FTC Comment Before the Federal Communications Commission Concerning Placement of Unauthorized Charges on Telephone Bills, Otherwise Known as "Cramming," CG Docket Nos. 11-116, 09-158, and 98-170

Before the
Federal Communications Commission
Washington, D.C. 20554
In the Matter of
Consumer Information and Disclosure
)
)
)
)
)
)
)
)
)
CO Docket No. 11-116	Empowering Consumers to Prevent and
Detect Biling for Unauthorized Charges
("Craming")
CO Docket No. 09-158
Truth-in-Biling and Billing Format CC Docket No. 98-170
COMMENT OF THE
FEDERA TRADE COMMISSION
I. Introduction
The Federal Trade Commission ("FTC") is an independent administrative agency
charged with promoting consumer protection, competition, and the efficient fuctioning of the
marketplace. The keystone of the FTC's law enforcement mission is Section 5 of the FTC Act,
which prohibits "unair or deceptive acts or practices in or affecting commerce." The scope of
Section 5 encompasses a wide range of business practicesf including advertising, marketing,
biling, and collection. Section 5 also authorizes the FTC to challenge "unair methods of
competition" as well as violations of other antitrst laws.
For more than fifteen years, the FTC has engaged in a sustained campaign to attack and
prevent the placement of unauthorized charges on telephone bils, a practice known as
"cramming." Working with federal and state law enforcement parners, the FTC has brought
more than 25 enforcement actions to halt craming and provide redress to its victims, conducted
consumer and business education and outreach programs to raise awareness of the problem, and
worked with the telecommunications industry to prevent and detect craming. The FTC's
enforcement cases, brought against cramers and the biling aggregators that facilitated the
placement of unauthorized charges on consumers' bils, have resulted in stringent cour orders
and obtained tens of milions of dollars in consumer redress and refuded charges.
The FTC appreciates this opportunty to comment on the Federal Communications
Commission's ("FCC") Notice of Proposed Rulemaking ("NPRM") concerning craming,
1 and
commends the FCC for its ongoing efforts to reduce craming. The FCC's proposed rules
attempt to limit craming, in part, through improved telephone biling statement disclosures, an
approach advocated by the FTC in its 2009 Comment filed in response to the FCC's Notice of
i Empowering Consumers To Prevent and Detect Biling for Unauthorized Charges ("Cramming"); Consumer
Information and Disclosure; Truth-in-Biling and Biling Format, 76 FR 52625 (Aug. 23,2011).

Inquiry. However, since fiing its 2009 Comment, a comprehensive investigation and
subsequent report by the Senate Committee on Commerce, Science, and Transportation ("Senate
Staff Report"),2 a public workshop on craming held by the FTC on May 11, 2011 ("Craming
Foru"),3 and additional law enforcement experience 4 have made it clear to the Commission that
even improved telephone bill disclosures are unlikely to prevent the millons of dollars of
consumer injur caused by craming.5 To effectively tackle the craming problem - which
causes har to an estimated 15-20 milion American households each year6 - the FTC therefore
respectfully urges the FCC to ban or require default blocking of some or all thrd-pary biling. 7
2 Staff Report, Senate Committee on Commerce, Science, and Transportation, Unauthorized Charges on Telephone
Bils (July 12,2011) available at
htt://commerce.senate. gov/pub lic/index.cfm ?p=Reports&ContentRecord id=ea1 01 f2 8 -4df5-4a3 f-a63c-
Oeca043789be&ContentType id=6a6fef64- 34 fl-434 8-b965-ec03 a 1 dcadfe&Group id=a89bOb93 -3 242-4d2a-82da-
5e916a62b6a9.
3 The FTC convened the Cramming Foru to identify creative solutions to the craming problem. The FTC also
solicited written comments from the public to supplement the Craming Foru discussion. A transcript ofthe
proceedings ("Cramming Foru Transcript") and access to the comments are available at
htt://www.ftc. gov/bcp/workshops/cramming.
4 There have been numerous federal and state cramming enforcement actions since the FTC's 2009 comment. See,
e.g., FTC v. Inc2l.com, 688 F. Supp. 2d 927 and 745 F. Supp. 2d 975 (N.D. CaL. 2010); Main Street Tel. Co., Notice
of Apparent Liability for Forfeitue, FCC 11-89,1(16 (reI. June 16,2011); In the Matter ofCheap2Dial Telephone,
LLC, FCC 11-90, 1(18 (reI. June 16, 2011); State of Kansas ex reI. v. Email Discount Network, LLC, 10C582 (Kan.
3rd District Cour, Shawnee County 2010); State of Kansas ex reI. v. Voicemail Direct USA, LLC, LOC581 (Kan. 3rd
District Cour, Shawnee County 2010); State of Nevada, Offce of the Attorney General, ex reI. v. The Payment
People, Inc., 09C4311O (Nev. 1st Judicial District 2009).
5 The provisions of
the FCC's proposed rules discussed in this Comment - those concerning disclosure ofthe option
to block third-par charges and the listing of third-par charges in separate sections - apply solely to landline bils.
However, the FCC also requests comment on whether the proposed rules should extend to mobile phone bils.
While the FTC has not examined the application ofthe FCC's proposed rules in the mobile phone context, the
Commission, as a general matter, supports efforts to provide clear disclosures to consumers. That said, with respect
to craming, the FTC's law enforcement experience lies predominantly in the area oflandline bils, which are the
subject of the majority of consumer cramming complaints the FTC receives. Additionally, the technologies inerent
to the mobile platform and other considerations may require a different analysis than that applied to landline third-
par biling. AccordiIgly, the FTC limits its Comment to landline cramming. As consumers' uses of mobile
telephones, and in paricular mobile payments, grows, the FTC and FCC should vigilantly monitor cramming
complaints, scrutinize industr anti-craming measures, and work with state law enforcement to determine whether
fuher action is required. Such monitoring of mobile cramming complaints would be enhanced by the FTC's
recommendation to include the complaints in the Consumer Sentinel database. See Section V, Law Enforcement
and Regulators Should Submit Complaints to Consumer SentineL.
6 FCC Infographic on Cramming (Cramming Infographic), available at
htt://transition.fcc. gov / cgb/ cramming graphic. jpg.
7 Commissioner Rosch dissents from this comment to the extent that it recommends that the FCC "ban" third-part
biling on landline telephone bils. Commissioner Rosch believes that the recommendation to require default
blocking of some or all third-par biling, which would require cariers to block third-par biling unless and until a
subscriber affirmatively authorizes such charges, is preferable. Default blocking of some or all third-par biling
would be less restrctive than a complete ban, yet would be completely effective in addressing the cramming
problem. In contrast to an across-the-board ban, it would allow for more flexibility, both for businesses and
consumers. Not only would it give innovative (and legitimate) businesses the option to get consumer buy-in for
third-par biling in appropriate circumstances, it would also allow informed consumers to choose this option if
2

Section II ofthis Comment describes the abuse of the thrd-pary telephone biling system
and scarcity of evidence of legitimate users. Section III explains that consumers are not likely to
notice disclosures concernng third-par biling or the possible option to opt out. Section IV
contains the FTC's recommendation, based on the important considerations in Sections II and
III, that the FCC ban or require default blocking of some or all third-part billing. Section V of
this Comment responds to the FCC's request for input concernng the sharing of craming
complaints by state and federal regulatory and enforcement authorities.
Because abuse of the third-pary biling system is prevalent and evidence of legitimate
uses of the system are scarce, and because the proposed improved disclosures are unikely to
address craming effectively, the FTC respectfully requests that the FCC ban or require default
blockig of some or all third-par biling. Also, because of the scope of the craming problem
and the large number of regulatory and enforcement agencies charged with addressing the
problem, the FTC recommends that state and federal agencies use the Consumer Sentinel
Network ("Consumer Sentinel") as a central repository and shared database for craming
complaints lodged by consumers and businesses.
II. Background
A. Abuse ofthe Third-Pary Biling System is Widespread.
The evidence gathered by the staff of the Senate Commerce Committee in its craming
investigation demonstrated the pervasive natue of the craming problem on the thid-pary
telephone biling platform. The Committee sought inormation from seven telephone biling
auditing companes in the United States. These companes audit the telephone bils of their
clients to discover and dispute unauthorized charges. Information provided by the auditing
companies showed that "almost all of the third-pary charges they identified on their clients' bils
- more than 300,000 - were not authorized by their clients."g Committee staff also contacted a
random sample of more than 500 telephone customers who had been charged by certain third-
part merchants to interview them about their experiences with the merchants. "Not a single
individual or business owner reported that they had authorized the third-par vendors' charges
on their telephone bils.,,9
B. There is a Scarcity of Evidence of Legitimate Use of Third-Pary Biling.
To date, FTC staff has been able to identify very few legitimate uses ofthird-pary
telephone billng. At the FTC's Cramming Foru, no third-pary merchants presented data
they so desired. Furhermore, as discussed in footnote 5, developments with respect to third-par biling in the
mobile telephone context are stil evolving. To the extent that the mobile marketplace is able to address consumer
protection issues related to third-part biling, these developments may also be applicable to landline third-par
biling.
8 Senate Staff Report, supra note 2, at 21.
9 !d. at 29.
3

showing the legitimacy of their charges or the necessity of having charges placed on a telephone
bil. Representatives of the telephone industry provided only two examples oflegitimate third-
par merchants.10 Nor did any third-pary merchants submit comments advocating for the
importance ofthis biling platform, despite the FTC's call for comments from interested paries.
The silence of merchants who use third-pary telephone billing calls into question the extent of
legitimate third-pary biling.
This experience is consistent with the Senate Commerce Committee staff s findings and
the FCC's own data. During its exhaustive investigation of craming, the Commerce
Committee staff was unable to identify a legitimate use of the platform and instead found that
many third-pary vendors were ilegitimate and created solely to exploit third-pary biling.
1 1
Furhermore, the FCC's own data suggests that cramers are the prime users ofthird-pary
biling; an FCC investigation discovered that only 20 of 17,384 consumers actually used the
third-pary service for which they were charged. That figure equates to a 0.1 % usage rate. 12
III. Disclosures are Unlikely to be Noticed and Wil Not Solve the Cramming
Problem.
The FCC's proposed rules would require carers that offer the option of blocking third-
pary charges at the consumer's request to provide clear and conspicuous notice of the option at
the point of sale, on each telephone bil, and on each carier's web site. Some carers,
paricularly large carers (e.g., AT&T and Verizon), curently offer third-par billng blocks
voluntarly, but nothing in the proposed rue would require them to continue to offer this service.
Moreover, some smaller telecommuncations companies do not give subscribers an option to
block third-pary charges. The NPRM requests comment on whether the proposed rules should
be modified to require all cariers to offer the option of third-pary biling blocks. As explained
below, even if all cariers were required to offer the option to block third-part biling, it is
unikely that this would result in a substantial reduction in craming practices, or consumer
injur caused by such practices.
The proposed disclosure of consumers' option to block third-pary biling is unlikely to
be effective because consumers are frequently unaware of the potential for third paries to place
charges on their telephone bils, and thus are unikely to look for and comprehend the
significance of the disclosed information. For this reason, even if the charges are placed in a
separate billing section, as proposed in the FCC rulemaking, it is unlikely to result in a
significant decrease in craming. Moreover, because craming charges are often for small
io The two examples offered were America Online and an entity called "Lizard Games." Other unspecified
broadband and Internet services were also mentioned. See Cramming Foru Transcript, supra note 3, at 96-97
(Don Teague and Kent Wardin); ILD Teleservices, Comment No. 00022, supra note 3.
II See Senate Staff Report, supra note 2.
ii Cramming Infographic, supra note 6.
4

amounts, consumers are unlikely to be alerted to the risk of craming when they see the total
amount due on their bils.
13 And, with the increased use of automatic bil payment programs, it
is likely that many consumers pay their telephone bils without ever checking the details of the
charges appearng in a multi-page bil.14
Two recent FTC enforcement actions against fraudulent cramers demonstrate the
limitations ofthe FCC's proposal. In both Nationwide Connections and ¡nc2l, third-pary
charges were placed on a separate page at the end of a consumer's telephone bil. In Nationwide
Connections, a convicted felon who ran a craming operation from his jail cell, placed milions
of fabricated collect-call charges on consumers' telephone bils through the third-pary biling
platform. Although the bogus charges were placed on a separate bil page, the cramers and
biling companies stil managed to collect more than $34 milion from consumers for those
charges.
15 In ¡nc2l, a marketing research expert conducted a surey of customers who had been
charged on a separate page on their telephone bils for the defendants' products and services. Of
the more than one thousand customers sureyed, only 5 percent were aware that they had been
biled for the defendants' products and services and 97 percent said they had never agreed to
purchase the defendants' productS.16 In finding that the consumers in that case could not
reasonably avoid the cramed charges, the cour reasoned that "given the evidence that nearly
97 percent of defendants' 'customers' never agreed to purchase defendants' products in the first
place, it follows that these 'customers' had no reason to scrutinze their telephone bils for
defendants' fraudulent charges.,,17
iv. The FCC Should Ban or Require Default Blocking of Some or All Third-Part
Biling.
The FTC respectfully requests that the FCC ban or require default blocking of some or all
third-pary biling.
18 Neither approach would depend on consumers taing affirmative action to
prevent injury from a form of biling many consumers are not aware of and routinely fail to
notice even as it is occuring, and even if it is disclosed on a biling statement.
Third-pary biling on phone bills has become almost solely a vehicle for defrauding
consumers and businesses. Accordingly, the first approach would ban third-pary biling on
13 See, e.g., Inc2l, 745 F. Supp. 2d at 1004 ("losses incured by individual customers (were) relatively small"); FTC
v. Nationwide Connections, Inc., No. 06-80180 (S.D. Fla. fied Feb. 27, 2006) (charges were between $5 and $8);
Cramming Infographic, supra note 6 (charges from a single vendor per month can range from $1.99 to $19.99).
14 See Craming Forum Transcript, supra note 3, at 209-10.
15 Nationwide Connections, No. 06-80180.
16 Inc2l, 745 F. Supp.2d at 1001 (granting the FTC's motion for summary judgment).
17id. at 1004.
18 See supra note 7.
5

telephone bils. Such a ban could apply to all third-par biling or provide exceptions for
demonstrated legitimate uses of third-pary telephone biling.19
The second, alternative approach would require that all carers block third-par charges
on subscribers' bils until a subscriber affirmatively authorizes such charges.2o If the subscriber
wished to have third-part goods or services biled on the account, he or she would specifically
authorize the telephone company to lift the block - either to allow all third-pary biling or to
authorize biling from specific merchants. Under this approach, consumers would not have the
burden of discovering the need for and the existence of a third-pary biling block option.
Instead, the block would be in place automatically, and specific subscriber consent would be
required to lift it. Ths approach would allow any legitimate users ofthe third-pary telephone
biling platform to obtain the informed consent of consumers to be charged for their goods and
services?l
v. Law Enforcement and Regulators Should Submit Complaints to Consumer
SentineL.
The FCC requested input concernng the sharing of craming complaints by state and
federal regulatory and enforcement authorities. Multiple state and federal agencies regulate or
bring enforcement actions against cramers. To ensure the most efficient deployment of
resources, state and federal regulators and enforcement authorities must readily share their
craming complaints. The FTC invites the FCC and state regulators to submit all craming
complaints relating to both landline and mobile bils to Consumer Sentinel and to actively search
Consumer Sentinel for craming complaints?2 Consumer Sentinel provides a secure vehicle
where complaints can be shared among law enforcement, ensuring that complaints filed with one
agency are quickly made available to all Consumer Sentinel members.23 Consumer Sentinel
already contains complaints filed directly with the FTC, along with complaints submitted by
19 An example of
this approach is the law baning third-par telephone biling enacted by the state of Vermont this
year. 9 V.S.A. § 2466, available at
htt://www.leg.state.vt.us/statutes/fullsection.cfm?Title=09&Chapter=063&Section=02466. The Vermont law,
excepts three specific categories of third-par biling from the prohibition: (A) biling for goods or services subject
to the jurisdiction of the state public service board; (B) biling for direct dial or dial around services initiated from
the consumer's telephone; and (C) operator-assisted telephone calls, collect calls, or telephone services provided to
facilitate communication to or from correctional center inmates. 9 V.S.A. § 2466(f)(1). As par of consideration of
a third-par biling ban, the FCC could seek comments from industr and other interested paries regarding specific
categories of third-par biling for which an exemption from such a ban might be waranted.
20 The NPRM asks for comments concerning "the impact, both positive and negative, that prohibiting third-par
charges on wire line telephone bils, unless the subscriber opts in, may have on wire line companies, subscribers, and
third paries." NPRM, supra note 1, at 52626.
21 Consumers who do opt in to allow certain third-par charges would likely benefit from improved biling
disclosures such as those proposed by the FCC.
22 Currently, the FCC has access to view complaints in Consumer Sentinel, but it does not contribute to Consumer
Sentinel the cramming complaints it receives from consumers.
23 Information regarding Consumer Sentinel is available at http://www.ftc.gov/sentinel/factsheet.pdf.
6

most Better Business Bureaus, the US Postal Inspection Service, and numerous other
contributors. The FTC is willng to work with other recipients of craming complaints to enable
them to contribute their complaint data.
VI. Conclusion
F or over 15 years the FTC, along with its federal and state law enforcement parners, has
worked to prevent the placement of unauthorized third-par charges on consumers' bills, a
practice that has caused millions of dollars in consumer injur. Through its rulemakng, the FCC
has the opportty to reduce substantially a costly and pervasive form of consumer fraud. The
FTC respectfully requests that the FCC ban or require default blocking of some or all third-pary
biling through telephone bils. Also, because effective action against cramers requires
cooperation among law enforcers at all levels, the FTC welcomes and encourages federal and
state regulators and enforcement agencies to contribute craming complaints to Consumer
Sentinel and to utilize Consumer Sentinel data to identify and develop cases against cramers.
By Direction of the Commission.
7