Telephone "cramming," the placement of unauthorized miscellaneous charges on consumers' telephone bills, has skyrocketed to first place among the more than fifty categories of telemarketing scams reported to the National Fraud Information Center, a hotline operated by the National Consumers League. As the oldest nonprofit consumer organization in the United States, NCL is alarmed by this latest and most outrageous abuse of the telephone billing system. We appreciate the opportunity to share with the Senate Permanent Subcommittee on Investigations information about how cramming works and suggestions for how to stop it.
NCL's Role in Fighting Telephone-Related Fraud and Abuse
NCL is in the forefront of assisting consumers and law enforcement agencies in the fight against telephone-related fraud and abuse. In 1992 we created the National Fraud Information Center, a unique hotline service at 1-800-876-7060 through which consumers can get advice about telemarketing solicitations and report suspected fraud. We relay consumers' fraud reports to the Federal Trade Commission and more than 160 other law enforcement agencies at the federal, state and local levels. This alerts them to scams they may wish to investigate and gives them the documentation they need to shut down fraudulent operations. In 1996, we expanded our antifraud efforts into cyberspace with the launch of the Internet Fraud Watch. Now consumers can get advice about both telemarketing and Internet solicitations and report fraudulent promotions through our toll-free hotline or our web site, www.fraud.org.
These services are free of charge and supported by the members of the National Consumers League and contributions from corporations and trade associations that are concerned about consumer fraud and fairness in the marketplace. We also work in partnership with the private sector, government agencies and other nonprofit groups through the Alliance Against Fraud in Telemarketing, a coalition coordinated by NCL to promote public awareness about telemarketing and Internet fraud.
Abuses of the Telephone Billing System
Among the many types of telemarketing fraud that consumers report to our NFIC hotline, there are several categories that relate to the telephone billing system: pay-per-call scams involving undisclosed charges or misrepresented services provided through 900 or 800 numbers; slamming, where consumers' telephone carriers are switched without their knowledge or consent; prepaid phone cards that do not work or do not provide consumers with the calling time they paid for. In late October of 1997, we added the category of cramming to our NFIC database because we were receiving reports from consumers about mysterious charges that were appearing on their phone bills from companies they'd never heard of for voice mail, personal 800 numbers, paging, memberships, and other services that they never asked for.
Actually, cramming was not new, although the term was only recently coined by a reporter from the Chicago Sun-Times. We first began to see what we now call cramming a few years ago in connection with some consumers' complaints about 900 numbers. In those cases, not only did they have disputes about the charges for the 900 number calls or the services provided through them, but they also noticed that after having made those calls recurring charges were popping up on their monthly phone bills for things like voice mail or club memberships. Those complaints were all recorded in our pay-per-call category. However, over time it became clear that cramming can happen in many different ways and that it needed to be categorized and tracked separately.
The common thread that runs through pay-per-call scams, slamming and cramming is that the telephone billing systems are being used, and abused, as a means of fraudulently obtaining money from consumers. In fact, in the first six months of 1998, 47 percent of all of the payments consumers reported making in fraudulent telemarketing transactions were through their telephone bills. And of all these scams, cramming is the worse because it is truly a phantom charge -- consumers are being billed for services they not only did not request but in most cases never even received.
Cramming Reports to the NFIC
Between the end of October and the end of December, 1997 the NFIC received nearly 200 reports of cramming, an average of about 100 per month. Over the next six months, from January through June of 1998, 2,071 cramming reports were made to the NFIC. That is an average of 350 per month. Cramming is now the top telemarketing fraud reported to our hotline, beating advance fee loan scams, at number 2, and slamming, at number 3, by a margin of about two-to-one. However, we know that this is just the tip of the iceberg. Obviously, not all consumers complain to us, nor could our small staff handle the volume if they did. The numbers also do not reflect consumers who call our hotline for general advice or who have a cramming problem but do not have the details, such as the company name or address, necessary for us to take a report.
The charges that appear on consumers' phone bills are relatively small, in the range of $5 to $40. But since most of these charges are recurring on a monthly basis, and in light of the fact that consumers often don't notice them right away, they can add up to significant amounts. We have received cramming complaints about accrued charges totaling more than $2,000. In the cramming incidents reported to the NFIC during the first six months of 1998, the average amount in dispute was $42.
We have heard from consumers in nearly every state about crammers in nearly every state. We have provided the committee with a map representing cramming complaints in the first six months of 1998 to illustrate the fact that this problem touches constituents in every jurisdiction. Furthermore, crammers target both residential and small business telephone customers. No one who has a telephone is immune from this type of fraud.
How Cramming Happens
We believe that cramming is more prevalent than slamming because it is easier to do. Consider the fact that in slamming, the fraudulent company makes its profit from the charges for the calls, usually long-distance calls, that the consumers make. To accomplish this, the fraudulent company must actually be able to provide the telephone service. Usually, the company buys long-distance service in bulk from a major carrier at wholesale cost and then resells that service to consumers. The problems arise when the consumers have not agreed to switch their service to the company and the charges for the calls are far more than their original carriers would have made.
Cramming is phantom phone billing because the fraudulent company makes its profit from what are usually flat monthly fees for miscellaneous services that it may never even have provided. It is not necessary for a company to have the facilities or arrange with others to provide voice mail, paging, personal 800 numbers or other services in order to arrange to bill consumers for those services. Cramming is pure profit through fraud and deception.
It is also not necessary for the crammer to have had any contact at all with the consumer who is being billed for the charges. Directly or through a bill clearinghouse acting on its behalf, the company simply represents to the local telephone carrier with whom a billing contract has been made that the customer at a particular number has agreed to purchase the service. Therefore, it is not surprising that in many of the cramming reports we receive, consumers have absolutely no idea how these charges got on their bills. Their numbers could have been harvested in many different ways.
When consumers think they know how it might have happened, the most common method reported to the NFIC is through contact with a 900 or 800 number pay-per-call service. In many instances, these are psychic hotline that consumers have called because they advertised free readings. In some cases, consumers became victims of cramming without even getting the readings. For example, one Massachusetts woman called an 800 number psychic service and left her name on its answering service. She never talked to a psychic, but monthly charges of $27 began to appear on her phone bill for voice mail she never authorized.
Another consumer found a message on her answering machine from a psychic line soliciting her business. She never called back but she, too, began to find charges on her phone bill for services she did not request. An Indiana woman got a phone call from a psychic service advising that she was about to receive a lot of money. She was asked to verify her phone number, which she did, and then was charged on her telephone bill for a club membership she never agreed to.
The second most frequent method of cramming reported to the NFIC is by filling out a contest entry form at a fair, a mall, a store or some other location. One woman's young son filled out a contest entry form that resulted in monthly fees on her phone bill for a personal 800 number. When a Maryland man questioned a monthly fee on his phone bill, he was told by the company that he must have filled out a sweepstakes form and that the charge on his bill was the entry fee. If the consumers remember filling out an entry form, they certainly do not remember seeing anything indicating that they were agreeing to pay for something. It may have been buried in the fine print, or there may have been no disclosure at all.
Cramming can occur in many other ways. Here are some examples:
In one of the most creative cramming cases reported to the NFIC, a man called a company in response to its television advertising for coupons that would entitle pet owners to discounts on veterinarian services, grooming products, dog food, etc. He agreed to pay $20 for the coupons. However, when he attempted to use them, he found that they were not accepted by the vendors. Even worse, he found that he was being charged $10 per month on his telephone bill for a pet club membership. When he called the company to dispute the charges, he was told that there was a recording of his agreeing to the services. But all he ever agreed to was to pay for the coupons, and they turned out to be worthless!
It's Not Easy to Spot Phantom Charges
One of the biggest problems with cramming is the fact that it is so sneaky. People's phone bills are confusing enough as it is -- there are lots of different charges for long-distance access, state and federal taxes, support for getting schools wired to the Internet, local calling service, toll service, and a variety of optional services such as Caller ID. It is easy to bury phantom charges for unauthorized miscellaneous in consumers' phone bills, especially if they are not clearly described.
We have provided the subcommittee with samples of some bills to show you how the charges may appear. They include vague descriptions such as:
Even when they are more descriptive, such as "voice mail," "calling card" or "paging," consumers may not notice the charges right away. In our busy lives, many of us simply look at the bottom line on the first page bill summary and make out our checks for the total due. Consumers need to scrutinize each page of their phone bill every month to ferret out unauthorized charges, whether they are for miscellaneous services or for toll calls, collect calls, 900 number calls or other services.
The Nightmare of Disputing Cramming Charges
Once consumers discover they've been crammed, their problems are only beginning. Following the directions on the bill, they call the number provided on that page for questions. This connects them to either the crammer or a billing aggregator acting on its behalf. However, many consumers report being left on hold for inordinate amounts of time, getting incessant busy signals, or reaching only a recorded answering service.
If they do manage to connect to a live customer service representative, they are often lied to, abused or referred to someone else. They are told that they authorized the service when they did not, and presented with documentation that is fabricated, such forged signatures or doctored tape recordings. Sometimes their requests for documentation are simply refused. In one case, a man who disputed paging charges was told he'd have to return the pager before a credit would be processed. However, he never received a pager, so he had nothing to return. Consumers report that they are threatened that their phone service will be cut off and their credit will be ruined if they refuse to pay the disputed charges. Sometimes they are sent from one company to another, all affiliated in some way with the crammer and each denying responsibility.
If the company agrees to credit the consumer's account, it may be for only some and not all of the charges that have accrued. Or the company may promise a credit and never make it. And if the charge is removed one month, it may pop up again on the next month's bill, requiring the consumer to go through the dispute process all over again.
In desperation, consumers often contact their local telephone carriers, who are performing the billing services. Until recently, they have not always been as helpful as they should be. They have often insisted that customers speak to the crammers, even when consumers have found it impossible to do so. And because their relationship may be with billing aggregators who represent multiple service providers, the local telephone carriers may not even know the names of the companies for whom they are billing or how to reach them. This lack of information makes it difficult for consumers to find out who their complaints are against and for law enforcement agencies to investigate. It also makes it difficult for the local telephone carriers to take action against companies that are abusing their billing systems.
Now the major local telephone carriers are working individually and collectively to respond to the cramming crisis. Some are instituting policies of removing disputed miscellaneous charges from consumers' bills even if they have not contacted the crammers first. They are changing their billing agreements to provide for termination if problems rise to specified levels. These and other voluntary measures are helpful, but more needs to be done.
Suggestions for Stemming the Cramming Crisis
Our fraud center counselors tell us that consumers who report cramming are more incensed than those who contact us about any other type of telemarketing fraud. That is because they are innocent victims of a scam in which their telephone accounts have been invaded by forces beyond their control. They feel violated and do not understand how anyone can arrange to bill them for services they never agreed to purchase. Consumers want to get back control over their telephones. We offer the following ten ways that this can be accomplished:
The free and competitive marketplace only functions properly if consumers are able to make informed choices about the products and services they wish to purchase. While technological advances and increased competition has led to more choices for consumers, we need to ensure that it is they who are actually making those choices, not phantoms who are billing them for products or services they never requested.
We look forward to working with this committee, the Congress, and members of the industry to stop this egregious abuse of the telephone billing system and preserve the integrity of the telecommunications marketplace.
Respectfully submitted by:
Susan Grant, Vice President for Public Policy
Director, National Fraud Information Center
National Consumers League
1701 K Street NW, Suite 1200
Washington, DC 20006
(202) 835-3323 fax (202) 835-0747
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