Defendants Allegedly Billed Small Businesses for Free Service, Even When They Refused the Offer
The FTC has charged a purported Web cramming operation with billing small business consumers for “free” Internet services, without full disclosure of the negative option features and without consumers’ authorization, and even when some consumers said that they were not interested in the offer. The FTC alleges that Epixtar Corporation and its subsidiaries violated federal law by deceptively marketing a free trial of Internet services and then, unbeknownst to consumers, unfairly billing consumers’ telephone accounts without their express informed consent. In filing its complaint, the FTC is seeking permanent injunctive relief, as well as consumer redress, including rescission of contracts, refunds, and disgorgement of ill-gotten gains. At the FTC’s request, the United States District Court for the Southern District of New York entered a temporary restraining order on October 29, 2003, which prohibits the defendants from making further misrepresentations and freezes their assets.
The FTC’s complaint names Epixtar Corp.; Liberty Online Services, Inc.; National Online Services, Inc.; B2B Advantage, Inc., formerly known as SBA Online; and William Douglas Rhodes, President of Epixtar, Liberty, National, and SBA Online. All of the defendants are based in Miami, Florida. The FTC alleges that, since December 2001, the defendants have used telemarketing to market Internet services, including Internet access, Web site design, and other services, to small businesses and non-profit organizations – such as churches or community service organizations – nationwide.
The FTC’s complaint states that defendants typically claim that they are calling from an actual business telephone directory and that they are simply calling to update the consumer’s business information, leading consumers to believe they have a pre-existing relationship with the defendants. According to the FTC’s complaint, defendants claim in their sales pitch that consumers can try SBA Online’s services on a free trial basis for 30 days, with no obligation to pay for the service, and tell consumers that they can cancel the free services at any time. The defendants also allegedly impose the 30-day trial of their products on consumers without letting consumers refuse the offer.
The FTC alleges that the defendants violated the FTC Act by failing to disclose adequately: that consumers must cancel SBA Online’s Internet services before the end of the free trial period or their business will automatically be billed $29.95 plus tax on a monthly basis on their telephone bill; the prescribed manner in which the consumer must cancel the trial service, and other specific steps the consumer must take to avoid the charges; the inception and expiration dates of the trial service; and the date that the defendants will submit the charges for payment.
The FTC also charges that SBA Online unfairly billed consumers without their express informed consent in violation of the FTC Act. The FTC’s complaint alleges that defendants charged some consumers who stated they were not interested in the service and ended the sales call. In other instances, the defendants allegedly asked consumers to review a packet of written information and then contact them if they were interested in the offer. When consumers agreed simply to review the information without being billed, the defendants allegedly never sent it, but began billing consumers.
The FTC alleges that some consumers pay SBA Online’s fee for months without realizing it, and that they often experience great difficulty in contacting the defendants to cancel the services and obtain a refund. The FTC’s complaint states that, in numerous instances, the defendants agree to cancel the services but refuse to refund consumers’ money, and in other instances, the defendants agree only to make partial refunds to consumers.
To help small business consumers more fully understand offers of Internet and other services and how to avoid potential fraud, the FTC has developed a consumer alert entitled “Website Woes” that is available on the Commission’s Web site as a link to this press release. The FTC warns small businesses that some unscrupulous companies, claiming to provide free web design and hosting services, are billing small businesses for services that were never authorized and have little value. The bogus charges usually appear on businesses' phone bills – an illegal practice known as “cramming” – or on fraudulent invoices.
The FTC offers some suggestions to help protect small businesses from Web service scams and other unordered services:
- Know your rights. If you receive bills for services you did not order, do not pay. The law allows you to treat unordered services as a gift.
- Review your phone bills as soon as they arrive. Be on the lookout for charges for services you have not ordered or authorized. If you find an error on your bill, follow the instructions on your statement. Assign purchasing to designated staff and document all your purchases.
- Train your staff in how to respond to telemarketers. Advise employees who are not authorized to order services to say, “I am not authorized to place orders. If you want to offer or sell us something, you must speak to ______________.”
- Buy from people you know and trust. Authorized employees should be skeptical of “cold” or unsolicited calls and feel comfortable saying “no” to high pressure sales tactics.
The Commission vote authorizing the staff to file the complaint was 5-0. The complaint was filed under seal in the U.S. District Court for the Southern District of New York on October 28, 2003. The Court granted the Commission’s request for a temporary restraining order on October 29, 2003. The FTC received assistance in its investigation from the U.S. Small Business Administration, the Better Business Bureau Serving Southeast Florida, the Florida and Missouri Offices of Attorney General, and Verizon and SBC.
NOTE: The Commission files a complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the defendant has actually violated the law. The case will be decided by the court.
Copies of the FTC’s complaint 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, DC 20580. The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint, or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the complaint form at http://www.ftc.gov. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.
Civil Action No. 03-CV-8511
FTC File No. 032-3124
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Barbara Anthony, Carole A. Paynter, or Ronald L. Waldman