility that consumers might be billed on their phone bills for anything other than transmission of telephone calls is a recent development," said Eileen Harrington, Associate Director of the FTC's Division of Marketing Practices, who was speaking on behalf of the Commission before the Senate Subcommittee on Investigations. "The telephone billing and collection system has become a new alternative to more conventional billing and collection systems, such as credit cards and checks. This innovation may benefit consumers. ... However, recent experience shows that abuse of the newly-available access to the local exchange carrier (LEC) billing and collection system is also causing consumer harm."

Harrington noted that products and services now billed on a consumer's telephone bill may be completely unrelated to telephone service. For example, she said the Commission recently received a complaint about an automobile roadside service club that is billing for memberships on consumers' telephone bills. The charges for these services then appear on consumer phone bills because the vendors work with billing aggregators who act as intermediaries between vendors of various services and the LECs.

"Some of these vendors are unscrupulous, and employ a variety of ruses to capture consumers' telephone numbers to use for billing charges on their phone bills. For example, some of these vendors use deceptive ads to entice consumers to call a toll-free number, capture callers' phone numbers through automatic number identification (ANI), and then, through a billing aggregator, bill recurring monthly charges to consumers' phone bills for 'travel clubs' or 'psychic club' memberships. Often the charges are disguised as some other telephone service," she explained.

The testimony notes that use of the monthly telephone bill as an alternative billing and collection system first emerged in the 1980s with pay-per-call (900 number) services that sold phone-based, audio information or entertainment programs. This technology offered consumer benefits, but also gave those who would exploit consumers the opportunity to do so through their telephones and telephone bills.

Harrington told the committee that abuses in the 900 number industry ultimately led to legislation and FTC regulation. "Our experience to date suggests that the pattern observed with pay-per-call technology may be repeating itself in a broader way, with vendors, not just of information and entertainment services, but a host of other services as well. In the short period since cramming first emerged, complaints about unauthorized charges on consumers' phone bills have climbed to the number five spot among the categories that generate the most complaints received by the Commission's Consumer Response Center."

Harrington noted that in the Telecommunications Act of 1996, Congress granted the Commission authority to expand coverage under the FTC's 900-Number Rule. According to the testimony, the Commission has initiated a rulemaking proceeding and the staff of the Commission currently is reviewing the comments and other record evidence amassed to date, including what has been learned about cramming. Once this review has been completed, the Commission will decide how the Rule should be modified, both under existing authority of TDDRA and new authority of the 1996 Act, to reach services not currently covered that are "susceptible to the unfair and deceptive practices" that prompted Congress to enact TDDRA, the testimony states.

"If amended to encompass cramming, the 900-Number Rule will add to the FTC's arsenal against that practice, enabling the Commission to obtain civil penalties of up to $11,000 per violation. In the meantime, the Commission is aggressively pursing law enforcement actions against cramming under its existing authority under the FTC Act," the Commission said.

The testimony also contrasts the LEC billing system with the bankcard and credit billing and collection system and notes that "LEC billing for vendors has created the opportunity for abuse, and has revealed that the telephone billing and collection system has not developed the mechanisms for risk assessment and fraud prevention that characterize other billing and collection systems. ... the most obvious is that the bankcard billing and collection system uses, as a basis for billing charges, a physical card with a unique account number assigned to each individual cardholder that, unlike a telephone number, is not widely available to the public. ... In addition, there are a number of statutory protections for consumers using bankcards and other credit cards. ... These protections greatly enhance the safety and reliability of the bankcard billing and collection system, and foster consumer confidence in using it."

Harrington explained that the Commission employs a threefold approach to consumer abuses like cramming. First, the Commission collects and analyses consumer complaint data. Second, the agency identifies appropriate targets for law enforcement action, and files federal district court actions across the country to obtain temporary restraining orders, preliminary injunctions, permanent injunctions and other equitable relief, such as asset freezes and appointment of receivers, to halt the targeted unfair or deceptive practices and to preserve assets for consumer redress. Finally, these law enforcement efforts are complemented by consumer education. In all aspects of this strategy, but particularly in the Commission's consumer and business education efforts, the Commission has sought to form new partnerships with private industry and other government agencies.

Last week, for example, the FTC announced two more enforcement actions against companies it alleges used deceptive practices to bill consumers and the testimony states that the staff of the Commission currently is investigating a number of other billing aggregators and service vendors.

Harrington concluded by highlighting the Commission's efforts to educate consumers and in particular mentioned that the Commission's staff rapidly developed a brochure for consumers entitled, "Cramming: Mystery Phone Charges," in early 1998 after receiving an influx of complaints about cramming. This brochure is part of a larger effort by the Commission to work both on its own and as a partner with private industry and others to educate consumers on emerging issues in the rapidly changing telecommunications market.

The Commission vote to approve the testimony was 4-0.

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, DC 20580. Or visit us at http://www.ftc.gov on the Internet.

Copies of the full text of the testimony, press releases about the FTC's enforcement actions against crammers, and consumer education material about cramming 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.

Eileen Harrington, Associate Director Marketing Practices
Bureau of Consumer Protection

(FTC File No. P984409)

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