FTC Charges "Cramming" Violated Federal Laws
In a deal that would provide more than $39 million in redress for U.S. consumers, American TelNet (ATN), one of the largest providers of "audiotext" services -- audio entertainment services offered over the telephone -- has agreed to settle Federal Trade Commission charges that ATN tried to collect charges for 900-number audiotext services from thousands of consumers, even though the services had not been accessed from the consumers' phones. The settlement also would resolve FTC allegations that ATN denied tens of thousands of consumers their rights under federal law to contest charges for ATN's 900-number audiotext services on the consumers' phone bills. In addition, the FTC alleged that ATN violated the FTC's Pay-Per-Call Rule by charging consumers for audiotext services provided through 800 or other toll-free numbers, by charging consumers for "preamble" disclosures required by law to be provided free at the beginning of a 900-number program, and by failing to adequately disclose price information in advertising 900-number services. The settlement would bar the illegal practices, require that $37.4 million in unpaid disputed charges be written off and would require $2 million in redress for consumers who disputed charges, but ultimately paid them.
"Consumers are frustrated when phantom charges for services they didn't authorize appear on their phone bills," said Jodie Bernstein, Director of the FTC's Bureau of Consumer Protection. "The FTC takes cramming seriously and we will, as we have here, take swift action to stop it."
This is FTC's fifth case since March 1998 involving "cramming" -- placing unauthorized charges on consumers' telephone bills -- and related abuses of the telephone billing system. It is the first such case involving unauthorized charges that apparently resulted from crossed wires or fraudulent action by third parties either clipping on to telephone lines outside consumers' homes or hacking into telephone system computers. One FTC cramming case, against Interactive Audiotext Services, Inc., resulted in $13 million in consumer redress, and the three other cramming cases filed to date are still in litigation.
The action announced today marks the second FTC settlement with American TelNet.
In December 1994, ATN paid $2.5 million as part of a settlement of FTC charges that they illegally charged consumers for audiotext services accessed by dialing 800 or other toll free numbers, and failed to adequately disclose price information in solicitation messages urging 800- number callers to call audiotext services offered over international or 900-numbers.
In the complaint detailing the charges, the FTC alleges that ATN uses automatic number identification ("ANI"), a system similar to "caller ID," to capture the phone numbers from which calls to its audiotext services are placed. The ANI system enables ATN to submit billing data in electronic format to consumers' local telephone companies, which then include ATN's charges on the bills they send to customers. The ANI system is vulnerable to both unintentional technical interference - such as crossed telephone wires - and fraudulent interference - such as "clip-on" fraud or theft of telephone signals from cordless phones. Therefore, the system is not an infallible system for determining whether an audiotext service was accessed from a given telephone.
The complaint alleges that when consumers called ATN to notify the company that they had been improperly billed, ATN assured them they would investigate the matter and respond within 7 to 10 days. Instead, ATN immediately generated a form letter saying the bill was accurate and should be paid. In fact, the FTC alleged, ATN did not, at any point in its billing and collection procedure, conduct a reasonable investigation into the validity of the charges. Some consumer complaints were met with a notice stating, "ATN has conducted a thorough investigation of this matter and has sustained these charges. As a subscriber of the telephone line, you are responsible for the calls made from your phone." When consumers provided information that the call could not have been made from their telephones, ATN neither conducted an investigation nor corrected the bill. Instead, the FTC alleged, ATN threatened and harassed consumers who refused to pay disputed bills, claiming they would ruin their credit rating, sue them, or garnish their wages.
"ATN receives tens of thousands of complaints from consumers every year as a result of its deceptive and sloppy marketing and billing practices," the complaint states. "The negative impact on consumers is exacerbated by ATN's deceptive and aggressive collection practices."
In addition to its billing practices, the FTC alleges deceptive practices in billing for international audiotext services. In one case, a pre-recorded message assured consumers that "only international long distance rates apply." In fact, by connecting to the number, consumers were billed in excess of $4.00 a minute for ATN's audiotext services. The FTC complaint also alleges that ATN provided direct billing for audiotext services using a system that allowed bills to be sent to consumers who hadn't ordered and didn't use the service. ATN also overcharged subscribers by charging for the "preamble" that is required to disclose price and other material information at the beginning of 900-number programs. The FTC's 900-Number Rule requires that the "preamble" be provided free of charge. Finally, the FTC complaint alleges that price disclosure in advertisements for 900-number services violated the requirements of the 900-Number Rule.
The proposed settlement would bar the alleged deceptive practices and violations of the 900-Number Rule. In addition, it would require that ATN suspend billing during the investigation of disputed charges; establish a simple means for consumers to rebut the presumption that the ANI system has correctly tracked charges for an audiotext service to them; and provide consumers who dispute the accuracy of a bill a one-time credit. In addition, ATN would be required to write off $37.4 million in disputed charges owed by consumers who have refused to pay and will provide $2 million in redress for consumers who disputed charges, but who ultimately paid them.
The settlement contains record-keeping provisions to allow the FTC to monitor compliance.
The Commission vote to approve the settlement for filing was 4-0. The proposed stipulated final judgment and order was submitted today to the Honorable James Lawrence King, U. S. District Court Judge for the Southern District of Florida, in Miami. It is subject to court approval.
NOTE: This stipulated final judgment is for settlement purposes only and does not constitute an admission by the defendant of a law violation. Consent judgments have the force of law when signed by the judge.
Copies of the complaint and stipulated final judgment are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 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.
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