THE TELECOMMUNICATIONS INDUSTRY HAS OVERtaken the sweepstakes industry for the dubious title as The Most Complained About Industry.
From January through June of this year, the National Fraud Information Center received 2,071 cramming reports, plus hundreds more calls from consumers with a cramming problem but not enough details for the NFIC to file a formal report. The Federal Trade Commission defines cramming as unexplained charges on a consumer's telephone bill for services never ordered, authorized, received or used.
"Cramming wasn't even among the 1997 top frauds," according to NFIC Director Susan Grant. "[N]ow it's outnumbered the second most-reported scam, slamming, two-to-one." (Slamming occurs when customers have their long-distance provider switched without their authorization or knowledge.)
According to Eileen Harrington, the associate director for marketing practices in the FTC's Bureau of Consumer Protection, "The advent of pay-per-call [technology] marked the beginning of the use of the telephone billing and collection system as a means for consumers to pay for products or services other than telephone transmissions."
While abuses in that area eventually led to the Telephone Disclosure and Dispute Resolution Act of 1992 (15 U.S.C. sec. 5701 et seq., and 47 U.S.C. sec. 228), it remains to be seen whether legislation or industry self-policing will help solve the cramming problem. Both the Federal communications Commission and the Federal Trade Commission appear receptive to a move in Congress to give them more authority to act, but local exchange carriers oppose specific federal regulations or legislation.
The Scope of Fraud
NFIC's Grant, who is also vice president of public policy for the National Consumers League, appeared as the lead witness at the first Capitol Hill hearing on cramming, convened in July by Sen. Susan Collins (R-Maine), chairwoman of the Senate's Permanent Subcommittee on Investigations. In her testimony, Grant recounted some cramming incidents reported to the NFIC:
Caller asks customer to verify address or phone number. Charges then appear on customer's phone bill. The explanation? By verifying, the customer "authorized" the new charges.
Telemarketer invites consumer to join a travel club. Consumer asks for written information, which is never sent, but charges are added to the phone bill.
Consumer fills out sweepstakes entry form, is then billed for club memberships, telecommunications services, etc. (The FTC filed suit in July against Hold Billing Services Ltd., and one of its client, Veterans of America Association, for this practice.)
Cramming, as Sen. Collins stressed at the hearing, is "not a small inconvenience, but a growing consumer fraud."
Statistics back up that statement. Besides the 2,000-plus written reports prepared by the NFIC in the first six months of 1998, Lawrence E. Strickling, deputy chief of the FCC's Common Carrier Bureau, told the subcommittee that the commission receives 300 written complaints and 2,000 inquiries on its hotline per month. At the state level, the Michigan Public Service Commission reportedly receives up to 20 complaints about cramming per day. The Texas Public Utility Commission has received more than 3,100 cramming complaints since Sept. 1, 1997.
Individuals aren't the only victims. The FTC's Harrington, another witness at the investigations subcommittee, noted that businesses, school districts, law firms and dedicated fax lines have been targeted, as well.
Legislation: Too Heavy-Handed?
The subcommittee's earlier hearings on slamming paved the way for anti-slamming legislation that Collins and her subcommittee colleague, Sen. Dick Durbin (D-Ill.) introduced, and which the Senate passed in May. The two senators apparently have the same goal in mind with cramming.
"To stop cramming," Collins declared, we need a combination of tough enforcement by the regulators, industry self-discipline, and meaningful consumer protection." Durbin suggested that phone bills need to be redesigned to be more customer-friendly, and referred to the need to "be vigilant to protect" consumers in this "Wild West atmosphere." Another subcommittee member, Sen. Thad Cochran (R-Miss.), also is convinced that action is needed. "If there's not a law against it, there ought to be," he said.
The FCC, Strickling testified, would like Congress to "extend the jurisdiction of the FCC to reach the practices of the billing clearinghouses and service providers when unauthorized charges appear on consumers' telephone bills. At the same time, he says, Congress should clarify that the FTC has jurisdiction to ensure fair advertising and marketing practices, whether or not the entity responsible for cramming is a common carrier." Although this might result in some jurisdictional overlapping, Strickling said, that would be preferable to allowing "the bad actors to delay or avoid prosecution by taking advantage of potential gaps in jurisdiction."
Eileen Harrington of the FTC stressed that the commission is using what law-enforcement authority it already has to deal with cramming or other fraudulent companies, but she agreed that clarification of jurisdictional boundaries would be helpful.
There is some industry resistance to federal regulation in this area.
Roy Neel, president of the United States Telephone Association, told the subcommittee that while USTA welcomes "aggressive oversight" from Congress, local exchange carriers oppose specific federal regulations or legislation to deal with the problem. Such a move would only provide "a snapshot, or a freeze frame" of where the problem is today and today's solutions may not fit where the industry - or the problem - is in one or two years, he said. Instead, Neel prefers giving the industry time to implement the voluntary industry "best practices" guidelines, which were compiled at the behest of the FCC and unveiled the day prior to the subcommittee hearing (see box).
This "self-policing effort," Neel believes, "is a critical step toward purging telephone bills of this scourge." Although local exchange carriers are not accused of cramming, the local telephone industry still has an "intense interest in fixing this problem," Neel stressed. Any money an LEC may make from allowing a third-party service provider to add charges to its bill are "more than offset by the lack of trust and goodwill of its consumers," he added.
The Alternative: Screening by Telcos?
Some LECs didn't wait for industry-compiled guidelines to act against crammers.
Since January 1997, U S WEST Communications has reviewed every product - and the provider's marketing materials - before allowing a service to be added to its local phone bills to ensure that the products are appropriate and telecommunications-related. (The carrier does not allow pornographic and psychic lines.) In spite of this aggressive action, some services still slip through. Last year, U S WEST stopped billing for two services after customer complaints indicated possible cramming. As of April of this year, Cindy Humphrey, director of billing services for U S WEST, said that the company had canceled billing for 14 services. When asked whether it reported that action to the FTC or the FCC, a representative told the Fortnightly, "No. We're not a cop or a regulator. We're not interested in determining intent [or] who's at fault. Our job is to protect our customers."
GTE Network Services' Wholesale Markets announced in May that it was "severing" billing relations with three companies whose complaint levels were unacceptable and was initiating financial penalties against 11 additional companies. In addition, after Jan. 1, 1999, GTE will no longer allow non-telecommunications or information-related charges to be added to bills, and will also begin requiring independent third-party verification of any new service other than long-distance services that goes on a GTE local bill.
Bell Atlantic has served formal notice on at least seven billing aggregators that it will no longer bill for their services unless they cure problems caused by at least 35 telecommunications providers who are generating cramming complaints from customers. In May, Bell Atlantic declared a moratorium on the billing of any new services not previously approved until it can be assured that cramming is under control. In July, the LEC announced that "in several months" its customers will be able to limit whose charges are carried on their local telephone bill.
LECs aren't the only ones taking action against crammers. Neel reminded the subcommittee that many state utility commissions have rules that don't allow cutting off service during billing disputes, so if a charge seems suspicious, consumers need to realize that they won't be penalized if they don't pay for it. In Texas, as of May 31, customers had received refunds for cramming charges totaling $8,991.
Illinois Gov. Jim Edgar signed legislation on July 1 giving consumers additional protection against cramming and slamming. The law bans sweepstakes boxes of the type identified above for marketing long-distance and enhanced phone services. It also requires notification of new services to consumers in writing, giving the customer the opportunity to cancel, or independent, third-party verification of the consumers
consent via telephone.
Lori M. Rodgers is a contributing editor to Public Utilities Fortnightly.
Voluntary "Best Practices" for Local Telcos*
Make bills comprehensible and complete. Include information the consumer may need to understand or dispute charges.
Give options to consumers to control whether third-party's products and services are charged on their phone bills.
Verify any consumer authorization of services.
Screen products, services and service providers prior to approval for inclusion on the telephone bill.
Require clearinghouses to ensure that consumers are billed only for charges they authorize.
Educate consumers on their rights and the process of dispute resolution.
Assist law enforcement, regulators and other local exchange carriers.
* Source: National Consumers League, based on data through May 1998 announced by the United States Telephone Association, July 22, 1998
Top 10 States
Cramming on Home Phone Bills*
1. New York
4. New Jersey
8. Rhode Island
10. West Virginia
* Source: National Consumers League, based on data through May 1998
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