FTC Testifies for Second Time about Phony Phone Charges
In the past 12 months, the Federal Trade Commission has received 9,000 complaints from consumers about telephone bill cramming -- the practice of causing unauthorized charges for a variety of goods or services to appear on consumers' telephone bills -- the Commission noted in Congressional testimony delivered today.
Eileen Harrington, the FTC's Associate Director of Marketing Practices, speaking on behalf of the Commission, told members of the House Commerce Subcommittee that the agency is committed to combating this emerging consumer protection problem.
"Cramming brings into the 1990's an age-old abusive practice: charging consumers without their authorization for services they have not purchased. It is novel only in that it uses a previously unavailable means to effect unauthorized billing -- namely, the telephone billing and collection system," Harrington said.
This is the second time the Commission has appeared before Congress to discuss how the agency is using its authority to fight cramming and its efforts to educate consumers.
As in its previous testimony in July, the Commission today highlighted the fact that "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 LEC [Local Exchange Carrier] billing and collection system is causing consumer harm. ... 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 testimony notes that the Commission's first enforcement action against crammers was announced in April when it filed suit against Interactive Audiotext Services, Inc. In July, the Commission announced two additional law enforcement actions -- one against International Telemedia Associates, Inc. and another against Hold Billing Services, Ltd. All of these actions targeted "billing aggregators" who open the gate to the telephone billing and collection system for vendors, some of whom use this system for fraudulent purposes.
"Unfortunately, the pattern of alleged unlawful conduct in these cases is by no means unique. The staff of the Commission currently is investigating a number of other billing aggregators and service vendors ... these billing aggregators provide an access point to the telephone billing and collection system for vendors of a multiplicity of services. 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 electronically through ANI [Automatic Number Identification], and then, using a billing aggregator's services, bill recurring monthly charges to consumers' phone bills for 'travel club' or 'psychic club' memberships. Often the charges are disguised as some other telephone service," Harrington stated.
The testimony explains that the Commission's Consumer Response Center enables it to use consumer complaints to help identify appropriate targets for the enforcement actions it files in federal District Court. The Commission also focuses on consumer and business education as a way to combat fraud. For example, the agency's staff developed a consumer education brochure, "Cramming: Mystery Phone Charges," in early 1998 after receiving a substantial number of complaints about cramming.
In its conclusion the testimony states, "... the Commission recognizes that the practice of cramming is causing significant harm to American consumers. The Commission has used and will continue to use the full range of investigative techniques, targeted law enforcement actions, and consumer education to attack this growing problem."
The Commission vote to approve the testimony was 4-0.
Copies of the full text of the testimony, consumer education material and other information about the agency's effort to combat 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.
(FTC File No. P984409)
Office of Public Affairs
Bureau of Consumer Protection