NATIONAL ASSOCIATION OF STATE UTILITY CONSUMER ADVOCATES
URGING STATE LEGISLATURES TO PROHIBIT THE “CRAMMING” OF UNAUTHORIZED CHARGES ONTO CONSUMER TELEPHONE BILLS AND PROPOSING A STATUTE TO SOLVE THE PROBLEM
WHEREAS, the “cramming” of unauthorized charges onto wireline phone bills was recently described by the Committee on Commerce, Science and Transportation of the United States Senate as “a problem of massive proportions likely affecting millions of telephone users and costing them billions of dollars in unauthorized third-party charges over the past decade”;1 and
WHEREAS, there is widespread concern that the problem has been migrating to wireless telephone bills;2 and
WHEREAS, the unauthorized charges are often (but not always) small in amount, at times as low as $9.99 or lower, and they often (but not always) recur on a monthly basis; and
WHEREAS, consumers often do not notice the unauthorized charges, because they are often small, so the number of unauthorized charges probably far exceeds the number of complaints;3 and
WHEREAS, the unauthorized charges harm consumers, who often pay the charges even though of doubtful legitimacy, because consumers either do not notice the charges or seek to avoid the difficulty of contesting the charges and the potential damage to credit scores;4 and
WHEREAS, providers lack an adequate incentive to stop the unauthorized charges, because the unauthorized charges produce substantial revenues;5 and
WHEREAS, the telephone bill has become the functional equivalent of a debit or credit card, often carrying the charges of third parties unrelated to the billing telephone company, but without equivalent protections;6 and
WHEREAS, processes within the telecommunications industry ostensibly designed to authenticate that the charges are valid, including Internet ordering processes,7 third-party verification,8 and “welcome” letters,9 however well-intentioned, have often failed to authenticate that the charges have in fact been authorized by the person to whom they are billed; and
WHEREAS, the “double opt-in” process reportedly utilized by wireless companies, however well-intentioned, lacks adequate description in the cramming proceedings before the Federal Communications Commission,10 or elsewhere to NASUCA’s knowledge, and has not been adequate to prevent the numerous complaints about text messaging scams and associated unauthorized charges referenced above;11 and
WHEREAS, the states have long been in the forefront of efforts to address consumer protection problems, including the cramming problem;12 and
WHEREAS, an effective solution to the problem would reach both unauthorized charges for the services of third parties13 and unauthorized charges for the billing telephone company’s own services;14 and
WHEREAS, an effective solution to the problem would reach not only unauthorized charges for non-telecommunications services but also unauthorized charges for telecommunications services, including unauthorized charges for collect, long distance, directory assistance and other calls;15 and
WHEREAS, an effective solution to the problem would extend across all modes of telecommunications service, including wireline, wireless, and voice-over-Internet-protocol; and
WHEREAS, an effective solution to the problem would hold billing telephone companies responsible for the unauthorized charges that appear on their customer bills,16 and also would reach the conduct of third-party vendors and billing aggregators, to the extent each exercises control over or has an ability to prevent the unauthorized charges;17 and
WHEREAS, an effective solution to the problem would provide an adequate incentive to the industry to develop processes that with a reasonable degree of reliability in fact authenticate that the charges placed on telephone bills have been authorized by the person to whom they are billed; and
WHEREAS, the solution that is congruent with the problem, and that offers the greatest prospect of bringing the problem to an end, is a law explicitly prohibiting unauthorized charges on telephone bills and providing for civil monetary penalties, coupled with appropriate enforcement activity; and
WHEREAS, such a solution would effectively require the telecommunications industry to replace ostensible authentication processes that do not authenticate with processes that do authenticate,18 and would do so without being prescriptive about the means for accomplishing that objective, and without imposing an undue cost or burden upon the industry;19 and
WHEREAS, such a solution would not disable any legitimate or beneficial commerce or activity but instead would target only unauthorized charges that masquerade as legitimate commerce; and
WHEREAS, such a solution would give long needed protection to consumers; and
WHEREAS, state commissions as well as federal authorities (FCC and FTC) that receive consumer complaints on cramming should take appropriate measures to educate the public regarding the placement of unauthorized charges on telephone bills, including publication of the number of consumer cramming complaints by third-party vendor name.
NOW, THEREFORE, BE IT RESOLVED, that NASUCA supports the enactment of state laws throughout the United States prohibiting the cramming of unauthorized charges onto consumer bills and authorizing the assessment of civil monetary penalties for violation, coupled with appropriate enforcement activity; and
BE IT FURTHER RESOLVED, that the proposed legislation included with this resolution, designed to curtail and eliminate the problem, is offered as a suggestion; and
BE IT FURTHER RESOLVED, that the Telecommunications and Consumer Protection Committees, with the approval of the Executive Committee, are authorized to take any and all actions consistent with this Resolution in order to secure its implementation.
Submitted by Telecommunications and Consumer Protection Committees
Approved June 11, 2013
Abstentions: Nebraska, Tennessee
1 S. Hrg. 112-171, “Unauthorized Charges on Telephone Bills: Why Crammers Win and Consumers Lose,” 112th Cong., 1st Sess., Committee on Commerce, Science and Transportation, United States Senate (July 13, 2011) (“S. Hrg. 112-171), p. 4.
2 See S. Hrg. 112-171, note 1 above, pp. 9-10 (noting multiple lawsuits involving unauthorized third-party charges on wireless bills, including settlements by Florida attorney with the four major wireless carriers); CG Docket No. 11-116, “Empowering Consumers to Prevent and Detect Billing for Unauthorized Charges (‘Cramming’)”, further notice of proposed rulemaking, 27 F.C.C.R. 13989 ¶¶ 47, 20-21 (2012) (percentage of cramming complaints received by FCC relating to wireless services “nearly doubled” from 2008-10 to 2011, from 16 per cent to 30 percent); Press release, Federal Trade Commission, “FTC Files Its First Case Against Mobile Phone ‘Cramming’: Complaint Alleges Unauthorized Charges for ‘Premium’ Text Message Services,” April 17, 2013, http://www.ftc.gov/opa/2013/04/wisemedia.shtm (consumers allegedly billed millions of dollars in recurring $9.99 mobile phone bill charges for so-called “premium services” that sent text messages with horoscopes, flirting, love tips and other information, in many cases without consumers’ knowledge or permission, both when consumers ignored text messages and when consumers responded via text indicating they did not want the service); Press release, Citizens Utility Board, “Analysis: Frequency of ‘Cellphone’ Cramming Scam Doubles in Illinois, CUB Concerned Wireless Customers Targeted as Landline Laws Tighten,” http:/www.citizensutilityboard.org/newsReleases20121204_CellphoneCramming.html (analysis of nearly five million wireless lines showed potential cost to U.S. consumers due to wireless cramming of up to $59 million annually); Press release, Vermont Attorney General, “Attorney General Releases Survey Results at FTC; Urges Consumers To Check Mobile Phone Bills For ‘Crammed’ Charges,” May 8, 2013, http://www.atg.state.vt.us/news/attorney-general-releases-survey-results-at-ftc-urges-consumers-to-check-mobile-phone-bills-for-crammed-charges.php (according to 802 consumers who returned surveys, 60 percent reported that third-party charges on their mobile telephone bills were unauthorized or crammed, and more than 55 percent of respondents reported they were not aware of the third-party charges until the Attorney General’s Office asked them to refer to their bills); see also E.Ambrose, “Watch out for unauthorized charges on cellphone bills,” Baltimore Sun, May 13, 2013, http://www.baltimoresun.com/business/bs-bz-mobile-cramming-20130513,0,5238332.story; D. Lazarus, “FCC needs to stop ‘cramming’ on cellphones,” Los Angeles Times, Mar. 28, 2013, http://www.latimes.com/business/la-fi-lazarus-20130329,0,2277464.column?page=2&utm_medium=feed&utm_campaign=Feed%3A%20ConsumerConfidential%20%28Los%20Angeles%20Times%20-%20Consumer%20Confidential%29&utm_source=feedburner&track=rss; D. Rockricks, “Cell Phone companies need to get out of cramming,” Baltimore Sun, Sept. 3, 2012, http://articles.baltimoresun.com/2012-09-03/news/bs-md-rodricks-0904-20120903_1_third-party-charges-verizon-obtains-verizon-customer; D. Segal, “To stop cellphone cramming, don’t let it start,” New York Times, Apr. 7, 2012, http://www.nytimes.com/2012/04/08/your-money/cellphone-cramming-gets-a-second-look.html?_r=0; D. Segal, “What’s your sign? It could be a cram,” New York Times, Mar. 24, 2012, http://www.nytimes.com/2012/03/25/your-money/beware-of-cramming-on-your-cellphone-bill-the-haggler.html; “Look out for third-party charges on cellphone bills,” S. Salisbury, Palm Beach Post, Feb, 24, 2012, http://www.palmbeachpost.com/news/business/look-out-for-third-party-charges-on-cellphone-bi-1/nL4Nh/; “BBB Issues APB Regarding Text Messages, Bogus Charges,” Better Business Bureau of Minnesota and North Dakota (Feb. 1, 2012), http://minnesota.bbb.org/article/BBB-issues-APB-Regarding-Text-Messages-Bogus-Charges-32324; “Consumer Alert: Text Messages that Cost You!,” Better Business Bureau of Western Michigan, Inc. (Jan. 19, 2012), http://northernindiana.bbb.org/article/scam-alert-text-messages-that-cost-you-32349.
3 In Federal Trade Comm’n v. Inc21.com, 745 F.Supp.2d 975 (N.D. Cal. 2010), aff’d mem., No. 11-15330, 2012 WL 1065543 (9th Cir. 2012), millions of dollars of unauthorized charges were tacked onto thousands of phone bills. Only five percent of the “customers” were even aware that they had been billed. Id. at 981, 996, 1001. A document found on execution of a search warrant stated: “Never bill more than $29.95 per month. The average small business sees this as phone charges and does not review for five months.” The defendants’ systems administrator testified: “I told them that I was – I was very uncomfortable with the fact that almost none of our customers knew they were our customers. And I believe at one point, I described the business model as ‘Gee, I hope we don’t get caught.’ And they thought that was funny. They laughed.” Id. at 997 (emphasis the court’s).
4 Federal Trade Comm’n v. FTC v. Verity Intern. Ltd., 124 F.Supp.2d 193, 203 (S.D.N.Y. 2000) (“defendants . . . capitaliz