    [Senate Hearing 112-171]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 112-171

    UNAUTHORIZED CHARGES ON TELEPHONE BILLS: WHY CRAMMERS WIN AND CONSUMERS
                                      LOSE

    =======================================================================

                                    HEARING

                                   before the

                             COMMITTEE ON COMMERCE,
                          SCIENCE, AND TRANSPORTATION
                              UNITED STATES SENATE

                          ONE HUNDRED TWELFTH CONGRESS

                                 FIRST SESSION

                                   __________

                                 JULY 13, 2011

                                   __________

        Printed for the use of the Committee on Commerce, Science, and
                                 Transportation

                      U.S. GOVERNMENT PRINTING OFFICE
    71-640 PDF                WASHINGTON : 2011
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           SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                          ONE HUNDRED TWELFTH CONGRESS

                                 FIRST SESSION

                JOHN D. ROCKEFELLER IV, West Virginia, Chairman
    DANIEL K. INOUYE, Hawaii             KAY BAILEY HUTCHISON, Texas,
    JOHN F. KERRY, Massachusetts             Ranking
    BARBARA BOXER, California            OLYMPIA J. SNOWE, Maine
    BILL NELSON, Florida                 JOHN ENSIGN, Nevada
    MARIA CANTWELL, Washington           JIM DeMINT, South Carolina
    FRANK R. LAUTENBERG, New Jersey      JOHN THUNE, South Dakota
    MARK PRYOR, Arkansas                 ROGER F. WICKER, Mississippi
    CLAIRE McCASKILL, Missouri           JOHNNY ISAKSON, Georgia
    AMY KLOBUCHAR, Minnesota             ROY BLUNT, Missouri
    TOM UDALL, New Mexico                JOHN BOOZMAN, Arkansas
    MARK WARNER, Virginia                PATRICK J. TOOMEY, Pennsylvania
    MARK BEGICH, Alaska                  MARCO RUBIO, Florida
                                         KELLY AYOTTE, New Hampshire
                                         DEAN HELLER, Nevada
                        Ellen L. Doneski, Staff Director
                       James Reid, Deputy Staff Director
                       Bruce H. Andrews, General Counsel
                    Todd Bertoson, Republican Staff Director
               Jarrod Thompson, Republican Deputy Staff Director
       Rebecca Seidel, Republican General Counsel and Chief Investigator

                                C O N T E N T S

                                  ----------
                                                                       Page
    Hearing held on July 13, 2011....................................     1
    Statement of Senator Rockefeller.................................     1
        Staff report for Chairman Rockefeller, ``Unauthorized Charges
          on Telephone Bills''.......................................     3
    Statement of Senator Ayotte......................................    80
    Statement of Senator Begich......................................    82
    Statement of Senator Klobuchar...................................    82
    Statement of Senator McCaskill...................................   110
    Statement of Senator Udall.......................................   115
        Prepared statement...........................................   116
    Statement of Senator Boozman.....................................   117

                                   Witnesses

    Lisa Madigan, Attorney General, Illinois.........................    83
        Prepared statement...........................................    84
    Elliot Burg, Senior Assistant Attorney General, Office of the
      Attorney General, State of Vermont.............................    89
        Prepared statement...........................................    90
    Susan Eppley, Decatur, Georgia...................................    95
        Prepared statement...........................................    96
    David Spofford, Chief Executive Officer, XIGO, LLC...............    97
        Prepared statement...........................................    99
    Walter B. McCormick, Jr., President and CEO, United States
      Telecom Association............................................   100
        Prepared statement...........................................   101

                                    Appendix

    Response to written questions submitted to Lisa Madigan by:
        Hon. Amy Klobuchar...........................................   123
        Hon. Mark Pryor..............................................   124
        Hon. Kelly Ayotte............................................   124
    Response to written questions submitted to Elliot Burg by:
        Hon. Amy Klobuchar...........................................   126
        Hon. Mark Pryor..............................................   128
        Hon. Kelly Ayotte............................................   129
    Response to written questions submitted to David Spofford by:
        Hon. Amy Klobuchar...........................................   129
        Hon. Mark Pryor..............................................   130
        Hon. Kelly Ayotte............................................   130
    Response to written questions submitted to Walter B. McCormick,
      Jr. by:
        Hon. Amy Klobuchar...........................................   130
        Hon. Mark Pryor..............................................   132
        Hon. Kelly Ayotte............................................   133
    Statement dated July 14, 2011 from Bruce Kushnick, Chairman,
      Teletruth and Executive Director, New Networks Institute.......   133
    Letter dated July 13, 2011 to Hon. John D. Rockefeller IV and
      Hon. Kay Bailey Hutchison from Parul P. Desai, Policy Counsel,
      Consumers Union................................................   136
    Letter dated July 13, 2011 to Hon. John D. Rockefeller IV from
      Sally Greenberg, Executive Director, National Consumers League.   137
    Letter dated July 12, 2011 to Hon. John D. Rockefeller IV and
      Hon. Kay Bailey Hutchison from Tony Clark, President, National
      Association of Regulatory Utility Commissioners (NARUC) and
      John Burke, Chair, Committee on Telecommunications.............   139

                            UNAUTHORIZED CHARGES ON
              TELEPHONE BILLS: WHY CRAMMERS WIN AND CONSUMERS LOSE

                                  ----------

                            WEDNESDAY, JULY 13, 2011

                                           U.S. Senate,
            Committee on Commerce, Science, and Transportation,
                                                        Washington, DC.
        The Committee met, pursuant to notice, at 10:10 a.m. in
    room SR-253, Russell Senate Office Building, Hon. John D.
    Rockefeller IV, Chairman of the Committee, presiding.

           OPENING STATEMENT OF HON. JOHN D. ROCKEFELLER IV,
                    U.S. SENATOR FROM WEST VIRGINIA

        The Chairman. Good morning. This hearing will come to
    order. Today's hearing is about a scam that has cost telephone
    customers billions of dollars. All of you at the witness table
    are aware of this in various ways and it's called unauthorized
    charges. The telephone company can have authorized charges if
    you want to buy DISH TV or something of that sort, that's an
    authorized charge.
        But the great percentage of them are unauthorized charges,
    but, still, the telephone companies still let them appear on
    the bill. So what happens is, they make--they appear on the
    bill and the person who doesn't necessarily carefully read the
    bill, which is often four or five pages long, sees this thing,
    and doesn't know what it is, but they didn't ask for it. They
    didn't want it. It's not authorized to be there. Legally, it
    shouldn't be there, but it is there and it's called cramming
    and it refers to what we call mysterious charges that appear on
    American phone bills for services that people don't want, and
    don't use, didn't ask for, and shouldn't have to pay for.
        The companies responsible for these cramming charges don't
    sell legitimate projects, that is, the unauthorized ones. They
    don't really sell anything. Most of them don't seem to do that.
    Their sole purpose is to place bogus charges on your telephone
    bill and they're very, very good at that. They're very good at
    that and hope that you will pay your bill every month without
    looking at it too closely, which unfortunately, a lot of people
    do.
        In the late 1900s, the Congress and the media devoted a lot
    of attention to this subject of cramming. I remember it well.
    Committees held hearings on cramming. Anti-cramming bills were
    introduced in both the House and the Senate. At the time,
    consumer advocates, and Federal authorities, and the
    telecommunications industry all agreed that something needed to
    be done.
        Well, the question was, what needed to be done? The
    industry told a pliant Congress, I guess, that they would fix
    the problem themselves, and that made sense. But they didn't
    want to have any--they didn't want--they wanted to have
    voluntary guidelines, yes, but they didn't want to have any
    sort of mandates. Or as they said, this is--this industry has a
    powerful self-interest to correct its problem and we're working
    overtime to rid the industry of this scourge, which is kind of
    a strong statement. And the Congress, and the press, I guess
    everybody, kind of went along with it. Nobody paid much
    attention to it.
        So Congress took their word for it. We moved onto other
    important issues because we believed the cramming problem was
    being addressed, which of course, it was not. What we know now
    is that the cramming problem was not solved, far from it. The
    minute Congress decided to trust that the industry would fix
    this problem, the crammers saw that relaxation and they moved
    right back in. And American families and businesses have been
    paying the prices ever since then.
        So in this committee, we held a year-long investigation on
    this, hundreds of thousands of pages, hundreds of witnesses,
    consumers, businesses, small businesses, all kinds of folks.
    And we now have a very good idea of just how high this price
    has been.
        Here's what we've learned. More than a decade after
    telephone companies implemented their voluntary guidelines,
    hundreds of--cramming companies--we don't even know how many--
    continue to place tens of millions of bogus charges on families
    and businesses on their landlines. That's an important
    distinction, not on their cell phones, but on their landlines.
        And they do that every year. While the individual charges
    are usually small amounts, between $10 to $30, when you add
    that up, it becomes an enormous amount. It's billions and
    billions of dollars.
        Now, there's also a cost of cramming that's harder to put a
    figure on and that is the agony that people have to go through,
    trying to figure out, hey, I didn't order this. If they do look
    at their bill, how do I get rid of it? Oh, I got a call. They
    call their cramming company, and nobody answers the phone, or
    maybe somebody does, and refers them to the telephone company.
    And they just get lost, and give up, and get mad, and feel even
    less friendly about their--about their Congress. So it's a
    problem.
        One of the questions we have asked during this
    investigation is, what have the telephone companies been doing
    for the past decade to protect their customers from these
    abusive tactics? I was with a major telephone CEO last night
    and we sort of talked about that. There wasn't a great deal
    said. Anyway, the short answer is not enough. Well, all
    telephone companies have anti-cramming policies. They haven't
    made a serious effort to keep the crammers off their landline
    phone bills.
        Even when the phone companies kick a company off the bills,
    the crammers come right back in. They wait a week or so and
    then they come right--they flood right back in. There are many
    iterations of their obnoxious behavior.
        Now, one reason, however, the telephone companies don't
    really crack down on crammers is, they make money from
    cramming. Oh, yes, they make money. Now, do they make a whole
    lot of money? No, but in America, money is money and if you can
    make money, why not? According to the financial information
    that the Committee staff has reviewed, telephone companies earn
    a dollar or two every single time they place a third-party--an
    unauthorized third-party charge on their customer's bill.
        So do the math. That's well over a billion dollars in
    profit. Today, my staff released a report detailing how
    cramming works and how much money it is costing, and not just,
    you know, American families and businesses, small businesses in
    particular, people in particular.
        So I ask unanimous consent to enter this report and other
    related documents into today's record. Hearing no objection--
        Senator Ayotte. No, no objection, Mr. Chairman.
        The Chairman. It will happen, thank you.
        [The information referred to follows:]

         U.S. Senate Committee on Commerce, Science, and Transportation
             Office of Oversight and Investigations--Majority Staff
                    Unauthorized Charges on Telephone Bills
                     Staff Report for Chairman Rockefeller
                                 July 12, 2011
    Table of Contents
    Executive Summary
    I. Background
            A. Development of the Third-Party Billing System on Landline
            Telephone Bills

            B. Emergence of the Cramming Problem in the 1990s

            C. Prior Efforts to Combat Cramming

            D. Cramming In the 2000s

            E. Cramming On Wireless Telephone Bills
    II. The Committee's Investigation
    III. Overview of Third-Party Billing On Landline Telephones
            A. The Third-Party Billing Ecosystem

            B. The Cost and Scope of Third-Party Billing
    IV. Cramming Through Third-Party Billing
            A. How Cramming Occurs

            B. Cramming's Impact on Telephone Customers

            C. Telephone Bill Auditors
    V. Illegitimate Third-Party Vendors
            A. Overview of Approved Third-Party Vendors

            B. Third-Party Vendors Investigated by the Committee
    VI. Role of Telephone Companies in the Cramming Problem
            A. Approval Process for Third-Party Vendors

            B. Anti-Cramming Safeguards

            C. Awareness of the Problem

            D. Response to Customers

            E. Recent Responses to the Cramming Problem
    VII. Conclusion
    Exhibits
            Exhibit 1: Third-Party Billing Graphics

            Exhibit 2: Example: Telephone Bills

            Exhibit 3: Example: Third-Party Vendor Applications
    Appendices
            Appendix A: Cramming Case Studies

            Appendix B: Sample List of Confirmed Victims of Cramming

            Appendix C: Sample List of Third-Party Vendors

            Appendix D: Websites for daData-Related Third-Party Vendors
            that Offered ``Electronic Fax Services''
    Executive Summary
        In May 2010, Chairman Rockefeller launched an investigation into
    third-party billing on landline telephone bills. He opened the
    investigation because consumers had complained for years that they were
    finding mysterious charges on their telephone bills for services they
    had not purchased. To understand the scope and the severity of this
    problem, commonly referred to as ``cramming,'' the Senate Commerce
    Committee staff has conducted a wide-ranging investigation over the
    past year.
        The evidence obtained through this investigation suggests that
    third-party billing is causing extensive financial harm to all types of
    landline telephone customers, from residences and small businesses, to
    government agencies and large companies. Over the past decade,
    telephone customers appear to have been scammed out of billions of
    dollars through third-party billing on landline telephones.
    Unauthorized third-party charges are a nationwide problem.
    Third-Party Billing and The Rise of Cramming
        Cramming is not a new problem. It began appearing in the 1990s,
    when telephone companies opened their billing platforms to an array of
    third-party vendors offering a variety of services. For the first time,
    telephone numbers became a payment method equivalent to credit card
    numbers. Consumers and businesses could purchase products or services
    with their telephone numbers and the charges for the services would
    later appear on their telephone bills.
        While the telephone companies' decision to open their billing
    platforms had the potential to benefit consumers and businesses,
    cramming quickly emerged as an unintended consequence. The rise of
    cramming was so significant in the late 1990s that federal authorities,
    consumer advocates, and telephone companies all agreed that changes to
    the telephone companies' third-party billing systems were needed.
        At the time, both the Federal Communications Commission (FCC) and
    the telecommunications industry advocated for a voluntary approach,
    rather than rulemaking or congressional action. The United States
    Telephone Association told Congress that the industry ``needed
    flexibility to deal with cramming on a case specific basis'' and that
    ``mandatory guidelines or a one-size-fits-all approach would erode that
    ability.'' Although mandatory requirements for telephone companies were
    discussed, the problem was addressed almost exclusively through
    voluntary guidelines. The only mandatory requirements placed on
    telephone companies at the Federal level have been the FCC's ``Truth-
    in-Billing'' regulations, which require disclosure of third-party
    charges on telephone bills.
        Over a decade later, thousands of consumers still regularly
    complain to the Federal Trade Commission (FTC) and the FCC about
    cramming, while state and Federal authorities continue to bring law
    enforcement actions against individuals and companies for cramming.
    These cases have shown that consumers continue to be scammed out of
    millions of dollars through cramming.
    The Senate Commerce Committee's Investigation
        To understand the scope of the cramming problem, the Committee
    requested information related to third-party billing and cramming from
    telephone companies; state and federal regulatory agencies; companies
    that offer third-party billing as a method of payment; consumers,
    businesses, and government agencies that have been affected by
    cramming; and companies that specialize in auditing telephone bills.
        The evidence obtained and analyzed by Committee staff suggests that
    third-party billing on landline telephones has largely failed to become
    a reliable method of payment that consumers and businesses use to
    conduct legitimate commerce. Rather, it created cramming, 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. With the exception of legitimate third-party
    vendors that offer services like satellite television and long
    distance, third-party billing appears to be primarily used by con
    artists and unscrupulous companies to scam telephone customers.
        The key findings of the Committee staff's investigation are the
    following:

        Third-party billing is a billion dollar industry. Telephone
    companies place approximately 300 million third-party charges on their
    customers' bills each year, which amount to more than $2 billion worth
    of third-party charges on telephone bills every year. Over the past 5
    years, telephone companies have placed more than $10 billion worth of
    third-party charges on their customers' landline telephone bills.
        A substantial percentage of third-party charges are unauthorized.
    While Committee staff cannot determine precisely how many third-party
    charges are unauthorized, the evidence obtained through the
    investigation suggests it is a large percentage.

       Telephone customers with third-party charges on their
            telephone bills overwhelmingly reported that the charges were
            unauthorized. Committee staff has spoken with more than 500
            individuals and business owners whose telephone bills included
            third-party charges. Not one person said the charges were
            authorized. Law enforcement agencies have reported similar
            findings when conducting surveys for their own cramming
            investigations.

       Committee staff is aware of hundreds of third-party vendors
            whose actions suggest they are engaged in cramming. For
            example, a company specializing in auditing telephone bills
            reported that over 800 different third-party vendors had placed
            unauthorized third-party charges on its clients' landline
            telephone bills.

       Committee staff has found hundreds of egregious examples of
            cramming. Third-party vendors have enrolled deceased persons in
            their so-called ``services'' and charged family members'
            telephone bills for it. They have charged telephone lines
            dedicated to fire alarms, security systems, bank vaults,
            elevators, and 911 systems. Senior citizens' telephones have
            been enrolled in webhosting services, even though they have
            never used the Internet. A children's hospital was charged for
            a ``celebrity tracker'' e-mail service that provided ``daily
            celebrity news feeds, photos, and videos.'' A national bank's
            telephone lines were charged for ``credit protection plans.''
            Third-party vendors even crammed unauthorized charges for
            voice-mail services onto AT&T's own telephone lines.

        Telephone companies profit from cramming. Over the past decade,
    telephone companies have generated over $1 billion dollars in revenue
    by placing third-party charges on their customers' telephone bills.
    Since 2006, AT&T, Qwest, and Verizon have earned more than $650 million
    through third-party billing. Verizon explained that it ``receives a
    flat fee between $1 and $2 per charge for placing third-party charges''
    on its customers' bills. Because telephone companies generate revenue
    by placing third-party charges on their customers' bills, telephone
    companies profit from cramming. Documents reviewed by the Committee
    staff show that some telephone company employees feel financial
    pressure to approve third-party vendors even though the companies
    appear to be crammers.
        Cramming affects every segment of the landline telephone customer
    base. Unauthorized third-party charges harm residences, small
    businesses, nonprofits, corporations, government agencies, and
    educational institutions. The Committee has accumulated thousands of
    examples of cramming on nonresidential telephone bills.

            Examples of cramming on small business telephone lines. A small
            business that owns Popeyes and Krispy Kreme franchises reported
            that third-party vendors placed more than $4,000 worth of
            charges on its telephone bills for electronic facsimile and
            other services it did not authorize or use. A small business
            owner in Nevada reported that seventeen different third-party
            vendors charged him over $4,000 for online business listings,
            voice-mail, identity theft protection, and streaming video
            services he did not authorize or use. A bicycle store owner in
            Illinois reported approximately $1,500 of unauthorized charges
            for ``virtual fax and voice-mail'' services she did not
            authorize or use.

            Examples of cramming on corporate telephone lines. Large
            organizations are particularly susceptible to cramming because
            they often have thousands of telephone lines in hundreds of
            locations. Crammers appear to target them specifically. A
            national food chain reported over $100,000 worth of
            unauthorized third-party charges on a yearly basis. Other
            companies provided similar figures. A national retail chain
            reported $550,000 in unauthorized third-party charges on its
            telephone bills over the past decade. The retail chain
            estimates it has spent $400,000 in resources battling
            unauthorized third-party charges.

            Examples of cramming on government telephone lines. Local,
            state, and Federal agencies also reported cramming on their
            landline telephone bills. The United States Postal Service
            would have paid almost $550,000 in unauthorized third-party
            charges if it had not hired an auditor to examine its bills.
            The United States Naval Station in San Diego, California,
            reported its telephone bills included $11,000 worth of
            unauthorized third-party charges in one quarter in 2009. Since
            November 2009, Los Angeles County has received $306,000 in
            billing credits for unauthorized third-party charges on its
            AT&T landline telephone bills. Los Angeles, Chicago, New York,
            and other large city governments also battled cramming charges.

        Many third-party vendors are illegitimate and created solely to
    exploit third-party billing. Committee staff has found third-party
    vendors operating out of post office boxes, fake offices, and
    residences, with ``presidents'' that know nothing about their
    ``companies.'' One woman admitted that she became involved because ``a
    friend said do you want to become president of a company.'' Another
    ``president'' admitted that he did nothing more than sign his name to
    papers that were submitted to telephone companies.
        Many telephone customers experiencing cramming did not receive help
    from their telephone companies. Although telephone companies said they
    instructed their representatives to assist customers with cramming
    problems, consumers and businesses frequently reported that the
    telephone companies were not helpful. Company representatives
    frequently stated incorrectly that telephone companies were ``legally
    obligated to place the charges on their bills,'' and that, ``there was
    nothing they could do to help them.'' Only after these consumers
    contacted the Better Business Bureau or their state attorneys general
    did their telephone companies provide assistance for many of them.
    Business and government offices had similar experiences. For example,
    an AT&T Senior Account Manager for the City of Tyler, Texas, stated,
    ``Neither myself or my team can do anything to resolve these for you
    and this isn't the first time we've been asked.'' He added, ``My former
    account Dallas County would have 20-30 per month . . . I wish, I really
    wish there was some way we could help but there is not.''
        The telephone companies are aware that cramming is a major problem
    on their third-party billing systems. While telephone companies
    regularly tell their regulators and the media that their cramming
    complaint rates are low, internal documents reviewed by Committee staff
    show that the companies understand cramming is a major customer service
    problem. The companies have received hundreds of thousands of
    complaints in which consumers used words like ``fraud,'' ``scam,''
    ``theft,'' ``hoodwinked,'' ``shocked,'' ``disgusted,'' ``upset,''
    ``stealing,'' ``bad business,'' ``taking advantage,'' ``disappointed,''
    and ``unethical'' to describe their experiences with third-party
    billing. Furthermore, telephone companies deal with only a small
    fraction of the actual number of their dissatisfied, angry customers,
    because most customers either never realize they are being charged or
    they complain directly to third-party vendors. Over an eight month
    period in 2010, for example, more than 200,000 people directly called a
    set of related third-party vendors to cancel their services because
    they ``did not understand,'' ``did not remember,'' or ``did not
    authorize'' the charges. Over the same period, those third-party
    vendors received approximately 2,750 cramming complaints forwarded from
    telephone companies.
    I. Background
        For over a decade, telephone users have complained that their
    landline telephone bills include unauthorized third-party charges. This
    problem, commonly referred to as ``cramming,'' first appeared in the
    1990s, after the telephone companies opened their billing platforms to
    an array of third-party vendors offering a variety of services. In
    recent years, the Federal Trade Commission (FTC), the Federal
    Communications Commission (FCC), and state attorneys general have
    brought multiple enforcement actions against individuals and companies
    for engaging in cramming. These cases showed that telephone users
    continue to be scammed out of millions of dollars.
        The Commerce Committee opened this investigation to determine how
    pervasive cramming is on the telephone companies' ``billing and
    collection'' systems and to understand why telephone users regularly
    face these unauthorized third-party charges. Over the past year,
    Committee staff has obtained information from dozens of companies
    involved in third-party billing and interviewed hundreds of consumers
    and businesses that have been harmed by cramming. This report
    summarizes the findings of the staff's investigation. It examines the
    development of third-party billing on landline telephone bills, the
    process of placing unauthorized charges on phone bills, the financial
    costs of cramming on American consumers and businesses, and the role
    telephone companies play in third-party billing and cramming.
    A. Development of the Third-Party Billing System on Landline Telephone
            Bills
        The development of third-party billing on landline telephone bills
    can be traced to two regulatory actions in the 1980s: the divestiture
    of AT&T in 1984, and the FCC's subsequent decision to detariff
    telephone billing and collection in 1986. Following the break-up of
    AT&T, ``regional bell operating companies,'' also referred to as
    ``local exchange carriers,'' \1\ provided local telephone services, but
    were not permitted to offer their own long distance services. Long
    distance was still supplied by AT&T, which no longer had its own
    billing and collection system due to divestiture. Consequently, the
    local telephone companies provided billing and collection for AT&T's
    long distance service. To promote competition and fairness, they were
    also required to provide billing and collection services on a
    nondiscriminatory basis for other companies that offered long distance
    services.\2\
    ---------------------------------------------------------------------------
        \1\ This report uses the term ``telephone companies'' to describe
    the various types of local exchange carriers that bill their customers
    for landline telephone service.
        \2\ Federal Communications Commission, Detariffing of Billing and
    Collection Services, Report and Order, 102 F.C.C.2d 1150 (Jan. 29,
    1986).
    ---------------------------------------------------------------------------
        With the FCC's decision to detariff billing and collection in 1986,
    telephone companies gained flexibility over how they used their billing
    and collection systems. Over time, they opened their billing and
    collection systems to additional third-party companies offering a
    variety of services, some of which were completely unrelated to
    telephone service. This decision led to third-party billing on landline
    telephone bills as it exists today. For the first time, telephone
    numbers worked much like credit card numbers. Consumers could purchase
    services with their telephone numbers, and the charges for the services
    would later appear on their telephone bills.
        Although there has been confusion over whether telephone companies
    must allow third-party vendors to place charges on their customers'
    telephone bills, the companies' decision to open their billing
    platforms to an array of outside vendors was largely a business
    decision rather than a federal regulatory requirement. The FCC
    explained to Congress in 1998:

            [T]he Commission does not require the local exchange companies
            to provide billing and collection services for any entity
            requesting such service. The carriers have wide latitude to
            decide for whom they will provide such service, the terms under
            which they will provide service, and the grounds under which
            they will discontinue providing service to customers who refuse
            to play by the rules.\3\
    ---------------------------------------------------------------------------
        \3\ Permanent Subcommittee on Investigations for the Senate
    Committee on Governmental Affairs, Hearing on ``Cramming:'' An Emerging
    Telephone Billing Fraud, 105th Cong. (July 23, 1998) (S. Hrg. 105-646).

        Any federal obligation the former Bell operating companies may have
    had to provide third parties access to their billing systems was
    extinguished in 2007, when the FCC relieved them of the
    nondiscrimination obligations imposed by Section 272 of the 1996
    Telecommunications Act.\4\ Presently, with the exception of a few state
    requirements, telephone companies are free to allow, or not allow,
    whatever companies they choose to place third-party charges on their
    customers' telephone bills.
    ---------------------------------------------------------------------------
        \4\ Section 272(f)(1) Sunset of the BOC Separate Affiliate and
    Related Requirements; 2000 Biennial Regulatory Review Separate
    Affiliate Requirements, CC Docket No. 00-175, Report and Order and
    Memorandum Opinion and Order, 22 FCC Rcd. 16440 (2007) (Section 272
    Sunset Order).
    ---------------------------------------------------------------------------
    B. Emergence of the Cramming Problem in the 1990s
        In the 1990s, state and federal authorities, including both the FTC
    and FCC, saw a major spike in consumer complaints about unauthorized
    third-party charges on telephone bills. At the time, experts linked
    this outbreak of fraud to the telephone companies' inexperience in
    managing third-party billing payment systems. The FTC stated that,
    ``con artists have found the telephone billing and collection system to
    be a fertile area to defraud consumers'' because it has ``yet to
    develop the kind of effective mechanisms for risk assessment and fraud
    prevention that characterize other billing and collection systems.''
    \5\
    ---------------------------------------------------------------------------
        \5\ Federal Trade Commission Report, Fighting Against Fraud: The
    Case Against Cramming (June 1999) (online at http://www.ftc.gov/
    reports/Fraud/3rd/fightingconsumerfraud.shtm).
    ---------------------------------------------------------------------------
        Experts also attributed cramming to the ease with which a con
    artist could obtain consumers' and businesses' telephone numbers. They
    noted that the telephone companies' decision to make their customers'
    telephone numbers akin to credit card numbers created the ideal
    conditions for fraudulent conduct. Unlike credit card numbers,
    telephone numbers were widely available to anyone with a telephone
    directory. The FCC explained:

            [I]t is significantly easier to bill fraudulent charges on
            telephone bills than on credit card bills. While credit card
            charges require access to a customer account number that
            consumers understand should be treated confidentially, all that
            is often required to get a charge billed on a local telephone
            bill is the consumer's telephone number. This number is not
            only expected to be widely distributed, but can easily be
            ``captured'' by an entity even when the consumer has not
            authorized charges or made a purchase.\6\
    ---------------------------------------------------------------------------
        \6\ Federal Communications Commission, Truth-in-Billing and Billing
    Format, CC Docket No. 98-170, First Report and Order, 14 FCC Rcd. 7492
    (May 11, 1999) (italics in original).

        If so inclined, a con artist needed only a few minutes to obtain
    thousands of consumers' and businesses' telephone numbers. In 1999,
    when analyzing cramming, the General Accounting Office (GAO) explained
    that ``[s]ome vendors apparently have simply lifted names and numbers
    from telephone directories to charge businesses for nonexistent
    services.'' \7\ The rampant levels of fraud and the ease in which it
    was accomplished led the FCC to rank cramming ``as one of the most
    serious consumer problems in the industry.'' \8\
    ---------------------------------------------------------------------------
        \7\ General Accounting Office, Overview of the Cramming Problem
    (GAO/T-RCED-00-28) (Oct. 25, 1999).
        \8\ 1998 Senate Cramming Hearing, supra, note 3.
    ---------------------------------------------------------------------------
    C. Prior Efforts to Combat Cramming
        The rise of unauthorized third-party charges in the 1990s was so
    significant that federal authorities, consumer advocates, and the
    telephone companies all agreed that changes to the telephone companies'
    third-party billing systems were needed. At the time, both the FCC and
    the telephone companies advocated correcting the problem through
    voluntary guidelines, rather than through FCC rulemaking or
    congressional action.
        In April 1998, the FCC invited the largest telephone companies,
    along with representatives of the relevant telecommunications industry
    associations, to participate in a workshop to develop a set of
    voluntary guidelines to combat cramming.\9\ By July 1998, the telephone
    companies and the industry had agreed upon a set of nonbinding
    guidelines to combat the cramming problem.\10\ During subsequent
    congressional hearings about cramming, the telephone industry used the
    new voluntary guidelines to argue that congressional action on cramming
    and third-party billing was not needed.\11\ At a Senate hearing in July
    1998, the President of the United States Telephone Association stated:
    ---------------------------------------------------------------------------
        \9\ Federal Communications Commission, Anti-Cramming Best Practices
    Guidelines (available at www.fcc.gov/Bureaus/Common_Carrier/Other/
    cramming/cramming.html) (accessed July 7, 2011).
        \10\ Id.
        \11\ See 1998 Senate Cramming Hearing, supra, note 3; Subcommittee
    on Telecommunications, Trade, and Consumer Protection for the House
    Committee on Commerce, Hearing on Protecting Consumers Against Cramming
    and Spamming, 105th Cong. (Sep. 23, 1998).

            The LEC [local exchange carrier] industry should be given the
            opportunity and the needed time to implement the guidelines
            that have been developed. I have a high degree of confidence
            that these voluntary guidelines will produce an effective means
            to curb this abuse. This industry has a powerful self-interest
            to correct this problem, and, as I mentioned before, we are
            working overtime to rid the industry of this scourge.\12\
    ---------------------------------------------------------------------------
        \12\ 1998 Senate Cramming Hearing, supra, note 3.

        A number of bills were introduced in Congress that addressed
    cramming by placing requirements on telephone companies, but none were
    adopted.
        This voluntary response to the cramming problem marked a different
    approach than the one Congress took when it faced similar problems with
    the credit card payment system in the 1960s and 1970s. In 1974,
    Congress passed the Fair Credit Billing Act to protect consumers from
    the fraudulent conduct that credit cards were enabling.\13\ The law
    limited consumers' liability for unauthorized charges, imposed
    responsibilities on the credit card companies to ensure that the
    charges placed on consumers' bills were authorized, and gave consumers
    the right to dispute charges on their credit card bills.\14\
    ---------------------------------------------------------------------------
        \13\ Fair Credit Billing Act, Pub. L. No. 93-495 (1974), 15 U.S.C.
     1601 (1976).
        \14\ Id.
    ---------------------------------------------------------------------------
        Because federal authorities supported a voluntary approach to the
    cramming problem, telephone consumers do not have the legal protections
    that credit card consumers enjoy through the Fair Credit Billing Act.
    Consumers who dispute charges on their credit card bills have more
    options and more rights than consumers who dispute charges on their
    telephone bills.
        The only mandatory Federal cramming protections that have been
    provided to consumers are related to telephone bill disclosure. In
    1999, the FCC adopted ``Truth-in-Billing'' regulations, which required
    telephone bills to contain ``full and non-misleading descriptions'' of
    third-party products and services and a clear indication of the third-
    party company responsible for each charge.\15\
    ---------------------------------------------------------------------------
        \15\ Federal Communications Commission, Truth-in-Billing and
    Billing Format, CC Docket No. 98-170, First Report and Order, 14 FCC
    Rcd. 7492 (May 11, 1999).
    ---------------------------------------------------------------------------
    D. Cramming in the 2000s
        Although the major telephone companies incorporated many of the
    voluntary guidelines into their third-party billing processes, cramming
    has continued to be a significant problem for landline telephone users
    up to the present. In June 2011, the FCC estimated that 15 to 20
    million households are affected by cramming on a yearly basis.\16\ Over
    the past decade, state and Federal law enforcement agencies have
    brought dozens of enforcement actions against crammers. These law
    enforcement actions include the following:
    ---------------------------------------------------------------------------
        \16\ Federal Communications Commission, Cramming Infographic (June
    22, 2011).

       In 2006, the Attorney General of Florida filed a lawsuit
            against E-mail Discount Network for charging almost 20,000
            Florida consumers' telephone bills for e-mail accounts and
            coupons they did not request or use.\17\
    ---------------------------------------------------------------------------
        \17\ Settlement Agreement, State of Florida, Office of the Attorney
    General v. E-mail Discount Network, Fla. 2d Cir. Ct. (No. 2006 CA 2475)
    (Feb. 15, 2007).

       In 2007, the FTC obtained a $34.5 million judgment against
            Nationwide Connections and two related companies for charging
            consumers for collect calls that were neither made nor
            received.\18\
    ---------------------------------------------------------------------------
        \18\ Stipulated Final Judgment and Order for Permanent Injunction
    and Consumer Redress as to Defendant Willoughby Farr, Federal Trade
    Commission v. Nationwide Connections, Inc., S.D. Fla. (No. 06-80180)
    (Feb. 19, 2008).

       In 2009, the Attorney General of Illinois filed a lawsuit
            against U.S. Credit Find for placing ``unauthorized charges on
            more than 9,000 Illinois consumers' phone bills'' for a
            purported online tutorial that would ``help consumers fix their
            credit.'' \19\
    ---------------------------------------------------------------------------
        \19\ The Office of the Illinois Attorney General, Madigan Reaches
    Agreement with U.S. Credit Find to Prevent Phone Cramming (June 18,
    2009).

       In 2010, a federal district court awarded the FTC a $38
            million judgment against Inc21.com Corporation and related
            third-party vendors after learning that as few as 0.3 percent
            of the defendants' customer base expressly authorized the
            defendants' charges on their telephone bills.\20\
    ---------------------------------------------------------------------------
        \20\ Federal Trade Commission v. Inc21.com Corp., 745 F.Supp.2d
    975, 992, 1013 (N.D. Cal. 2010).

       In 2011, the FCC proposed $11.7 million in penalties against
            Main Street Telephone, VoiceNet Telephone, Cheap2Dial
            Telephone, and Norristown Telephone for charging thousands of
            telephone users for ``dial-around'' long distance services they
            had not ordered.\21\
    ---------------------------------------------------------------------------
        \21\ Federal Communications Commission, FCC To Crammers: No More
    ``Mystery Fees: $11.7 Million in Penalties Proposed for Unauthorized
    Charges on Consumers' Monthly Phone Bills (June 16, 2011).

        The frequency of serious anti-cramming law enforcement actions over
    the past decade suggests that the voluntary guidelines the telephone
    industry and the FCC developed in the late 1990s have not put an end to
    cramming. The Federal district court judge who issued the opinion in
    ---------------------------------------------------------------------------
    the FTC's recent Inc21 case made the following observation:

            Since its institution, LEC billing has attracted fraudsters . .
            . In response to escalating consumer complaints regarding the
            placement of unauthorized charges on their phone bills--a
            practice known as ``cramming''--the FCC responded in the late
            1990s by adopting principles and guidelines to help consumers
            understand their phone bills and to deter this fraudulent
            practice. Of course, the approach taken by the FCC was (and
            remains today) premised on the dubious assumption that
            consumers scrutinize their phone bills every month before
            paying them, and local phone companies are vigilant about
            allowing only authorized third-party charges to appear on their
            bills.\22\
    ---------------------------------------------------------------------------
        \22\ Memorandum Opinion and Findings in Support of Preliminary
    Injunction, Federal Trade Commission v. Inc21.com Corporation, et al.,
    N.D. Cal. (No. C10-00022 WHA) (Feb. 19, 2010).
    ---------------------------------------------------------------------------
    E. Cramming on Wireless Telephone Bills
        Although the Committee's investigation has focused on cramming on
    landline telephone bills, cramming on wireless telephone bills appears
    to be a problem as well. Multiple lawsuits in recent years have shown
    that unauthorized third-party charges are appearing on wireless bills.
    For example, from 2008 to 2010, the Attorney General of Florida reached
    settlements with AT&T Mobility, Sprint, T-Mobile, and Verizon Wireless
    related to unauthorized third-party charges on wireless telephone
    bills. The companies agreed to issue refunds to their customers and to
    adopt various disclosure standards for the third-party vendors with
    which they do business.\23\ Earlier this year, the Attorney General of
    Texas and Verizon Wireless filed separate lawsuits against a group of
    defendants accused of running a large-scale text-messaging operation
    that billed millions of dollars of unauthorized third-party charges to
    consumers' wireless bills.\24\
    ---------------------------------------------------------------------------
        \23\ State of Florida, Office of the Attorney General, McCollum
    Reaches Settlement with Sprint Over ``Free'' Ringtones (Oct. 8, 2008).
        \24\ State of Texas, Office of the Attorney General, Texas Attorney
    General Seeks Halt to Fraudulent Text Messaging Scheme (March 10,
    2011); Complaint, Cellco Partnership dba Verizon Wireless v. Jason Hope
    et al., D. Ariz. (No. 2:11-cv-00432-SRB) (Mar. 7, 2011).
    ---------------------------------------------------------------------------
        Consumers also have reported cramming on wireless telephone bills
    to the press and consumer groups. Last year, Consumer Reports noted
    that the ``growing use of cell phones as a payment device, for
    activities such as charitable contributions and mobile banking, creates
    fertile ground for crammers.'' \25\ A Better Business Bureau official
    recently warned, ``You might think that nothing bad can happen from
    giving out your cell phone number, but you should guard your phone
    number like you would a credit card or social security number.'' \26\
    ---------------------------------------------------------------------------
        \25\ Beat the New `Cramming' Scams, Consumer Reports (Aug. 2010).
        \26\ BBB: Fight Back Against Phone Bill ``Cramming,'' Better
    Business Bureau (Nov. 1, 2010).
    ---------------------------------------------------------------------------
    II. The Committee's Investigation
        On June 16, 2010, Chairman Rockefeller opened the Committee's
    investigation into cramming by sending letters to the then three
    largest telephone companies that offered landline telephone service:
    AT&T, Qwest, and Verizon.\27\ The letters requested information and
    documents related to customer complaints about cramming, the companies'
    awareness of the cramming problem, the procedures they put in place to
    combat cramming, and a list of all third-party vendors they have
    allowed to place charges on their customers' telephone bills.
    ---------------------------------------------------------------------------
        \27\ Senate Committee on Commerce, Science, and Transportation,
    Chairman Rockefeller Announces Investigation into Telephone ``Mystery
    Charges'' (Dec. 17, 2010).
    ---------------------------------------------------------------------------
        In July 2010, Chairman Rockefeller sent letters to the FTC and the
    FCC to request copies of the complaints each agency had received over
    the past year that were related to unauthorized third-party charges on
    consumers' landline telephone bills.
        On December 17, 2010, Chairman Rockefeller sent letters to three
    additional companies: daData, Inc., My Service and Support, and MORE
    International.\28\ These three companies appeared to be related to a
    large number of third-party vendors that were placing charges on
    telephone bills, many of which had been the subject of repeated
    consumer complaints about unauthorized charges. The letters asked the
    companies to provide information and documents explaining their
    relationships with the third-party vendors, their role in placing
    charges on consumers' telephone bills, their methods of acquiring
    customers, and complaints related to cramming.
    ---------------------------------------------------------------------------
        \28\ Id.
    ---------------------------------------------------------------------------
        On March 31, 2011, Chairman Rockefeller sent letters to five
    additional telephone companies offering landline telephone service:
    CenturyLink, Windstream, Frontier Communications, FairPoint
    Communications, and Cincinnati Bell.\29\ The letters requested
    information related to the policies and procedures they had in place to
    combat cramming and the numbers and dollar values of third-party
    charges billed to their customers.
    ---------------------------------------------------------------------------
        \29\ Senate Committee on Commerce, Science, and Transportation,
    Rockefeller Probe Into Bogus Charges on Consumer Phone Bills Expands
    (Mar. 31, 2011).
    ---------------------------------------------------------------------------
        On May 19, 2011, Chairman Rockefeller sent letters to eight
    companies that specialize in auditing telephone bills: Advantage IQ,
    Advocate Networks, Cass Information Systems, ProfitLine, SpectraCorp
    Technologies Group, Symphony Services, Tangoe, and Xigo. During the
    investigation, Committee staff observed that many businesses, nonprofit
    organizations, municipalities, and government agencies hired these
    companies to dispute unauthorized charges on their behalf. The
    Committee requested information from these auditors to better
    understand how cramming impacts large business and government entities.
        In the course of the investigation, Committee staff has reviewed
    over 3 million pages of documents. These documents include third-party
    vendor applications submitted to the telephone companies, telephone
    company manuals and procedures for handling cramming, correspondence
    between telephone companies and billing aggregators, correspondence
    between billing aggregators and third-party vendors, and telephone
    companies' and third-party vendors' internal e-mails and communications
    about cramming. In addition, Committee staff reviewed tens of thousands
    of pages of documents related to cramming complaints from consumers,
    businesses, and government agencies.
        Committee staff also interviewed dozens of individuals with
    knowledge of cramming. Committee staff spoke with a wide range of
    telephone users who have been victimized by cramming, from employees of
    large national companies and government agencies, to individual
    households. Committee staff also interviewed: auditors hired by
    companies and government agencies to remove unauthorized third-party
    charges from their landline telephone bills; ``presidents'' of third-
    party vendors; and employees both of telephone companies that offer
    third-party billing and those from companies that have chosen not to
    offer it. Finally, Committee staff spoke to officials from both state
    and Federal agencies, including state attorney general offices and
    state utility commissions, to learn their views on cramming.
    III. Overview of Third-Party Billing on Landline Telephones
        There are two types of third-party billing on landline telephones:
    (1) third-party billing where a vendor, such as a satellite television
    network or a large long distance provider, contracts directly with a
    telephone company to place charges on its customers' bills; and (2)
    third-party billing where the telephone company contracts with a
    ``billing aggregator,'' or ``clearinghouse,'' which maintains business
    relationships with hundreds of other smaller third-party vendors.
        The Committee's investigation has focused on the latter arrangement
    because most third-party charges come through aggregators, and because
    consumer cramming complaints reviewed by Committee staff overwhelmingly
    relate to third-party charges placed through aggregators. As will be
    discussed in the section on ``Illegitimate Third-Party Vendors,'' many
    third-party vendors that bill through aggregators appear to be created
    solely to exploit the weaknesses of the landline telephone third-party
    billing system.
    A. The Third-Party Billing Ecosystem
        When the Committee opened the investigation, Committee staff's
    understanding was that three types of companies play a role in third-
    party billing: third-party vendors, billing aggregators, and telephone
    companies.

            Third-Party Vendors: Hundreds of different third-party vendors
            charge their customers for services through telephone bills.
            These companies claim to offer an array of services, including
            long distance, voice-mail, online backup, online photo storage,
            roadside assistance, and electronic facsimile. To gain access
            to the telephone companies' third-party billing systems, they
            enter into contracts with billing aggregators. They also
            register directly with telephone companies and receive a
            carrier identification code (``sub-CIC'') number.

            Billing Aggregators: The FTC has explained that billing
            aggregators open ``the gate to the telephone billing and
            collection system'' and ``act as intermediaries between the
            [third-party] vendors and the local phone companies'' by
            ``contracting with the local phone companies . . . to have the
            local telephone companies collect . . . charges from
            consumers.'' \30\ Once the charges are collected by the phone
            companies, the billing aggregators, after taking their fee,
            pass the revenues back to their client vendors. A handful of
            aggregators manage third-party vendors' access to landline
            telephone bills. Aggregator names that appear commonly on phone
            bills are: ESBI, ILD Teleservices, OAN, Payment One, the
            Billing Resource, Transaction Clearing, and USBI.
    ---------------------------------------------------------------------------
        \30\ Federal Trade Commission, Telephone ``Crammers'' Settle FTC
    Charges: Billing Aggregators Debited Phone Bills for Charges Consumers
    Didn't Authorize (Aug. 6, 2001).

            Telephone Companies: Telephone companies control access to
            their customers' telephone bills and distribute the revenue
            generated from third-party charges. To place charges on
            telephone bills, a third-party vendor must first acquire a sub-
            CIC number and approval from a telephone company. Once a third-
            party vendor's charges appear on telephone customers' bills,
            the telephone companies, after collecting their fees, pass the
            revenue back to the billing aggregators, which then distribute
            the revenue to the third-party vendors. Committee staff has
            found that many telephone companies--from large national
            carriers like AT&T and Verizon to small independent carriers--
            place third-party charges on their customers' bills.\31\
    ---------------------------------------------------------------------------
        \31\ A number of smaller telephone companies do not allow third-
    party charges on their customers' bills. For example, the Shenandoah
    Telephone Company (Shentel) recently wrote Chairman Rockefeller that it
    eliminated third-party billing in 2007 after receiving cramming
    complaints from its customers. Letter from David E. Ferguson, Vice
    President--Customer Services, Shenandoah Telephone Company, to Senator
    John D. Rockefeller IV (July 5, 2011). The Western Telecommunications
    Alliance told Committee staff that some of its members terminated
    third-party billing ``out of respect for their customers'
    dissatisfaction with being'' crammed and due to ``spending an
    inordinate amount of time and resources trying to get those charges
    removed from their customers' bills.'' E-mail message from Western
    Telecommunications Alliance to Commerce Committee Staff (July 11,
    2011).

        Figure I illustrates the third-party charge process as it is
    usually described by the involved parties. The third-party vendor
    allegedly sells a consumer a service and obtains the consumer's
    ``authorization'' to bill his or her telephone number. The vendor
    passes the number to a billing aggregator, which in turn passes the
    number on to the telephone company that provides the consumer's
    landline telephone service. The vendor's charge then begins appearing
    on the customer's telephone bill. Once a customer pays his or her bill,
    the telephone company collects the portion of the payment that covers
    the third-party charges and, after taking its fees for placing the
    third-party charges, distributes the revenue to the billing aggregator,
    which then distributes to the corresponding third-party vendor.
        As Committee staff conducted the investigation, it became apparent
    that the actual third-party billing ecosystem is more complicated. Many
    third-party vendors are actually ``front companies'' for ``hub
    companies'' that handle every aspect of the vendors' business. In other
    words, many third-party vendors do not actually provide the services
    they claim to provide in their applications to the telephone companies.
    Committee staff found dozens of examples of third-party vendors that
    were in fact controlled by hub companies.

        The apparent purpose of hub companies is to game the third-party
    billing system. If a large number of consumers complain to telephone
    companies or law enforcement authorities about a particular third-party
    vendor, the hub company can simply shift additional enrollments to
    other third-party vendors it controls. When one larger company operates
    through multiple smaller third-party vendors, it is more difficult for
    telephone companies and other authorities to determine how much
    cramming is occurring and who is responsible for it. Part V of this
    report provides detailed information about hub companies Committee
    staff examined during this investigation.
        Complicating matters further, Committee staff found evidence that
    hub companies outsource marketing and enrollment to companies called
    ``lead generators.'' Lead generators are paid to obtain customers'
    ``authorizations'' to bill their telephone numbers. They pass the
    allegedly authorized telephone numbers onto the hub companies, which
    then pass the numbers to the billing aggregators under the names of
    different front companies. This arrangement invites abuse because lead
    generators are apparently paid based upon how many consumers they
    enroll, rather than for providing services or maintaining relationships
    with customers. Their practices will be discussed further in the next
    section of this report.
    B. The Cost and Scope of Third-Party Billing
        To understand the scope of third-party billing, the Committee
    requested financial information about third-party billing from eight
    providers of landline telephone service--AT&T, Verizon, Qwest,
    CenturyLink, Windstream, FairPoint, Frontier, and Cincinnati Bell.
    Based upon the information the Committee obtained in response to these
    requests, third-party billing on landline telephone bills is a billion-
    dollar industry. In recent years, approximately 300 million separate
    third-party charges, worth more than $2 billion, have been placed on
    landline customers' telephone bills each year.\32\ As will be discussed
    further below, the information Committee staff has reviewed during this
    investigation suggests that a substantial percentage of these charges
    were unauthorized.
    ---------------------------------------------------------------------------
        \32\ The Committee requested the number of third-party charges, the
    dollar value of the third-party charges placed on consumers' telephone
    bills, and the revenue made by the telephone companies for placing
    third-party charges on consumers' telephone bills. In some cases, the
    companies were unable to provide the information for the complete
    requested length of time. Although the data provided in this report are
    presented in aggregate, it should be noted that the number of third-
    party charges, dollar value of third-party charges, and revenue derived
    from third-party charges have declined over the past 2 years.
    ---------------------------------------------------------------------------
        The information provided by the telephone companies also shows that
    they earn significant revenues by placing third-party charges on their
    customers' bills. For example, Verizon explained to the Committee that
    it ``receives a flat fee between $1 and $2 per charge for placing
    third-party charges'' on its customers' bills.\33\ In the past decade,
    telephone companies have generated well over a billion dollars in
    revenue through third-party billing. Since 2006, AT&T, Qwest, and
    Verizon, in total, have earned more than $650 million through third-
    party billing.\34\
    ---------------------------------------------------------------------------
        \33\ Letter from Mark J. Montano, Verizon Assistant General
    Counsel, to Erik Jones, Counsel to the Senate Commerce Committee (July
    30, 2010).
        \34\ Verizon and Qwest provided the Committee with revenue broken
    down by billing aggregator. AT&T provided a total for third-party
    billing. As a result, this figure may include non-aggregator derived
    revenue.
    ---------------------------------------------------------------------------
    IV. Cramming Through Third-Party Billing
        Over the past year, Committee staff has confirmed millions of
    instances of cramming on thousands of landline telephone bills.
    Unauthorized third-party charges have harmed all types of telephone
    customers, from residences and small businesses, to large companies and
    government agencies. Although it is difficult to determine precisely
    how many third-party charges are unauthorized, the evidence obtained
    through this investigation overwhelmingly suggests that it is a
    substantial percentage. Because so many third-party charges are
    unauthorized, the third-party billing system that was initially
    promoted as a ``convenience for telephone customers'' has instead made
    them targets for scams. Third-party billing has likely cost telephone
    customers billions of dollars in unauthorized charges and wasted time
    over the past decade.
        Committee staff has reviewed thousands of pages of complaints and
    letters from angry, frustrated landline telephone customers who did not
    understand why third-party vendors were allowed to place unauthorized
    charges on their telephone bills or why their telephone companies
    refused to resolve the unauthorized charges for them. Telephone
    customers used words like ``fraud,'' ``scam,'' ``theft,''
    ``hoodwinked,'' ``shocked,'' ``disgusted,'' ``upset,'' ``stealing,''
    ``bad business,'' ``taking advantage,'' ``disappointed,'' and
    ``unethical'' to describe their experiences with third-party billing.
    In a complaint to the Better Business Bureau (BBB), an AT&T customer
    shared the following sentiment, which is also expressed in thousands of
    other complaints:

            I am concerned for many like myself who really have to decide
            whether they are going to pay their bills or eat for the month.
            When I have tried [to contact] these fly by night companies who
            are bil[k]ing me with AT&T's blessing, I get the runaround or
            disconnected. This is very frustrating and it needs to stop. I
            never agreed to have AT&T allow third party billers to charge
            me for services I never ordered and do not want.\35\
    ---------------------------------------------------------------------------
        \35\ Better Business Bureau, Complaint Activity Report, Case No.
    27102339 (June 29, 2009) (AT&T Doc. CST009711).
    ---------------------------------------------------------------------------
    A. How Cramming Occurs
        For cramming to occur, three separate actions are required: (1) a
    third-party vendor obtains the telephone number of a consumer who has
    allegedly purchased a service, (2) the third-party vendor submits that
    telephone number to a telephone company through a billing aggregator,
    and (3) the telephone company places the allegedly ``authorized''
    charge for the third-party vendor on the consumer's telephone bill.
    Because telephone companies do not have their own processes to
    determine if a consumer has ``authorized'' a charge, once a company
    engaged in cramming has obtained a consumer's telephone number, it is a
    simple process to have the charge placed on the consumer's telephone
    bill. As a result, at its most basic level, cramming is about obtaining
    telephone numbers.
        Crammers obtain telephone numbers in one of two ways. They either
    obtain a consumer's telephone number without ever interacting with the
    consumer; or they dupe a consumer, through abusive marketing, into
    providing his or her telephone number and ``authorization.'' When they
    are asked to provide proof that a consumer has ``authorized'' a charge,
    crammers routinely provide information that is inaccurate or
    insufficient to show that a consumer knowingly purchased the service.
    1. No Consumer Involvement
        In the 1990s, the GAO observed that ``[s]ome vendors apparently
    have simply lifted names and numbers from telephone directories to
    charge businesses for nonexistent services.'' \36\ Through its
    investigation, Committee staff has obtained evidence showing that, over
    a decade later, third-party vendors continue to engage in similar
    practices. A third-party vendor needs nothing more than information
    that is publicly available, or that can be purchased from ``lead
    generators,'' to enroll consumers in its so-called services. Unlike
    credit cards, which consumers know to protect, telephone numbers are
    widely available. Once crammers have obtained this information, it is a
    simple process to submit those numbers to telephone companies.
    ---------------------------------------------------------------------------
        \36\ General Accounting Office, Overview of the Cramming Problem
    (GAO/T-RCED-00-28) (Oct. 25, 1999).
    ---------------------------------------------------------------------------
        Telephone customers frequently submit complaints to telephone
    companies, consumer advocates, and regulatory offices with proof that
    they did not provide their telephone numbers to the third-party vendors
    that placed charges on their bills. The following examples are
    representative of thousands of complaints reviewed by Committee staff.
        Deceased Relatives Many telephone customers complained that third-
    party vendors provided the names of deceased relatives when asked who
    authorized the charges on their telephone bills. A telephone customer
    stated, ``they informed me my deceased son, he died 9 years ago, had
    signed me up for this service,'' \37\ while another stated, ``they told
    me it [the service] was ordered by Jean W.--he has been deceased for 36
    years.'' \38\ Another frustrated customer stated, ``They informed me
    that my husband . . . had ordered the service and I would have to know
    his security information. When I explained that my husband died 13
    years ago, they told me that I must have ordered it in his name.'' \39\
    ---------------------------------------------------------------------------
        \37\ Consumer complaint to Arkansas Attorney General (Dec. 14,
    2009) (AT&T Doc. CST029520).
        \38\ Consumer complaint to Kansas Attorney General (Nov. 1, 2009)
    (AT&T Doc. CST030067).
        \39\ Consumer complaint to Oregon PUC (July 2, 2008) (Qwest Doc.
    QSC0015024).
    ---------------------------------------------------------------------------
        Incorrect Personal Information Telephone customers repeatedly
    complained that the information that third-party vendors provided as
    proof of authorization was incorrect. A Verizon customer complained
    that ``it was done in our daughter's name but with her actual name
    reversed, wrong e-mail address, wrong birth date, but with our correct
    home phone number and home address. Neither we nor she ever signed up
    for this service.'' \40\
    ---------------------------------------------------------------------------
        \40\ Consumer complaint to Verizon (Aug. 20, 2009) (Verizon Doc.
    VZ_003_002040).
    ---------------------------------------------------------------------------
        A Connecticut resident complained that a third-party vendor called
    Billviaphone.com had his address wrong and had informed him that
    ``Michael . . . had signed up online.'' \41\ He explained that,
    ``[t]here's no Michael here, just Mark & Nancy.'' \42\ In another
    complaint, a manager from the Oklahoma Corporation Commission contacted
    AT&T on behalf of an Oklahoma resident. She was ``concerned'' about the
    proof of enrollment that had been provided because it was not the
    information for the person who had been charged.\43\
    ---------------------------------------------------------------------------
        \41\ Consumer e-mail to Better Business Bureau of Connecticut (Aug.
    21, 2009) (AT&T Doc. CST009842).
        \42\ Id.
        \43\ E-mail from Oklahoma Corporation Commission to AT&T employees
    (Feb. 9, 2010) (AT&T Doc. CST0219835).
    ---------------------------------------------------------------------------
        Unpublished Numbers Numerous businesses and government agencies
    told Committee staff they have incurred crammed charges on telephone
    lines that are dedicated to alarm systems, elevators, modems, and other
    lines that are not assigned to any employees. They stated that they do
    not believe their employees could have enrolled those telephone lines
    in any services because the telephone numbers for the lines are
    unpublished and unknown to employees. For example, a large, multistate
    bank sent Committee staff a spreadsheet showing the following examples
    of cramming since May 2010:

       alarm lines incurred charges for directory listings,
            ``eBusiness Marketing Materials,'' ``online business,''
            electronic facsimile, long distance plans, and Internet radio;

       an ATM line incurred charges for ``Internet services;''

       remote call forwarding lines incurred charges for ``Instant
            411,'' online coupons, directory listings, photo storage,
            electronic facsimile, monthly ringtones, IT support, Internet
            TV, and music downloads;

       a modem line incurred charges for voice-mail;

       a data line incurred charges for music downloads;

       emergency call lines incurred charges for electronic
            facsimile and online diet services;

       equipment monitoring lines incurred charges for voice-mail;

       a VoIP test line incurred charges for music downloads; and

       a facsimile line incurred charges for online entertainment
            news.

        Another bank told Committee staff that it believes that much of the
    $20,000 worth of cramming it incurred in the first several months of
    2011 occurred on unpublished telephone numbers for modems, alarms,
    facsimile machines, and other telephone lines that are not assigned to
    individual employees. An office property company reported that it has
    incurred charges on telephone lines for elevators and alarms. The U.S.
    Naval Computer and Telecommunication Station in San Diego stated that
    the crammed charges it has incurred on central office trunk lines must
    be ``100 percent fraud'' because Naval personnel do not know the
    telephone numbers associated with those lines, the numbers are
    unpublished, and the numbers do not appear on caller identification
    records because they are not connection points for telephone calls.\44\
    ---------------------------------------------------------------------------
        \44\ Committee staff telephone interview with United States Navy
    personnel (May 2, 2011).
    ---------------------------------------------------------------------------
        Fake Internet Enrollments Telephone customers have repeatedly
    complained that they were told they enrolled for third-party vendors'
    services via websites, even though they did not have a computer or
    access to the Internet. An AT&T Arkansas customer explained, ``I was
    told it was `triggered' online. I have no computer . . . and have never
    been online.'' \45\
    ---------------------------------------------------------------------------
        \45\ Consumer complaint to Arkansas Attorney General (Dec. 18,
    2009) (AT&T Doc. CST029539).
    ---------------------------------------------------------------------------
        This type of complaint frequently came from senior citizens or
    their caregivers. A Qwest customer complaining on behalf of her father
    was told ``that it was an online order of some sort,'' but she
    explained that ``her father who lives in an assisted living facility .
    . . does not own, or [know] how to use a computer.'' \46\
    ---------------------------------------------------------------------------
        \46\ Consumer complaint to Oregon PUC (Apr. 24, 2008) (Qwest Doc.
    QSC0014820).
    ---------------------------------------------------------------------------
        In a particularly egregious example, a man complained on behalf of
    his 82 year-old mother-in-law about a third-party vendor called Talent
    & More LLC,\47\ which charged her telephone number for a ``web-hosting
    personal profile'' allegedly marketed to ``casting agents'' for
    ``booking talent.'' \48\ When he called Talent & More to dispute the
    charges, the company ``insisted that she ordered the web design
    services via the Internet and refused to remove the charges.'' \49\ In
    a letter to the Connecticut Attorney General, the son-in-law explained,
    ``My Mother-in-Law is 82 years old, does not have Internet access, and
    would not know how to use a website.'' \50\
    ---------------------------------------------------------------------------
        \47\ Letter to the Office of the Connecticut Attorney General (July
    22, 2009) (AT&T Doc. CST 2622056).
        \48\ Talent and More LLC, ``About Us'' Page, (online at
    www.talentandmore.com/talent/index.php?page=about) (accessed on Jul. 7,
    2011).
        \49\ Letter to the Office of the Connecticut Attorney General (July
    22, 2009) (AT&T Doc. CST 2622056).
        \50\ Id.
    ---------------------------------------------------------------------------
        Even telephone companies realized that Internet enrollment for
    third-party charges on telephone bills was vulnerable to fraud. In June
    2009, a Verizon employee who worked in the company's Cyber Security and
    Telecommunications Fraud group received a cramming complaint from the
    Michigan State Police. When the Verizon employee reviewed the letter of
    authorization [LOA] that purported to show that a Michigan consumer had
    enrolled in a service called Diamond Debt Solutions, he sent an e-mail
    message to a Verizon employee who worked on third-party billing issues.
    He wrote:

        I received the LOA [letter of authorization]. Thanks. Wow. A person
    goes online and fills that out, and once they put in the phone number
    that person gets the bills. System open for abuse or fraud. If I worked
    for Diamond Debt Solutions I could sit at home tonight and fill out a
    bunch of these, especially if I had a non-static IP address. Does
    Verizon get paid by companies line Paymentone, ILD, etc, for us doing
    their billing, or does the govt make us? \51\
    ---------------------------------------------------------------------------
        \51\ Internal Verizon e-mail (June 11, 2009) (Verizon Doc.
    VZ_004_232436).
    ---------------------------------------------------------------------------
    2. Abusive Marketing
        Small business owners repeatedly complain to their telephone
    companies, their state attorneys general, their state public utilities
    commissions, and the BBB that third-party vendors use abusive
    marketing, commonly through telemarketing, to charge their telephone
    numbers for services they did not authorize or use. This abusive
    practice dates back to the 1990s.
        Small business owners reported that telemarketers enroll their
    businesses by calling their main lines, typically answered by clerks,
    cashiers, or part-time employees, and reading quickly through scripts
    that are difficult to follow. When small business owners challenge the
    third-party charges, the third-party vendors either cannot provide a
    recording of the alleged authorization or they provide a recording that
    shows their employees did not understand what was occurring during the
    call.
        In a complaint to the California Public Utilities Commission, a
    small business owner explained:

            Our company was charged 4 times the amount of $49.95 for a
            total of $199.80 for services never ordered. When I called the
            company they told us that someone named Johnny Thomson had
            ordered services, a person we never heard of. I asked to hear
            the recording message with the order and Brianna [an employee
            of the third-party vendor] refused to let me do so.\52\
    ---------------------------------------------------------------------------
        \52\ Complaint to the California Public Utilities Commission, CPUC
    Case Number: 08-05-6106 (Aug. 27, 2008) (AT&T Doc. CST017883).

        An anesthesiologist in Indiana discovered two years' worth of
    unauthorized third-party charges on his AT&T telephone bill and
    instructed one of his employees to call the company placing the
    charges. The third-party vendor told the employee that she had
    authorized the charge, but she was told ``the recording was unavailable
    at the time.'' \53\ A small business in Tennessee that specializes in
    landscape design and maintenance wrote a letter to AT&T stating,
    ``[t]hey said (during both phone conversations) that they had a
    recording of the conversation and they would e-mail it to me within 72
    hours to confirm their assertion that I agreed to charges. On both
    occasions the company has failed to produce a recording.'' \54\
    ---------------------------------------------------------------------------
        \53\ Better Business Bureau, Complaint Activity Report, Case No.
    27123938 (Dec. 4, 2009) (AT&T Doc. CST009926).
        \54\ Letter to AT&T (Feb. 6, 2010) (AT&T Doc. CST009897).
    ---------------------------------------------------------------------------
        When recordings were provided to small business owners, they did
    not demonstrate that the businesses had authorized the services. An
    insurance agent in Missouri explained:

            A telemarketer . . . contacted my business and added 2 separate
            services I already had or did not want. The first person they
            talked to was a part-time 17-year-old student who did filing
            only. The other was a 20-year-old apprentice . . . at no point
            did they ask for the owner . . . You can tell in the recording
            the young girl was confused.\55\
    ---------------------------------------------------------------------------
        \55\ Better Business Bureau, Complaint Activity Report, Case No.
    27108381 (July 31, 2009) (AT&T Doc. CST010018).

        Through the investigation, the Committee has obtained voice
    ``verification'' recordings of third-party vendors conducting
    telemarketing. The recordings show telemarketers quickly reading
    through very long scripts, while employees answer ``yes'' or ``OK'' to
    questions they clearly do not understand. Business owners also allege
    that these recordings are sometimes altered to falsely show that the
    business owner authorized the charge. The owner of an Iowa agriculture
    business complained to the Iowa Utilities Board in 2008 that a
    recording purportedly verifying his purchase of a long distance service
    ``sounds like his voice at the beginning and the end of the recording,
    but not in the middle of the recording, in which the authorization is
    given.'' \56\
    ---------------------------------------------------------------------------
        \56\ Billing on Petition for Judicial Review, Office of Consumer
    Advocate v. IA Utilities Board and Silv Communications, Iowa D. Ct.,
    Polk County (Case No. CVCV008184) (June 30, 2011).
    ---------------------------------------------------------------------------
        Many business owners also complained that on unrecorded portions of
    the telemarketing calls, crammers falsely promised that the business
    would receive free services. The business manager of a Missouri
    veterinary clinic complained to the FCC and BBB that his office was
    charged by a vendor called the ``Official Small Business Association,''
    after a telemarketer assured him that the only purpose of the call was
    to verify the company's information ``for an Internet directory
    listing.'' The manager said he responded affirmatively to the
    telemarketer's verification questions only because he thought the
    Internet directory listing was free.\57\
    ---------------------------------------------------------------------------
        \57\ Federal Communications Commission, Informal Complaint # 10-
    C00239929-1 (Aug. 16, 2010). This complaint was improperly adjudicated
    as a ``slamming'' complaint. In the Matter of Official Small Business
    Association, IC No. 10-S2806974 (Jan. 31, 2011).
    ---------------------------------------------------------------------------
        These accounts are consistent with the experiences of other law
    enforcement officials. At a recent FTC forum, Illinois Assistant
    Attorney General Elizabeth Blackston described two common fraudulent
    telemarketing tactics used against small businesses:

            [O]ften we see what we construe to be a deceptive and untaped
            sales pitch followed by the taped verification conversation.
            And another scenario we've seen is, in some cases, we don't
            even believe that the verification of the telemarketing
            actually took place. And the reason we think this is because
            whenever we request information from the company, when someone
            has complained to us . . . in the case of a small business,
            we'll be provided with the name of someone who never worked for
            the company.\58\
    ---------------------------------------------------------------------------
        \58\ Federal Trade Commission Cramming Forum, Examining Phone Bill
    Cramming, A Discussion (May 11, 2011) (online at http://www.ftc.gov/
    bcp/workshops/cramming/).
    ---------------------------------------------------------------------------
    B. Cramming's Impact on Telephone Customers
        Unauthorized third-party charges have harmed all types of telephone
    customers, from residences and small businesses, to government agencies
    and large companies. Every part of the private sector and all levels of
    government have been harmed by cramming. A consistent theme running
    through the many stories of consumer cramming that have been reviewed
    during this investigation is that while it appears to be very easy for
    a third-party vendor to place unauthorized charges on consumers' phone
    bills, it is difficult and time-consuming for consumers' to remove
    these charges from their bills and receive refunds.
        Committee staff has spoken with hundreds of residential customers
    and dozens of nonresidential customers who have been crammed, and have
    reviewed thousands of complaints that telephone customers submitted to
    the FTC, FCC, BBB, state attorneys general, and telephone companies.
    Using this information, Committee staff compiled summaries of telephone
    customers' experiences with cramming (See Appendix A) and a sample list
    of businesses, governmental entities, and nonprofit organizations that
    have been crammed (See Appendix B).
    1. Time and Money
        The unauthorized charges that are crammed onto telephone customer's
    bills are typically between $10 and $50. These charges, although
    relatively minor if they occur only once, can quickly amount to
    significant losses for telephone customers. To maximize revenue,
    crammers charge consumers on a recurring monthly basis for their
    ``services,'' so that the charges will continue as long as consumers
    fail to discover them.
        Residences and small businesses affected by cramming have generally
    experienced losses in the hundreds and thousands of dollars.\59\ Larger
    organizations, like government agencies and corporations, sometimes
    experience unauthorized third-party charges worth tens of thousands of
    dollars a year.\60\ Because large organizations often have thousands of
    telephone lines in hundreds of locations, they are particularly
    susceptible to cramming.
    ---------------------------------------------------------------------------
        \59\ See Appendix A, ``Cramming Case Studies,'' for summaries of
    telephone customers' experiences with third-party billing and cramming.
        \60\ Id.
    ---------------------------------------------------------------------------
        For example, the United States Postal Service would have incurred
    over $500,000 worth of unauthorized charges if it had not hired a
    company to audit its telephone bills, while a large food chain told
    Committee staff that it incurs approximately $100,000 worth of
    unauthorized charges on a yearly basis.\61\ Even AT&T experiences
    cramming on its telephone lines. Committee staff confirmed that third-
    party vendors associated with one hub company crammed at least 80 of
    AT&T's own telephone lines with charges for services such as voice
    mail, sometimes for periods as long as 18 months.\62\
    ---------------------------------------------------------------------------
        \61\ Id.
        \62\ 86 separate e-mails from AT&T employees to billing aggregator
    ESBI regarding cramming on 86 AT&T corporate telephone lines (dated
    Mar. 2, 2009-Nov. 4, 2010) (produced to Committee by daData, Inc.,
    without Bates numbers).
    ---------------------------------------------------------------------------
        Battling unauthorized third-party charges also costs telephone
    customers significant amounts of time, effort, and money. Telephone
    customers shared the following experiences in complaints, which are
    similar to those of thousands of other customers:

       A Qwest customer stated, ``this is the 5th time that I have
            had charges added to my bill . . . [e]very time I have spent at
            least a half hour of my time getting these services removed . .
            . I'm sick of this.'' \63\
    ---------------------------------------------------------------------------
        \63\ State of Utah, Division of Public Utilities, Informal
    Complaint Report, Index No. 3343 (Aug. 3, 2010) (Qwest Doc.
    QSC0015631).

       An AT&T customer expressed his frustration after he tried
            unsuccessfully to have third-party charges removed from his
            bill. He stated, ``[t]his is the 2nd or 3rd time within about 4
            years that something like this has happened to us with AT&T . .
            . where they arbitrarily allow 3rd party companies to start
            billing for some claimed service. THIS IS BUSINESS FRAUD.''
            \64\
    ---------------------------------------------------------------------------
        \64\ State of California, Public Utilities Commission, CPUC Case
    No. 08-05-6676 (Aug. 29, 2008) (AT&T Doc. CST017888).

       A Verizon customer stated, ``I had to call ESBI [a billing
            aggregator] to tell them to remove this from my bill as I never
            ordered voice-mail from either company. This happens quite
            often and it appears that Verizon allows them to do this.
            Verizon is also in on this little scam, otherwise, how could it
            get on the bills they send out.'' \65\
    ---------------------------------------------------------------------------
        \65\ Federal Trade Commission, Complaint Database, Reference No.
    26258283 (Apr. 27, 2010).

        As will be discussed further in Part VI, telephone companies
    frequently failed to satisfactorily address their customers' cramming
    inquiries. The complaints obtained through the investigation showed
    that telephone customers often needed to enlist the help of state
    regulatory agencies or the BBB in order to receive assistance from
    their telephone companies. Telephone customers also spent countless
    hours trying to stop third-party charges by directly contacting third-
    party vendors or the billing aggregators.
    2. Not a ``Customer Convenience''
        In their complaints to the BBB, telephone companies, state public
    utilities commissions, and state attorneys general, telephone customers
    repeatedly asked why third-party billing was allowed to occur. An AT&T
    customer from Michigan, after experiencing unauthorized charges for an
    e-mail service, commented, ``This practice is weird. It would be like
    getting an electric bill with my propane bill. It doesn't make any
    sense.'' \66\
    ---------------------------------------------------------------------------
        \66\ Better Business Bureau, Complaint Activity Report, Case No.
    27135807 (Mar. 9, 2010) (AT&T Doc. CST009999).
    ---------------------------------------------------------------------------
        In 2009, AT&T surveyed and interviewed some of its larger
    nonresidential customers, including educational institutions,
    government offices, and corporations. When AT&T asked the customers to
    make suggestions for improving AT&T's billing services, many of the
    customers, without prompting, brought up the issue of cramming. They
    stated they were angry that AT&T allowed third-party vendors to place
    charges on their bills without authorization. They also expressed
    frustration that AT&T placed the burden on customers to cancel the
    charges and obtain billing credits for charges they should not have
    incurred in the first place.
        Suggestions for stopping third-party billing and other negative
    statements included the following:

       University of Texas System: ``My biggest complaint is the
            unauthorized charges `cramming' that frequently appear on my
            bill.'' \67\
    ---------------------------------------------------------------------------
        \67\ Response to AT&T Survey (Oct. 1, 2009) (AT&T Doc. CST2389396-
    98).

       City of Alexandria, LA: ``Do not allow third parties to bill
            charges to my account.'' \68\
    ---------------------------------------------------------------------------
        \68\ Response to AT&T Survey (Nov. 2, 2009) (AT&T Doc. CST2389384-
    86).

       City of Elmhurst, IL: ``Not allow any third-party billing.
            Companies access to our account. We were `crammed' for six
            months.'' \69\
    ---------------------------------------------------------------------------
        \69\ Response to AT&T Survey (Sep. 25, 2009) (AT&T Doc. CST2389416-
    18).

       United Van Lines: ``Stop all third party charges. Take
            ownership of removing third party charges when disputed.'' \70\
    ---------------------------------------------------------------------------
        \70\ Response to AT&T Survey (Sep. 1, 2009) (AT&T Doc. CST2389317-
    19).

       Questar Corporation: ``Stop allowing third party charges to
            be attached to account without prior approval.'' \71\
    ---------------------------------------------------------------------------
        \71\ Response to AT&T Survey (Nov. 25, 2009) (AT&T Doc. CST2389321-
    23).

       Hibbett Sports: ``Don't allow third party vendors to bill us
            on your bill. This issue makes us very mad and we are
            considering moving all of our [the rest of the sentence is
            cutoff].'' \72\
    ---------------------------------------------------------------------------
        \72\ Response to AT&T Survey (Aug. 13, 2009) (AT&T Doc. CST2389289-
    91).

       Valero Energy Corp.: ``We have many issues with third party
            billers for products we have not requested. It would be nice if
            you could block all of our accounts from these third party
            billers.'' \73\
    ---------------------------------------------------------------------------
        \73\ Response to AT&T Survey (Nov. 3, 2009) (AT&T Doc. CST2373551-
    53).

       Children's Medical Center of Dallas: ``. . . Hate the
            passing through of bad/fraudulent billing of other companies.''
            \74\
    ---------------------------------------------------------------------------
        \74\ Response to AT&T Survey (Oct. 16, 2009) (AT&T Doc. CST2389348-
    50).

       Jackson Park Hospital Foundation: ``Too many 3rd party
            billing issues after blocks were in place!'' \75\
    ---------------------------------------------------------------------------
        \75\ Response to AT&T Survey (Sep. 1, 2009) (AT&T Doc. CST2389356-
    58).

       Doctors Hospital of Springfield: ``You need to offer a
            blanket vendor freeze on accounts. It is too easy for
            unauthorized people to add stuff to bill.'' \76\
    ---------------------------------------------------------------------------
        \76\ Response to AT&T Survey (Dec. 10, 2009) (AT&T Doc. CST2389360-
    62).

       Crestwood Behavioral Health, Inc.: ``Third party billers
            should not be allowed.'' \77\
    ---------------------------------------------------------------------------
        \77\ Response to AT&T Survey (Sep. 24, 2009) (AT&T Doc. CST2389364-
    66).
    ---------------------------------------------------------------------------
    C. Telephone Bill Auditors
        During the investigation, Committee staff learned that companies,
    government agencies, and nonprofits frequently hire firms specializing
    in telephone bill audits to help them discover unauthorized charges on
    their bills and dispute those charges. In response to requests from the
    Committee, seven auditing companies sent the Committee information
    related to cramming.\78\ Collectively, these seven auditing firms
    helped more than 800 clients deal with cramming on their landline
    telephone bills during the past 5 years. Their clients were nonprofits,
    municipal governments, Federal Government offices, and businesses from
    all parts of the private sector, including legal services, financial
    services, manufacturing, retail, automotive, health care, and
    pharmaceuticals. As the table shows, the auditors identified cramming
    charges on most of their clients' bills.\79\
    ---------------------------------------------------------------------------
        \78\ The Committee sent eight firms requests for data related to
    cramming: Advantage IQ, Inc., Advocate Networks, LLC, Cass Information
    Systems, Inc., ProfitLine, Inc., SpectraCorp Technologies Group,
    Symphony Services Corp., Tangoe, Inc., and Xigo, LLC. Symphony Services
    Corp. did not provide data because detection of crammed charges ``is
    not a key focus of its telecom services business,'' and it would have
    needed to spend ``significant time and expense'' to provide the
    requested data.
        \79\ Due to confidentiality agreements with their clients, the
    auditors requested that the information they provided to the Committee
    be presented in a manner that did not specifically identify companies.
    ---------------------------------------------------------------------------
        According to information the companies provided to the Committee,
    almost all of the third-party charges they identified on their clients'
    bills--more than 300,000--were not authorized by their clients. The
    firms also explained that they disputed cramming charges placed by
    hundreds of different third-party vendors.\80\ One firm estimated that
    800 different third-party vendors had placed unauthorized charges on
    its clients' telephone bills during the past 5 years.
    ---------------------------------------------------------------------------
        \80\ As one auditing firm stated, ``the constant change in names
    used and line items billed'' makes it difficult to state the precise
    number of different third-party vendors that have placed third-party
    charges on the auditing firms' clients' telephone bills.

        The auditing firms also reported that some of their clients
    incurred staggering amounts of unauthorized charges on their landline
    telephone bills. One firm reported that a client incurred more than
    14,000 unauthorized third-party charges over a twelve-month period, and
    that a pharmaceutical company client incurred more than $334,000 in
    crammed charges during a twelve-month period. Another auditor estimated
    that one of its clients experienced more than 3,700 unauthorized third-
    party charges during a twelve-month period, totaling more than $60,000
    in charges. A third reported that it identified more than 1,900
    instances of unauthorized third-party charges on one individual
    client's telephone bills in 2009, and that one of its clients would
    have incurred more than $1 million in crammed charges in 2009 if the
    audit company had not been actively monitoring and canceling the
    crammed charges.
    V. Illegitimate Third-Party Vendors
        As part of its investigation into cramming and third-party billing,
    the Committee requested that AT&T, Qwest, and Verizon provide a list of
    the third-party vendors they had allowed to place charges on their
    customers' landline telephone bills. The Committee took this step
    because, in recent years, state and Federal authorities have brought
    multiple law enforcement cases showing that illegitimate third-party
    vendors were able to repeatedly cram telephone customers without
    triggering telephone companies' monitoring systems. One of the goals of
    this investigation has been to determine how many crammers are
    currently operating on the telephone companies' landline billing
    systems.
    A. Overview of Approved Third-Party Vendors
        Using information provided by AT&T, Qwest, and Verizon, Committee
    staff compiled a list of approximately 1,000 different third-party
    vendors that are currently billing or have recently billed landline
    telephone bills (See Appendix C for a sample list of third-party
    vendors). These companies allegedly offer consumers a variety of
    services, including voice mail, webhosting, electronic fax service,
    online gaming, e-mail, online photo storage, online backup, and
    roadside assistance.
        The Committee staff's review of these companies suggests that many
    of them are not engaged in legitimate commerce. Thousands of consumers
    have complained about many of these third-party vendors to state
    regulatory agencies, the FTC, FCC, BBB, telephone companies, and
    consumer-oriented websites for placing unauthorized third-party charges
    on their telephone bills. As of November 2010, the BBB had given either
    a `D' or an `F' grade to at least 250 of these companies for unresolved
    complaints related to unauthorized third-party charges on landline
    telephone bills.\81\
    ---------------------------------------------------------------------------
        \81\ This figure does not mean that only 250 third-party vendors
    received a `D' or `F' from the BBB. Committee staff started reviewing
    BBB scores to understand the kinds of companies using third-party
    billing. Once staff reached 250 companies with `D' or `F' grades from
    the BBB, it stopped the review. If the review had continued, the number
    would have been higher.
    ---------------------------------------------------------------------------
        Many of these third-party vendors appear to be created solely to
    exploit the weaknesses of third-party billing on landline telephone
    bills. They do not market their services, their websites are barely
    functional, and they offer services that consumers would unlikely
    purchase knowingly. Committee staff also found that many of these
    seemingly unrelated third-party vendors shared nearly identical
    websites and had the same addresses or contact information. Rather than
    hundreds of different companies, it appeared that a smaller number of
    ``hub companies'' used third-party vendors as ``front companies'' to
    conduct their business with the telephone companies.
    B. Third-Party Vendors Investigated by the Committee
        To better understand the relationships between third-party vendors,
    the Committee requested information from three companies--daData, Inc.,
    My Service and Support, and MORE International. Committee staff found
    that most of the third-party vendors related to each of these companies
    were actually ``front companies'' that have no real corporate structure
    or assets, and play no role in providing products or services to
    consumers. Over the past several months, Committee staff has called
    hundreds of these companies' ``customers,'' and has yet to locate a
    single individual who says he or she authorized these companies to
    charge their phone bills, or has used a service these companies
    purportedly offered.
    1. Interrelated Third-Party Vendors
        The Committee requested information from each company to determine
    what role they played in third-party billing. The evidence obtained by
    the Committee suggests that daData, My Service and Support, and MORE
    International are each part of complex enterprises that are engaged in
    cramming and designed to conceal their true activities and structure
    from the public and telephone companies.
        daData daData acknowledged to the Committee that it shared common
    ownership with at least eight third-party vendors.\82\ For
    approximately 40 other third-party vendors, daData first informed the
    Committee that it provided ``support services . . . including
    marketing, quality control, customer service, billing regulatory, and
    accounting services.'' \83\ daData referred to its clients as ``a
    diverse group of businesses that offer technically-driven products and
    services directly to consumers and businesses.'' \84\
    ---------------------------------------------------------------------------
        \82\ These third-party vendors were: My Info Guard, LLC; New Link
    Network, LLC; NS Voice-mail, LLC; Total I Protect, LLC; Total
    Protection Plus, LLC; USA Voice-mail, Inc.; Vendor Promotions, Inc.;
    and VoiceXpress, Inc. Letter from Andrew Lustigman, counsel to daData,
    to Senator John D. Rockefeller IV (Jan. 21, 2011), at 12.
        \83\ Id. at 2.
        \84\ Id.
    ---------------------------------------------------------------------------
        After further questioning from Committee staff, daData acknowledged
    that it actually controlled the technology for most of the services
    that its ``clients'' allegedly offered. For example, approximately 25
    of daData's ``clients'' offered an electronic facsimile service to
    telephone customers.\85\ daData first explained that these ``clients
    provide customers with a personal electronic fax number and the ability
    to send and receive faxes on a computer without any specialized
    equipment.'' \86\ daData later admitted that it controlled the
    electronic fax service that these third-party vendors offered.\87\
    Committee staff also confirmed that daData was listed as the
    ``registrant'' for these third-party vendors' websites. A review of
    these websites shows that they are remarkably similar (See Appendix D,
    ``Websites for daData-Related Third-Party Vendors That Offered
    `Electronic Fax Services' '').
    ---------------------------------------------------------------------------
        \85\ Committee staff obtained a username from BLVD Network, a
    daData ``client'' allegedly offering ``electronic fax.'' Committee
    staff was able to use the same user name and password to log into more
    than a dozen different electronic fax service websites that were
    ``clients'' of daData's. The impact of interrelated third-party vendors
    is discussed further in Section V.
        \86\ Letter from Andrew Lustigman, Counsel to daData, to Senator
    John D. Rockefeller IV (Feb. 17, 2011) (hereinafter ``Lustigman Feb.
    17, 2011 Letter''), at 3-6; Letter from Andrew Lustigman, counsel to
    daData, to Senator John D. Rockefeller IV (Jan. 21, 2011) (hereinafter
    ``Lustigman Jan. 21 Letter''), at 3.
        \87\ daData Response to Question #1(a) of Dec. 17, 2010 Letter from
    Chairman Rockefeller to Mr. Charles Darst (Mar. 22, 2011) (daData Doc.
    DAT158629-30).
    ---------------------------------------------------------------------------
        It appears daData controls every aspect of third-party billing for
    most of its ``clients,'' from hiring the lead generators that collect
    telephone numbers, to providing refunds for ``customers'' who complain
    about unauthorized charges on their telephone bills. daData and many of
    its ``clients'' appear to be a common enterprise.
        My Service and Support (``MySnS'') MySnS informed the Committee
    that it is a ``back office solutions provider that offers web
    development, product development, validation services, regulatory
    services . . . customer service, call center services . . . market
    research and other business solutions.'' \88\ The company also
    explained that it ``does not market or offer services to consumers nor
    does it directly bill consumers'' and that, consequently, ``MySnS does
    not engage in `cramming.' '' \89\ MySnS only acknowledged a ``business
    relationship'' with third-party vendors that ``may have billed
    consumers via the consumers' telephone numbers.'' \90\
    ---------------------------------------------------------------------------
        \88\ Letter from Joel R. Dichter, counsel to MySnS, to Senator John
    D. Rockefeller IV (Jan. 19, 2011).
        \89\ Id.
        \90\Id. at 3. These third-party vendors include: Agora Solution;
    BillWithUs; GreenTreeData; LaurenTel; LowCostBiling; MyTeleServices;
    and MyBillingGuys.
    ---------------------------------------------------------------------------
        When a New York Times reporter tried to contact a third-party
    vendor called MyTeleServices in 2009 regarding an alleged cramming
    charge, he was connected instead by the billing aggregator ESBI to Paul
    Monette, a ``spokesman'' for MySnS. Mr. Monette informed the reporter
    that his company ``handles customer service for MyTeleServices and a
    few dozen other companies.''\91\
    ---------------------------------------------------------------------------
        \91\ The Haggler: What Charges Lurk on the Phone Bill, New York
    Times (Dec. 13, 2009).
    ---------------------------------------------------------------------------
        Despite these statements, Committee staff has obtained evidence
    showing that MySnS and its so-called ``clients,'' are interrelated. A
    certificate of ownership obtained by the Committee listed Paul Monette,
    the vice president of sales and marketing for MySnS, as sole owner of
    BillWithUs, an alleged ``client'' of MySnS.\92\ Other documents showed
    individuals with the surname, ``Morrison,'' listed as employees of
    MySnS, and owners of both MySnS and its alleged ``clients.'' According
    to the BBB's website, Geoff Morrison is the CEO of MySnS, while Brenda
    Morrison and Michael Morrison are presidents for the company.\93\ John
    Morrison is also listed as a contact.\94\ A certificate of ownership
    for MySnS obtained by Committee staff listed a ``Mildred Morrison'' as
    its owner.\95\ Certificates of ownership for MyTeleservices, Agora
    Solution, and LowCostBilling, alleged ``clients'' of MySnS's, listed a
    ``John R. Morrison'' as the sole owner of the companies,\96\ while a
    ``Brenda Morrison'' informed the Committee that she is ``the only owner
    of MyBillingGuys, LLC,'' another alleged MySnS ``client.'' \97\
    ---------------------------------------------------------------------------
        \92\ BillWithUs Corporation, Certificate of Ownership (Dec. 11,
    2007).
        \93\ Better Business Bureau, BBB Business Review for
    MyServiceandSupport, Inc. (online at www.bbb.org/minnesota/busines-
    reviews/internet-service/myserviceandsupport-in-new-hope-mn-96083470)
    (accessed July 11, 2011).
        \94\ Id.
        \95\ MyServiceandSuppport Corporation, Certificate of Ownership
    (June 29, 2010).
        \96\ MyTeleservices Corporation, Certificate of Ownership (Apr. 24,
    2005); Agora Solution Corporation, Certificate of Ownership (2001);
    LowCostBilling Corporation (July 3, 2006).
        \97\ Letter from Brenda S. Morrison, President of MyBillingGuys,
    LLC, to the Senate Committee on Commerce, Science, and Transportation
    (July 11, 2011).
    ---------------------------------------------------------------------------
        MORE International MORE International informed the Committee that,
    at one time, it shared common ownership with EZPhoneBill, a third-party
    vendor that enrolled consumers in online gaming services. For the
    additional ten third-party vendors that the Committee linked to MORE,
    the company explained that it provided ``customer support'' and
    ``management of processing and billing'' for these companies.\98\
    ---------------------------------------------------------------------------
        \98\ These third party vendors included: Blue Dog Online; Call
    Direct, Inc.; Connect Direct LD; Internet Business Advisors; Long
    Distance Mart; Sure Connection LD; Universal Call Plan; Voice-mail
    Club, Inc.; Web eCommerce Company; and Xoom Telecommunications, Inc.
    See Letter from Linda Goldstein, counsel for MORE International, to
    Erik Jones, counsel to the Senate Commerce Committee (Feb. 10, 2011),
    at 2.
    ---------------------------------------------------------------------------
        MORE explained that Gary Jonas and Jeff McKay, the owners of
    ModernAd Media and The Payment People, respectively, ``directed the
    formation'' of the third-party vendors and ``identified individuals to
    serve as presidents.'' \99\ Like third-party vendors related to daData
    and MySnS, these third-party vendors were also one common enterprise.
    ---------------------------------------------------------------------------
        \99\ Letter from Linda Goldstein, counsel to MORE International, to
    Erik Jones, counsel to the Senate Commerce Committee (Mar. 24, 2011),
    at 3.
    ---------------------------------------------------------------------------
    2. ``Front Companies''
        Committee staff has found ample evidence suggesting that the third-
    party vendors related to daData, MySnS, and MORE International were
    nothing more than ``front companies'' for larger ``hub companies.''
    Committee staff found third-party vendors operating out of mailboxes in
    UPS Stores, Post Office boxes, fake offices, and residences, with
    ``presidents'' that knew nothing about the companies they were
    supposedly leading.
        daData daData provided the Committee with a list of addresses for
    48 different third-party vendors. Of these vendors, more than 20 were
    operating out of mailboxes in UPS Stores and United States Post Offices
    located throughout the country.
        For example, Coast to Coast Voice, LLC, which charged thousands of
    consumers for ``voice-mail services,'' listed its ``Company Address''
    as: 26 S. Main Street, Suite #237, Concord, NH 03301.\100\ Using Google
    Maps, Committee staff found that 26. S. Main Street is the address of a
    UPS Store, and ``Suite #237'' is a mailbox within the store. For First
    Rate Voice Services, LLC, another third-party vendor, daData listed its
    address as: 576 North Birdneck Road, Ste 215, Virginia Beach, VA
    23551.\101\ This location is a UPS Store and ``Ste 215'' is a mailbox
    within the store.
    ---------------------------------------------------------------------------
        \100\ Lustigman Feb. 17, 2011 Letter, supra note 85, at 9.
        \101\ Id.
    ---------------------------------------------------------------------------
        Committee staff also spoke to multiple ``presidents'' of the third-
    party vendors who acknowledged that they played no role in the day-to-
    day operations of the companies. For example, the ``president'' of WVM
    Network, LLC, a third-party vendor that charged thousands of telephone
    customers for electronic fax services, admitted that he ``only signed
    his name to documents'' and knew nothing about the company.\102\
    ---------------------------------------------------------------------------
        \102\ Committee Staff Telephone Interview (May 19, 2011).
    ---------------------------------------------------------------------------
        MySnS MySnS provided the Committee with the addresses of its
    alleged third-party vendor ``clients.'' Three of the third-party
    vendors, LowCostBilling, MyTeleservices, and Agora Solution, were
    listed at the same address in Mound, Minnesota. Multiple ``address look
    up'' websites showed this address as the home of John Morrisson, who is
    also listed as a ``contact'' for MySnS on the BBB's website.\103\
    ---------------------------------------------------------------------------
        \103\ Better Business Bureau, BBB Business Review for
    MyServiceandSupport, Inc. (online at www.bbb.org/minnesota/busines-
    reviews/internet-service/myserviceandsupport-in-new-hope-mn-96083470)
    (accessed July 11, 2011).
    ---------------------------------------------------------------------------
        Committee staff spoke to the ``presidents'' of each company. They
    acknowledged that they had no involvement in the day-to-day operations
    of the companies and that MySnS markets the services, enrolls the
    customers, and handles complaints.\104\
    ---------------------------------------------------------------------------
        \104\ The president of GreenTreeData acknowledged that she did not
    use any of her own money to start the company and that, aside from
    signing paperwork, she had no involvement with the company, except to
    ``receive a check every month.'' She was not aware that GreenTreeData
    had received cramming complaints or that telephone companies had
    suspended it from third-party billing for excessive cramming
    complaints. Committee Staff Interview (Feb. 22, 2011). The president of
    LaurenTel told Committee staff that, ``I guess I am like the CEO, but
    I'm not in the everyday part of it.'' She was barely able to describe
    the services that LaurenTel offered. Committee Staff Interview (Feb. 4,
    2011).
    ---------------------------------------------------------------------------
        MORE International According to a lawsuit filed in 2009 by the
    Nevada Attorney General, the Payment People used ``virtual offices''
    run by Regus Management Group to create the false impression that the
    company's third-party vendors operated independently in various cities
    across the United States. A front company controlled by the Payment
    People called ``Universal Call Plan, Inc.,'' for example, claimed to
    operate out of a Regus virtual office space in Atlanta, Georgia, when
    it actually was operated by Jeff McKay and his associates in Modesto,
    California.\105\
    ---------------------------------------------------------------------------
        \105\ Complaint for Injunctive and other Equitable Relief, State of
    Nevada v. The Payment People, Inc., et al., D. Nev. (No. 09-0C00431 1B)
    (Oct. 2009), at 5, 6-8.
    ---------------------------------------------------------------------------
        Committee staff recently discovered that another one of Mr. McKay's
    front companies, the ``Official Small Business Association'' (OSBA),
    falsely claims to operate from a Regus virtual office space located
    within several blocks of the United States Capitol, at 601 Pennsylvania
    Avenue, NW in Washington, D.C. When Committee staff visited OSBA's
    purported corporate headquarters, an office receptionist said that the
    address functioned as a mail drop for Mr. McKay, who actually resides
    in California.
        Committee staff also spoke to the ``president'' of Xoom
    Telecommunications, one of the interrelated third-party vendors for
    which MORE International provided ``customer service.'' The
    ``president'' admitted to Committee staff that she knew nothing about
    the day to day operations of the company and that she was president
    because ``a friend said `I could become president of a company.' '' Her
    only apparent role was signing forms that were submitted to telephone
    companies. She receives a monthly check worth a few hundred dollars for
    serving as ``president'' of the company.\106\
    ---------------------------------------------------------------------------
        \106\ Committee Staff Telephone Interview (Feb. 9, 2011).
    ---------------------------------------------------------------------------
        For GreenTreeData and LaurenTel, the Committee confirmed that the
    provided addresses were actually the homes of the companies'
    ``presidents'' in Georgia and Virginia, respectively.
    3. Low Rates of Usage
        Committee staff obtained evidence from multiple third-party vendors
    showing that few, if any, of their ``customers'' were using the
    services for which the companies were charging them. These findings are
    consistent with those of other law enforcement inquiries into cramming.
    Low usage rates are strong evidence that consumers did not knowingly
    purchase the services and were not aware they were being charged for
    them.
        ``Voice-mail'' Services MySnS's third-party vendors each charged
    telephone customers for ``voice-mail'' services that were accessible
    only by dialing specific 1-800 telephone numbers. The Committee
    obtained MySnS's telephone bill for December 2010, which showed that
    approximately 925 unique numbers dialed the 1-800 telephone numbers
    dedicated to ``voice-mail'' services during the month.\107\ At the
    time, at least 97,000 telephone customers were being charged for these
    services.\108\ At best, less than 1 percent of the telephone customers
    charged for ``voice-mail'' services used it in December 2010.
    ---------------------------------------------------------------------------
        \107\ MySnS Corporate Telephone Invoice (Dec. 11, 2010) (produced
    to Committee on Apr. 15, 2011).
        \108\ The number of enrolled customers is likely much higher, as
    MySnS only provided enrollment data for a subset of the third-party
    vendors that used the 1-800 numbers for voice-mail services in December
    2010.
    ---------------------------------------------------------------------------
        ``Online Photo Storage'' Services daData provided usage data for
    Coast to Coast Photo, Photo Cubbie, Residential Photo, and USA Photo
    House, which provided ``online photo storage'' and ``100 prints per
    month'' for $14.95 per month. Of the 64,250 telephone customers that
    these third-party vendors enrolled in 2009 and 2010,\109\ less than 2
    percent loaded a digital picture to the websites.\110\
    ---------------------------------------------------------------------------
        \109\ daData response to Questions 1(b), 1(j), and 1(k) (Apr. 1,
    2011) (daData Doc. DAT158722).
        \110\ Letter from Margaret Krawiek, Counsel to daData, to Senator
    John D. Rockefeller IV (Apr. 1, 2011).
    ---------------------------------------------------------------------------
        ``Casual Online Gaming'' Services With assistance from MORE
    International's counsel, a counsel for the Committee enrolled in the
    ``casual online gaming services'' offered by EZPhoneBill, a third-party
    vendor associated with MORE, to determine whether enrolled telephone
    customers were using the company's services. Committee staff had
    noticed that few, if any, ``customers'' appeared to be using its online
    gaming website, games.ezphonebill.com. Before Committee counsel
    accessed the website, the front page listed ``No scores logged yet!''
    for its ``All Time Top Scores,'' even though it had enrolled more than
    20,000 telephone customers in the service and generated almost $1
    million dollars by charging those customers $14.95 per month.\111\
    ---------------------------------------------------------------------------
        \111\ Letter from Linda Goldstein, Counsel to MORE International,
    to Erik Jones, Counsel to Senate Commerce Committee (Feb. 3, 2011).

        After Committee counsel logged in to the website and tested two
    games, his personal e-mail address was immediately listed under the
    ``All Time Top Scores'' on the main page. He was listed with the ``All
    Time Top Scores,'' even though he merely opened two games, clicked a
    few buttons, and exited. Upon further investigation, Committee staff
    learned that the exact same games could be accessed for free at another
    website, www.skillpod.com. The games available on this website were not
    just similar to those on EZPhoneBill's website. They were the exact
    same games with the same graphics. It appears EZPhoneBill has charged
    thousands of telephone customers for ``casual online gaming services''
    they are not using and that can be accessed for free on another
    website.
    4. Cancellation Calls from ``Customers''

        The Committee obtained data summarizing the nature of the calls
    that telephone customers made to the ``customer service centers'' for
    the third-party vendors related to daData and MORE International. This
    data also suggested that the companies' ``customers'' never authorized
    charges for the companies' alleged services. For the MORE
    International-related companies, the data showed that most of the calls
    to the companies' ``customer service center'' were related to canceling
    the services or issuing credits.\112\ In 2010, the ``customer service
    center'' apparently handled 19,227 calls for MORE International-related
    companies.\113\ During the year, only nine calls were categorized as
    ``Tech Support,'' while 8,986 were categorized as ``Issue Credit'' and
    4,262 were categorized as ``Cancellation.'' \114\ Call data for daData-
    related third-party vendors also suggested the companies' ``customers''
    had not authorized charges to their telephone bills. During an 8-month
    period in 2010, of the 235,745 ``customers'' who called to cancel the
    services, 201,583 of the cancellation calls were categorized by
    customer service representatives as either ``Business Number,'' ``Did
    Not Authorize,'' ``Did Not Understand,'' ``Does Not Remember,'' ``Un-
    Auth Employee,'' or ``Unauth Household Member.'' \115\
    ---------------------------------------------------------------------------
        \112\ MORE International informed the Committee that a company
    called TTC Marketing handled ``customer service calls'' and that it
    provided ``weekly disposition reports detailing, among other things,
    the number of consumers that inquire about the charges on their phone
    bill, wish to cancel their service, and seek a refund.'' Letter from
    Linda Goldstein, Counsel to MORE International, to Erik Jones, Counsel
    to the Senate Commerce Committee (Mar. 24, 2011).
        \113\ TTC Marketing Solutions, DigiProd LLC Key Code Report ``For
    Calling Through 12/31/2010'' (MORE Doc. MORE INTL 2061-2093).
         \114\Id.
        \115\ daData Produced Document (daData Doc. DAT366822).
    ---------------------------------------------------------------------------
    5. Committee Staff Calls to the Third-Party Vendors' ``Customers''
        The Committee obtained the contact information for thousands of the
    telephone customers who had been charged by third-party vendors that
    were related to daData, MySnS, and MORE International. At random,
    Committee staff called consumers who had allegedly purchased services
    from the following third-party vendors: BLVD Network, Total Protection
    Plus, MyInfoGuard, Coast to Coast Voice, Nationwide Assist Fax,
    TriVoice International, Agora Solution, MyBillingServices, Xoom
    Telecommunications, and EZPhoneBill.
        Committee staff called approximately 1,700 randomly selected
    ``customers,'' and spoke to over 500 of them about their experiences.
    Not a single individual or business owner reported that they had
    authorized the third-party vendors' charges on their telephone bills.
    Telephone customers either reported that they had already found the
    unauthorized charges and had them removed, or they were surprised to
    learn that their telephone bills included third-party charges.
        Staff calls to ``customers'' of Total Protection Plus, for example,
    resulted in clear evidence of cramming. This daData-controlled vendor
    allegedly ``offers customers electronic fax capabilities with online
    data back-up voice messaging with ID theft protection, and stand-alone
    voice-mail access.'' \116\ daData informed the Committee that the Total
    Protection Plus ``service'' was marketed to individuals. The company
    provided the Committee the names, telephone numbers, and other
    information about customers who had allegedly purchased the service.
    ---------------------------------------------------------------------------
        \116\ Lustigman Feb. 17, 2011 Letter, supra note 85, at 4.
    ---------------------------------------------------------------------------
        Although these documents identified the telephone numbers that were
    enrolled in Total Protection Plus as ``Home Phone'' numbers, Committee
    staff called dozens of the numbers and discovered that they belonged to
    government agencies and businesses. For example, some of the numbers
    belonged to a Taco Bell, a Wal-Mart, a Publix grocery store, the
    Broward County Sheriff's Office, an emergency room, a Capital One bank,
    the Jacksonville Aviation Authority, a juvenile detention center,
    Prince George's County Community Center, and the West Virginia
    Department of Highways. Documents daData produced to the Committee show
    numerous instances in which business and government offices complained
    that their telephone numbers had been enrolled in Total Protection
    Plus.
    6. Enrollments and Financials
        The third-party vendors related to daData, MySnS, and MORE
    International have enrolled millions of telephone customers in their
    ``services'' and have generated millions of dollars through recurring
    monthly charges. Over the past two years, daData-related third-party
    vendors enrolled over 800,000 telephone customers and generated more
    than $50 million in revenue.\117\ As of April 2011, approximately
    350,000 telephone customers were being charged by daData-related
    vendors on a monthly basis.\118\ Between 2007 and 2010, MySnS-related
    vendors enrolled 1,201,460 telephone customers and generated $13
    million in revenue.\119\ Between 2008 and 2010, MORE-related vendors
    enrolled 316,016 telephone customers and generated over approximately
    $26 million in revenue.\120\
    ---------------------------------------------------------------------------
        \117\ daData response to Questions 1(b), 1(j), and 1(k) (Apr. 1,
    2011) (daData Doc. DAT158722).
        \118\ Id.
        \119\ Letter from Joel Dichter, Counsel to MySnS, to Senator John
    D. Rockefeller IV (Jan. 19, 2011).
        \120\ Letters from Linda Goldstein, Counsel to MORE International,
    to Erik Jones, Counsel to Senate Commerce Committee (Feb. 3, 2011 and
    Feb. 10, 2011).
    ---------------------------------------------------------------------------
        The third-party vendors related to these three companies have
    generated almost $90 million dollars in revenue over the past few years
    by placing third-party charges on telephone customers' bills. Most of
    these charges are likely unauthorized.
    VI. Role of Telephone Companies in the Cramming Problem
        Telephone companies play an essential role in third-party billing.
    They act as the gatekeepers to their billing and collection systems,
    and they distribute the revenue that third-party vendors generate by
    placing charges on their customers' telephone bills. As discussed in
    earlier sections of this report, the telephone companies also benefit
    financially from third-party billing. Because they play this critical
    role, telephone companies are well aware that third-party billing is
    harming their customers.
        In recent years, telephone companies have made efforts to address
    the cramming that has been occurring on their customers' bills. They
    have conducted internal investigations and audits to determine the
    weaknesses of their third-party billing systems and they have modified
    their contracts with billing aggregators to address cramming concerns.
    AT&T has discontinued allowing certain types of services that were
    causing cramming complaints, including voice-mail services, e-mail
    services, ``Web hosting,'' and ``Internet-based directory assistance.''
    \121\ While these steps appear to have successfully decreased
    unauthorized charges on landline telephone bills, they have not
    eradicated the problem. As discussed in Part V of this report,
    Committee staff has found numerous examples of third-party vendors that
    are likely engaging in cramming and are currently placing charges on
    telephone customers' bills.
    ---------------------------------------------------------------------------
        \121\ Letter from Timothy P. McKone, AT&T Executive Vice President
    for Federal Relations, to Senator John D. Rockefeller IV (Mar. 4,
    2011).
    ---------------------------------------------------------------------------
    A. Approval Process for Third-Party Vendors
        Telephone companies do not contract directly with most third-party
    vendors. They contract with billing aggregators, which serve as
    clearinghouses for hundreds of smaller third-party vendors. While they
    rely on billing aggregators to monitor the business practices of third-
    party vendors, they retain the final authority to determine whether a
    third-party vendor should have access to their billing platforms. In
    order to place charges on telephone customers' bills, third-party
    vendors must first be approved by the telephone companies.\122\ As
    discussed above, telephone companies have no legal obligation to let
    third-party vendors use their billing platforms.
    ---------------------------------------------------------------------------
        \122\ AT&T's contracts with billing aggregators have stated, ``AT&T
    may, at its sole discretion, reject any products or services or charges
    for billing,'' and that, ``prior to submitting billing data to AT&T,
    Customer must complete a product or services approval process, which
    shall be determined by AT&T at its sole discretion.'' Older versions
    stated it ``reserves the right to reject for any or no reason, in its
    reasonable discretion, the addition of any new Clients.'' Qwest's
    contracts stated, ``Qwest retains sole discretion on matters relating
    to which Billing Aggregator's Clients may bill within the Qwest shared
    bill.''
    ---------------------------------------------------------------------------
        The 1998 Anti-Cramming Best Practices Guidelines suggested that the
    telephone companies have a screening process in place for new companies
    wishing to place charges on their customers' telephone bills. The
    guidelines recommended that:

            For the purposes of identifying programs that may be deceptive
            or misleading or otherwise not in compliance with applicable
            LEC [local exchange carrier] policies, the LEC should consider
            requiring a comprehensive product screening and text phrase
            review/approval process.\123\
    ---------------------------------------------------------------------------
        \123\ Anti-Cramming Best Practices Guidelines (1998) (online at
    http://transition.fcc.gov/Bureaus/Common_Carrier/Other/cramming/
    cramming.html).

        To comply with these guidelines, telephone companies have adopted
    screening procedures for third-party vendors. They require each third-
    party vendor to submit basic corporate information, including the
    vendor's address and telephone number, a description of the services it
    will provide telephone customers, the names of the company's officers,
    and its state of incorporation.\124\ Third-party vendors must also
    submit websites, marketing materials, and any telemarketing scripts
    they may use to enroll customers. AT&T's application also specifically
    requests that third-party vendors disclose any affiliations with other
    companies that are billing consumers' telephone bills.\125\
    ---------------------------------------------------------------------------
        \124\ See Exhibit 3, ``Example Third-Party Vendor Applications.''
        \125\ Id.
    ---------------------------------------------------------------------------
        As part of the application process, AT&T, Qwest, and Verizon each
    conduct reviews of third-party vendors. For example, Verizon explained
    that it, ``performs its own review of potential sub-CICs [third-party
    vendors] prior to permitting them to include charges'' and that it
    ``will perform an Internet search of the identified principles . . . to
    determine if the sub-CIC is affiliated with any sub-CICs with which
    Verizon has experienced cramming-related issues.'' \126\ Qwest
    explained that, ``at its discretion, [it] conducts its own, independent
    investigation regarding the vendor and its program,'' and that ``after
    a thorough review . . . Qwest decides whether to allow the billing
    aggregator to bill for the vendor's program.'' \127\
    ---------------------------------------------------------------------------
        \126\ Letter from Mark J. Montano, Verizon Assistant General
    Counsel to Erik Jones, Counsel to the Senate Commerce Committee (July
    30, 2010).
        \127\ Letter from Barbara Van Gelder, Counsel to Qwest, to Senator
    John D. Rockefeller IV (July 16, 2010).
    ---------------------------------------------------------------------------
        Financial Pressure to Approve Vendors While this approval and
    review process has deterred bad actors in some instances, Committee
    staff has also accumulated many examples showing when it did not.
    Documents obtained during the investigation showed that billing
    aggregators routinely submitted applications for questionable third-
    party vendors to the telephone companies, and that telephone companies
    often approved these applications, even though there was evidence that
    the applicants were crammers.
        Evidence reviewed by Committee staff shows that telephone company
    employees understood that third-party billing was a valuable source of
    revenue for their companies. While allowing third-party vendors to
    access their telephone bills exposed their customers to cramming, it
    was also profitable business line for the companies.
        In November 2008, for example, a Verizon employee forwarded a
    cramming complaint to a colleague and stated, ``[h]ere is an example
    where B&C [billings & collections] is causing problems here--why do we
    let this ESBI--and there have been many complaints on this provider, do
    business with us?'' He asked, ``[w]hy can't we just shut this off and
    let these carriers go elsewhere--i.e., use a credit card for their
    services and get out of this business?'' As the colleague forwarded the
    e-mail to the Verizon employee who handled complaints he noted, ``I did
    not respond . . . since . . . I'm confident he already understands that
    B&C is a revenue generating product with excellent margins (ROI)
    [return on investment] for Verizon.'' \128\
    ---------------------------------------------------------------------------
        \128\ See Internal Verizon e-mail (Nov. 26, 2008) (Verizon Doc.
    VZ_004_229588).
    ---------------------------------------------------------------------------
        In July 2006, AT&T employees reviewed a third-party application
    that Integretel, a billing aggregator, submitted on behalf of a company
    called NetOpus. During the review process, the company's application
    raised red flags for an AT&T employee, who noted that, ``from a Product
    perspective, it appears as if this request should be denied.'' \129\
    Despite this recommendation, other AT&T employees considered requiring
    a ``letter of credit to cover any potential financial issues'' to
    satisfy concerns raised about the company.\130\ In response, an AT&T
    employee stated the following:
    ---------------------------------------------------------------------------
        \129\ Internal AT&T e-mail chain (July 20, 2006) (AT&T Doc. CST
    2316558-62).
        \130\ Id.

            Not sure how you can put a dollar amount on something like
            this??? In case of end-user class action lawsuits, it could be
            in the millions . . . With or without a letter of credit, I
            don't have a warm fuzzy . . . Tracy tells me all the time,
            ``your contract says you can deny a subCIC whenever you want,
            even if the reason is simply that you don't like it.'' Problem
            is we have KK [AT&T employee] and PW [AT&T employee] standing
            in the way of that prerogative. When it's KK and PW taking the
            message back to the customer, even a denial is never a
            denial.\131\
    ---------------------------------------------------------------------------
        \131\ Id.

        A Director for AT&T Billing & Collection replied, ``I know however
    we are pushed to bring in revenue and we can't if we deny new
    customers. The only thing we can do is try to get as much protection as
    possible and go from there.'' \132\ Frustrated with this response, the
    AT&T employee stated:
    ---------------------------------------------------------------------------
        \132\ Id.

            Hmmm . . . regardless of the level of risk, sounds like we are
    ---------------------------------------------------------------------------
            never denying anything ever again. . . .

            So in other words, because of the unrealistic revenue goals and
            the push from ``sales'' to meet those goals, regardless of
            protecting the integrity of the bill, and regardless of what
            the contract says, and regardless of what Tracy has said to me
            on numerous occasions . . . the only thing we REALLY have the
            power to do is push back enough and hope the subCIC realizes it
            is futile and goes away on their own.\133\
    ---------------------------------------------------------------------------
        \133\ Id.

        Documents show that AT&T eventually approved NetOpus to place
    charges on its customers' bills. A few years later, the AT&T employee's
    concerns about NetOpus proved to be correct. In 2010, the FTC won a $38
    million judgment against Roy and John Lin, the owners of NetOpus and
    other interrelated third-party vendors, for engaging in cramming.\134\
    AT&T apparently allowed NetOpus to place charges on its customers'
    bills until 2010.\135\ In making its ruling against the Lins, the
    Federal district court called third-party billing a ``fraud-friendly
    practice'' and noted that NetOpus was ``exactly the same'' as other
    products the Lin brothers sold.\136\
    ---------------------------------------------------------------------------
        \134\ Federal Trade Commission v. Inc21.com Corp., 745 F.Supp.2d
    975, 1004 (N.D. Cal. 2010).
        \135\ AT&T was not the only telephone company that allowed NetOpus
    and other related third-party vendors to place charges on telephone
    customers' bills.
        \136\ Federal Trade Commission v. Inc21.com Corp., 745 F.Supp.2d
    975, 982 (N.D. Cal. 2010).
    ---------------------------------------------------------------------------
    B. Anti-Cramming Safeguards
        In responses they provided to the Committee, the telephone
    companies explained that they have practices in place to protect their
    customers against cramming. They monitor the number of complaints they
    receive about specific third-party vendors and offer ``bill blocking''
    for customers who do not want third-party charges on their telephone
    bills. Telephone companies also reported that they removed third-party
    vendors from their billing platforms when the companies exceeded
    certain complaint thresholds. AT&T reported that it stopped approving
    third-party vendor applications for certain types of services because
    of high levels of cramming complaints.
        While these safeguards protected some telephone customers from
    cramming, Committee staff found evidence showing that: (1) the
    procedures do not work properly; and (2) that even when the procedures
    do work properly, they do not eliminate cramming. Even if they are
    effectively employed, blocking and other ``back end'' responses to
    cramming do not prevent fraudulent billers from gaining access to the
    companies' billing systems and harming consumers.
    1. Bill Blocking
        All eight telephone companies that provided information to the
    Committee reported that they offer ``bill blocking'' free of charge to
    customers who request it. In theory, a customer who requests ``bill
    blocking'' will stop third-party charges from appearing on telephone
    bills. In practice, ``bill blocking'' often fails to function properly.
    Documents obtained by the Committee showed that customers who had
    previously requested ``bill blocking'' often complained that
    unauthorized third-party charges continued to appear on their telephone
    bills.

       An employee for a Virginia shipping company explained to the
            Virginia State Corporation Commission that, ``I have placed
            cramming blocks on all numbers that I can; cramming blocks have
            failed.'' \137\ This employee had repeatedly sought assistance
            from Verizon to stop unauthorized charges from appearing on her
            employers' telephone bills, yet the problem continued.
    ---------------------------------------------------------------------------
        \137\ E-mail to the Virginia State Corporation Commission (Oct. 30,
    2009) (Verizon Doc. VZ_009_116214-15).

       The City of Chicago told Committee staff that it incurs
            cramming on its landline telephone bills despite its requests
            for AT&T to block all third-party charges. An AT&T customer
            service manager e-mailed the city in June 2010 and acknowledged
            that AT&T's ``[c]ramming protection is not 100 percent
            guaranteed to catch all third party billing.'' He added,
            ``[u]nfortunately, from time to time a third party biller may
            slip through.'' \138\
    ---------------------------------------------------------------------------
        \138\ E-mail message from AT&T Business Solutions Customer Service
    Manager to City of Chicago employee (June 10, 2010).

       In October 2010, a Kansas consumer filed a cramming
            complaint with the Kansas Attorney General stating: ``Also I
            had a block put on so I would not get 3rd party billings. The
            3rd party billings stopped for several months. Then all of a
            sudden it started again. I asked AT&T what happened and they
            could not answer me. I feel if AT&T can put the 3rd party
            billing on my bill then they can take it off. Also AT&T stated
            to pay and then try to get a refund. I am not paying a bill
            that I did not authorize and then hope to get my money back.''
            \139\
    ---------------------------------------------------------------------------
        \139\ Consumer complaint to Kansas Office of the Attorney General
    (Oct. 13, 2010) (produced to Commerce Committee by daData, Inc. without
    Bates numbers).

        The weaknesses of ``bill blocking'' are likely attributable to the
    fact that telephone companies did not have control over the ``bill
    block'' process. For example, as of March 2010, it appeared AT&T was
    forced to rely upon billing aggregators to place bill blocks. In March
    2010, an AT&T Area Manager explained to a group of employees that,
    ``ATT does not have a way to block 3rd party billing/cramming charges,
    however the 3rd party billers themselves can block it.'' \140\ See
    Appendix A for multiple examples of businesses and government offices
    reporting that unauthorized third-party charges continued to appear
    after requests for ``bill blocking'' had been made.
    ---------------------------------------------------------------------------
        \140\ Internal AT&T e-mail (Mar. 10, 2010) (AT&T Doc. CST2534124).
    ---------------------------------------------------------------------------
        Even when ``bill blocking'' is effective, it is still an imperfect
    safeguard against cramming. ``Bill blocking'' is not a default option
    for telephone customers. Rather, telephone customers have to
    proactively inform their telephone companies that they would like
    ``bill blocking'' to apply to their telephone numbers. Because many
    telephone customers are not aware that third-party billing is possible,
    many telephone customers are not aware of ``bill blocking'' until after
    they have been victimized by cramming. Consequently, even when ``bill
    blocking'' works, it only helps those customers who have already been
    harmed.
    2. Complaint Thresholds
        Multiple telephone companies informed the Committee that they use
    customer complaints to determine whether a third-party vendor is
    engaged in cramming. According to the telephone companies, if a third-
    party vendor's number of cramming complaints reached a certain
    percentage or amount during a given time period, they would place the
    third-party vendor on an ``action plan.'' If the vendor's complaint
    levels did not decrease, telephone companies would remove the third-
    party vendor from their billing platforms.
        While telephone companies had some success using this method to
    ferret out bad actors, it did not adequately protect telephone
    customers from cramming. Committee staff has investigated dozens of
    third-party vendors that are likely engaging in cramming and continue
    to place charges through the telephone companies' billing platforms.
        Committee staff found evidence which explained why ``complaint
    thresholds'' repeatedly failed to root out bad actors. As detailed in
    Part III of this report, crammers use the ``hub company'' structure and
    other tactics to make their complaint levels appear as low as possible.
    An AT&T employee referred to one such practice when a third-party
    vendor attempted to apply through multiple billing aggregators. The
    employee stated, ``I'm doing some research on the number of complaints
    under the subCIC Better Business Organization. They're already
    established under ESBI and OAN and now they're requesting to be a
    subCIC under Integretel. Can you say cramming complaint dilution????''
    \141\
    ---------------------------------------------------------------------------
        \141\ Internal AT&T e-mail (Feb. 23, 2007) (AT&T Doc. CST0792211).
    ---------------------------------------------------------------------------
        A good example of ``complaint dilution'' can be seen in the actions
    of daData, one of the hub companies Committee staff investigated. Over
    20 third-party vendors related to daData charged telephone customers
    for identical ``electronic fax services.'' As discussed in Part V of
    this report, Committee staff confirmed that daData controlled the
    technology for this service and most, if not all, of the vendors'
    operations. By operating multiple vendors offering the same electronic
    fax services, the true number of consumers complaining about its
    practices was not available to telephone companies.
        Committee staff obtained documents showing that telephone companies
    placed some of these third-party vendors on ``action plans'' to reduce
    cramming, but failed to terminate them from third-party billing. For
    example, on September 24, 2010, Transaction Clearing sent identical e-
    mails to Lee Liatsis, a daData ``Managing Consultant,'' about cramming
    complaints related to Fetch Unlimited, MDVM Network, and YCP Network.
    In each e-mail, Transaction Clearing stated that it ``has recently been
    addressed by AT&T regarding concerns about the rising number of
    cramming complaints received each month for companies providing E-Fax
    services and who are relatively new in billing in the AT&T regions.''
    \142\ In response, on October 4, 2010, Mr. Liatsis sent identical
    letters on behalf of Fetch Unlimited, MDVM Network, and YCP Network
    back to Transaction Clearing.\143\ In each letter, he stated, ``our
    efforts should result in a decrease of AT&T complaints over the next
    ninety days.'' These letters were identical to a letter Mr. Liatsis
    sent in February 2009 on behalf of BLVD Network to BSG, another billing
    aggregator, about cramming complaints from Verizon customers.\144\
    ---------------------------------------------------------------------------
        \142\ E-mails from Transaction Clearing to Lee Liatsis (Sep. 24,
    2010) (daData Doc. DAT366843-45).
        \143\ Letters from Lee Liatsis to Transaction Clearing (Oct. 4,
    2010) (daData Doc. DAT366837-42).
        \144\ Letter from Lee Liatsis to BSG Clearing Solutions (Feb. 20,
    2009) (daData Doc. DAT366853).

        Telephone companies treated these third-party vendors as separate
    companies, when, in fact, they were likely part of one common
    enterprise. If telephone companies had treated the twenty-five
    companies in the above table as one enterprise, they would have likely
    taken different actions.
        Additionally, the telephone companies never learned about many
    affected customers because the customers called third-party vendors or
    billing aggregators directly to dispute the charges on their telephone
    bills. This fact is not surprising, given that contact information for
    the companies is placed next to the third-party charges on telephone
    customers' bills.\145\ For example, during an 8-month period in 2010,
    over 200,000 telephone customers contacted daData to cancel services
    and stated that they ``did not authorize,'' ``did not understand,'' or
    ``did not remember'' enrollment.\146\ Over the same time period,
    telephone companies only forwarded 2,746 cramming complaints to
    daData.\147\
    ---------------------------------------------------------------------------
        \145\ See Exhibit 2, ``Example Telephone Bills.''
        \146\ daData document produced in response to a question asking how
    customer service representatives categorize incoming consumer contacts.
    (June 22, 2011) (daData Doc. DAT366822).
        \147\Id.
    ---------------------------------------------------------------------------
        Even if ``complaint thresholds'' did function properly and
    identified every third-party engaged in cramming, they would not
    adequately protect telephone customers from the harm the crammers
    caused before being caught. When third-party vendors are removed from
    telephone companies' billing platforms for cramming, it does not appear
    that telephone companies contact customers whose bills have been
    charged by the cramming company, or otherwise make any attempt to
    reimburse customers who have already been charged. Consequently, even
    when telephone companies determined that a company was engaged in
    cramming and removed the company, thousands of impacted customers
    likely paid unauthorized charges and never knew it.
        Streaming Flix Investigation Committee staff identified one
    instance when AT&T contacted its customers who had been charged by a
    company it suspected to be engaged in cramming. The customers'
    responses were overwhelmingly negative toward the company in question,
    ``Streaming Flix,'' and suggested that many of the customers had not
    known about the charges before AT&T contacted them. For example,
    customers stated:

       What in God's name are you writing about? I have no idea
            what this service is and do not want it. Please cancel this
            ``order'' I do not want it. More importantly I have no idea
            what it is.

       I do not recall this order. Please call me at the number
            below to further explain these charges.

       No I did not authorize this charge and I want it off of my
            bill. Thank you for letting me know.

       I have no recollection of authorizing this charge and want
            it immediately discontinued from our bill.

       Please remove this immediately, I do not use extra services
            and can't afford the extra costs. I do not remember signing
            up.\148\
    ---------------------------------------------------------------------------
        \148\ Internal AT&T spreadsheet documenting responses received in
    response to communications sent to 100 customers enrolled in Streaming
    Flix (AT&T Doc. CST2379976-87).

        As an AT&T employee was tabulating results of responses, she noted
    that, ``I have sent all 100 e-mails to the customers . . . [t]o date .
    . . 12 said they did not order Streaming Flix . . . of these 12, none
    of them have called us to make a cramming complaint.'' \149\ Every AT&T
    customer that eventually responded informed AT&T that they did not
    order Streaming Flix.
    ---------------------------------------------------------------------------
        \149\ Internal AT&T e-mail (July 20, 2010) (AT&T Doc. CST2379960).
    ---------------------------------------------------------------------------
    3. Service Prohibitions
        In 2009, AT&T announced that it had been reviewing ``its policies
    and processes related to cramming, in an effort to identify changes
    that seem likely to reduce the number of cramming complaints.'' \150\
    Based upon this evaluation, AT&T ``found that voice mail (or voice
    messaging) and Web hosting have generated a disproportionately large
    number of cramming complaints.\151\ In response, it announced it was
    taking two steps: (1) it would no longer approve applications for
    third-party vendors that offered voice mail/messaging or Web hosting;
    and (2) for those third-party vendors previously approved, they could
    not enroll new telephone customers in their services.\152\
    ---------------------------------------------------------------------------
        \150\ Letter from AT&T to All AT&T Billing Solutions Customers
    (Oct. 29, 2009) (AT&T Doc. CST009379).
        \151\ Id.
        \152\ Id.
    ---------------------------------------------------------------------------
        Given that companies offering these services were likely engaged in
    cramming, AT&T's actions very likely curbed cramming on its customers'
    telephone bills. However, evidence obtained by Committee staff suggests
    that these actions, although a step in the right direction, will not be
    enough to stop cramming. Telephone customers previously enrolled in
    these services apparently continue to be billed. Further, many
    companies that engaged in voice mail or Web hosting have already
    transitioned to other ``services'' that AT&T has yet to ban.
        As an example, BLVD Network, a daData-related company, had
    previously offered voice mail services at www.myblvdnetwork.com. It now
    offers ``electronic fax service'' at www.myblvdnetworkfax.com.
    Committee staff is aware of multiple examples of other third-party
    vendors that made similar ``transitions.''

    C. Awareness of the Problem
        Documents obtained by the Committee show that telephone companies
    are aware that third-party billing leads to significant amounts of
    cramming. Telephone company employees have repeatedly questioned why
    the companies are engaged in third-party billing and the companies'
    customers have complained directly to them about cramming for years. In
    2009 and 2010, the companies each took a closer look at their billing
    practices in an attempt to bring cramming under control.
        In the early 2000s, BellSouth, a company that is now part of AT&T,
    had already noticed that cramming was resurging, even though it had
    taken steps to address cramming in the late 1990s. A slide deck titled,
    ``Cramming Flares Up Again,'' explained what BellSouth was experiencing
    at the time. Just a few years after the company had instituted its
    first voluntary guidelines to address cramming, it was forced to take
    another look at the issue. Documents showed that that the company again
    made some progress combatting unauthorized charges, only to have the
    problem ``resurge'' again a few years later.

        In 2009, AT&T undertook a ``3rd Party Billing Project'' to ``hold
    vendors accountable for AT&T's time and costs spent in satisfying . . .
    3rd party billing inquiries/allegations.'' \153\ At the time, AT&T
    estimated that ``[h]andling 3rd Party Billing costs . . . over $8M per
    year'' in employee time, even though AT&T had entered into ``without
    inquiry'' contracts with most billing aggregators.\154\ ``Without
    inquiry'' contracts stipulated that ``customers who call AT&T are first
    referred to the 3rd Party for problem resolution.'' \155\ Because the
    number of calls AT&T received about third-party billing was so
    voluminous, AT&T evaluated its ``time and costs handling 3rd party
    inquiries `without inquiry.' '' Even ``without inquiry'' calls were
    costing AT&T a significant amount of money.
    ---------------------------------------------------------------------------
        \153\ AT&T, 3rd Party Billing Project (June 29, 2009) (AT&T Doc.
    CST2511540-53).
        \154\ Id.
        \155\ Id.
    ---------------------------------------------------------------------------
        Internal e-mail communications between AT&T employees also showed
    that the company was aware that cramming was a major problem.

       An employee noted in July 2009 that, ``although third-party
            billing complaints were down for the month (-17 percent), they
            again were the top wireline issue for the month.'' \156\
    ---------------------------------------------------------------------------
        \156\ Internal AT&T e-mail (July 13, 2009) (AT&T Doc. CST0184626).

       A couple months later, in response to a complaint, a senior
            executive in AT&T's Washington office stated, ``I thought we'd
            ended this practice--what are we doing? And do we want to
            invite an FCC rule?'' \157\
    ---------------------------------------------------------------------------
        \157\ Internal AT&T e-mail (Nov. 5, 2009) (AT&T Doc. CST2476031).

       Another AT&T employee noted that, ``It seems like we are
            handling a lot of Service calls for situations that are not
            related to our services.'' \158\ In response, an employee from
            AT&T customer service department stated, ``This is definitely
            an area where we can reduce costs and improve customer
            perception of AT&T.'' \159\ He explained that, ``wholesale
            benefits from getting the revenue while we [customer service]
            bear most of the expense--so there's not a strong financial
            link to make sure the right controls are in place.'' \160\
    ---------------------------------------------------------------------------
        \158\ Internal AT&T e-mail (Nov. 1, 2009) (AT&T Doc. CST0269209-
    10).
        \159\ Id.
        \160\ Id.

       A month later, in response to a cramming complaint, another
            AT&T employee noted, ``[w]e're having a resurgence in 3pb
            [third-party billing] complaints.'' \161\
    ---------------------------------------------------------------------------
        \161\ Internal AT&T e-mail (Dec. 11, 2009) (AT&T Doc. CST2470073).

        As AT&T was determining ways to decrease the amount of time its
    employees spent answering calls related to third-party billing, AT&T's
    outside counsel reported to the FCC that it experienced ``low rates of
    complaints'' for cramming.\162\ The companies' outside counsel went as
    far as reporting that ``the current data could very well overstate the
    actual incidence of cramming.'' \163\
    ---------------------------------------------------------------------------
        \162\ Comments of AT&T Inc., Federal Communications Commission, CC
    Docket No. 98-170 (Oct. 13, 2009).
        \163\ Id.
    ---------------------------------------------------------------------------
        In 2009 and 2010, Verizon employees also expressed concern about
    cramming and third-party billing.

       In October 2008, a Verizon employee explained that ``[a]lot
            of time is spent on Regulatory issues.'' She stated, ``There
            are cramming complaints i.e., customer complaints re fraud,
            being billed for things they didn't do, which often escalate to
            Ivan's desk, PUC Complaints or lawsuits.'' \164\
    ---------------------------------------------------------------------------
        \164\ Internal Verizon e-mail (Oct. 2, 2008) (Verizon Doc.
    VZ_007_003542-43).

       In January 2009, a Verizon employee asked, ``[w]hat are
            these charges?'' and ``[w]hy do third party charges get on our
            customer's bills?'' \165\ He explained, ``[w]e are seeing a lot
            of calls into our centers for the same reasons . . .'' \166\
    ---------------------------------------------------------------------------
        \165\ Internal Verizon e-mail (Jan. 13, 2009) (Verizon Doc.
    VZ_004_229580).
        \166\ Id.

       In February 2010, a Verizon Service Mentor stated in an e-
            mail that, ``[m]yself and several reps have noticed a
            significant increase in calls related to cramming charges.''
            \167\ He wrote: ``My question/concern is, what is being or can
            be done about this . . . this is killing our access and time on
            the phones. Are these companies actually being `investigated'
            to see why they are able to keep billing our customers? It
            seems [to] be the same companies every time. From a legal
            standpoint, can Verizon do anything to stop these companies
            that continue to bill our customers over and over. I guarantee
            you if someone pulls the cramming log you will see USBI, OAN,
            and other companies similar to those.'' In response, another
            Verizon employee stated, ``Thanks . . . we terminate anyone who
            does that and we're able to prove it. I think the problem is
            many instances are not reported.'' \168\
    ---------------------------------------------------------------------------
        \167\ Internal Verizon e-mail (Feb. 19, 2010) (Verizon Doc.
    VZ_004_133605).
        \168\ Id.
    ---------------------------------------------------------------------------
    D. Response to Customers
        Documents obtained through the investigation showed that the
    telephone companies' employees often did not follow the companies'
    written procedures for resolving customers' cramming complaints.
    Customers seeking assistance have frequently been told by telephone
    company employees that there is nothing they can do to help, and that
    telephone companies were legally obligated to place the charges on
    their bills. Both assertions are incorrect.
    1. Customer Assistance
        Committee staff reviewed thousands of cramming complaints that
    residential and business customers submitted to the BBB, FTC, FCC,
    state attorneys general, and their telephone companies. These
    complaints showed that telephone companies repeatedly informed
    customers that there was nothing they could do to resolve the
    unauthorized charges appearing on their telephone bills.\169\ Hundreds
    of complaints reviewed by Committee staff contradicted what telephone
    companies informed the Committee about their policies. Examples
    included:
    ---------------------------------------------------------------------------
        \169\ Committee staff is not suggesting that telephone companies
    informed every customer that there was nothing the company could do to
    resolve the unauthorized charges appearing on their bills. Rather,
    Committee staff has reviewed enough complaints where employees stated
    there was nothing they could do to know that it happened with some
    frequency.

       A Qwest customer stated, ``I called Qwest twice but they
            would only refer me to ILD [a billing aggregator] to resolve
            the problem,'' \170\ while Qwest informed the Committee that it
            ``does not refer the customer to the billing aggregator or
            vendor for resolution of the dispute. Qwest resolves the
            dispute directly.'' \171\
    ---------------------------------------------------------------------------
        \170\ Consumer Complaint to Oregon PUC (Mar. 2, 2009) (Qwest Doc.
    QSC0014058).
        \171\ Letter from Barbara Van Gelder, Counsel to Qwest, to Senator
    John D. Rockefeller IV (July 16, 2010).

       A Verizon customer stated in a complaint that, ``she has
            been told by over 8 different people from the Verizon Business
            Office that since this is a 3rd party billing issue Verizon
            cannot assist her,'' \172\ while Verizon informed the Committee
            that ``Verizon does not require the customer to contact the
            sub-CIC that initiated the charge prior to removing the
            charges.'' \173\
    ---------------------------------------------------------------------------
        \172\ Consumer Complaint to Verizon (Dec. 3, 2009) (Verizon Doc.
    VZ_003_001869).
        \173\ Letter from Mark J. Montano, Verizon Assistant General
    Counsel to Erik Jones, Counsel to the Senate Commerce Committee (July
    30, 2010).

       In an online chat with an AT&T customer service
            representative, an AT&T customer asked, ``how can I prevent
            this [unauthorized charges] from happening'' and the AT&T
            employee responded, ``We have no way to prevent the problem
            from happening.'' \174\
    ---------------------------------------------------------------------------
        \174\ Consumer Complaint to Better Business Bureau of Connecticut
    (Aug. 21, 2009) (AT&T Doc. CST009842).

        See Appendix A for additional examples of consumers and businesses
    complaining about their telephone companies' inadequate responses to
    the unauthorized charges appearing on their telephone bills.
    2. No Legal Obligation
        Complaints also showed that telephone company employees repeatedly
    misinformed customers about the telephone companies' role in third-
    party billing. Although documents showed instances in which the
    telephone companies appear to have instructed their employees that they
    voluntarily engage in third-party billing,\175\ employees for the
    telephone companies repeatedly informed customers that the telephone
    companies were legally obligated to place the charges on their bills.
    These statements were inaccurate and confused telephone customers about
    the nature of the problem.
    ---------------------------------------------------------------------------
        \175\ AT&T has informed its employees that they ``should not inform
    customers that AT&T is required to provide billing and collection
    services to unaffiliated service providers.'' (AT&T Doc. CST010281).
    ---------------------------------------------------------------------------
        Committee staff reviewed many complaints where telephone company
    employees made incorrect statements about third-party billing,
    suggesting that, at one time, they were trained to inform customers of
    this ``legal obligation.'' Examples included:

       In December 2008, a Verizon employee informed a Constituent
            Services Specialist in the Office of U.S. Representative Chris
            Van Hollen that, ``[w]e are required by law to open our billing
            system to other companies,'' in response to his e-mail about a
            constituent with a cramming complaint.\176\ After he informed
            her that the constituent was ``pretty fired up about it,'' she
            responded, ``I'm not sure what there would be to do about it--
            it's in the Federal Communications Act . . . cramming is NOT as
            big an issues as it was years ago.'' \177\
    ---------------------------------------------------------------------------
        \176\ Verizon e-mail (Dec. 30, 2008) (Verizon Doc. VZ_004_211426).
        \177\ Verizon e-mail (Jan. 7, 2009) (Verizon Doc. VZ_004_211425).

       In February 2009, an AT&T employee stated that is ``not
            allowed to reject third-party charges billed by third parties
            that offer telecommunications and related services. Local
            exchange carriers are prohibited from refusing to include the
            charges in the customer's local bill and cannot question the
            validity of the charges.'' \178\
    ---------------------------------------------------------------------------
        \178\ Better Business Bureau, Complaint Activity Report, Case No.
    27071953 (Feb. 3, 2009) (AT&T Doc. CST009649).

       In October 2009, a Verizon customer stated, ``When I spoke
            to Verizon, they told [me] that an FCC regulation mandates that
            they bill me on behalf any third party request.'' \179\
    ---------------------------------------------------------------------------
        \179\ Consumer Complaint to Verizon (Dec. 3, 2009) (Verizon Doc.
    VZ_003_001954).

       In August 2010, a Qwest employee stated, ``Qwest and other
            local exchange carriers (LEC) have an obligation to provide
            billing and collection services to third parties, when
            requested, under the same terms and conditions.'' \180\
    ---------------------------------------------------------------------------
        \180\ Qwest Internal e-mail (Aug. 2, 2010) (Qwest Doc. QSC0015630).

        See Appendix A, ``Cramming Case Studies,'' for additional examples
    of telephone companies misinforming telephone customers about their
    legal obligation to place third-party charges on their customers'
    telephone bills.
    E. Recent Responses to the Cramming Problem
        AT&T and Verizon have each informed the Committee that they have
    taken steps in recent months to further strengthen their anti-cramming
    safeguards. In March 2011, AT&T informed the Committee that it had made
    ``several significant enhancements'' to its third-party billing
    program. These enhancements included: ``minimum `baseline' verification
    requirements that will apply to all transactions;'' ``heightened
    verification requirements for Internet-based transactions;'' and
    additional requirements for billing aggregators.\181\
    ---------------------------------------------------------------------------
        \181\ Letter from Timothy P. McKone, AT&T Executive Vice President
    for Federal Relations, to Senator John D. Rockefeller IV (Mar. 4,
    2011).
    ---------------------------------------------------------------------------
        In April 2011, Verizon informed the Committee that it was taking
    three steps to strengthen its anti-cramming safeguards: prohibiting
    third-party vendors from using ``open affiliate networks'' to market
    their services; revising its agreements so that third-party vendors
    rejected or terminated by other telephone companies are automatically
    precluded from billing on Verizon's platform; and notifying new
    customers, in welcome letters, that ``bill blocking'' is
    available.\182\
    ---------------------------------------------------------------------------
        \182\ Verizon document, Summary of Actions Taken/Planned by Verizon
    To Strengthen Anti-Cramming Protections (Apr. 19, 2011).
    ---------------------------------------------------------------------------
    VII. Conclusion
        Although some legitimate companies use third-party billing on
    landline telephone bills, it has largely failed to become a reliable
    method of commerce. Instead of ``creating conveniences'' for telephone
    customers, as telephone companies promised it would, third-party
    billing has made telephone customers targets for fraud. Despite the
    telephone companies' decision to enact voluntary anti-cramming
    guidelines and the FCC's ``Truth-in-Billing'' requirements, it still
    takes minimal effort for a company engaged in cramming to place
    unauthorized third-party charges on consumers' bills, while it remains
    difficult for customers to find and remove those charges from their
    telephone bills. As a result, unless additional protections are put in
    place, millions of telephone customers will likely continue to face
    billions of dollars of unauthorized charges.

                                     ______

                                   Appendix A
    Cramming Case Studies
        During the Committee's investigation, Committee staff spoke with
    hundreds of residential consumers and dozens of nonresidential
    consumers about their experiences with cramming on their landline
    telephone bills. Both residential and nonresidential consumers reported
    that they are angry they had to spend time and money trying to cancel
    unauthorized services and recoup the dollars lost to cramming.
    Consumers also reported that they are frustrated by the way their
    telephone companies have responded to their cramming complaints.
        Committee staff believes that the cases discussed below provide a
    representative example of consumers' experiences with cramming. The
    cases highlighted include: residential consumers, small and large
    businesses, not-for-profit organizations, and Federal, state and local
    governments. In presenting the cases, Committee staff is not including
    the names of the businesses that spoke to Committee staff about
    cramming. Some businesses stated that they did not want to acknowledge
    publicly the extent to which they have experienced cramming. Others
    expressed concern that publicly discussing cramming could negatively
    affect their relationships with telephone companies that, in some
    instances, are both their service providers and their clients.\1\
    ---------------------------------------------------------------------------
        \1\ Some businesses cited similar concerns in declining to provide
    Committee staff any information regarding their experiences with
    cramming.
    ---------------------------------------------------------------------------
    Table of Contents
    I. Residential Consumers
    II. Small Businesses
    III. Large Businesses
    IV. Nonprofit Organizations
    V. Federal Government
    VI. State and Local Government
    I. Residential Consumers
        Gordon Jones--Gridley, California \2\ In January 2010, retired
    consumer, Gordon Jones, read an article that warned consumers about
    cramming. Mr. Jones then reviewed his own telephone bills and
    discovered that four different third-party vendors--E-mail Discounts,
    Intelicom Messaging, Total Protection Plus, and Debt Toolbox--had been
    cramming charges onto the bills for years.
    ---------------------------------------------------------------------------
        \2\ Committee staff telephone interview with Gordon Jones (June 6,
    2011); E-mail from Gordon Jones to ESBI (Feb. 2, 2010); E-mail from
    Gordon Jones to California Public Utilities Commission (Jan. 13, 2010);
    E-mail from Gordon Jones to FCC (Jan. 16, 2010).
    ---------------------------------------------------------------------------
        Mr. Jones began sending e-mails to the third-party vendors and
    their billing aggregators to cancel the services and request refunds.
    In an e-mail to one of the billing aggregators, he explained that he
    had not authorized these services. He said:

            I must again reiterate that I have had no known contact with
            these 3 providers. I know of no services that they claim to
            have provided to me. I deny ever knowingly agreeing to any
            business relationship with them whatsoever. The implied
            services that they appear to provide (based strictly on my
            review of their company names) are not now, nor have they ever
            been, needed by me or my family.

        In another e-mail, Mr. Jones asked one of the third-party vendors
    to provide proof that he had authorized enrollment in its service. Upon
    reviewing the supposed proof of authorization, he realized that the
    enrollment had allegedly occurred at a time when he and his wife were
    camping in a remote section of the state, without cell phone or
    Internet service.
        Mr. Jones wrote in a complaint to the California Public Utilities
    Commission that when he ``contacted AT&T about the issue--[he] was told
    to read the small print, be careful what boxes you check, etc.'' He
    also filed a complaint with the FCC that stated, in part:

            This is a continuing problem and it needs to be addressed and
            brought under control. Clearly, under the Telecommunications
            Act of 1996 enterprising criminals have found a sure fire way
            to use 3rd party billing as a lucrative fraudulent scheme.

        After three months of fighting, Mr. Jones received more than $1,000
    in credit on his telephone bill. However, despite having asked AT&T to
    block all third-party charges, he noticed in December 2010 that he had
    been crammed again by a company called CelebNewsAddict.
        Jennifer Ngah--Fitchburg, Massachusetts \3\ In February 2010,
    Jennifer Ngah noticed that the amount of her automatic bill payment to
    Verizon seemed to be increasing each month. To determine the cause for
    the increased payments, Ms. Ngah reviewed her bill and discovered that
    several third-party vendors were charging her. One of the vendors had
    been charging her for over six months.
    ---------------------------------------------------------------------------
        \3\ Committee staff telephone interview with Jennifer Ngah (June
    27, 2011); Complaint from Jennifer Ngah to FCC (Mar. 5, 2010) (Verizon
    Doc. VZ_003_002478).
    ---------------------------------------------------------------------------
        Frustrated with the lack of assistance she received from Verizon,
    Ms. Ngah complained to the FCC. In her complaint, she wrote:

            Over the last several months someone was fraudulently using my
            phone [number] to purchase services online. Anyone who can get
            a phone [number] can charge services to this [number].

        The complaint goes on to describe the burden of trying to remedy
    the situation, stating, ``when I notified Verizon they said they were
    not responsible . . . I spent hours notifying these third party
    companies and trying to get my money back.''
        In the end, Ms. Ngah only received credit for three months from one
    of the third-party vendors that crammed charges onto her telephone
    bills, and no assistance from Verizon.
        Barbara Arnold--Uniontown, Pennsylvania \4\ In March 2009, Barbara
    Arnold, a nurse, contacted Verizon to look for ways to lower her
    family's monthly telephone bill. She was surprised when Verizon
    suggested that she consider canceling some of the enhanced services
    Verizon said she was enrolled in. She had never noticed that she was
    paying for services from three separate third-party vendors, two of
    which were for voice-mail. After talking to Verizon, she discovered
    that those third-party vendors had crammed more than $220 of charges
    onto her telephone bills.
    ---------------------------------------------------------------------------
        \4\ Committee staff telephone interview with Barbara Arnold (June
    3, 2011); Consumer Complaint to Pennsylvania Office of the Attorney
    General (Apr. 3, 2010) (produced to Commerce Committee by daData, Inc.
    without Bates numbers).
    ---------------------------------------------------------------------------
        Although Verizon alerted her to the extra charges, Verizon was
    unwilling to assist her or refund any of her money. Verizon instead
    told her she would need to contact each of the third-party vendors. The
    third-party vendors were reluctant to refund her money, arguing that
    she had authorized the services. Ms. Arnold responded by saying that
    she had ``NEVER approved or accepted such services and this was clearly
    evident when one company stated an incorrect mother's maiden name as a
    security check for the account.''
        Ms. Arnold filed a complaint with Pennsylvania Attorney General on
    April 3, 2010. Her complaint states:

            It sickens me that this can happen and I feel I was taken
            advantage of . . . I am a professional nurse and working mother
            and neither I nor my husband have time to watch our bills so
            closely and then sit on the phone for HOURS like I did on
            Friday 4/1/10 to rectify this error.

        John Murray--Dallas, Texas \5\ In July 2010, John Murray noticed
    multiple third-party charges on his AT&T bill that he did not
    recognize. Mr. Murray tried repeatedly to cancel the services and
    receive refunds but found the experience difficult and troubling.
    ---------------------------------------------------------------------------
        \5\ Committee staff telephone interview with Jack Murray (June 6,
    2011); Letter from Jack Murray to the Public Utility Commission of
    Texas (Aug. 4, 2010) (produced to Commerce Committee by daData, Inc.
    without Bates numbers).
    ---------------------------------------------------------------------------
        He described his encounters with AT&T and the third-party vendors
    in a letter to the Texas Public Utility Commission. He wrote:

            I recently received a monthly statement from AT&T. On that bill
            there were four charges that I not only didn't authorize, I
            didn't even recognize the companies involved, one charge was
            for a voice mail service for my dedicated fax line.

            ***

            When I contacted AT&T, they said they were ``just the billing
            company'' and couldn't do anything about it. I then called the
            800 numbers that AT&T gave me for the vendors. Two of them said
            they would issue credits, in one or two more billing periods.
            One said ``we don't give refunds'' and the other hung up three
            times when I gave the requested phone number the charge was
            billed to.

        Mr. Murray concluded his letter by saying, ``obviously this is a
    scam and the telephone company is a partner in it. What recourse do I
    have?''
    II. Small Businesses
        Physical Therapy Business \6\ A self-described ``small business''
    owner in Alabama wrote Chairman Rockefeller a letter stating that
    cramming has been a ``detrimental'' problem for his physical therapy
    and rehabilitative services business. In May 2010, the business
    obtained more than $450 in billing credit from a ``website'' service
    that had crammed a recurring monthly charge on its telephone bills for
    almost 3 years. To obtain that credit, the business owner and his staff
    ``spent countless time'' reviewing old telephone bills and talking to
    the telephone company and Alabama Public Service Commission. The
    website service claimed that one of the business' employees enrolled
    the business in its service. The address that the website service
    claimed that the employee provided when she allegedly enrolled in the
    service is neither the business' address nor the employee's home
    address.
    ---------------------------------------------------------------------------
        \6\ Letter from owner of physical therapy and rehabilitative
    services business to Senator John D. Rockefeller IV (Apr. 26, 2011);
    Committee staff telephone interview with physical therapy business
    owner and employee (Apr. 25, 2011).
    ---------------------------------------------------------------------------
        Popeyes and Krispy Kreme Franchisee \7\ An employee of a franchisee
    of Popeyes and Krispy Kreme restaurants reported in a letter to
    Chairman Rockefeller that third-party vendors crammed six of the
    company's telephone accounts for many months with recurring monthly
    charges for services such as electronic facsimile. After working for
    two months to resolve the issue, the company obtained approximately
    $4,200 worth of billing credits.
    ---------------------------------------------------------------------------
        \7\ Letter from Popeyes and Krispy Kreme franchisee employee to
    Senator John D. Rockefeller IV (May 25, 2011).
    ---------------------------------------------------------------------------
        When the company initially discovered cramming on its telephone
    bills in October 2010, the company called AT&T for assistance. AT&T
    told the company that it receives a lot of calls about cramming and
    told the company that it needed to call the third-party vendors
    directly to cancel the crammed charges and request billing credits.
        When a company employee contacted one of the third-party vendors to
    try to seek billing credit, the vendor initially refused to provide any
    credit. After the company employee asked the vendor to play recordings
    of the conversations in which company employees allegedly had enrolled
    in the vendor's services, the vendor agreed to provide credits. The
    vendor never played any such recordings for the company.
        The company's letter to Chairman Rockefeller explains that company
    employees had to spend a lot of time dealing with cramming and that
    some of the company's restaurant managers even lost bonuses because the
    crammed charges affected their restaurants' profit and loss statements.
    The letter states:

            It certainly is annoying and a hassle to deal with additional
            administrative paperwork, making additional phone calls and
            keeping information organized especially for charges not
            requested. Our already busy Accounting Department had to deal
            with their own administrative issues such as re-adjusting
            Profit and Loss statements, etc. The inconvenience and cost of
            administrative work on this issue pales in comparison to what
            it has taken away from the managers of our restaurants.

            Our managers work long hours in a busy, demanding environment
            all with a smile on their faces. They have a tremendous job
            juggling employee relations, customer satisfaction and
            controlling costs. And some of our managers, no matter how hard
            they worked and no matter how much they earned it, did NOT
            receive bonuses because of cramming. Due to Year End, many P&L
            statements were not able to be fully corrected and therefore
            bonuses were lost.

            It is infuriating to me that it is legal for companies to,
            without authorization, charge our businesses and skew our
            Profit and Loss statements and, in effect, take money out of
            the hands of hard working, deserving men and women.

        Real Estate, Lodging, and Golf Course Business Owner \8\ The owner
    of several businesses in Nevada told Committee staff that he discovered
    in February 2010 that seventeen different third-party vendors had been
    cramming charges onto the businesses' AT&T telephone bills for services
    such as online business listings, voice-mail, identity theft
    protection, and streaming video for as long as twenty months each. He
    was particularly surprised to discover the various third-party charges
    because he believed that he had previously requested that AT&T block
    his telephone lines from third-party billing.
    ---------------------------------------------------------------------------
        \8\ Committee staff telephone interview with real estate, lodging,
    and golf course business owner (Mar. 1 and 17 and June 3, 2011); E-mail
    messages from business owner to Commerce Committee staff--(Mar. 17 and
    18, 2011).
    ---------------------------------------------------------------------------
        AT&T told him that he needed to contact the various billing
    aggregators or third-party vendors to cancel the charges and seek
    billing credits. After spending more than 60 hours working on the
    issue, including filing complaints with his Congressman and law
    enforcement agencies, he obtained partial billing credits for the
    unauthorized charges totaling more than $4,000. He was not able to
    obtain full credit for some of the individual charges. He has now
    switched his business telephone service to a company that does not
    permit third-party billing on business lines.
        Bicycle Retail Store \9\ A bicycle store in Illinois told Committee
    staff that it discovered in December 2010 that its AT&T telephone bills
    included unauthorized charges for a virtual facsimile and voice-mail
    service called Contact Message Tech II. The charges totaled
    approximately $1,500 over a 30-month period.
    ---------------------------------------------------------------------------
        \9\ Committee staff telephone interview with bicycle retail store
    co-owner (Mar. 8, 2011).
    ---------------------------------------------------------------------------
        Contact Message Tech's billing aggregator, ILD, initially offered
    the bicycle store a six-month refund. When the bicycle store co-owner
    later contacted Contact Message Tech to demand a full refund, a Contact
    Message Tech representative told the bicycle store that one of the
    bicycle store's authorized employees had enrolled the bicycle store in
    its service during a telemarketing call. Contact Message Tech played
    the bicycle store co-owner a recording of that telemarketing call, and
    she determined that the person who purportedly consented to enroll the
    bicycle store in Contact Message Tech was not an employee of the
    bicycle store. The bicycle store co-owner also observed that the
    Contact Message Tech representative spoke so quickly on the recording
    that it was difficult to understand what he said.\10\ The bicycle store
    co-owner asked Contact Message Tech to identify the telephone number
    that it had called to telemarket its service to the bicycle store, and
    Contact Message Tech declined to do so. Contact Message Tech then
    agreed to provide the bicycle store a full refund.
    ---------------------------------------------------------------------------
        \10\ Committee staff has obtained a copy of the recorded
    telemarketing call that Contact Message II claims is its proof that the
    bicycle store enrolled in its service. The recorded telemarketing call
    refers to a service called ``Advanced Business Services'' but does not
    refer to ``Contact Message Tech.'' Both Contact Message Tech and
    Advanced Business Services are associated with daData, Inc.
    ---------------------------------------------------------------------------
        The bicycle store co-owner contacted AT&T to ask why parties other
    than AT&T could place charges on the store's telephone bill. To her
    surprise, AT&T told the bicycle store that its telephone bill could be
    used like a credit card. AT&T told the bicycle store that it could
    block third-party charges from appearing on the store's future
    telephone bills, but stated that AT&T's ``hands are tied'' unless a
    customer requests third-party blocking.
        Industrial Service Company \11\ An industrial service company in
    Virginia told Committee staff that it has battled cramming on its
    Verizon landline telephone bills since 2007 for services such as voice-
    mail and credit repair. The company has sometimes had trouble finding a
    way to contact the third-party vendors that have placed charges on its
    bills. The company requested that Verizon block its telephone lines
    from incurring third-party charges, but it later incurred additional
    third-party charges on the same lines. The company complained to state
    regulators that its employees continued to have to spend time
    identifying and resolving crammed charges because Verizon's blocking
    system did not work. The company also advocated for state legislation
    to prevent cramming.
    ---------------------------------------------------------------------------
        \11\ Committee staff telephone interview with industrial service
    company employee (May 26, 2011).
    ---------------------------------------------------------------------------
        Drug Store \12\ A drug store owner in Missouri told Committee staff
    that his store incurred almost $650 worth of unauthorized third-party
    charges on its landline telephone bills for purported ``technical
    support'' between late 2009 and late 2010. When the drug store owner
    contacted AT&T to inquire about the charges, AT&T told him that he
    needed to call the third-party vendor or billing aggregator to dispute
    the charges. The drug store owner then contacted the billing
    aggregator, and the billing aggregator stated that a drug store
    employee enrolled in the technical support service during a
    telemarketing call. Although the drug store owner asked to hear a
    recording of the telemarketing call, the billing aggregator did not
    play it.
    ---------------------------------------------------------------------------
        \12\ Committee staff telephone interview with drug store owner
    (Apr. 19, 2011).
    ---------------------------------------------------------------------------
        None of the drug store's employees recall enrolling in the
    technical support service. The drug store owner told Committee staff
    that when telemarketers call to solicit the drug store's business, they
    try to solicit ``yes'' answers to questions so that they can record the
    answers and use them to say that the business agreed to enroll in their
    services. The drug store contacted the Missouri Attorney General's
    Office for assistance in obtaining a refund for the unauthorized
    charges.
    III. Large Businesses
        Bank #1 \13\ A large, multistate bank told Committee staff that
    third-party billing on landline telephone bills is a ``rife opportunity
    for fraud.'' Cramming has been a problem on the bank's landline
    telephone bills from multiple telephone companies since at least 2009.
    The bank has identified 75 different vendors that have crammed charges
    onto its telephone bills for services such as music downloads, voice-
    mail, and directory assistance. The bank reported that it is difficult
    to identify crammed charges, in part, because the crammed charges are
    spread out among the thousands of pages of the many telephone bills the
    bank receives each month.
    ---------------------------------------------------------------------------
        \13\ Committee staff telephone interview with bank #1 employees
    (May 24, 2011).
    ---------------------------------------------------------------------------
        The bank's contracts with the telephone companies identify only one
    employee as being authorized to order telephone services for the bank.
    Consequently, the bank does not understand why the telephone companies
    add third-party charges to its bills without requiring proof that the
    single authorized employee has ordered the third-party services. The
    bank told Committee staff that third-party entities should not be
    exempt from the bank's contractual requirements with the telephone
    companies regarding who is authorized to order telephone services.
        The bank stated that the third-party vendors, billing aggregators,
    and telephone companies have not been helpful. Some third-party vendors
    have refused to cancel their charges on the grounds that the bank
    employee who called to dispute the charges did not call from the same
    telephone number that the vendor was charging for the third-party
    service. The bank said that the telephone companies require the bank to
    prove that third-party charges are not authorized rather than requiring
    the third-party vendors to prove that the charges are authorized.
        About a year ago, AT&T told the bank that AT&T is legally required
    to allow third-party billing. AT&T stated that it could block
    particular third-party vendors from placing charges on the bank's
    telephone lines if the bank provided AT&T spreadsheets that contain the
    bank's billing telephone numbers and a list of the third-party vendors
    that have crammed the bank's lines in the past. Even after the bank
    provided that information to AT&T, the bank continued to incur crammed
    charges on telephone lines that it asked AT&T to block from third-party
    billing.
        Bank #2 \14\ Another large multistate bank told Committee staff
    that it has incurred hundreds of unauthorized third-party charges on
    its landline telephone bills since 2005. When the bank contacts a
    billing aggregator to dispute unauthorized third-party charges on
    particular lines, it requests that the aggregator block future third-
    party charges from being placed on those lines. Nevertheless, new
    third-party merchants subsequently cram charges on those same lines.
    The bank has not requested that its telephone companies block all of
    its lines from all third-party billing because the bank believes it
    would be very difficult to create a list of all of the bank's telephone
    bills, and it believes that the telephone companies cannot implement
    blocking unless the bank provides such a list. AT&T has told the bank
    that it is legally required to permit third-party billing.
    ---------------------------------------------------------------------------
        \14\ Committee staff telephone interview with bank #2 employee (May
    5, 2011).
    ---------------------------------------------------------------------------
        Bank #3 \15\ A third multistate bank reported that third-party
    charges have been crammed onto many of its telephone lines, including
    lines for vaults and fire alarms and other lines with unpublished
    telephone numbers. This bank stated that the crammed charges sometimes
    total hundreds of dollars per month. The bank also reported that it has
    experienced large increases in cramming when it has added large numbers
    of new lines to its telephone bills after acquiring other financial
    institutions. Multiple telephone companies have told this bank that
    they cannot block its lines from incurring third-party charges. Verizon
    recently told the bank that it would try to block the bank from
    incurring third-party charges in one state by imposing a block on the
    bank's billing telephone numbers, but Verizon stated that it was not
    yet ready to try to implement a similar block in other states.
    ---------------------------------------------------------------------------
        \15\ Committee staff telephone interview with bank #3 employee
    (Apr. 25, 2011).
    ---------------------------------------------------------------------------
        Bank #4 \16\ A fourth major bank reported that it has been battling
    cramming on its landline telephone bills from multiple telephone
    companies for several years. The bank experiences cramming most often
    on the bills it receives from the largest telephone companies. Between
    May 2010 and April 2011, the bank identified 360 instances of cramming
    on its landline telephone bills. The bank stated that it ``is quite
    arduous and time consuming'' to address crammed charges. Its employees
    spend an average of thirty minutes addressing each crammed charge. The
    bank reported that it has endured ``a lot of scripted conversations''
    when it has contacted third-party vendors to try to dispute charges
    that the vendors have crammed on the bank's telephone bills. Some
    third-party vendors ``fight tooth and nail'' when the bank disputes
    crammed charges.
    ---------------------------------------------------------------------------
        \16\ E-mail message from bank #3 employee to Commerce Committee
    Staff (June 20, 2011); Committee staff
    ---------------------------------------------------------------------------
        The bank has identified crammed charges for services such as voice-
    mail, long distance calling plans, diet plans, credit protection plans,
    webhosting, online coupons, identity theft protection, music downloads,
    photo storage, electronic facsimile, and ringtone downloads. Its
    telephone bills have included crammed charges that were billed to spare
    lines that were not assigned to any employee and to lines for automated
    teller machines, alarms, facsimile machines, modems, and equipment
    monitoring. The bank does not rely on third-party landline telephone
    billing as a way to pay for any services that it has authorized.
        In 2008, the bank complained to the FCC regarding cramming on its
    landline telephone bills. The bank states that its request for the
    telephone companies to block third-party charges from all its telephone
    accounts, and its ongoing efforts to provide the telephone companies
    with updated lists of all of its telephone accounts, have subsequently
    reduced the amount of cramming on its telephone bills.
        Bank #5 \17\ A fifth large multistate bank began to notice cramming
    on its landline telephone bills in 2010. The bank has since identified
    approximately $20,000 of crammed charges during the first several
    months of 2011 for services such as fraud alerts, identity theft
    protection, voice-mail, music downloads, and long distance. Many of the
    charges have been crammed onto unpublished telephone numbers for
    modems, alarms, facsimile machines, and other telephone lines that are
    not assigned to individual employees.
    ---------------------------------------------------------------------------
        \17\ Committee staff telephone interview with bank #5 employee
    (June 22, 2011).
    ---------------------------------------------------------------------------
        The bank is not aware of any instance in which any of its employees
    authorized any third-party charges on the bank's telephone bills. In 1
    month, the bank contacted approximately fifty employees whose telephone
    lines had incurred third-party charges. None of the employees stated
    that they had signed up for the services for which their lines had
    incurred charges.
        When the bank requested that AT&T assist it in dealing with
    cramming, AT&T stated that it is legally required to permit third-party
    billing on its telephone bills. AT&T initially helped the bank cancel
    and receive billing credit for some of the charges that had been
    crammed onto its bills, but AT&T later ``politely backed off'' and
    stated that the bank needed to contact the third-party vendors itself.
    The bank now contacts the billing clearinghouses to cancel crammed
    charges and seek billing credit. The bank has not had the time to
    dispute all the crammed charges it has identified. The bank reported
    that third-party billers and billing clearinghouses ``make it hard to
    [dispute their charges] quickly.''
        The bank used to receive summary telephone bills that made it
    difficult to identify crammed charges and made it difficult to dispute
    the crammed charges because the bank could not identify which
    individual telephone lines had incurred crammed charges and which
    third-party vendors had crammed them. The bank now receives more
    detailed telephone bills that provide this information.
        Auto Parts Retailer \18\ A large, nationwide auto parts retailer
    sent Chairman Rockefeller a letter estimating that the company has
    incurred $550,000 in unauthorized third-party charges on its telephone
    bills during the past 10 years. The company estimates that three full-
    time employees spend approximately 25 percent of their time dealing
    with cramming, thereby having cost the company approximately 26,000
    labor hours and approximately $400,000 in overhead expenses.
    Approximately 80 percent of the company's more than 3,600 locations
    have had charges crammed onto their landline telephone bills.
    ---------------------------------------------------------------------------
        \18\ Letter from auto parts retailer to Senator John D. Rockefeller
    IV (June 28, 2011).
    ---------------------------------------------------------------------------
        The company reported that it took years for one of the major
    telephone companies to assist the company with cramming by blocking
    third-party charges from its telephone bills. And the company explained
    that it still regularly experiences cramming on the telephone bills
    that it receives from that particular telephone company for new company
    locations even though the company requests blocking of third-party
    charges whenever it orders lines for new locations. The company's
    letter to Chairman Rockefeller states:

            During our communications with the various carriers, we sought
            ways to block third party billing to our accounts. Some
            regional bell operating centers (RBOCs) were willing to find
            work arounds for this issue; others insisted there was nothing
            they could do about it. We were however astounded and amazed
            when one of our billing analysts discovered a flyer in an
            envelope with one of the individual bills we received from one
            of the carriers who had insisted it was out of their hands. The
            flyer explained customers could now ``block'' third party
            billing. When we approached our assigned account team at the
            carrier with the flyer, they requested a copy and advised they
            would have to investigate. We have however followed
            consistently and persistently with them over a period of 2
            years and are now able to block third party billing from
            existing accounts. Of course, we believe our ability to do this
            is a direct result of our tenacity.

            The ability to block on existing account[s] however has not
            allowed us to eradicate the practice of cramming. As a growing
            company, we frequently open new stores. Typically, we will open
            in excess of 150 new locations each year. Despite the fact we
            request a block on third party billing with each new order, we
            typically see third party charges on the first and or second
            month's bill from this carrier.\19\
    ---------------------------------------------------------------------------
        \19\ As an example of its ongoing problem with cramming, the auto
    parts retailer told Committee staff that a new company store recently
    incurred almost $400 worth of crammed charges on its first 2 monthly
    telephone bills. Committee staff telephone interview with auto parts
    retailer employee (May 20, 2011).

    ---------------------------------------------------------------------------
            ***

            Often, the carriers simply refer you to the third party biller
            or their third party clearinghouse. Often, they will attempt to
            persuade that someone within the company signed up for and
            authorized the services by phone or through the Internet. [We
            have] consistently trained local store managers and
            communicated to carriers that local store managers lack the
            authorization to bind the corporation for these services. While
            we expect a team member to make a mistake from time to time, we
            believe our training is effective and view the continuation of
            cramming a purposeful decision on the part of carriers to
            circumvent communication to them regarding our corporate
            authority structure. In addition, our team members do not have
            store access to the Internet. It seems unlikely they would go
            home and sign up their store for any of these services. There
            have been times when recordings have been made to evidence the
            alleged purchase of services. While some calls sound
            legitimate, others, in our opinion do not. The carriers or
            clearinghouses cannot and/or do not ever produce any
            documentation purporting to actually be signed by an employee
            with any authority. One might only surmise that doing so
            results in a pecuniary benefit, not only to the crammers, but
            to the LEC's.

            ***

            Whether the consumer is an individual or corporation, we view
            the practice of cramming as unethical and fraudulent. We ask
            the committee to recommend proposed legislative action to
            preclude this practice including an express statutory private
            right of action and include equitable and damage remedies as
            well as an attorney fee provision and punitive damages based
            upon a finding that conduct is pervasive, egregious or
            outrageous.

        Real Estate Company \20\ A company that owns, operates, and manages
    office properties in several states told Committee staff that it has
    spent ``an amazing amount of time'' over a two-year period to try to
    get cramming ``under control.'' The company's landline telephone bills
    have sometimes contained twenty to fifty crammed charges per month,
    including charges that were attributed to telephone lines for elevators
    and alarms. The company has received more than $10,000 in billing
    credits for crammed charges. The company recently switched some of its
    telephone service to a telephone company called Granite, in part,
    because Granite does not allow third-party billing on its telephone
    bills.
    ---------------------------------------------------------------------------
        \20\ Committee staff telephone interview with office property
    committee employee (June 3, 2011).
    ---------------------------------------------------------------------------
        The company has complained about cramming many times to the
    multiple telephone companies that have allowed third-party charges to
    be included on its telephone bills. Those telephone companies, in turn,
    have done little more than acknowledge that they receive a lot of
    complaints about cramming.
        For example, the company told Committee staff it was very difficult
    to get the telephone companies to block the company's lines from
    cramming. Verizon told the company that it had implemented blocking on
    the company's Verizon telephone lines but later said that they had
    blocked the lines from something other than third-party billing because
    of the manner in which the company phrased its request. AT&T told the
    company that it had only limited ability to block the company's lines
    from third-party billing and that AT&T's ability to implement blocking
    varies in different regions of the country. Even after AT&T told the
    company that it implemented blocking on particular telephone lines, the
    company incurred additional unauthorized third-party charges on those
    same lines.
        Receiving its telephone bills in electronic format made it
    difficult for the company to cancel crammed charges. The electronic
    bills attribute the crammed charges to the main telephone number listed
    on each bill rather than the individual telephone numbers that
    individual third-party vendors claim to have enrolled in their
    services. Consequently, the company has had difficulty canceling third-
    party charges when it has contacted billing aggregators or third-party
    merchants because the company has not been able to specify which
    particular telephone numbers have incurred charges for the services.
        Movie and Game Store Chain \21\ A large, multistate movie and game
    store chain whose corporate policy requires the corporate office to
    authorize all services that are billed to the stores' telephone bills
    regularly incurs thirty to fifty crammed charges per month on the
    stores' telephone bills. Before the company began systematically
    checking for and disputing crammed charges, the company incurred even
    more crammed charges. Each crammed charge costs as much as $100 per
    month for services that the company already provides its stores, or
    services that the stores do not want.
    ---------------------------------------------------------------------------
        \21\ Committee staff telephone interviews with movie and game store
    chain employee (June 7 and 24, 2011); daData Docs. DAT366879-80.
    ---------------------------------------------------------------------------
        The company sends its employees a memo regarding cramming three
    times per year to remind employees, for example, to hang up when
    telemarketers call the company's stores. The company believes that some
    third-party vendors that cram charges onto its stores' telephone bills
    manipulate recordings of telemarketing calls to make it seem like
    company employees answered ``yes'' when they were asked whether they
    wanted to enroll in the third-party vendors' services, when they
    actually answered ``yes'' in response to other questions that had
    nothing to do with enrolling in the services. Employees in some stores
    that have incurred crammed charges recall that they specifically told a
    telemarketer that they did not want to enroll in the third-party
    services for which their stores have incurred charges. Because
    employees do not have access to browse the Internet in the company's
    stores, the company does not believe that its employees use the
    Internet to enroll their work telephone numbers in third-party
    services.
        During the Commerce Committee's investigation, the Committee
    obtained copies of the records that purport to evidence the enrollment
    of two of this company's stores in services that are associated with
    daData, Inc.: USA Voice-mail and Meteline Voice. Both of the
    authorization records contain the names of actual employees of the
    company and the correct addresses and telephone numbers of company
    stores, but they both contain invalid e-mail addresses that both
    misspell the company's domain name in an identical manner. In addition,
    the authorization record pertaining to Meteline Voice claims that a
    company employee enrolled one of the company's Kansas stores in
    Meteline Voice even though that employee works in another part of the
    country.
        Food and Beverage Retail Chain \22\ A large food and beverage
    retail chain whose corporate policy prohibits store employees from
    authorizing any third-party billing told Committee staff that its
    telecommunications expense management company has identified
    approximately $100,000 worth of crammed charges on its stores' landline
    telephone bills during each of the past 4 years. The telecommunications
    expense management company obtains approximately 90 percent of the
    billing credits it requests when it seeks to cancel services that have
    been crammed onto the stores' landline telephone bills.
    ---------------------------------------------------------------------------
        \22\ E-mail message from food and beverage retail chain employee to
    Commerce Committee Staff (June 20, 2011); Committee staff telephone
    interview with food and beverage retail chain employees (June 16,
    2011).
    ---------------------------------------------------------------------------
        On multiple occasions, and as recently as 2010, the retail chain
    has asked its landline telephone service providers whether they can
    implement a universal block to prohibit all third-party vendors from
    placing charges on any of the company's stores' telephone bills. AT&T
    has told the company that it would be difficult or impossible to
    implement such a universal blocking request.
    IV. Nonprofit Organizations
        Hospital System \23\ A large, nonprofit hospital system with
    locations in several states told Committee staff that it has battled
    cramming on its landline telephone bills for several years. For
    example, it incurred $800 worth of crammed charges on just one of the
    many telephone bills it received in March 2011. The hospital system
    employee who deals with telephone billing has contacted the Missouri
    Attorney General's office and the hospital system's telephone companies
    for assistance with cramming.
    ---------------------------------------------------------------------------
        \23\ Committee staff telephone interview with hospital system
    employee (Apr. 25, 2011).
    ---------------------------------------------------------------------------
        The hospital system employee who deals with telephone billing
    periodically spends three consecutive days identifying and trying to
    cancel crammed charges. When she recently tried to cancel crammed
    charges that one third-party vendor placed on four different lines for
    electronic facsimile service, the third-party vendor claimed that the
    only people who could cancel the billing were the people who the vendor
    claimed had ordered the service on each individual line. Other third-
    party vendors have taken that same position in the past. This has left
    the hospital system employee uncertain what she can do to cancel the
    charges because the names of the people who the vendors claim ordered
    their services are not names of employees of the hospital system. The
    telephone companies that provide service to the hospital system have
    stated that they ``have no control over'' the charges that get crammed
    onto the hospital system's landline telephone bills.
        The hospital system employee sometimes finds it impossible to
    contact the third-party vendors that place charges on its bills. And
    even when she succeeds in canceling an unauthorized third-party charge,
    she often cannot obtain full billing credits for past months' charges.
    V. Federal Government
        United States Postal Service \24\ Since late 2006, a
    telecommunications expense management company called ProfitLine has
    spent an estimated 1,500 hours identifying, canceling, and obtaining
    approximately $110,000 in billing credits for more than 2,900 charges
    that have been crammed on telephone bills for Postal Service locations
    throughout the country. If the Postal Service had incurred each of the
    unauthorized charges for 1 year without canceling them, the Postal
    Service would have paid almost $550,000 for the unauthorized charges.
    The crammed charges included charges for services such as voice-mail,
    e-mail, electronic facsimile, online backup, web hosting, tech support,
    search engine optimization, photo storage and printing, identity theft
    protection, diet plans, credit counseling, digital music, and video
    downloading. The third-party vendors that have crammed charges on the
    Postal Service's telephone bills include defendants in past FTC and
    state law enforcement cases.
    ---------------------------------------------------------------------------
        \24\ Committee staff telephone interview with United States Postal
    Service employees (Apr. 4 and 6, 2011); Committee staff telephone
    interview with United States Postal Service employees and
    telecommunications expense management company employee (May 12, 2011).
    Part of the information regarding the United States Postal Service's
    experience with cramming comes from data and documents that the Postal
    Service provided the Commerce Committee on May 2 and May 12, 2011 in
    response to a letter that Chairman Rockefeller sent to United States
    Postmaster General and Chief Executive Officer Patrick R. Donahoe on
    April 13, 2011.
    ---------------------------------------------------------------------------
        The Postal Service's telecommunications expense management company
    told Committee staff that the number of unauthorized third-party
    charges appearing on the Postal Service's telephone bills is increasing
    rather than decreasing. The company sometimes succeeds in stopping
    particular third-party charges on one line and then sees the same
    charges appear the next month on other lines in the same Postal Service
    location. The telecommunications expense management company does not
    believe that any Postal Service employee used any of the services that
    the company identified as a crammed service. When the company has asked
    third-party vendors to state the names of the Postal Service employees
    who supposedly authorized particular third-party charges, the vendors
    have sometimes stated the names of famous people such as Janet Jackson.
        The Postal Service receives telephone service from dozens of
    different telephone companies. During the past 5 years, at least thirty
    different telephone companies have sent bills to the Postal Service
    that contained at least some crammed charges. Some of the Postal
    Service's contracts with telephone companies state that third-party
    billing must be restricted from the Postal Service's telephone bills.
    Notwithstanding that contractual provision, some telephone companies
    have told the Postal Service that they do not have the ability to block
    third-party charges from appearing on the Postal Service's telephone
    bills. Other telephone companies have said that they will attempt to
    block the charges but are not able to block all of them. A Postal
    Service employee reported that Granite seems to be able to stop third-
    party charges from appearing on the telephone bills that the Postal
    Service receives from Granite.
        United States Navy-San Diego \25\ Since 2007, the United States
    Naval Computer and Telecommunication Station in San Diego, California
    (``NCTS-SD'') has identified and canceled hundreds of crammed charges
    on the landline telephone bills it processes for the Navy in the San
    Diego region. NCTS-SD estimates that the bills it processes currently
    contain approximately $300-$600 worth of crammed charges per month.
    Those figures represent a decrease from previous years, including 2009,
    when the telephone bills contained approximately $11,000 worth of
    crammed charges in one quarter. The crammed charges have included
    charges for voice-mail and online backup services.
    ---------------------------------------------------------------------------
        \25\ Committee staff telephone interview with United States Navy
    personnel (May 2, 2011). Part of the information regarding the United
    States Naval Computer and Telecommunications Station-San Diego's (NCTS-
    SD) experience with cramming comes from data and documents that NCTS-SD
    provided the Commerce Committee on April 27 and 29, 2001 in response to
    a letter that Chairman Rockefeller sent to United States Navy RADM Tom
    Copeman on April 4, 2011.
    ---------------------------------------------------------------------------
        Although NCTS-SD thinks it is possible that Navy employees may
    sometimes knowingly or inadvertently enroll their individual telephone
    extensions in third-party services, Navy employees whose individual
    extensions have incurred third-party charges often state that they have
    never heard of the services for which their lines are being charged. In
    addition, certain unauthorized third-party charges have sometimes
    appeared on consecutively-numbered telephone extensions which led Naval
    personnel to believe that those charges were fraudulent rather than the
    result of Naval employees enrolling their telephone numbers in third-
    party services.
        When NCTS-SD employees contact billing aggregators to dispute
    third-party charges, they request blocking of third-party charges on
    the particular telephone lines that incurred the disputed charges.
    Nevertheless, those same lines sometimes incur new third-party charges
    from different third-party merchants in subsequent months. AT&T has
    told NCTS-SD personnel that AT&T cannot block third-party charges from
    appearing on the Navy's telephone lines.
        NCTS-SD believes that the third-party charges that have been billed
    to Naval central office trunk lines must be ``100 percent fraud.''
    Naval personnel who use the Navy's telephone services do not know the
    telephone numbers associated with the central office trunks. Those
    numbers are unpublished, and they never appear on caller identification
    records because they are not connection points for telephone calls.
    VI. State and Local Governments
        Tyler, Texas \26\ The City of Tyler, Texas sent Chairman
    Rockefeller a letter regarding its experience with cramming on its
    landline telephone bills. The city discovered in February 2009 that it
    had been crammed by at least ten different vendors for as long as 26
    months.
    ---------------------------------------------------------------------------
        \26\ Letter from City of Tyler, Texas to Senator John D.
    Rockefeller IV (May 27, 2011); Committee staff telephone interview with
    City of Tyler employee (May 12, 2011); Letter from City of Tyler to
    Texas Public Utilities Commission (Mar. 9, 2009) (enclosing e-mail
    messages exchanged between City of Tyler and AT&T) (produced to
    Commerce Committee by daData, Inc. without Bates numbers).
    ---------------------------------------------------------------------------
        In February 2009, a city employee e-mailed AT&T a list of the
    unauthorized charges and stated that she had ``spent hours calling and
    getting cancellation confirmations and retroactive credits to the tune
    of $1,500.'' An AT&T Senior Account Manager replied by stating that he
    realized that cramming was a problem but could not do anything to help
    the city deal with it. Specifically, the AT&T employee said:

            Neither myself or my team can do anything to resolve these for
            you and this isn't the first time we've been asked. This is a
            common problem with big accounts with lots of employees.
            Everyone has to fight these. My former account Dallas County
            would have 20-30 per month and there is no easy way to resolve
            them except the way you are doing it. I wish, I really wish
            there was some way we could help but there is not.

            ***

            I checked on this and was not able to get any good ideas on how
            to resolve it. I would recommend calling the AT&T billing
            number to see if they could give you any info or even stop the
            billing on these two items. I wish I could have been some help
            but this is the best I could come up with.

        More than two years later, and after complaining to the Texas
    Public Utility Commission, the City of Tyler continues to identify
    crammed charges on its AT&T landline telephone bills. The city's letter
    to Chairman Rockefeller states that ``[t]he soft costs of man-hours
    within all levels of government wasted to identify, confront and track
    these transactions must be staggering!'' The city employee who deals
    with cramming sometimes has to use Internet searches and make multiple
    calls to try to dispute some of the crammed charges because the city's
    telephone bills do not always include telephone numbers for contacting
    some of the merchants that have placed unauthorized charges on the
    city's telephone bills. For example, she recently had to use Internet
    searches to find contact information for a company that charged the
    city $99.95 for search engine optimization and a company that charged
    multiple city lines for directory assistance in multiple months.
        Los Angeles, California \27\ The City of Los Angeles told Committee
    staff that it has consistently incurred crammed charges on its landline
    telephone bills for years. Approximately three years ago, an outside
    auditor helped the city identify and cancel the crammed charges that
    had been appearing on the city's telephone bills. After the auditor
    completed its work, however, the city quickly began to incur new
    crammed charges.
    ---------------------------------------------------------------------------
        \27\ Committee staff telephone interview with City of Los Angeles
    employees (May 26, 2011); E-mail message from AT&T to City of Los
    Angeles employees (Feb. 8, 2011).
    ---------------------------------------------------------------------------
        For example, in February 2011, the city determined that ten
    different third-party vendors had been cramming charges on a city
    library telephone bill for services such as voice-mail, electronic
    facsimile, and meal planning services for as long as 31 months each.
    After the city sent a list of those unauthorized third-party charges to
    AT&T, AT&T provided the city more than $5,100 in billing credits. City
    employees told Committee staff that AT&T is responsive in removing and
    providing billing credits for crammed charges when they notify AT&T
    about such charges.JLW
        In February 2011, the city requested that AT&T block all its lines
    from third-party billing because the city had ``been getting a lot of
    3rd party billing lately.'' AT&T responded by telling the city that it
    could not block its lines from third-party billing. AT&T stated in an
    e-mail to the city:

            We are not able to do a ``blanket'' block including all
            carriers because we have to be un-biased and provide billing
            services for these companies. Besides there are new companies
            popping up all the time so it will still require some ongoing
            auditing by the City.

            However, I will be happy to help you with the unauthorized
            Third Party Billers blocking on a case by case basis. All that
            I need is the BTN [billing telephone number] and the
            unauthorized charge information such as the name of the service
            and the amount so that I can locate the charge on your bill.

            Once I receive your request, I can recourse the charges back to
            the carrier, report the incident, and request the blocking for
            future charges. I can continue following the same process that
            I did for [city employee's name] by blocking all WTN's [working
            telephone numbers] associated with each BTN reported.

        Chicago, Illinois \28\ The City of Chicago told Committee staff
    that it continues to incur some crammed charges on its landline
    telephone bills despite its requests for AT&T to block all third-party
    charges. In July 2010, the city's telecommunications manager e-mailed
    AT&T to state that the city's July 2010 invoice contained the same
    unauthorized third-party charges that the city had disputed for the
    past year as well as new unauthorized third-party charges.
    ---------------------------------------------------------------------------
        \28\ Committee staff telephone interviews with City of Chicago
    employees (May 25 and 26, 2011); E-mail messages from AT&T to City of
    Chicago employees (June 10, and Aug. 11, 2010).
    ---------------------------------------------------------------------------
        An AT&T Business Solutions Customer Service Manager e-mailed the
    city in June 2010 to state that AT&T's ``[s]lamming and [c]ramming
    protection is not 100 percent guaranteed to catch all third party
    billing,'' ``[u]nfortunately, from time to time a third party biller
    may slip through,'' and ``when it's identified we will recourse the
    charges.'' In August 2010, another AT&T manager e-mailed the city to
    explain that crammers were figuring out how to get around the blocks:

            After a review of some of the accounts, we determined that some
            Third Party Billing Service Providers are improperly using the
            Blocking Exception Indicator intended to bypass specified types
            of charges. This has resulted in inappropriate third-party
            charges being billed to AT&T End-User accounts subject to
            third-party bill blocking. A letter approved by legal is being
            sent to the Third Party Billing Service Providers strictly
            reinforcing the proper application of the bypass process to
            avoid sanctions by AT&T. AT&T is also pursuing other options to
            further protect the City of Chicago from receiving these
            charges and insure compliance by Third Party Service Providers.

        Michigan Department of Licensing and Regulatory Affairs \29\ An
    employee from the Michigan Department of Licensing and Regulatory
    Affairs sent Chairman Rockefeller a letter stating that the department
    regularly incurred crammed charges on approximately six of its landline
    telephone invoices for voice-mail, electronic facsimile, tech support,
    and identity protection services between 2006 and 2010. The department
    initially paid the charges because department employees assumed they
    were correct. The department employee who audited all of the
    department's landline telephone invoices later became suspicious when
    she noticed that many of the charges were for services that
    departmental employees already had available to them. The department
    was neither able to obtain refunds for all of the crammed charges nor
    able to get AT&T to block its lines from incurring additional crammed
    charges.
    ---------------------------------------------------------------------------
        \29\ Letter from Michigan Department of Licensing and Regulatory
    Affairs to Senator John D. Rockefeller IV (May 5, 2011).
    ---------------------------------------------------------------------------
        The Michigan state employee's letter to Chairman Rockefeller
    states:

            Upon determining that these ``services'' were not being ordered
            or received by any of our staff members, I began to
            systematically dispute the charges every time I encountered
            them.

            ***

            I quickly found that the third-party companies, or the
            companies they represented, rarely challenged my disputes. . .
            . Due to the fact that I never had any tangible proof that
            someone in one of our offices did not order the services, I was
            never able to get them to give me retroactive credits. The
            burden of proof seemed to be on our end instead of on the end
            of the third-party billers and the companies for which they
            billed. Since there had not been anyone in our department
            auditing and challenging these charges before me, they were
            usually paid and [the department] was never reimbursed for any
            of these charges that occurred prior to my disputes. Throughout
            my time of handling these disputes, there was never a single
            time where one of the offices had to contact me because a
            needed service billed on their AT&T account by a third-party
            company had been disconnected. . . . I was never able to get
            AT&T to put blocks on our accounts to stop third-party charges,
            but I always asked the third-party billers in my disputes to
            block charges on their end from being charged on the line after
            the initial claim. They usually claimed to do so and I never
            saw a third-party charge on the same line again after a block
            was in place.

        Los Angeles County, California \30\ Los Angeles County, California
    sent Chairman Rockefeller a letter explaining that, since November
    2009, the county has received more than $306,000 in billing credits for
    past charges that had been crammed onto its AT&T landline telephone
    bills. County employees have spent more than 125 hours dealing with
    cramming since November 2009. After the county implemented a new
    billing system that enables it to see greater detail on its landline
    telephone bills, the county discovered thousands of instances of
    cramming for services such as voice-mail, identity theft protection,
    privacy, and debt-related services. The county canceled all such
    services and requested that AT&T block third-party charges from
    appearing on its telephone bills. The county does not believe that
    county employees were using any of the services it canceled because no
    county employees have inquired about their loss of access to the
    services since the county canceled them. The county continues to incur
    some crammed charges on its landline telephone bills.
    ---------------------------------------------------------------------------
        \30\ Letter from County of Los Angeles Internal Services Department
    to Senator John D. Rockefeller IV (May 23, 2011); Committee staff
    telephone interview with County of Los Angeles employees (May 18, 2011)
    ---------------------------------------------------------------------------
        Orange County, California \31\ Orange County, California has
    battled cramming on its landline telephone bills since 2001. For some
    period of time, county employees spent ``upwards of 60 labor hours a
    month'' dealing with 100-300 instances of cramming, or approximately
    $3,000 worth of crammed charges, per month. Many or most of the crammed
    charges were for services that the county's telephone systems already
    provided. The county's routine practice was to contact AT&T to obtain
    contact information for the third-party vendors that had crammed
    charges onto its bills. In most instances, the county ended up refuting
    the charges via AT&T because the county was not able to contact the
    third-party vendors to request billing credit. In 2008, after several
    months of negotiations, AT&T agreed to block third-party charges on the
    county's telephone bills. Even with blocking in place, the county
    continues to incur a small number of crammed charges and spends
    approximately 5 hours per month addressing those charges.
    ---------------------------------------------------------------------------
        \31\ Memorandum from Orange County Executive Office to Commerce
    Committee Staff (June 14, 2011).
    ---------------------------------------------------------------------------
        Houston, Texas \32\ The City of Houston, Texas currently identifies
    approximately ten crammed charges on its landline telephone bills each
    month for services such as photo storage, music download, and voice-
    mail services. In previous years, the city identified as many as fifty
    crammed charges per month. The city has incurred crammed charges on
    telephone numbers for facsimile lines and operations lines that are not
    published and are not assigned to individual employees.
    ---------------------------------------------------------------------------
        \32\ Committee staff telephone interview with City of Houston
    employee (June 3, 2011); E-mail message from City of Houston employee
    to Commerce Committee staff (June 3, 2011).
    ---------------------------------------------------------------------------
        City of Houston employees review the city's numerous individual
    bills each month and contact the billing aggregators to cancel and
    request billing credit for the unauthorized third-party charges they
    identify. They also send lists of the unauthorized third-party charges
    to AT&T to inform AT&T that the city will be deducting the cost of the
    unauthorized third-party charges when it pays its AT&T bills. Based on
    their communications with AT&T, city employees do not believe AT&T can
    block third-party charges from appearing on the city's telephone lines.
    For example, an AT&T service representative e-mailed city employees in
    January 2009 to state that AT&T had provided the city $4,200 worth of
    billing credit for unauthorized third-party charges but stated:

            Just a reminder this will not STOP the charges in order to do
            that you will need to call the companies that are billing to do
            that, which you will need to do. All I am doing is sending the
            charges back to the companies that billed them saying that they
            were unauthorized.

        St. Louis, Missouri \33\ Between October 2009 and February 2010,
    the City of St. Louis, Missouri identified approximately 360 instances
    of cramming on its landline telephone bills for services such as voice-
    mail, diet plans, electronic facsimile, celebrity tracking, and
    identity theft protection.
    ---------------------------------------------------------------------------
        \33\ Committee staff telephone interview with City of St. Louis
    employee (May 20, 2011); E-mail message from City of St. Louis employee
    to Commerce Committee staff (May 25, 2011).
    ---------------------------------------------------------------------------
        An employee in the Controller's Office became particularly
    suspicious about the legitimacy of the third-party charges when she
    noticed that some of the charges appeared on Controller's Office lines.
    She then discovered numerous complaints on the Internet regarding the
    third-party vendors that had placed charges on the city's telephone
    bills. She called some of the city employees whose lines were being
    charged for third-party services, and the employees told her that they
    had not heard of the services for which their lines were being charged.
    She believes that her subsequent request for AT&T to block the city's
    lines from third-party charges has reduced the amount of cramming on
    the city's telephone bills.
        Tulare County, California \34\ In September 2009, an outside
    consultant helped Tulare County, California identify more than 60
    charges that had been crammed on its landline telephone bills for
    services such as voice-mail, identity theft protection, and electronic
    facsimile services. Some of the charges had been recurring for more
    than 3 years. The county obtained approximately $11,000 in credits for
    the unauthorized charges. A county employee who worked on the issue
    believes that was ``only the tip of the iceberg'' with respect to the
    county's experience with cramming.
    ---------------------------------------------------------------------------
        \34\ Committee staff telephone interview with Tulare County
    employee (June 3, 2011); E-mail message from Tulare County employee to
    Commerce Committee staff (June 3, 2011).
    ---------------------------------------------------------------------------
                                     ______

        The Chairman. Although Congress and the telephone companies
    haven't been doing enough to protect consumers from cramming--
    our fault--I'm glad to say that some State and Federal law
    enforcement agencies have stayed on the job. We're going to
    hear from the Attorney General of Illinois, Lisa Madigan, who
    sits right there. And she's going to tell us how her office has
    filed more than 30 lawsuits against crammers.
        And we're going to hear about a law that the State of
    Vermont passed recently to protect its citizens against
    cramming. A lot of other law enforcement authorities, including
    the Federal Trade Commission, the Federal Communications
    Commission, have filed lawsuits and shut down crammers.
        But what they need to know is that crammers can come right
    back. They're ubiquitous. They're everywhere. Like all those
    little satellite alien space things. They just drift around,
    waiting to plop down onto a phone bill. But as we're going to
    hear today--and I'm sorry so long--when they shut down one
    crammer, new crammers appear to take their place.
        So it's obvious at this point that voluntary guidelines are
    not going to solve this problem. It's also pretty clear that
    the case-by-case law enforcement approach is not going to work.
    There are just too many crammers out there, ripping off too
    many consumers. So it's time for us, I think, to do something
    more about it.
        Say one more thing, there are about 300 million charges,
    mostly unauthorized, entered onto telephone bills each year,
    300 million. And that's about--worth about $2 billion, you
    know. So that's not a lot of money, except if you have to pay
    it. People living on the edge--1995, that's a lot of money. And
    again, all $2 billion were not cramming charges, but most of
    them are.
        We estimate there have been about $10 billion worth of
    third-party charges on consumer telephone bills. We estimate
    that AT&T, and Qwest, and Verizon, have earned more than $650
    million, those three companies, from this themselves. That's
    pretty big money. That's pretty big money.
        And so anyway, we've got a real problem here, and we're--we
    want to do the right thing, and we want to protect people, and
    that's the end of me, so I call on Senator Ayotte.

                    STATEMENT OF HON. KELLY AYOTTE,
                    U.S. SENATOR FROM NEW HAMPSHIRE

        Senator Ayotte. Thank you, Mr. Chairman. I want to thank
    you for holding this important hearing. I know that you and
    your staff have put a great deal of time and effort in
    preparing the investigative report that the Committee released
    today. I also want to thank those at the Federal and State
    levels who have pursued enforcement actions against those
    perpetrating this fraud on consumers.
        I especially want to recognize my former colleague, Lisa
    Madigan, the Attorney General of Illinois, with whom I worked
    with when I was the Attorney General of New Hampshire. She has
    been very active in this field, and I welcome her here this
    morning.
        For more than a decade, New Hampshire has actually had a
    framework for responding to the practice commonly known as
    cramming. When I served as the State's top law enforcement
    officer, I oversaw an active consumer protection bureau, as
    General Madigan does, which included the publication of
    consumer protection sourcebook and brochures to provide
    individuals with information about how to protect against
    cramming.
        Additionally, in New Hampshire, the Public Utilities
    Commission is also authorized to sign billing aggregators that
    were service providers found to be cramming or to ban them
    entirely from access to the telephone company billing apparatus
    to prevent further harm to consumers. As we continue to examine
    this issue and discuss how to best address it, we must not lose
    sight of the fact that cramming affects regular, hard-working
    Americans who are being scammed out of their hard-earned
    dollars.
        As a former prosecutor, it's my intent to bring to justice
    the bad actors, but simultaneously, also recognize that there
    are legitimate businesses providing services to consumers. It
    is my hope that we will spend some time this morning talking
    about the prosecution of crammers, and how to best go after
    those defrauding the consumer. Without strict deterrence or
    fear of retribution for those scamming the public, we are
    certainly not adequately addressing this issue.
        In addition to the witnesses from Illinois and the Vermont
    law enforcement, who we will hear from today--and I appreciate
    Mr. Burg being here as well--we should note that the FTC and
    the FCC also play a key role in fighting cramming by bringing
    law enforcement actions against bad actors regarding
    illegitimate charges on consumers' phone bills. Just yesterday,
    the FCC announced a notice for proposed rulemaking, which is
    intended to help consumers detect and prevent unauthorized
    charges. So there is ongoing action to help consumers protect
    themselves.
        However, one of the issues I hope this committee will be
    addressing is whether those steps are sufficient to protect
    consumers and hold wrongdoers accountable. Given the clear
    importance of this issue and the urgent need to find workable
    solutions that protect the public, I very much appreciate the
    work that went into this year-long investigation.
        I am disappointed that the findings were only released
    right before the hearing because I would have liked to have
    heard from our witnesses more of an analysis of what his or her
    view is of the report. So going forward, I hope that all of you
    will feel free to augment the record with your perspective on
    the year-long investigation that was conducted by this
    committee.
        I appreciate each of the witnesses for sharing his or her
    expertise and for helping the Committee better understand this
    important issue affecting so many Americans.
        And as a follow up to this hearing, I also believe it is
    necessary that we do hear directly from local exchange
    carriers, aggregators, as well as the Department of Justice,
    FTC, and FCC, who have been prosecuting and imposing fines on
    those who conduct cramming. These additional perspectives on
    this report would provide insightful information as we address
    this very important issue on behalf of consumers.
        I look forward to the hearing today and I want to thank
    each of you for being here. I yield back the balance of my
    time. Thank you.
        The Chairman. Thank you very much, Senator. Shall we be
    kind, because we have Amy Klobuchar here? She has another
    hearing she has to go to and Amy might like to say something,
    so, then, that leaves Mark Begich. And so we have to figure
    out----

                    STATEMENT OF HON. MARK BEGICH,
                        U.S. SENATOR FROM ALASKA

        Senator Begich. I'll pass. I'll pass, allowing Senator
    Klobuchar to have as much opportunity as she desires.
        The Chairman. What a gentleman. Senator Klobuchar?

                   STATEMENT OF HON. AMY KLOBUCHAR,
                      U.S. SENATOR FROM MINNESOTA

        Senator Klobuchar. Thank you very much. Well, thank you,
    Mr. Chairman, and I would concur in what Senator Ayotte talked
    about with the leadership of you and your staff in this area.
    It has been very helpful. And in fact, our State's been taking
    this on, as Attorney General Madigan knows, not just at the
    federal level, but also at the State level with Attorney
    General Swanson. And last January, she and I joined together
    and talked about the filing of a consumer fraud lawsuit against
    a company that fraudulently charged thousands of Minnesotans
    for a service that they neither authorized nor used.
        The company, which was called Cheap to Dial, had charged
    2,567 consumers in Minnesota for long-distance service fees.
    And do you know how many people actually used that service, Mr.
    Chairman? Nine people, nine people of the 2,567 that were
    charged.
        And it's just one example of an industry practice that has
    cost consumers and businesses millions, if not billions, of
    dollars. I'll never forget the consumers that were standing
    there with us, and they were--I think one was a--they were a
    Lutheran minister and his wife. And of course, she had checked
    the bill, every tiny detail, and was able to discover that
    charge, which is not something I would do.
        And so it is very hard for consumers to notice these
    charges because so often, they can be $10, $15, $20, $5,
    amounts that they would not normally notice on a larger bill.
        And that's why, when you add it up, it becomes a big chunk
    of change. So I am one that believes that it shouldn't be up to
    the consumer to play detective, going over their phone bills
    with a magnifying glass every month.
        I believe that phone companies and third-party aggregators
    need to crack down on crooks who are stealing from our citizens
    and our businesses. We need clear rules of the road that
    prevent this behavior. There have been good things about our
    deregulated market. It has led to innovation.
        But there are also issues that we are seeing, like this
    one, where crammers have been exploiting this open market. So I
    applaud the commission for the rulemaking. I look forward to
    helping in any way I can. I look forward to hearing the
    testimony.
        I'm sharing a hearing in Judiciary on the Violence Against
    Women Act, which I know the Chairman cares about very much.
    That's why I may not be here for all the questioning, but if
    I'm not, I will submit my questions on the record. Thank you.
        The Chairman. Thank you much, Senator Klobuchar. My Vice
    Chairman, Senator Ayotte, is now going to make the next
    introduction.
        Senator Ayotte. Thank you, Mr. Chairman. It is my privilege
    to introduce the Attorney General from Illinois, Lisa Madigan,
    who will provide testimony today, who has been very, very
    active on going after crammers in her own State. And again,
    I've had the privilege of serving with her as Attorney General,
    so I know how diligent she is in protecting consumers. So thank
    you, Attorney General Madigan.

                      STATEMENT OF LISA MADIGAN,
                       ATTORNEY GENERAL, ILLINOIS

        Ms. Madigan. Thank you, Senator Ayotte, Mr. Chairman, and
    distinguished members of the Committee. I appreciate this
    opportunity to testify. Today, I want to stress three points
    that draw on my eight and a half years' experience,
    investigating and bringing enforcement actions against phone
    bill crammers, as the Attorney General of the State of
    Illinois.
        Number one, most consumers are completely unaware that
    their phone number can be charged almost like a credit card, so
    many consumers will never discover that there are unauthorized
    charges buried in their phone bill.
        Number two, my office has yet to see a legitimate third-
    party charge placed on a consumer's phone bill.
        Three, phone bill cramming is such a persistent and
    pervasive problem, I believe that the only effective solution
    is to enact legislation banning third-party charges on phone
    bills.
        To give you an overview, Illinois individuals, businesses,
    churches, and government agencies have been filing complaints
    with the attorney general's office about phone cramming since
    1996. In response, Illinois, as well as other states, and the
    FTC have taken a series of law enforcement actions. And when we
    did that initially, it did temporarily quell the problem.
        However, we're seeing a very strong resurgence in the
    number of cramming complaints. Initially, the phone bill
    cramming scams that we saw were perpetrated primarily through
    telemarketers, especially in the years prior to the
    establishment of the National Do Not Call Registry. Recently,
    however, crammers, like many other illegitimate scams, have
    moved to the Internet.
        Some Internet victims tell us that they have done nothing
    more than submit their name, their address, and importantly,
    their phone number in response to online offers for either a
    prize drawing, coupons, or free recipes. Eventually, of course,
    they learn that they have been crammed. Again, they did not
    know that they were buying anything at the time. And they did
    not know that, by giving their phone number, they were
    authorizing a charge on their phone bill. And so they're
    understandably puzzled, and quite frankly angered, when
    sometime later, they notice that their phone bill contains a
    charge for a product or a service that they didn't seek out,
    they didn't authorize paying for, and very importantly, they
    never used.
        That's when some of the victims turn to my office for help.
    However, FTC data indicates that as few as 1 in 20 consumers
    that are billed for third-party charges on their phone bills
    are even aware of the billing. My own investigations have
    revealed a similarly low level of consumer awareness.
        In fact, throughout our investigations, we have learned
    that many victims have never visited the website of the vendor
    whose product or service they're being charged for. And worse,
    some of the victims don't even have access to the Internet.
        Additionally, victims consistently tell us that they have
    never used the product or the service for which they were
    billed. Again, that is not a surprise when consumers never even
    knew they purchased anything in the first place.
        For example, one case that my office handled--we managed to
    obtain the data on the more than 3,500 Illinois consumers who
    had been billed for Internet service and extended cell phone
    warranties. Most of the consumers we talked to did not know
    that they were being billed and none, none, of the 3,500
    consumers had made a warranty claim or had used the Internet
    service. Our investigations consistently revealed that most
    phone crammers rely on deception.
        However, others engage in outright fraud. For scams
    involving deception, the basic marketing strategy has remained
    the same throughout the years. Whether over the phone or on the
    Internet, the consumers is never clearly told they're making a
    purchasing decision, or that they'll be billed for the purchase
    on their phone bill, or that giving their phone number will
    authorize a charge on their landline phone bill.
        In contrast with the scams involving deception, in which
    the victim participates in the transaction, albeit unwittingly,
    scams involving outright fraud don't require the victim to take
    any action whatsoever. This type of cramming is also referred
    to as phantom billing, where the purported consumer acceptance
    of the vendor's offers is completely falsified.
        In a number of the telemarketing cases we've investigated,
    we've obtained the recorded phone conversations of consumers
    purportedly agreeing to an offer. The only problem is that the
    voices on those recordings are not the voices of the consumers
    who were billed. And while I'm on the subject of phantom
    billing, I should note that in another of our cases, a county
    coroner's office, a Steak 'n Shake restaurant, and my personal
    favorite, the public library's Dial-a-Story phone line, were
    among the 9,800 Illinois businesses billed for credit repair
    services, that even assuming credit repair services were
    legitimate, could only be used by an individual, obviously not
    by a business.
        So I would argue to this committee that when an automated
    children's Dial-a-story phone line supposedly signs up for
    credit repair services, it is time to stop third-party billing.
    The bottom line is that, from the beginning, third-party
    charges on phone bills have been an open invitation to fraud
    and deceit. It has been a scam where vendors, billing
    aggregators, and carriers make significant money by consumers
    never noticing the cram charges on their phone bills.
        I strongly support decisive legislative action on the state
    and federal level to ban the practice altogether. Again, I
    thank you for the opportunity to testify today and I'm happy to
    answer any questions you may have.
        [The prepared statement of Ms. Madigan follows:]

         Prepared Statement of Lisa Madigan, Attorney General, Illinois
        Thank you, Senator Rockefeller and distinguished members of the
    Committee. I appreciate the opportunity to testify today.
        Telephone bill cramming first emerged as a consumer problem in the
    1990s, and continues to be a problem today. Based on my eight and a
    half years of investigating phone bill cramming in my capacity as
    Illinois Attorney General, I can safely say that most consumers do not
    expect that their telephone account can be used to bill for services
    and charges unrelated to their telephone service, and that their
    telephone number is their account number. Furthermore, the vast
    majority of consumers who are billed never use the products and
    services, and in many cases are unaware they are being charged.
    Background on Telephone Bill Cramming Consumer Complaints
        My Office's Consumer Fraud Bureau began receiving consumer
    complaints about unauthorized charges appearing on consumers' telephone
    bills in 1996. In the early years of the problem, we saw monthly
    charges ranging from $9.95 to as much as $45.00 for products such as
    prepaid calling cards, voice mail service, credit repair services, a
    cell phone warranty, or a toll-free number (purportedly to provide free
    long distance service). Some services involved set-up fees of anywhere
    from $9.95 to $25 in addition to the monthly fees.
        At first, phone bill cramming affected primarily residential
    telephone customers. Then unauthorized charges began appearing on the
    phone bills of small business, government, churches, and other non-
    profit entities in amounts ranging from $19.99 to $49.95 for items such
    as website design and hosting, search engine optimization, or online
    yellow pages listings.
        These practices continue to evolve. In recent years, particularly
    since the creation of the National Do Not Call Registry in 2003, which
    has reduced telemarketing calls to residential phone numbers, we've
    seen an increase in complaints from consumers who were solicited
    online, as companies move to a new medium. As explained more fully
    below, online solicitations present a new set of challenges in our
    investigations of these cases.
        Even as telephone bill crammers have shifted their focus from
    telemarketing to the Internet, the stories we hear from consumers have
    remained remarkably similar. Complaining consumers consistently deny
    all knowledge of the charges and products or services. In fact, they
    tell my Office that they have never even used the products or services.
    When a consumer files a phone bill cramming complaint with my Office,
    our Consumer Fraud Bureau sends copies of consumer complaints to the
    two main entities involved--known as the vendor, or the company selling
    the service, and the billing aggregator--and requests a response. In
    many instances, the entity that responds claims to have obtained
    authorization from the consumer for the charges, but will agree, as a
    gesture of good will, to remove the charges from the consumer's
    telephone bill and cease charging the consumer for the services.
        Many consumers have reported to my Office that they experienced
    difficulty when they tried to remove the charges on their own--that
    they spent hours on hold or were given the runaround when they
    attempted to obtain refunds for amounts already paid.
        My investigations of vendors, which include obtaining information
    about the vendors from their billing aggregators, have routinely
    revealed deceptive sales pitches and high refund rates.
        The bottom line is that most consumers who are currently being
    billed for third party charges on their phone bills are unaware they
    are being billed. If they do become aware, they cancel the service and
    attempt to obtain a refund, because they never intended to purchase the
    product or service, and they never used it. Some consumers discover the
    charges in the first few months, but some cramming charges can go
    undiscovered for over a year or two. Some consumers never notice these
    charges on their phone bills. This is due in part to the relatively
    small amount of the charges compared with the total phone bill amount,
    and the complexity of phone bills.
    Mechanics of Third Party Billing
        Vendors are the parties whose charges appear on consumers'
    telephone bills. They solicit telephone subscribers to buy their
    products or services, and then transmit their list of acquired
    customers to billing aggregators for further processing. The only piece
    of information that is needed is the consumer's telephone number.
        Billing aggregators are the entities that act as the intermediary
    between vendors and consumers' local telephone companies. The billing
    aggregators enter into contracts with vendors to pass on their charges
    to consumers' telephone companies. The aggregators in turn have
    contracts with the numerous local telephone companies nationwide to
    place the vendors' charges on consumers' telephone bills.
        The local telephone company collects the charges from the consumer,
    retains its portion of the charges, and remits the remaining portion to
    the billing aggregator, who retains its portion of the charges and
    remits the vendor's share to the vendor.
        Both the aggregator and the local telephone company screen
    potential vendors before allowing them onto the billing platform.
        My office's investigations of crammed phone bill charges reveal
    that both entities could be doing more to screen out problematic
    vendors, including taking a closer look at who is behind applications
    for access to the billing platform and more closely scrutinizing
    marketing materials and marketing methods, both proposed and
    implemented.
    Products Billed on Landline Telephone Bills
        The products have changed over the years, but they continue to be
    unwanted, unused, and often unnecessary. Early cramming complaints
    involved voice mail service, Internet service, search engine
    optimization, long distance calling cards, toll-free telephone numbers
    (purportedly used to obtain free long distance service), local singles
    matching services, and Web page design. More recently, we have seen
    cramming complaints about phone billed charges for credit repair,
    identity theft prevention and monitoring, business advice on how to
    start an online business, online photo storage, roadside assistance,
    online yellow pages listings, Internet service, e-mail service, and
    travel and restaurant discounts.
        Some of these services are duplicative of services that consumers
    already have, so it stands to reason that the consumers would not have
    approved purchasing these duplicative services. Other services are
    available for free from other sources, such as photo storage and e-mail
    services. In any event, both my investigations and FCC data support
    findings of extremely low usage rates for these products and services.
    These low usage rates, less than 1 percent, indicate that consumers did
    not knowingly sign up for them.
    Marketing Methods
    Telemarketing and Third Party Verification
        Initially, vendors marketed their services via cold telemarketing
    calls to a residential consumer's telephone number. Telemarketing
    solicitations to residential consumers have decreased since the
    National Do Not Call Registry was created, but telemarketing
    solicitations to small businesses continue because telemarketing calls
    to businesses are not covered by the National Do Not Call Registry.
        These telemarketing pitches often are deceptive. Examples of
    deceptive telemarketing solicitations I have seen include
    misrepresentations in which consumers are told that:

       They are only agreeing to a free trial or to receive written
            materials about an offer, and that if they want to buy
            something, they must take some affirmative steps to make the
            purchase. In fact, however, if the consumers agree to the free
            trial or to receive materials, they are billed, even though
            they take no further steps; and

       The purpose of the call is to renew a small business
            consumer's current yellow pages listing, when in fact the
            vendor has no current business relationship with the small
            business consumer. This misrepresentation sometimes is coupled
            with a misrepresentation that the listing is free, and that the
            caller just needs to verify the business' information to
            include in the listing.

        In some cases, in response to inquiries from my Office about
    telemarketing sales resulting in phone bill cramming, vendors have
    produced purported proof of authorization from consumers. This
    purported proof is referred to as a third party verification tape.
    Third party verification is a process in which a third party,
    supposedly unrelated to the vendor or telemarketer, joins the
    telemarketing call and asks a series of questions of the consumer to
    confirm that she agreed to the vendor's offer. This verification
    conversation is recorded and preserved for at least two years in order
    to respond to potential cramming complaints.
        The fundamental problem with these verification tapes is that the
    recorded conversation takes place after the initial telemarketing call,
    which is unrecorded. Thus, at the point of the supposed verification,
    the consumer has already heard a deceptive telemarketing sales pitch
    and, as a result of the deception, has agreed to the free trial or to
    receive materials, or otherwise is under the impression that he has not
    made a purchasing decision. The telemarketer often describes the
    verification process as a mere formality and instructs the consumer to
    answer yes to the questions posed.
        At best, verification recordings involve a recording of a person
    saying yes or no to a few questions taken out of context following an
    unrecorded sales call in which the consumer was led to believe that no
    purchasing decision was being made, or that a current contract was
    being renewed. At worst, such recordings are falsified, and the voice
    on the recording is not that of the telephone subscriber.
        Among falsified recordings, we have seen instances where someone is
    posing as the telephone subscriber in order to fabricate a sale. In
    other cases, the vendor will claim to have obtained authorization from
    a non-existent employee of a small business. Some residential consumers
    have listened to the purported verification tape and reported that the
    voice on the tape is not theirs.
        In one case I brought, the vendor had billed over 9,800 Illinois
    consumers for credit repair services. Although the credit repair
    services were designed for individuals, the billed consumers include a
    county coroner's office, a Steak N Shake restaurant, and public library
    dial-a-story telephone line.
        In another recent case, the materials that the billing aggregator
    produced to my Office indicate the vendor was billing for a service
    that was different from the description that appeared on consumers'
    telephone bills. Consumers' phone bills indicated they were being
    charged for some sort of Internet service. However, the actual product,
    according to the vendor, was both a cell phone warranty and Internet
    services, with more emphasis on the cell phone warranty.
        In that case, we requested usage information from the vendor. The
    vendor indicated that none of the more than 3,600 Illinois consumers
    who were billed for that service had contacted the vendor to activate
    Internet service or request repair or replacement of their cell phone,
    thus confirming that Illinois consumers, small business, churches, and
    government offices were unaware they had purchased anything.
    Letters of Agency and Live Check Solicitations
        For a short time several years ago, some vendors would claim they
    had obtained authorization via a toll-free telephone number that
    consumers allegedly had dialed in order to request the services.
    However, no billed consumers who complained to my Office about those
    charges recalled having made such a request.
        Another early marketing method was a Letter of Agency, or LOA. In
    some cases, LOAs were sweepstakes entry forms that served a dual
    purpose of entering a sweepstakes to win a prize and authorizing the
    vendor to charge the consumer a monthly charge for a product or service
    on his or her telephone bill. The form prompted consumers to provide
    their name, address, and telephone number. In many cases, upon seeing
    the LOA that the vendor relied on as authorization for the product or
    service to be billed, the consumer claimed that his or her signature
    had been forged.
        In the last few years, we also have seen live check solicitations.
    Live check solicitations typically are sent to small businesses. The
    solicitations are actual checks for nominal amounts that also serve as
    a solicitation. Endorsing and cashing the check constitute acceptance
    of the vendor's offer, which involves being billed for a product or
    service on your telephone bill. This marketing method is particularly
    insidious, as small businesses often process numerous checks in the
    course of a day and would have no reasonable way to identify checks
    that are also solicitations.
        My Office, as part of a multistate investigation with my colleagues
    in other states, sued a company that sold online business directory
    listings via live check solicitations. That company ultimately settled
    with the states and agreed to cease using live check solicitations.
    Almost immediately thereafter, the same company began offering the same
    online business directory listings via deceptive telemarketing
    solicitations. In this particular scheme, the telemarketer would
    falsely imply that the business was a current customer and was only
    being asked to renew its online yellow pages listing, so I sued the
    company a second time.
    Online ``Solicitations''
        In recent years, vendors have moved to online solicitations. When a
    consumer complains about unauthorized telephone bill charges for items
    such as credit repair services, cell phone warranties, or ID theft
    protection services, for example, the vendor claims to have obtained
    authorization from the consumer online. In some cases, the proof the
    vendor provides my Office that the consumer authorized the charges is
    personal information about the consumer, such as telephone number, date
    of birth, address, e-mail address, or IP address. This information is
    displayed in what appears to be a simple sign-up form.
        However, we believe the sign-up forms typically provided to us as
    so-called proof of authorization are not the actual forms that
    consumers complete to authorize the purchase. Instead, the simple sign-
    up form we receive appears to have been populated with information
    obtained from an online sign-up process known as ``co-registration.''
    In this process, a consumer believes he is registering to receive
    something for free, such as coupons, or too win a prize, such as a
    television or DVD player. But in fact, by providing the requested
    personal information, the consumer is also ``agreeing''--unwittingly--
    to purchase a service to be billed on his telephone bill.
        At some point between online sign-up and the provision of the so-
    called proof of authorization, the registration information is
    submitted for billing on the consumer's phone bill and is populated
    into a different sign-up form. In many cases, this second document is
    the only sign-up form provided to my Office. Consequently, we are often
    unable to inspect the online solicitation to see whether the key terms
    of the offer are disclosed clearly, if at all.
        In other cases, the billed telephone number does not correspond to
    the name and address of the person to whom that telephone number is
    assigned.
    Deceptive Online Marketing and Fraud
        Some phone bill crammers rely on deceptive marketing to lure
    unsuspecting consumers, while others engage in outright fraud. In many
    of our cases involving deceptive marketing, the billed consumer may
    have provided his or her contact information online for the purpose of
    entering a prize drawing or obtaining coupons, as described above. In
    some of our cases involving fraud, it appears that someone, either the
    vendor or a third-party marketer that contracted with the vendor,
    simply entered names and telephone numbers (perhaps gleaned from the
    phone book or a public records service) into online sign-up portals or
    otherwise submitted falsified orders for processing. This is what is
    known as phantom billing, and it possibly explains why some consumers
    are billed even though they insist they have never used the Internet.
        Recent investigations have provided us very little in the way of
    online marketing materials because billing aggregators tend to collect
    very little marketing information from their vendors. When vendors ask
    a billing aggregator to provide telephone bill access for the vendor's
    service, the aggregator requests the vendor's marketing materials in
    order to vet the vendor. However, instead of providing the actual
    landing and sign-up page, the vendor simply provides its own website,
    which tells the aggregator very little about its marketing methods.
    Based on what we've seen in our investigations, very few consumers
    actually go to the vendor's website to sign up for the vendor's
    services. Also, vendors often do not market their own services but
    instead contract out their marketing to third parties, who sometimes in
    turn contract it out to fourth parties. These third and fourth parties
    are part of the shadow world of affiliate marketers.
        In many cases, the marketing materials used by these third and
    fourth parties are not provided to the billing aggregator, and the
    vendor disclaims any knowledge about the identity of the marketer and
    the appearance of these solicitations. One vendor indicated that at a
    certain point, it began to suspect fraud by one of its marketers when
    it noticed higher than expected customer service call volumes, implying
    that the customer complaint calls, as opposed to a careful review of
    the marketing materials, were the first sign of trouble.
        Based on the responses to subpoenas from my Office and responses to
    consumer complaints, it appears that both the vendor and the billing
    aggregator commonly accept orders from these third and fourth party
    marketers without inquiry into whether appropriate solicitations were
    used to obtain the orders.
    Past Approaches to Reducing Telephone Bill Cramming
        My Office has filed 30 law enforcement actions in response to
    telephone bill cramming. These are in addition to the law enforcement
    efforts of numerous other state attorneys general and Public Utilities
    Commissions, and the Federal Trade Commission. These actions often
    result in the vendor shutting down and ceasing soliciting and billing
    for unwanted products and services. However, other vendors with the
    same deceptive and fraudulent business practices quickly appear in
    their place.
        In response to the law enforcement and regulator scrutiny that
    followed the first wave of phone bill cramming complaints in the late
    1990s, the aggregator industry implemented a set of ``Best Practices''
    that called for participating industry members to follow certain steps
    before approving vendors for billing, and when handling consumer
    complaints received after the fact. At first, these responses seemed to
    reduce incidents of cramming. However, consumer complaints about phone
    bill cramming began to increase about three or 4 years ago, and our
    phone bill cramming investigations continue to indicate that consumers
    are not aware they are being billed for these products and services on
    their phone bills, and do not want or use the products or services.
    Ban Third Party Telephone Billing
        Simply put, these deceptive and sometimes fraudulent solicitations
    for products that no one wants or agreed to buy have persisted for at
    least 15 years and show no signs of disappearing. With a few exceptions
    for some regulated services, such as operator-assisted calls, it is
    time to put an end to third party billing on telephone bills by banning
    them at the state and/or Federal level.
        Again, I thank you for the opportunity to testify today, and I am
    glad to answer any questions you may have.

        The Chairman. Thank you very much, Attorney General
    Madigan. And now, we turn to Attorney General Burg.
        Mr. Burg. No, it's actually Assistant Attorney General
    Burg, but I appreciate the----
        The Chairman. We'll put you up for----
        Mr. Burg.--promotion.
        The Chairman. Yes.
        Mr. Burg. OK. But Senator----
        The Chairman. your work up there, and that's what we'd like
    to hear about it.

     STATEMENT OF ELLIOT BURG, SENIOR ASSISTANT ATTORNEY GENERAL,
            OFFICE OF THE ATTORNEY GENERAL, STATE OF VERMONT

        Mr. Burg. I very much appreciate the opportunity to testify
    to the Committee today. Over the past year and a half, our
    office has been issuing subpoenas to third-party billing
    aggregators, to vendors.
        We have been surveying consumers, and interviewing
    consumers, and we've reached a number of conclusions about the
    problem of cramming, which I'd like to share with you today.
    And then I'd like to talk about a potential solution to the
    problem that has been embraced in Vermont.
        First of all, the incidence of cramming in Vermont is
    extremely high. Close to 90 percent of the people who responded
    to a survey had absolutely no recollection of ever having given
    consent to be billed on their local phone bill.
        Second, the level of consumer awareness about the
    possibility that one can be billed for third-party charges on a
    local phone bill is extremely low.
        Third, we have found many instances of deception being used
    in marketing third-party charges, that then get passed on to a
    local phone bill.
        And fourth--and this is really the major point that I want
    to make and it has to do with consumer expectations--people,
    ordinary people, do not expect that third-party charges by
    companies that are unrelated to their local phone company can
    be placed on their local phone bill. They are simply not aware
    of that, any more than people would expect, or any of us would
    expect, to have third-party charges placed on our monthly
    mortgage account statements or our electric bill.
        And without that awareness, people are not going to play
    the detective that we heard about. They're not going to
    scrutinize their phone bill to try to figure out, is there
    something on there that they should be complaining about.
        Now, Vermont has given the potential solution of disclosure
    a fair shake. For the past decade, there has been a statutory
    requirement in Vermont that third-party vendors send a notice
    through the mail to people who are going to be billed on their
    local phone bills by that vendor. And the fact is that, that
    system has not worked. And the level of awareness of the
    possibility of those charges has not increased in the state.
        So what have we done by way of potential solution? In
    January, the Attorney General's office proposed to the Vermont
    legislature that a bill they introduced that would actually
    prohibit third-party charges on local phone bills, with some
    limited exceptions for things like direct dial, or dial-around
    services that are initiated by the consumer from the consumer's
    phone, or operator-assisted, or collect calls, or companies
    that are directly regulated by our public utilities board. The
    proposal was otherwise to ban such charges and a bill was
    introduced to do that. It was approved by voice vote in both
    houses of our legislature. It was signed into law at the end of
    May and became effective immediately.
        And under that law, a claim by a vendor that the consumer
    somehow consented to the charge is not a basis for allowing the
    charge. This is an actual prohibition. Other forms of payment
    are allowed, so vendors who want to charge people using a
    credit card, a debit card, electronic funds transfer, a check,
    the kinds of payment mechanisms that people understand and
    expect, that is all permissible. But you can't do it on a phone
    bill.
        Since May, there has been no negative feedback whatsoever
    about the bill. We think people are pretty happy with it, and I
    would point out that the local phone companies supported us in
    that initiative in the legislature, that we approached them
    last fall, and made--basically made the pitch to them that
    these are their customers as well, and they came on board.
        So with that coalition, we were able to get that
    legislation through and I would very modestly suggest that this
    may be a model for other states and for the nation. Thank you.
        [The prepared statement of Mr. Burg follows:]

     Prepared Statement of Elliot Burg, Senior Assistant Attorney General,
                Office of the Attorney General, State of Vermont
        My name is Elliot Burg. I am a Senior Assistant Attorney General in
    the Vermont Attorney General's Office, where I have worked on issues of
    consumer protection since 1987. I very much appreciate the opportunity
    to testify today on the subject of cramming, on behalf of Vermont
    Attorney General William H Sorrell.
        Since the spring of 2010, I have overseen a multi-pronged
    investigation into ``cramming'' in Vermont--that is, the practice of
    charging consumers and businesses on their local telephone bills for
    third-party services \1\ without their authorization or knowledge.
    Based on the results of that investigation, which is still ongoing,
    some important observations can be made about the nature and scope of
    the problem of cramming. In addition, out of the investigation has come
    a state legislative proposal, enacted into law earlier this year, which
    represents a potential solution to the problem.
    ---------------------------------------------------------------------------
        \1\ What are sold in this way are almost always services, rather
    than goods.
    ---------------------------------------------------------------------------
    The investigation
        In the spring of 2010, the Vermont Attorney General's Office sent a
    Civil Investigative Subpoena under the state's Consumer Fraud Act, 9
    V.S.A.  2460, to the first of what would ultimately be four billing
    aggregators--the companies that arrange for the placement of charges on
    local telephone bills to pay for third-party services.\2\ Based on
    complaints filed by consumers with the state, there was reason to
    believe that the sellers of those services (called ``merchants'' here)
    had violated the Act by charging consumers \3\ without their
    authorization. There was also reason to believe that neither the
    vendors nor the aggregators were complying with a Vermont statute
    enacted in the year 2000 that sought to address the problem of cramming
    by requiring notice to consumers \4\ of billing in the form of a letter
    containing specified information about the charges, any right to
    cancel, and contact information for the Attorney General's Office.
    ---------------------------------------------------------------------------
        \2\ Information and documents produced in response to such a
    subpoena are deemed confidential under 9 V.S.A.  2460. As a result,
    this testimony details only facts obtained from other sources or
    otherwise made public, such as through formal settlements.
        \3\ Under the Vermont Consumer Fraud Act, the term ``consumer'' in
    most situations includes businesses.
        \4\ The notice requirement, enacted in the year 2000 and now
    substantially amended (as discussed below), was set out in 9 V.S.A.
    2466. That section required merchants to send the notice, but held both
    merchants and aggregators liable if that did not occur.
    ---------------------------------------------------------------------------
        The aggregators were asked by subpoena to identify merchants for
    whom they had arranged for charges to appear on local telephone bills
    in Vermont. The Attorney General's Office then subpoenaed the merchants
    with the highest total of dollars billed, for detailed information on
    their Vermont ``customers,'' their methods of doing business, and their
    marketing materials, including web pages and telephonic scripts.
    Surveys were mailed to a number of the customers, asking, among other
    things, whether they were aware that they had been charged for the
    particular service, whether they had received notice of the charges
    other than on their local telephone bill, and whether they had
    consented to the charges.
        The merchants consisted mostly of companies we had never heard of--
    such as More Local Reach, MyiProducts, YPD--that offered e-mail, third-
    party voice mail, computer technical support, online directory
    listings, website hosting, and other services.
    Conclusions drawn about the nature and scope of cramming
        Three main conclusions were arrived at as a result of our
    investigation:

            1. The level of consumer awareness about third-party charges on
            local telephone bills is very low. Of the 562 responses to
            1,700 surveys mailed in connection with the first of the
            aggregators to be investigated, only 8 (1.4 percent) recalled
            having received any separate written notice of their charges
            (although the merchants claimed to have provided notice, either
            online or through the mail), and only an estimated 27.4 percent
            noticed the charge within the first 3 months of its appearance
            on their telephone bill.\5\
    ---------------------------------------------------------------------------
        \5\ A total of 234 (41.6 percent) responding consumers indicated on
    the survey that they noticed a third-party charge on their local
    telephone bill. It was then possible to identify the billing records of
    205 of these consumers; and of that number, 135 (65.9 percent) were
    charged for fewer than 4 months. The resulting percentage of consumers
    who noticed the charge, but only within the first 3 months, was 41.6
    percent x 65.9 percent, or 27.4 percent.

            2. The incidence of cramming is very high. Of the 562
            respondents, fully 503 (89.5 percent) stated that they had not
            agreed to be charged for the third-party services that appeared
            on their telephone bill. Indeed, a number of these consumers
            indicated that they had no reason to order the services for
            which they were charged; the respondents gave such explanations
            as, ``[I] have an answering machine [and so] would never use
            this service,'' ``I had voice-mail from the phone company [and]
            did not need [another service],'' and ``[I] can't imagine
            agreeing to voice-mail since we have always had a personal
    ---------------------------------------------------------------------------
            voice recorder.''

            3. Deceptive telemarketing scripts have been used. Of the
            merchants who telemarketed their potential customers--usually
            businesses--a number used scripts that misstated the purpose of
            the call. Typical of those scripts was one employed by eBridge,
            Inc., which offered an online directory to local businesses
            using a script that began, ``The reason I'm calling today is to
            make sure your information is listed correctly.'' In fact, the
            reason for the call was to sign up the business for a $49.95-
            per month service.
    Merchant settlements
        The investigation also led to a series of settlements, all in the
    form of Assurances of Discontinuance, with eight merchants. It is
    anticipated that there will be another 20 or more such settlements
    before the initiative is over. In all, the eight companies charged more
    than 7,000 consumers and 1,300 businesses in Vermont a total of over
    $639,000.
        The settlements were with the following companies:

       Douglas-Lambert Laboratories LLC, doing business as Orbit
            Telecom, of Henderson, Nevada, which charged more than 1,200
            Vermonters over $119,000 for a voice-mail service between 2004
            and 2006.

       Durham Technology, LLC, d/b/a MyiProducts IMail, of
            Indianapolis, Indiana, which charged more than 1,300 Vermonters
            over $78,000 for a voice-mail service between 2005 and 2010.

       eBridge, Inc., also known as Lawstar, Inc., doing business
            as B2B-ISP, eLink-ISP, InMySip, MSMB-ISP, and Zip Wide Web,
            Inc., also known as ZWW-ISP, based in Encino, California, which
            charged 485 Vermont businesses over $93,000 for an online
            business directory service between 2004 and 2010.

       Liveonthenet.com, based in Huntsville, Alabama, which
            charged 852 Vermonters over $56,000 for personal computer
            technical support between 2005 and 2008.

       More Local Reach, Inc., of Boca Raton, Florida, which
            charged 214 Vermont businesses over $58,000 for online
            directory services between 2007 and 2010.

       Residential E-mail LLC, based in Henderson, Nevada, which
            charged more than 1,170 Vermonters over $65,000 for an e-mail
            service between 2005 and 2006.

       The Internet Business Association, Inc., based in Carson
            City, Nevada, which charged 435 businesses over $86,000 for an
            Internet and website address service between 2007 and 2010.

       YPD Corporation of Smyrna, Georgia, which charged 201
            Vermont businesses over $84,000 for online directory services
            between 2007 and 2010.\6\
    ---------------------------------------------------------------------------
        \6\ An example of these settlements accompanies this testimony as
    Attachment 1.

        Given that there are many more such companies, consumer losses in
    Vermont over the past 6 years have likely totaled in the millions of
    dollars--a significant issue for a state with a population of only
    620,000, and an indicator that the problem nationwide is very
    substantial.
    The solution: prohibition, not disclosure
        Vermont's through-the-mail notice requirement enacted in 2000 to
    address the problem of cramming has not worked. For a decade, consumers
    have not received, seen or understood notifications that merchants
    claim to have provided; most of them have not readily noticed the
    merchants' charges on their telephone bills; and very few of them
    recall ever having agreed to be billed. In short, despite the notice
    requirement, consumers have continued to be crammed, a fact that is not
    surprising in light of the low level of public awareness that non-
    telephone charges can appear on one's telephone bill (any more than
    that third-party charges can be passed through to a person's electric
    bill, fuel bill, or monthly mortgage account statement).
        In January 2011, the Attorney General's Office presented
    legislation prohibiting most third-party charges on local telephone
    bills for introduction in the Vermont Legislature. With the support of
    the local telephone companies, this anti-cramming measure passed both
    the Vermont House and Senate by voice vote, and on May 27, 2011, it was
    signed into law by Governor Peter Shumlin and became effective
    immediately.
        The new law,\7\ which amends the earlier notice requirement, 9
    V.S.A.  2466, contains a general prohibition on third-party charges to
    local telephone bills, with the following limited exceptions:
    ---------------------------------------------------------------------------
        \7\ The text of the law is set out in Attachment 2 to this
    testimony.

       Billing for goods or services marketed or sold by a company
            subject to the jurisdiction of the Vermont Public Service
    ---------------------------------------------------------------------------
            Board;

       Billing for direct dial or dial-around services initiated
            from the consumer's telephone; and

       Operator-assisted telephone calls, collect calls, and
            telephone services that facilitate communication to or from
            correctional center inmates.

        Vermont's statutory approach takes account of actual consumer
    expectations-i.e., that consumers do not anticipate that they will be
    charged on their local telephone bills for third-party services. It is
    straightforward to enforce. It does not interfere with other methods of
    receiving payment for services provided, such as credit cards, debit
    cards, personal checks, and electronic funds transfers. And it is
    viewed as a solution to the problem of cramming in our state--one that
    other jurisdictions may wish to adopt in the future.
                                  Attachment 1
                                State of Vermont
                                 Superior Court
                                Washington Unit

    In Re eBridge, Inc., a/k/a  )                      Civil Division
     Lawstar, Inc.,
    d/b/a B2B-ISP, eLink-ISP,   )                      Docket No. 276-5-
     InMyZip,                                           11Wncv
    MSMB2B-ISP, and Zip Wide    )
     Web, Inc.,
    a/k/a ZWW-ISP               )
    Office of the ATTORNEY GENERAL Montpelier, Vermont 05609
                          ASSURANCE OF DISCONTINUANCE
        WHEREAS eBridge, Inc., a/k/a Lawstar, Inc., d/b/a B2B-ISP, eLink-
    ISP, InMyZip, MSMB2B-ISP, and Zip Wide Web, Inc., a/k/a ZWW-ISP,
    (hereinafter referred to as ``eBridge''), is a California corporation
    with offices 16133 Ventura Blvd., Suite 855, Encino, CA 91436;
        WHEREAS eBridge is a third-party provider of an online business
    directory to businesses, the charges for which were placed on local
    telephone bills with the assistance of a San Antonio-based company
    called Enhanced Services Billing, Inc. (ESBI);
        WHEREAS eBridge solicited Vermont businesses over the telephone to
    purchase its service;
        WHEREAS eBridge's charges to businesses averaged $49.95 per month;
        WHEREAS during the period 2004 to 2010, eBridge charged a total of
    $93,007 to 485 businesses for its services that appeared on local
    telephone bills in Vermont's area code 802, with $16,983 refunded;
        WHEREAS sellers of goods or services that are to be charged on a
    consumer's (including a business') local telephone bill are required
    under 9 V.S.A.  2466 to mail a notice to the party to be charged,
    containing information specified in the statute, including the consumer
    assistance address and telephone number specified by the Attorney
    General, which notice must be a separate document sent for the sole
    purpose of providing that information and may not contain any
    inducement to purchase goods or services;
        WHEREAS eBridge mailed notices to Vermont businesses that were
    charged for its services on their local telephone bills;
        WHEREAS the Attorney General alleges that eBridge violated the
    Vermont Consumer Fraud Act, 9 V.S.A.  2466, by not complying with that
    provision's notice requirements in that eBridge's notices (i) failed to
    include the consumer assistance address and telephone number specified
    by the Attorney General; and (ii) did not constitute separate documents
    sent for the sole purpose of providing the information required by the
    statute;
        WHEREAS the script used by eBridge's telemarketers stated at the
    outset, ``The reason I'm calling today is to make sure your information
    is listed correctly.'';
        WHEREAS the Attorney General alleges that the primary purpose of
    eBridge's calls was, instead, to solicit the purchase of its service,
    which was explained later in the company's telemarketing script;
        WHEREAS the Attorney General therefore alleges that eBridge's
    script misrepresented the purpose of the company's sales calls, in
    violation of the Consumer Fraud Act prohibition on deceptive trade
    practices, 9 V.S.A.  2453(a);
        AND WHEREAS the Attorney General is willing to accept this
    Assurance of Discontinuance pursuant to 9 V.S.A.  2459;
        THEREFORE, the parties agree as follows:
        1. Injunctive relief. EBridge shall comply strictly with all
    provisions of Vermont law, including but not limited to provisions of
    the Vermont Consumer Fraud Act, 9 V.S.A. chapter 63, relating to the
    placement of charges on local telephone bills and the prohibition on
    deceptive trade practices.
        2. Consumer relief.
        a. For each business from which eBridge has received money through
    a charge on a local telephone bill with a number in area code 802,
    eBridge shall, within ten (10) business days of signing this Assurance
    of Discontinuance, arrange for an electronic credit record to the
    business' local telephone company in the amount of all such monies that
    have not been previously refunded. eBridge shall use due diligence to
    ensure that accurate credits are provided to each business to whom a
    credit is due.
        b. If a credit record sent under the preceding paragraph is not
    accepted or is returned by the local telephone company, eBridge shall,
    within ten (10) days of learning of the non-acceptance or the return,
    send to the business, by first-class mail, postage prepaid, a check in
    the amount of the credit due to the business' last known address,
    accompanied by a letter in substantially the form attached as Exhibit
    1.
        c. No later than 60 (sixty) days after signing this Assurance of
    Discontinuance, eBridge shall provide to the Vermont Attorney General's
    Office the names and addresses of the businesses whose telephone
    numbers were credited, and to which letters and payments were sent,
    under this Assurance of Discontinuance, along with the date and amount
    of each credit or payment.
        d. No later than ninety (90) days after signing this Assurance of
    Discontinuance, eBridge shall pay the total dollar amount of all checks
    returned as undeliverable to the Vermont Attorney General's Office to
    be treated as unclaimed funds, along with a list in Excel format of the
    businesses to whom the monies due were not paid and their last known
    addresses.
        3. Civil penalties, fees and costs. Within twenty (20) days of
    signing this Assurance of Discontinuance, eBridge shall pay to the
    State of Vermont, in care of the Vermont Attorney General's Office, the
    sum of ten thousand dollars ($10,000.00) in civil penalties and costs.
        4. Binding effect. This Assurance of Discontinuance shall be
    binding on eBridge, its successors and assigns.
        5. Release. The State of Vermont hereby releases and discharges any
    and all claims that it may have against eBridge or its affiliates based
    on conduct or activities arising under or in connection with the
    Vermont Consumer Fraud Act prior to the date of this Assurance of
    Discontinuance.
        Filing Date: May 4, 2011
                        Exhibit 1 (Letter to Businesses)
        Dear [Name of Business]:

        eBridge, Inc. has entered into a settlement with the Vermont
    Attorney General's Office to resolve claims that we did not properly
    notify you of the fact that your business would be billed on your local
    telephone bill for our online business directory service, and that we
    used deceptive practices to interest you in buying our service.
        As part of that settlement, we are enclosing a refund check for all
    of these charges. You have no obligation to do anything in response to
    this payment.
                Sincerely,
                                                  eBridge, Inc.
                                  Attachment 2
                    Vermont ``Anti-Cramming'' Statute (2011)
        9 V.S.A.  2466 is amended to read:

         2466. GOODS AND SERVICES APPEARING ON TELEPHONE BILL

        (a) Except as provided in subsection (f) of this section, a seller
    shall not bill a consumer for goods or services that will appear as a
    charge on the person's bill for telephone service provided by any local
    exchange carrier.
        (b) No person shall arrange on behalf of a seller of goods or
    services, directly or through an intermediary, with a local exchange
    carrier, to bill a consumer for goods or services other than as
    permitted by this section. This prohibition applies, but is not
    limited, to persons who aggregate consumer billings for a seller and to
    persons who serve as a clearinghouse for aggregated billings.
        (c) Failure to comply with this section is an unfair and deceptive
    act and practice in commerce under this chapter.
        (d) The attorney general may make rules and regulations to carry
    out the purposes of this section.
        (e) Nothing in this section limits the liability of any person
    under existing statutory or common law.
        (f)(1) This section shall apply to billing aggregators described in
    30 V.S.A.  231a, but shall not apply to:

        (A) billing for goods or services marketed or sold by persons
    subject to the jurisdiction of the Vermont public service board under
    30 V.S.A.  203;
        (B) billing for direct dial or dial around services initiated from
    the consumer's telephone; or
        (C) operator-assisted telephone calls, collect calls, or telephone
    services provided to facilitate communication to or from correctional
    center inmates.
        (2) Nothing in this section affects any rule issued by the Vermont
    public service board.

        The Chairman. Thank you very much, Mr. Burg. Now, we turn
    to Ms. Susan Eppley from Georgia, who has had some experience,
    that I think she'd like to share with us, about cramming.

                 STATEMENT OF SUSAN EPPLEY, DECATUR, GA

        Ms. Eppley. Thank you Chairman Rockefeller, Ranking Member
    Hutchison, and members of the Committee. Thank you for having
    me here today. Good morning. My name is Susan Eppley and I'm
    from Decatur, Georgia. I'm here today to tell you about my
    personal experience with cramming. In early 2011, I worked for
    a successful franchisee of 32 quick-service restaurants as the
    accounts payable representative.
        This company, even in tough times, offers incentives to
    managers and crew, including but not limited to bonuses paid to
    managers for hitting their numbers, based on profit-and-loss
    statements. In October, I was entering the AT&T invoices. I got
    curious about how different the bills were from store to store.
        Upon investigation, I noticed that there were charges for
    services that were not from AT&T, our telephone company. I
    called AT&T and spoke with a customer service representative,
    who recognized the problem, and she explained that AT&T was
    billing on behalf of a third-party company. When I asked
    further, she said that it was the customer's responsibility to
    block phone bills from such charges. She told me that she takes
    a lot of calls like mine.
        I contacted the third-party company at the phone number
    provided and spoke to their customer service representative,
    who said that we requested the service. I then contacted the
    area manager for this store and he said he didn't request the
    service. So I went back and forth from area manager to the
    company until I just insisted that the charges were never
    requested, as only area managers have authorization to make
    those requests.
        Upon my insistence, the representative offered to take 3
    months of the charges off and credit the AT&T bill for the next
    month. But I insisted that all $1,900 be credited back. The
    representative then said he couldn't do that and that he had a
    recording of the request for service. I asked to hear it. I was
    then transferred to a supervisor, who then credited all the
    charges and I never heard a recording.
        For the next 2 months, I combed through every single AT&T
    bill for all of our accounts, set up a block on each account to
    prevent future cramming, and to my best estimation, I spent
    about 15 hours dedicated to this issue alone. Those hours do
    not include the time our accounting department and area
    managers have spent on it.
        In the end, 6 of our 33 accounts were affected and the
    estimated total amount crammed onto our phone bills was about
    $4,200. Upon my persistence and insistence, that amount was
    credited back. Even though, each time, the third-party company
    told me they had a recording proving that we requested each
    service, they never played that recording for me. It certainly
    is annoying and a hassle to deal with additional administrative
    paperwork, making additional phone calls, and keeping
    information organized, especially for services not requested.
        Our already busy accounting department had to deal with
    their own administrative issues, such as readjusting profit-
    and-loss statements, et cetera. But the inconvenience and cost
    of administrative paperwork on this issue pales in comparison
    to what it has taken away from the managers of our restaurants.
    These managers work long hours in a busy, demanding
    environment, all with a smile on their faces. They have a
    tremendous job, juggling employee relations, customer
    satisfaction, serving safe food, and controlling costs.
        As I mentioned earlier in my statement, great managers are
    rewarded with bonuses. And some of our managers, no matter how
    hard they work and no matter how much they earned it, did not
    receive their bonuses because of cramming. It is infuriating to
    me that it is legal for companies to, without authorization,
    charge our businesses, and skew our profit-and-loss statements,
    and in effect, take money out of the hands of hard-working,
    deserving men and women.
        I shudder to think that citizens, especially senior
    citizens who are on a fixed budget, are falling victim to
    cramming because they don't have an accounts payable
    representative to check their phone bills for unauthorized
    charges. It is my hope that our lawmakers will prevent
    businesses and individuals from being a victim to cramming by
    making it illegal for AT&T and other companies to allow third-
    party billing. Thank you.
        [The prepared statement of Ms. Eppley follows:]

                Prepared Statement of Susan Eppley, Decatur, GA
        Chairman Rockefeller, Ranking Member Hutchison, and members of the
    Committee, thank you for having me here today. Good morning. My name is
    Susan Eppley and I am from Decatur, GA. I am here today to tell you
    about my personal experience with ``cramming.''
        In early 2011 I worked for a successful franchisee of 32 quick
    service restaurants including Popeyes, Burger King and Krispy Kreme
    Doughnuts restaurants. I was the Accounts Payable representative and I
    entered invoices for the restaurants. This company, even in tough
    times, offers incentives to managers and crew including, but not
    limited to, bonuses paid to managers for ``hitting'' their numbers
    based on Profit and Loss statements.
        In October 2010, as I was entering the Popeyes' AT&T invoices, I
    got curious about how different the bills were from store to store.
    Upon investigation, I noticed that there were charges for services that
    were not from AT&T. On one such bill, on the last page, the charges
    were from ILD Teleservices, Inc. The charge was $49.95 for ``Efax SVC
    MNTHLY FEE.''
        I called AT&T and spoke with a customer service representative who
    recognized the problem. She explained that AT&T was billing on behalf
    of a 3rd party company. When I asked further, she said it is the
    customer's responsibility to block phone bills from such charges. She
    told me that she takes a lot of calls like mine.
        I contacted the 3rd party company at the phone number provided on
    the bill and spoke to a customer service representative who stated that
    we requested the service. I then contacted the Area Manager for the
    store location and he said the charge was not requested. Back and forth
    I went from Area Manager to the company until I insisted that the
    charges were never requested as only Area Managers have authorization
    to request services. Upon my insistence, the representative offered to
    take 3 months of the charges off and credit the AT&T bill for the next
    month but I insisted that all $1,900 be credited back. The
    representative then stated he could not do that and that he had a
    recording of the request. I asked to hear it. I was transferred to a
    supervisor who then removed all the charges. I never heard a recording.
        For the next two months, I combed through every AT&T bill for all
    of our accounts, set up a block on each account to prevent future
    cramming and to my best estimation, I spent 15 hours dedicated to this
    issue alone. Those hours do not include the time our Accounting
    Department and Area Managers have spent on it.
        Throughout this process I wrote the Better Business Bureau and did
    some on-line research about cramming. I was amazed to find how many
    small businesses are being taken advantage of by New Link Network. I
    learned that employees of small businesses who answer the phone are
    asked by fast-taking sales representative if they would like to
    optimize their sales by being listed in a free directory (or something
    similar). If the employee responds, ``yes'' at any point, the sales rep
    considers that a contract and begins the billing after a 1-3 month free
    trial.
        In the end, six of our 33 accounts were affected. Popeyes, Krispy
    Kreme and even our corporate office accounts were ``crammed.'' The
    estimated total amount ``crammed'' onto our phone bills was about
    $4,200. Upon my persistence and insistence that amount has been
    credited back. And even though each time the third party company told
    me that they had a recording proving that we requested each charge,
    they never played that recording for me.
        It certainly is annoying and a hassle to deal with additional
    administrative paperwork, making additional phone calls and keeping
    information organized especially for charges not requested. Our already
    busy Accounting Department had to deal with their own administrative
    issues such as re-adjusting Profit and Loss statements, etc. But the
    inconvenience and cost of administrative work on this issue pales in
    comparison to what it has taken away from the managers of the
    restaurants.
        Quick service restaurant managers work long hours in a busy,
    demanding environment all with a smile on their faces. They have a
    tremendous job juggling employee relations, customer satisfaction,
    serving safe food and controlling costs. As I mentioned earlier in my
    statement, great managers are rewarded with bonuses and some of our
    managers, no matter how hard they worked and no matter how much they
    earned it, did NOT receive their bonuses because of the practice of
    ``cramming.''
        It is infuriating to me that it is legal for companies to, without
    authorization, charge our businesses and skew our Profit and Loss
    statements and, in effect, take money out of the hands of hard working,
    deserving men and women.
        I shudder to think that citizens, especially senior citizens who
    are often on a fixed budget, are falling victim to cramming because
    they don't have an Accounts Payable Representative to check their phone
    bills for unauthorized charges.
        It is my hope that our lawmakers will prevent businesses and
    individuals from being a victim to cramming by making it illegal for
    AT&T and other companies to allow 3rd party billing.
        Thank you.

        The Chairman. Thank you very much. I wish there were more
    consumers like you. I mean, you've just--you are a bulldog, but
    you had to be.
        Ms. Eppley. Thank you, sir.
        The Chairman. I guess that's not complimentary, but I meant
    it to be. Our next witness is Dave Spofford, who is the
    President of Xigo, and you're from Manassas, Virginia. And what
    do you have to tell us?

                     STATEMENT OF DAVID SPOFFORD,
                   CHIEF EXECUTIVE OFFICER, XIGO, LLC

        Mr. Spofford. Chairman Rockefeller, other Senators, members
    of the Committee, thank you for having me here today. My name
    is David Spofford. I'm the founder and CEO of Xigo. We're a
    communications expense management company based in Manassas,
    Virginia. And thank you for your commitment to investigating
    this very important issue of cramming.
        I have a 20-year background in telecommunications contracts
    and billings and I've never seen cramming as bad as it is
    today. As we process tens of thousands of carrier invoices
    every month for our customers, and are responsible for removing
    these third-party charges for many of our clients, we are
    particularly interested in this subject matter.
        Cramming or unauthorized charges by communications carriers
    on behalf of third parties has been and remains a major problem
    for the industry. Xigo manages approximately $1 billion per
    year in telecommunications expenses for more than 200 clients.
    We have built software that helps companies of all sizes manage
    their communications expenses and identify areas where they can
    cut costs. We are a member of the Telecommunications Expense
    Management Industry Association, for which I have served as
    President.
        Our clients spend from $50,000 to $10 million per month on
    a variety of telecommunications services. We monitor their
    invoices every month, which allows us to identify trends,
    recurring problems, and the results of our joint efforts to get
    control of the telecom expenses.
        Because of this, we have a unique view into the world of
    telecommunications billings and services. After reviewing 3
    years of historical data, we have found the following
    information that I hope will help the Committee to investigate
    this problem. We have found 40,000 unique instances of cramming
    during that timeframe. The recurring amount for an average cram
    is approximately $18 a month. We estimate that over 80 percent
    of all businesses experience cram charges. Seventy-one percent
    of our customers have experienced cram charges just in the last
    3 years.
        Since the average charge is small and the time investment
    required to eliminate the charge is high, many customers simply
    pay the charge. Xigo has identified several major third-party
    billing--third-party billing consolidators who are responsible
    for the majority of these charges.
        In addition, we have identified approximately 600 third-
    party biller names that are used to bill nearly 3,000 different
    line item charges. The large quantity of biller names that are
    used by a much smaller number of actual billers may be a
    strategy to avoid automated detection by systems like ours.
    These charges often have descriptions such as voicemail, e-
    mail, directory services, web hosting, and other names that
    appear to be normal services to the customer.
        As it turns out, more than 99 percent of these charges are
    unauthorized by the customer and are for services that they are
    not receiving. Decentralized, multi-location companies seem to
    have more exposure than other businesses. Some large retail
    chains, for example, are particularly hard hit.
        The more invoices a business receives, the harder cramming
    is to detect, since it may be assumed that the remote location
    may have ordered one of these services that are being billed.
    Xigo has provided the Committee staff with the details and the
    names of the third-party billers and line-item descriptions
    commonly used for these charges. The communications industry,
    both fixed and mobile, is already complex and growing quickly.
        A stop to the practice of cramming would be a welcome
    relief to all communications customers. Chairman Rockefeller, I
    thank you for your time. Xigo is committed in supporting your
    efforts in any way that we can. We look forward to working with
    you in putting a stop to this problem.
        [The prepared statement of Mr. Spofford follows:]

     Prepared Statement of David Spofford, Chief Executive Officer, Xigo,
                                      LLC
        Chairman Rockefeller, Ranking Member Hutchison, and members of the
    Committee, thank you for having me here today.
        My name is David Spofford. I am the founder and CEO of Xigo, a
    cloud-based communications expense management company, based in
    Manassas, Virginia. I want to thank you for your commitment to
    investigating this very important issue of cramming.
        I have a 20 year background in telecommunications contracts and
    billing and I have never seen cramming as bad as it is today. As we
    process tens of thousands of carrier invoices every month and are
    responsible for removing third party charges for many of our clients,
    we are particularly interested in this subject matter. Cramming, or
    unauthorized charges by communications carriers on behalf of third
    parties, has been, and remains a problem for the industry.
        Xigo manages approximately $1 billion per year in
    telecommunications expenses for more than 200 clients. We have built
    software that helps companies of all sizes manage their communications
    expenses and identify areas where they can cut costs.
        We are a member of the Telecommunications Expense Management
    Industry Association (TEMIA), for which I have served as President. Our
    clients spend from $50,000 to over $10 million per month for a variety
    of telecom services.
        We monitor our clients' telecom invoices every month--allowing us
    to identify trends, recurring problems, and the results of our joint
    efforts to get control of telecom expenses. Because of this, we have a
    unique view into the world of telecommunications billing and services.
        After reviewing three years of historical data, we have found the
    following information, that I hope will be helpful as you continue to
    investigate this problem:

       We have found 40,000 unique instances of cramming during
            that timeframe;

       The recurring amount for an average cram is approximately
            $18 per month;

       We estimate that over 80 percent of business users
            experience cram charges;

       71 percent of our customers have experienced a cram charge
            during the past 3 years.

        Since the average charge is small and the time investment required
    to eliminate the charge is high, many customers simply pay the charge.
    Xigo has identified several major third party billing consolidators who
    are responsible for the majority of these charges. In addition, we have
    identified approximately 600 Third Party biller names that are used to
    bill nearly 3,000 different line item charges. The large quantity of
    biller names that are used by a much smaller number of actual billers
    may be a strategy to avoid automated detection by systems like ours.
        These charges often have descriptions such as ``Voice Mail,'' ``E-
    mail,'' ``Directory Services,'' ``Web Hosting'' and other names that
    appear to be normal services to the customer. As it turns out, more
    than 99 percent of these charges are unauthorized by the customer and
    are for services that they are not receiving.
        Decentralized, multi-location companies seem to have more exposure
    than other businesses. So large retail chains, for example, are
    particularly hard hit. The more invoices a business receives the harder
    cramming is to detect since it may be assumed that the remote location
    may have ordered one of these ``services'' being billed.
        Xigo has provided the Committee staff with the details of the names
    of third party billers and line item descriptions commonly used for the
    charges. The communications industry, both fixed and mobile, is already
    complex and growing quickly. A stop to the practice of cramming would
    be a welcome relief to all communications customers.
        Chairman Rockefeller, Ranking Member Hutchinson and members of the
    Committee, I thank you for your time. Xigo is committed to supporting
    your efforts in any way that we can. We look forward to working with
    you and putting a stop to this problem.

        The Chairman. Thank you, Mr. Spofford, very much. And our
    final witness will be Mr. Walter McCormick, who is President of
    the United States Telecom Association here in Washington.

            STATEMENT OF WALTER B. McCORMICK, JR., PRESIDENT

               AND CEO, UNITED STATES TELECOM ASSOCIATION

        Mr. McCormick. Thank you, Mr. Chairman. Chairman
    Rockefeller, Senator Ayotte, members of the Committee, thank
    you for giving me the opportunity to testify today on behalf of
    the United States Telecom Association. And I might add, it's a
    personal pleasure for me to be back before this committee,
    which I had the honor for serving for many years as General
    Counsel to the Majority and as Chief Counsel to the Minority.
        Mr. Chairman, our industry accepted your invitation to
    appear here today for three reasons: first, to acknowledge the
    existence of a continuing problem, one that impacts consumers,
    one that has continued for many years despite remedial measures
    undertaken by our industry and by the Federal Communications
    Commission.
        Second, we appear here today to both honor and to cooperate
    in your efforts to draw attention to cramming and to eliminate
    it.
        And third, we appear to pledge our industry's good faith
    commitment to work with you, to work with the Committee, and
    with the appropriate Federal regulatory agencies toward further
    reforms.
        Mr. Chairman, our position, simply put, is that consumers
    should not be charged for services they did not purchase.
        For our industry, third-party billing had its genesis in a
    well-intentioned, pro-consumer initiative by the federal
    government. In the wake of the AT&T divestiture, the FCC
    required telephone companies that had been part of the Bell
    System to bill and collect charges on behalf of competing long-
    distance carriers and enhanced-services providers.
        Federal regulators believed that the convenience of having
    all communications-related services on a single bill was an
    important pro-competition, pro-consumer policy. Although no
    longer required, third-party billing continues to be valued by
    many legitimate businesses and by some consumers as a
    convenience.
        Three interrelated measures formed the foundation of the
    basic consumer protection framework that is in place today.
    They are the industry's anti-cramming best practices
    guidelines, the FCC's Truth in Billing order, and agency
    enforcement.
        Pursuant to these measures, the steps that telephone
    companies are taking to protect their customers fall into four
    distinct categories.
        The first level of protection seeks to prevent bad actors
    from getting access to the telephone bill in the first place.
    Contractual commitments with billing aggregators require active
    oversight from all service providers for whom they submit
    charges.
        The second level of protection seeks to make charges on a
    customer's bill clear and transparent. For example, third-party
    charges are aggregated in a separate section of the bill, along
    with notification that such charges may be contested without
    risking phone service.
        The third level of protection is to provide an instant
    credit to any customer that notifies the company that a charge
    on their bill is not authorized. The policy of leading
    companies in the industry is to eliminate the charge, no
    questions asked. The goal of this first-call approach is to
    provide the consumer with full relief without further hassle,
    including an offer to block further charges from that service
    provider and to review prior bills to see if similar charges
    that previously went unnoticed need to be removed as well.
    Finally, many companies offer the customer the option of
    placing a block on all third-party charges.
        The fourth level of protection involves monitoring, and
    audits, and suspension of service to problem providers. These
    measures, taken together, can have dramatic results. One of our
    companies reports having achieved an 89 percent reduction in
    cramming complaints since January 2010.
        Nevertheless, Mr. Chairman, as this hearing and your
    investigation demonstrate, the problem of cramming persists. So
    Mr. Chairman, we close our testimony as we began--by
    acknowledging the existence of a continuing problem and by
    committing ourselves to working with you and the Committee in
    addressing it.
        [The prepared statement of Mr. McCormick follows:]

      Prepared Statement of Walter B. McCormick, Jr., President and CEO,
                       United States Telecom Association
        Chairman Rockefeller, Ranking Member Hutchison, members of the
    Committee, thank you for giving me the opportunity to appear before you
    today and present the views of our industry on the important issue of
    preventing ``cramming.''
        The United States Telecom Association represents broadband service
    providers engaged in the business of offering advanced communications
    services. Previously known, years ago, as the United States Telephone
    Association, USTelecom today represents companies offering a wide range
    of voice, video, and data services, on both a fixed and mobile basis,
    in markets both urban and rural. Our member companies range in size
    from the largest publicly-traded communications corporations to small
    privately-owned companies and rural cooperatives.
        Mr. Chairman, simply put, consumers should not be charged for
    services they did not purchase. I appreciate this opportunity to
    describe the measures that are being taken in our industry, both
    voluntarily and in compliance with Federal regulation, to prevent
    cramming.
        The FCC has identified three parties as typically being involved in
    the billing chain for products or services being charged on the
    consumer's telephone bill--the third-party provider of that product or
    service, the billing consolidator or clearinghouse, and the local
    exchange company that presents the invoice to its customer. Each has a
    separate and distinct role and responsibility in relation to the
    consumer, and in protecting against fraud. The focus of my testimony
    will be on the third part of that chain, the local exchange carrier.
        At the outset, it is important to note that with regard to local
    exchange companies, third-party billing had its genesis in a well-
    intentioned pro-consumer initiative by the Federal Government. In the
    wake of the AT&T divestiture, the FCC required telephone companies that
    had been part of the Bell System to bill and collect charges on behalf
    of competitive long distance carriers and enhanced services providers
    offering services such as phone mail, paging, prison calls, and
    conference calling--often in competition with the local exchange
    provider. While large long distance carriers contracted directly with
    the local exchange companies for billing, consolidators and
    clearinghouses served as middlemen for competitive service providers
    that were too small, or w ho had too few transactions, to contract
    directly with each local exchange company for billing services. The
    convenience of having all telecommunications-related services
    incorporated into a single bill was believed to be a pro-competition,
    pro-consumer requirement. Although the federal government later
    eliminated these regulations, the provision of third-party billing and
    collection services continues to be considered by many entirely
    legitimate businesses as an efficient and consumer-friendly way to bill
    for their products or services, and by many consumers as a convenience.
        The history of the cramming problem is well known to this
    committee. As telephone companies opened their billing systems to
    industry competitors and third-party providers, scammers and con
    artists took advantage of the ease with which they could obtain
    telephone numbers, and began defrauding both telephone companies and
    their customers by invoicing consumers for services that had not
    actually or knowingly been purchased. In response to a rapid growth in
    consumer complaints in the late 1990s, FCC Chairman Bill Kennard
    responded with a three-part initiative:

            1. A challenge to the industry: to develop and implement a
            voluntary code aimed at preventing unauthorized charges from
            ever appearing on consumer bills. The industry responded
            immediately--producing ``Anti-Cramming Best Practices
            Guidelines'' within two months.

            2. The promulgation of new ``truth-in-billing'' rules: to
            assure consumers that telephone bills would be well-organized
            and easily understandable, with full and non-misleading
            descriptions of charges, and directions on how to make
            inquiries about, or contest charges on, individual bills.

            3. Aggressive enforcement: to take action against parties
            engaging in fraudulent practices.

        These three complementary and inter-related measures--the
    industry's 1998 Anti-Cramming Best Practices Guidelines, the FCC's 1999
    Truth-in-Billing Order, and agency enforcement--form the foundation of
    the basic framework in place today.
        Although quite detailed, the key elements of the Best Practices can
    be summarized as calling upon local exchange carriers to provide:

       Pre-acceptance screening of third-party products, services
            and marketing materials;

       Procedures for monitoring complaint levels, and
            establishment of complaint level thresholds for terminating
            billing services for individual providers and billing
            aggregators;

       Procedures for authorization and verification of charges to
            ensure that consumers have, in fact, knowingly approved of
            them;

       Clear descriptions of charges, and information on how the
            consumer may challenge them;

       Options for consumers to take advantage of in order to
            control the types of charges that may appear on their bills;
            and

       Commitments to law enforcement and regulatory agencies to
            work cooperatively with them in eliminating cramming.

        Today, just as the crammers, scammers and con artists have adopted
    new and more sophisticated approaches to evading detection, local
    exchange companies operating in conformance with the Best Practices
    have continued to evolve and improve their billing practices to guard
    against consumer fraud. The steps that telephone companies are taking
    in order to better protect their customers fall into four distinct
    categories.
        The first level of protection involves seeking to prevent bad
    actors from ever getting access to the telephone bill in the first
    place. This protection is sought through contractual commitments from
    billing aggregators requiring them to undertake active oversight of all
    service providers for which they intend to submit charges. For example,
    such contractual provisions typically:

       Require the billing aggregator to obtain a detailed
            application for each new service provider, including a review
            of ownership and product information, the bill description of
            the service, 800 customer service numbers and marketing
            materials.

       Require aggregators to obtain signed commitments from
            service providers that they will utilize acceptable
            authorization and verification processes and agree to audits of
            documentation. Such processes typically involve traditional
            letter-of-authorization or third-party-verification, with
            double-click options and ``welcome packages'' increasingly
            being employed on Internet-based transactions.

       Require aggregators to maintain a website and toll free
            number for handling customer inquiries and complaints.

       Set cramming complaint thresholds for billing aggregators
            and individual providers, and provide for suspension or
            termination of billing services if those thresholds are
            exceeded. Such contractual provisions often include penalties
            to be paid by the aggregator for each complaint received in
            order to incent active oversight.

       And, require the billing aggregator to be subject to audits
            of its contractual obligations, and to pay penalties for being
            out of compliance.

        The second level of anti-cramming protection involves continuing
    efforts to make new charges on a customer's bill as clear and
    transparent as possible. This, of course, is both consistent with, and
    pursuant to, the requirements of the FCC's Truth-in-Billing Order. For
    example, third-party charges are aggregated in a separate section of
    the consumer's bill, along with notification that such charges may be
    contested without risking phone service continuity. The Order requires
    that each charge be described in sufficient detail for the customer to
    understand it; and that contact information be provided for each
    service provider. Some telephone companies have found that, whenever a
    new charge appears on a customer's bill for the first time, it is
    helpful to highlight that charge on the first page of the bill with an
    explanation that it is a new charge from a third-party along with
    information for contesting the charges. And, as previously mentioned,
    the use of ``Welcome Packages'' in which the third-party provider sends
    information to the customer with specific detail concerning the terms
    of the purchase provides another level of assurance that the consumer
    has knowingly agreed to the charges.
        The third-level of anti-cramming protection afforded to consumers
    by telephone companies is to provide an instant credit to any customer
    that notifies the company that there is a charge on their bill that is
    not recognized and/or unauthorized. The common practice among leading
    companies in the industry is to eliminate the charge--no questions
    asked. The goal of this ``first-call'' approach is to provide the
    customer with full relief without further hassle. And, while the
    customer is still on the phone, the company will offer to block further
    charges from that service provider, and to review prior bills to see if
    similar charges that previously went unnoticed need to be removed as
    well. Finally, many leading companies--including AT&T, Fairpoint,
    Frontier, Verizon and others--offer the customer the option of placing
    a block on all third-party charges, at no cost.
        The fourth level of protection involves monitoring and audits. An
    essential element of cramming prevention is continuous review of
    cramming complaints to identify problems and to invoke the remediation
    provisions in the contracts with billing aggregators and individual
    providers--measures that include financial penalties, suspension of
    service, or termination of third-party billing services.
        These measures, taken together, can have dramatic results. AT&T,
    for example, through a combination of audits, imposition of financial
    penalties for each cramming complaint received, and enforcement of
    complaint thresholds achieved an 89 percent reduction in consumer
    cramming complaints in a 17-month period--between January 2010 and May
    2011.
        Nevertheless, as today's hearing demonstrates, the problem of
    cramming persists. As the technology and sophistication of con artists
    and scammers increases, ``best practices'' must evolve, and all parties
    in the billing chain need to elevate efforts to prevent consumer fraud.
    Today's forum is an important step in that direction. We appreciate
    being given the opportunity to be a part of it.

        The Chairman. All right. I thank you very much for that. I
    need to point out that our two votes of the morning--I think
    it's two votes--have started. So what I'd like to do is to--
    first, nobody panic. We'll be back. What we'll do is, we'll let
    Amy Klobuchar, who has just----
        Senator Klobuchar. I have to go.
        The Chairman.--got to go. She has got to go. So do you want
    to ask a question? Because we could have time for one or two
    questions. Then we go vote, and then on the second vote, we
    vote immediately, and then come right back. It should be no
    more than 15 minutes. Can you live with that? All right.
        Senator Ayotte. Mr. Chairman, why don't you go?
        The Chairman. All right. I will. Attorney General Madigan,
    the word was used by Mr. McCormick, the word convenience. And
    I'm very fond of that word because I've been trying to--I'm
    just a student of Oriental languages and even Zen Buddhism. And
    I'm trying to figure out what the word convenience means
    because it's frequently used by telephone companies.
        Now, look, you've brought 30 lawsuits against companies. In
    one of your recent cases last September, you filed against a
    California company called ID Lifeguards. And this company
    charged more than 5,000 of your Illinois citizens at $12.95 a
    month for a so-called identity protection service. But when
    your office contacted these consumers, they told you they'd
    never authorized these charges, didn't know the charges had
    gotten on their phone bills, didn't know how, and that's
    correct, is it not?
        Ms. Madigan. That is correct, Mr. Chairman.
        The Chairman. Did any--you know, we've had hundreds of
    companies like this. And where does the word convenience--the
    telephone companies use the word convenience. They used it at
    the--when they were talking about, we'll fix it ourselves. They
    use it now. How has this become a convenience?
        Ms. Madigan. Mr. Chairman, I think the only people who
    would describe third-party charges being crammed on phone bills
    as a convenience might be the carriers, the aggregators, and
    the vendors. I think, as Ms. Eppley testified, it is not a
    convenience. It is an enormous and expensive hassle for
    individuals, businesses, and government agencies, who are
    constantly having to be aware of the fact they may be crammed,
    and then go through a very time-consuming process to have these
    charges removed, you know.
        Unlike the testimony that Mr. McCormick gave, we have found
    that when consumers have tried to remove these charges by
    contacting their carrier, they're given the run-around. They're
    told that they can't do anything about it, they'll have to
    contact the vendor. They had nothing to do with the service and
    the charge being put there in the first place.
        And then, as Ms. Eppley went through the experience that
    she went through, is very similar to that of the consumers
    we've talked to. So to give you just a little more detail in
    terms of our case against ID Lifeguards, there was a 56 percent
    refund rate, 56 percent.
        So in other words, of the, you know, 5,000 plus consumers
    in the State of Illinois who were crammed, 56 percent of them
    had the wherewithal to find this and have it removed from their
    bill. That is a clear indication that it is just outright fraud
    that's being phased in. I think part of the protection service,
    I recall, is that they were supposed to be receiving a copy of
    their credit report. No individuals that we talked to had ever
    received a copy of their credit report. So understand, there's
    no convenience. It is a terrible inconvenience. That's just the
    reality.
        The Chairman. I think you're right. Let me call a 15-minute
    recess and we will be right back.
        [Recessed.]
        The Chairman [presiding]. Attorney General Madigan, let me
    just finish out my question with you. I am really fascinated--
    and I want Mr. McCormick to answer this, too. I mean, all we
    did was the eight largest telephone companies.
        Ms. Madigan. Yes.
        The Chairman. That's our search. I mean, imagine if we--if
    we started going elsewhere, how much we'd find, state
    governments, federal government. Why do they do that? These are
    huge companies. They make some money from it, yes, but
    hopefully, they're going to get a lot of bad publicity and
    embarrassment about it. They made us a promise. They broke that
    promise.
        I don't know whether they--you know, the CEO that I had in
    my office yesterday, whether he knew about it or not. I don't
    think he did. So that's the big corporate structure, and it's
    always the middle people, but they, you know--eventually,
    everything is money and it's on an account, it's on a report,
    and the company is responsible for what they do. Why do they do
    this?
        Ms. Madigan. Well, Mr. Chairman, obviously, Mr. McCormick's
    response to this will be enlightening. We wouldn't disagree
    with you from the perspective, you know, of what we've seen
    with consumers. There is an obvious financial opportunity for
    the carriers because they are receiving a portion of those
    charges that ultimately end up on unsuspecting consumers' phone
    bills.
        The Chairman. But not that much.
        Ms. Madigan. Not that much, but this has been going on for
    15 years and so, over that period of time, it obviously adds up
    to, you know--it's some money. And in another way--and another
    thing you probably need to look at is the fact that landline
    service is a declining service and many people are now relying
    solely on the wireless carriers to provide them with their
    phone service.
        And so it may be looked at as, you know, here is one of our
    last opportunities to earn some money. I don't think that's the
    proper way to look at it, from a business perspective, and--but
    that's really all that we can come up with in terms of why they
    allow this to go on, because consumers are absolutely furious,
    as--as I stated, and I think others have as well, on the panel.
        People are completely unaware of the fact that their phone
    number can be used as a credit card. I was talking to my
    husband last night. So the husband of the Illinois Attorney
    General, who admittedly is--is not a lawyer, doesn't, you know,
    delve into this--and I explained to him what we were talking
    about today, and he said, I had no idea that, that could be
    done.
        And so, you know, if the husband of the Illinois attorney
    general doesn't realize that your phone number can be used,
    essentially, as a credit card, I would argue, very few to
    nobody understands that in this country.
        The Chairman. Senator Ayotte and I were talking, going over
    to vote and coming back, that I don't remember a previous
    example of when a telephone number becomes the same as a credit
    card. It can be used as a credit card. Do you know of such
    instance?
        Ms. Madigan. No, we don't know of any other instances of
    this, and you know, clearly, consumers don't realize it, which
    is why the vast majority of them never even find these
    unauthorized charges on their phone bill.
        The Chairman. Well, I mean, here is--here is one of the
    typical, as is AT&T, and I think it's five pages long, and it
    has got very small print. And in fact, even with my recently
    corrected glasses, I have to really look hard to find down here
    which is the cram, that it's USBI. Now, of course, it doesn't
    say what they're doing. They have a telephone number.
        I have no idea what 1-888 plus seven other numbers will get
    you, but anyway, what they have to pay is $19.95. And they have
    to do it every month. And then there's some more stuff that--
    and you--after page five. I mean, who goes through this? I
    mean, you do, Ms. Eppley, because you're an American heroine--
    and an accountant. But here's some more, at the back, at the
    end. Well, who goes through this?
        Ms. Madigan. Almost nobody, and Mr. Chairman, so you know,
    there--the----
        The Chairman. But isn't the point that they shouldn't have
    to go through it?
        Ms. Madigan. Absolutely.
        The Chairman. I mean, there shouldn't be the doubt, the
    suspicion I'm about to be had, so I'm going to go through every
    single line on this telephone bill, particularly from huge
    companies like that, that make hundreds of millions of dollars.
    Mr. McCormick, how do you answer? You promised that you would
    take care of the problem on a voluntary basis, in such strong
    language that we, unfortunately for us, to our embarrassment,
    accepted that. And now, we're in the mess that we're in and
    nothing has changed. Why do companies do this?
        Mr. McCormick. Mr. Chairman, I'm aware of that commitment
    that was made in the late 1990s, and as I began my testimony
    today, we agree that this is a continuing problem, and that it
    needs to be addressed, and we want to work with you on it. Even
    you asked about what's convenient----
        The Chairman. No, no, that's not the question I asked, is
    it? We want to continue to work with you on it. I'm aware of
    the problem. We want to continue to work with you on it. That's
    more or less what you said 10 years ago, in stronger language.
        What I said is, why do they do it? Why does a company as
    large as AT&T, and this, you know, PepsiCo--there are a whole
    lot of people on that list that do this and that get this
    money. Why do they do it? I don't understand it. It's bad
    publicity. It's scamming. It's called cramming, but it's really
    scamming. It's con artist stuff. It can't be very good for a
    telephone company to have that reputation, which we're going to
    paint right on them.
        Mr. McCormick. Mr. Chairman, I can share with you what my
    companies have told me when I've asked that very question,
    which is that the system began with a Federal requirement, that
    it was coupled with State requirements in various states around
    the country, that it is even unclear today whether or not the
    industry has the ability in every State to no longer engage in
    this business. And I believe the staff report that you released
    this morning indicates that there is some uncertainty in that
    area. And----
        The Chairman. OK. Let's say there's some uncertainty. Why
    would they--and I'm not willing to stipulate that at this
    point, but why would a telephone company take the chance? I
    mean, to most, there doesn't seem to be a lot of questions.
    It's illegal. It's wrong. It's scamming. So why would they take
    that chance?
        Mr. McCormick. Well----
        The Chairman. They don't--they don't make that much from
    it.
        Mr. McCormick. Correct, this is----
        The Chairman. So why? Why haven't--why haven't you cleaned
    up your act? Why haven't--why haven't they just said, stop it,
    from the CEO right on down, just a little e-mail to about 30
    mid-level people, stop it, stop doing it, except for the
    authorized charges?
        Mr. McCormick. I don't know the answer to that question,
    other than to reinforce what I had mentioned a moment ago about
    the fact that it began as a Federal requirement. And again, you
    know, the industry has taken significant steps. Even the report
    that you issued today indicates that there has been
    improvement, but it remains a very, very significant, very
    pervasive problem and a real challenge, as you indicate, once
    you identify a scammer, that those scammers quickly come back
    in another disguise. So it's a very, very significant
    challenge.
        The Chairman. All right, Senator.
        Senator Ayotte. Thank you very much, Mr. Chairman. I wanted
    to follow up with Attorney General Madigan. Could you help me a
    little bit, in terms of, what are the current laws and
    penalties in place to address cramming and what is it that has
    been difficult in addressing this through a prosecution route?
        You know, I think about when somebody steals from a
    convenience store, we don't shut down the store. We go after
    the thieves. So, when you advocate banning all third-party
    charges, I just want to understand what the difficulties are
    and why that should be the route versus some other route.
        Ms. Madigan. Sure. We want to ban third-party charges on
    phone bills because we have yet to see anything legitimate, in
    terms of the products or services. People are obviously unaware
    and it shouldn't be the responsibility of law enforcement to
    essentially play Whack-a-Mole with these organizations.
        You've heard a number of people testify this morning that
    there might be a law enforcement action that ultimately results
    in that vendor being kicked off the carrier's billing platform.
    But they simply reappear with another name and are engaging the
    exact same activities, so much so that there's actually an
    entity that we've filed a lawsuit against twice, because you
    know, we got rid of them once and they reappeared, doing almost
    exactly the same thing.
        And so it is unreasonable, I would argue, that it requires,
    you know, State-level law enforcement, Federal-level law
    enforcement to constantly be going after something that is
    clearly deception and fraud. We end up--and you asked me, of
    course, about what laws we use. We use our Consumer Protection
    Act to go after these, the vendors, and again, when we end up
    going after folks, recognize these are the people who have the
    wherewithal to eventually contact the Attorney General's
    office.
        The vast majority of people, if they ever become aware of
    these charges, will call their carrier. Very few of them make
    it to us. And so at the end of the day, you have to say, well,
    if we're getting, you know, five complaints about one company,
    frequently, by the time we start the investigation, they've
    moved on, because they know they're engaged in fraud and they
    know that, if there's a significantly high refund rate, there
    is a chance that they will be thrown off the billing platform.
        So they're clever, in the sense that they're constantly
    reconstituting, changing their name, changing the type of
    service they're providing, hiding it under, you know, different
    lines on the phone bills. So I mean, I would liken it to Whack-
    a-Mole. You've obviously heard that analogy before, but this
    is, you know, a serious situation that is costing individuals,
    businesses, and government agencies significant amounts of
    money every single year.
        Senator Ayotte. And as a follow-up on the Federal end, you
    said you had been working with the FTC?
        Ms. Madigan. The FTC has had workshops and obviously been
    engaged in this over the years.
        Senator Ayotte. And they're also able to pursue these
    crammers under Federal law as well?
        Ms. Madigan. And I believe they have. I don't know the
    details of their lawsuits, but I know that they have had
    significant actions.
        Senator Ayotte. Because one of the issues, obviously, we
    would also be interested in looking at, is making sure that the
    tools--on the law enforcement end, that they have the tools
    that they need to go after the bad actors. I wanted to follow
    up with Mr. Burg to ask you. You had said that Vermont
    originally had a notice statute----
        Mr. Burg. Yes.
        Senator Ayotte.--in place that was ineffective. And why
    wasn't the notice effective? Why did it fail, in your view,
    when comparing the notice piece versus the ban on the third-
    party billing?
        Mr. Burg. Senator, I think the notice requirements failed
    because of the extremely low level of understanding of the
    public about how local phone bills can be used as a way of
    charging people for unrelated goods and services. So you're--
    you're not going to open the letter that comes from the vendor
    if it looks like a piece of junk mail, because why would you?
        You're not going to scrutinize your phone bill because it's
    your phone bill and you're being charged for your phone
    service; isn't that correct? But it's not correct, because
    there may be something on there that's unrelated to your phone
    bill. We have been working for decades to try to get people to
    scrutinize their credit card account statements, where you can
    be charged for lots of unrelated things. And that has even
    been--been difficult, as this committee knows, from the Data-
    PASS discussions of last year and the year before.
        Here, the phone bill is so far afield of normal payment
    mechanisms for general goods and services, that people are not
    looking there. And so this is one of the reasons why you have a
    huge disparity between the number of complaints that are filed
    and the number of victims that you have, which is sort of a--to
    have that complaint base as a prerequisite to good law
    enforcement action, that we find very few complaints, and a
    huge number of victims, again, not surprising in light of the
    low level of consumer understanding.
        Senator Ayotte. Can you clarify the process when these
    notices are sent, to the bad actors that are participating in
    this?
        Mr. Burg. Yes, so it--under----
        Senator Ayotte. If you're a bad actor, do they even send
    the notices?
        Mr. Burg. I mean, there--there are, in our experience, many
    vendors that have a veneer of legitimacy, who will respond to
    subpoenas that we send out, who will say, yes, we got consent
    from everybody that we charged. But in fact, there's no way of
    determining that. If it's an online sign-up, for example,
    there's no way of telling whether the data that was used to
    charge somebody on their phone bill came from the consumer or
    came from a data file that was obtained in some other way,
    without any involvement of the consumer.
        So the prior law required these vendors to send a
    freestanding notice through the mail to consumers. Many of the
    vendors said, well, we didn't send a letter through the mail,
    but we had clear notice on our website, so when the consumer
    signed up, the consumer knew that he or she was going to be
    billed on the local phone bill. But then, there's no way of
    telling if the consumer signed up.
        And when we did our survey, and there was--this was not
    coupled with any promise of refunds or anything. I think people
    in--in our State tend to be pretty straightforward when they're
    responding to this kind of inquiry. We had just the vast
    majority of people saying, I don't know what you're talking
    about, I didn't give consent, I should not have been billed.
        Senator Ayotte. Thank you. Mr. McCormick, I wanted to
    follow up with you. You had said, in your testimony, that with
    respect to third-party billing, it is valuable to some
    businesses and consumers. Can you provide us further
    information on how it is valuable? And if we were to ban the
    practice, what are your concerns about the consequences of it?
        Attorney General Madigan just said that she hasn't had an
    experience where there have been legitimate charges, so I'm
    trying to understand, if you can help me, what your perspective
    is on any value to the consumer.
        Mr. McCormick. Well, first of all, we would absolutely
    agree that it's not convenient to have an unauthorized charge
    put on your telephone bill. In the case of Vermont, Mr. Burg
    testified that, although Vermont moved to ban third-party
    billing, even there, there were certain exceptions where it was
    believed to be convenient for the consumer to be able to have
    certain services aggregated on a single bill.
        So any kind of examination in this area, I think, would
    require some broad understanding of what legitimate businesses
    do rely upon this third-party billing as both a competitive
    opportunity and a consumer convenience. So we could try and
    provide you with more information for the record.
        Senator Ayotte. I would appreciate that, because I think
    it's important for us to understand if there are some
    legitimate purposes, what they would be and what are some
    examples given, the experience we've heard about today from
    General Madigan. Thank you.
        [The information referred to follows:]

        Response: Many consumers find it convenient to have their charges
    for communications-related services consolidated on one bill. Such
    services include local voice service, long distance service, Internet
    access, multi-channel video services, wireless, home security services,
    and services such as voice-mail and call-answering, call-forwarding,
    and teleconferencing. Such well-known companies as DirecTV, Dish
    Network, Verizon Wireless, AOL, EarthLink, Juno, NetZero, and online
    gaming providers such as Gaia Interactive and Blizzard Entertainment,
    which offers the popular ``World of Warcraft'' game, provide their
    services to many consumers by offering the convenience of third-party
    billing. In addition, the state of Vermont, in enacting anti-cramming
    legislation, provided the following exceptions from its general
    prohibition against third-party billing--presumably based upon its
    determination that they afforded an important consumer convenience:

       Billing for goods or services marketed or sold by a company
            subject to the jurisdiction of the Vermont Public Service
            Board;

       Billing for direct dial or dial-around services initiated
            from the consumer's telephone;

       Operator-assisted calls, collect calls, and telephone
            services that facilitate communication to or from correctional
            center inmates.

        The Chairman. Thank you, Senator Ayotte. Senator McCaskill?

                  STATEMENT OF HON. CLAIRE McCASKILL,
                       U.S. SENATOR FROM MISSOURI

        Senator McCaskill. Thank you, Mr. Chairman. Thank you all
    for being here today and welcome to you. I wanted--like to
    place on the record, Mr. Chairman, a letter that the Committee
    received from a company that is based in my state, O'Reilly
    Auto Parts.
        [The information referred to follows:]

    O'Reilly Auto Parts
    Springfield, MO
    www.oreillyauto.com
                                                          June 28, 2011
    Hon. John D. Rockefeller IV,
    Chairman,
    U.S. Senate Committee on Commerce, Science, and Transportation,
    Washington, DC.

    Dear Chairman Rockefeller and Committee:

        We write this letter on behalf of O'Reilly Automotive Stores, Inc.
    The Company itself and through various subsidiary entities operates
    3,613 auto parts stores in 39 states with a network of 23 supporting
    distribution centers and 47,495 team members. The parent of O'Reilly
    Automotive Stores, Inc., O'Reilly Automotive, Inc. is publically traded
    on the NASDAQ as ``ORLY.''
        Over the years, as our company has grown, we have encountered
    certain business practices by local exchange carriers commonly referred
    to as ``cramming.'' The extent of the problem is widespread. We
    estimate that at least 80 percent of our stores have been billed for
    some type of ``cramming.'' We believe these practices to be unethical,
    especially considering the business environment we have encountered
    when combating this practice.
        Of course, our discovery of this practice grew from a careful
    review of our billing records, not from any need for the services of
    any third party biller. As we began to understand the nature and scope
    of this problem in 2000 we determined because of the sheer number of
    lines the company leased and locations the company had, the only way to
    stay on top of the issues was to add employees. To assist our telecom
    manager with this task, in 2000 we hired a second dedicated team
    member, in 2008 we added a third, and as of October, 2008 the company
    has employed three (3) full-time and dedicated employees who do nothing
    but review and analyze local and long distance phone bills for this
    practice, as well as other erroneous charges, and seek refunds and/or
    credits.
        The analyst group and senior management of the company have long
    attempted meaningful communication with the carriers about this
    practice. As you might appreciate, the seemingly endless web of call
    centers and carrier customer service representatives made it nearly
    impossible to make progress. After dozens of conversations and endless
    frustration from our analyst group, we began to look for other ways of
    handling our requests for cancellation and credit related to this
    billing. One way was to document the charges in writing and fax our
    requests to call centers when we were able to get a fax number from a
    carrier representative.
        During our communications with the various carriers, we sought ways
    to block third party billing to our accounts. Some regional bell
    operating centers (RBOCs) were willing to find work arounds for this
    issue others insisted there was nothing they could do about it. We were
    however astounded and amazed when one of our billing analysts
    discovered a flyer in an envelope with one of the individual bills we
    received from one of the carriers who had insisted it was out of their
    hands. The flyer explained customers could now ``block'' third party
    billing. When we approached our assigned account team at the carrier
    with the flyer, they requested a copy and advised they would have to
    investigate. We have however followed consistently and persistently
    with them over a period of 2 years and are now able to block third
    party billing from existing accounts. Of course, we believe our ability
    to do this is a direct result of our tenacity.
        The ability to block on existing account however has not allowed us
    to eradicate the practice of cramming. As a growing company, we
    frequently open new stores. Typically, we will open in excess of 150
    new locations each year. Despite the fact we request a block on third
    party billing with each new order, we typically see third party charges
    on the first and or second month's bill from this carrier.
        To give the Committee some idea of the pervasiveness of the
    problem, in 2004 our team tracked and received refunds totaling nearly
    $750,000 in erroneous charges billed through local exchange carriers.
    We estimate approximately 25 percent of the number of erroneous charges
    was the direct result of cramming. At the height of this problem, some
    2 to 2 and one half years ago, a single team member requested over
    $3,000 in refunds for erroneous third party charges from AT&T alone, in
    only one geographic region of our company. When you consider the
    charges related to cramming are usually between $5 to $50 per bill,
    this example reflects somewhere between 60 and 600 erroneous charges
    for a single month in a single region. Based on the records we have
    kept, over the past 10 years, we have averaged about $1,250 worth of
    these charges per month for O'Reilly. About one quarter of our
    dedicated teams' time is spent finding, disputing, and recording the
    credit request and receipt progress. When we acquired CSK Auto in 2008
    and began to audit their statements, we estimate they averaged $2,500 a
    month over this same period.
        Often, the carriers simply refer you to the third party biller or
    their third party clearinghouse. Often, they will attempt to persuade
    that someone within the company signed up for and authorized the
    services by phone or through the Internet. O'Reilly has consistently
    trained local store managers and communicated to carriers that local
    store managers lack the authorization to bind the corporation for these
    services. While we expect a team member to make a mistake from time to
    time, we believe our training is effective and view the continuation of
    cramming a purposeful decision on the part of carriers to circumvent
    communication to them regarding our corporate authority structure. In
    addition, our team members do not have store access to the Internet. It
    seems unlikely they would go home and sign up their store for any of
    these services. There have been times when recordings have been made to
    evidence the alleged purchase of services. While some calls sound
    legitimate, others, in our opinion do not. The carriers or
    clearinghouses cannot and/or do not ever produce any documentation
    purporting to actually be signed by an employee with any authority. One
    might only surmise that doing so results in a pecuniary benefit, not
    only to the crammers, but to the LEC's.
        In summary, the company has and continues to spend its resources
    managing the issue of cramming with its providers and has done so for
    over 10 years now. During that time, the company estimates it has
    obtained refunds and credits for an approximate conservative estimate
    of $200,000 at O'Reilly for cramming alone. CSK Auto, Inc. was acquired
    in 2008 and did not have staff auditing or tracking of these erroneous
    charges. Based on the condition of their billing when that company was
    acquired and the audits our O'Reilly teams have done, I estimate they
    lost approximately $300,000 over the last ten (10) year period.
    Overall, third party charges billed to both companies is estimated at
    $550,000. Additionally, we estimate three full-time employees have
    spent roughly 26,000 hours solely on this issue at an additional
    overhead exposure of approximately $400,000.
        Whether the consumer is an individual or corporation, we view the
    practice of cramming as unethical and fraudulent. We ask the committee
    to recommend proposed legislative action to preclude this practice
    including an express statutory private right of action and include
    equitable and damage remedies as well as an attorney fee provision arid
    punitive damages based up on a finding that conduct is pervasive,
    egregious or outrageous.
        In addition to the forgoing, we attach exemplars of bills
    supporting the types of third party billing we receive.
        [Attachments to letter not included in the record.]
                Sincerely,
                                                 Jeanene Asher,
                                        Director of Telecommunications,
                                           O'Reilly Automotive Stores, Inc.

        Senator McCaskill. And it is quite a tale. For 10 years,
    O'Reilly, when they began realizing that they were being
    victimized by extensive cramming, began hiring people full time
    to do nothing but monitor their billings. They now have three
    full-time employees that do nothing but monitor billings. And
    the experiences they've had with AT&T and others, frankly, are
    outrageous, how difficult it has been for them to curb this
    practice.
        They now estimate that the 10 years they've been tracking
    this, over $200,000 of billings have been tried, have been
    attempted against their company. They acquired another company
    just a few years ago and they've done the work on that company.
    They think they've lost $300,000, so $550,000 worth of cramming
    over a 10-year period, and they're particularly victimized
    because they open new stores all the time, and their numbers
    are available to the public.
        And it's these small businesses and these various new
    numbers, that--where these companies obviously are just
    feasting fraudulently on small businesses. And it is--it is--
    they've spent $400,000 on their staff to do this over the 10-
    year period, but they've netted, you know, $150,000 or so as
    they look at what they've tried to do.
        Now, most companies don't do this. Most companies just try
    to beat it out as they can. They try to do their best. So let
    me turn to you, Mr. McCormick. And I know that you are in an
    awkward position here because, unfortunately, my wrath is going
    to probably directed toward you, but we know each other, and I
    think you know I'm a nice person, and I don't mean to be--to
    pick on you today, but I need to know how much money the phone
    companies are making on this, because they're clearly making a
    boatload of money or they would not put up with this. They are
    allowing these people to use their platforms to bill because
    they're getting a piece of the pie. I need to know. How much
    did AT&T make last year on cramming?
        Mr. McCormick. Senator, I've been told that the revenues
    related to third-party billing are about one-tenth of 1 percent
    of overall industry revenues. I believe that----
        Senator McCaskill. That doesn't tell me how much it was----
        Mr. McCormick. I believe----
        Senator McCaskill.--because I know how much----
        Mr. McCormick. I believe----
        Senator McCaskill.--money AT&T is making.
        Mr. McCormick.--I would have to provide you with the exact
    figure for the record, but I believe, based upon what I've
    learned from AT&T, that their revenues from third-party billing
    amount to about $50 million a year.
        Senator McCaskill. OK. So the total industry is making $50
    million a year off of it?
        Mr. McCormick. Well, that would be AT&T.
        Senator McCaskill. AT&T is making----
        Mr. McCormick. Right.
        Senator McCaskill.--$50 million?
        Mr. McCormick. But it----
        Senator McCaskill. Well, that sounds like real money to me.
        Mr. McCormick.--it's $50 million for third-party billing.
    Now, I'm not saying that they make $50 million off of cramming.
    I'm saying that they make $50 million in fees off of performing
    the third-party billing service, and that overall, for the
    industry, it is somewhat less than an estimated $200 million.
    That would represent about one-tenth of 1 percent of industry
    revenues.
        Senator McCaskill. It sounds like, to me, that it--that
    if--either you're going to take the position it's de minimis,
    and then the good reputations of these companies are being
    maligned in a way that I would think they would consider to be
    inappropriate, or it's significant money and they're willing to
    bear the burden of this bad practice that's going on, because
    ultimately, it's the consumers that are out there, fighting for
    their life on every $1.50 that they see on their phone bill.
        Let me ask you this. When my credit card is used, there are
    a lot of hoops that I'm expected to jump through to use my
    credit card online. I have to have my--the right billing
    address. And they have the ability to match up whether or not
    the billing address is correct. There's a PIN number that is on
    my credit card, that I have to use, that tells the company that
    I actually have the credit card in my possession.
        Why don't the phone companies require these third-party
    billers to get that kind of identification from these people?
        Mr. McCormick. Senator, the companies have contracts with
    the third-party aggregators that require the aggregator not
    only to authenticate the service provider, but to require that
    the service provider provide authentication of the actual
    authorization of the charge. So those contractual commitments
    are in place.
        The telephone companies actually audit those third-party
    aggregators, but nevertheless, this remains a very significant
    problem, as the Committee staff report itself found. After
    three million pages of evidence, it's very difficult to tell
    what are and are not authorized charges.
        Senator McCaskill. But the--there's not a requirement that
    you give the company that wants to bill--you get a self-
    identifying number for your phone account from you. There's
    nothing there now for that. If somebody calls my house, and my
    grandchild answers the phone, and they say, do you want to
    spend $2 a month to get TV listings in your area delivered to
    your Internet account or whatever, and my grandson just hangs
    up the phone, they could start doing that because they can say
    they've called, and somehow they got authorized.
        I mean, that's what they're doing. Some of them don't even
    bother to call. Why don't these phone companies say, you have
    to produce--from the person that authorizes these services,
    they have to produce to you a PIN number that has to match.
        Mr. McCormick. That may be a very good idea. It's my
    understanding that the way in which they require authentication
    today is through three specific methods. One is true actual
    recordings of the individual when they're called, and that they
    authorized the service.
        Number two is through--if it's done on the Internet through
    double-click methods, and number three through the delivery of
    welcome packages that are then accepted. They don't use PIN
    numbers like they do with credit cards, but they do have
    industry standards with regard to authentication.
        Senator McCaskill. Well, I think that, you know, two of
    those three are very easy to do fraudulently. And frankly, the
    O'Reilly folks tell me that they've listened to some of the
    recordings, and that they sound about as legit as some of the
    rhetoric that's flying around the capital right now. It--you
    know, it is--it--you know, I don't think that the recordings
    are even foolproof and it seems to me this would be a very
    simple way. Obviously, it has worked for credit cards.
        And what you would do is, when you got a phone line, you
    would get a PIN number with it, and before someone could begin
    charging your phone number, they would have to be able to
    produce that PIN number. And I know I'm not giving my PIN
    number out on anything unless it's something I want. It seems
    like, to me, that would clean it up pretty quickly and you all
    could do that on your own without the government getting
    involved.
        Would you mind taking it to your association and finding
    out what the problem would be with them providing PIN numbers
    to phone numbers so that the PIN number would have to be used
    if somebody wanted a third-party billing?
        Mr. McCormick. I absolutely will.
        Senator McCaskill. OK. That's great. How many third-party
    vendors have been disqualified from the--and this will be my
    last question. I know I'm over time. How many third-party
    vendors, are you aware, has AT&T disqualified from using their
    customer's phone numbers?
        Mr. McCormick. I don't have a specific number.
        Senator McCaskill. That would be great to find out.
        Mr. McCormick. But I can just get that for the record.
        [The information referred to follows:]

        Response:

       AT&T revenues for 2010 were $78 million. The projected
            revenues for 2011 are less than $50 million.

       AT&T bills for about 550 third party service providers in
            each of its regions, except for its East region where it bills
            for about 220 service providers.

       AT&T disqualified 45 service providers in 2010 and 65 in
            2011. The company also terminated one billing aggregator in
            2011 and suspended one aggregator in 2010 in the SE region.
            Since 2010, AT&T has received 329 new service provider
            applications, approximately 200 of which were disqualified by
            AT&T.

        Response: As an industry, we continuously strive to improve the
    customer experience and to look for the best way to balance the
    customer's desire for the convenience that third-party billing provides
    with appropriate steps to prevent unauthorized third-party billing that
    do not overly burden the customer. Our Board of Directors is open to
    considering appropriate, additional safeguards, and requiring a
    merchant or billing aggregator to obtain an additional ``check off''
    from a customer is an idea that we believe merits further
    consideration. In this regard, a mandatory PIN for authentication is
    one option, but there could be others, as well, that might better
    balance the customer's desire for convenience with added protection.
    PIN authentication has sometimes proven to be cumbersome and
    frustrating for customers because of lost and forgotten PINs and other
    customer-related confusion. PINs can also pose operational challenges.
    For example, the use of PINs would not control issues such as
    fraudulent marketing, or cramming of additional unauthorized charges
    after a merchant or billing aggregator initially obtains a customer's
    PIN.

        Senator McCaskill. I'd like to know how many total third-
    party vendors AT&T has a contract with. And I'm picking on AT&T
    because they're the biggest and have the most resources to, in
    fact, shut this kind of stuff down. And according to O'Reilly,
    they've been very difficult. In some parts of the country, they
    still can't block with AT&T. So I would like to find out from--
    for AT&T, how many--how many third-party vendors they have
    total and how many they've disqualified annually for the last 5
    years. Thank you.
        Mr. McCormick. Thank you----
        Senator McCaskill. Thank you very much, Walter.
        Mr. McCormick.--for----
        Senator McCaskill. Thank you, Mr. Chairman.
        The Chairman. Thank you, Senator.
        Senator Boozman?
        Senator Boozman. I'll defer to Senator Udall, if he has
    some----
        Senator Udall. You----
        Senator Boozman.--with your permission.
        Senator Udall. You sure? I think he's----
        The Chairman. No, actually, you're--go ahead. You're next.

                     STATEMENT OF HON. TOM UDALL,
                      U.S. SENATOR FROM NEW MEXICO

        Senator Udall. OK. Thank you, Senator Boozman, and Chairman
    Rockefeller. Thank you very much. Once again, you are steering
    us in the right direction, in terms of consumer protection, and
    focusing on this hearing, and I very, very much appreciate it.
    And I appreciate the fact that you have an Attorney General,
    and an Assistant Attorney General here.
        I know that Senator Ayotte was very aggressive in her
    state, and I know that the both of you are very aggressive in
    terms of stopping these kinds of scams, and we very much, very
    much, appreciate your presence here today because I think you
    bring a--bring a very important perspective.
        And I understand, from your testimonies, that almost all
    consumers who were crammed were unaware of the charges and did
    not want or use the advertised services. And I think you both
    recommend the prohibition of third-party charges to landline
    phones.
        The other concern that I have and I--when we get the
    innovation and the new uses and we have the cell phones going,
    is looking at cell phones and looking at what's happening
    there.
        And I wonder, do you have any recommendations on how to
    prevent a problem of this scale, which we're talking about a
    loss on landline, $2 billion or more. What can we do, as far as
    cell phones, affecting third-party billing on cell phones?
        Ms. Madigan. Well----
        Senator Udall. What is your recommendation?
        Ms. Madigan.--first of all, let me give you perspectives,
    Senator, on the overall complaint.
        Senator Udall. All right.
        Ms. Madigan. According to FCC data, it appears that about,
    you know, 82 percent of the complaints regarding the landline--
    16 percent of them are wireless lines. In the State of
    Illinois, in the Attorney General's office, we've seen very few
    complaints regarding wireless lines. Our belief is that the
    wireless carriers are much more vigilant and intolerant of
    third-party billing. And they've been very aggressive in
    ensuring that those bills are clean and that they maintain
    their good reputation.
        And so, again, we--I would--would pose that if you ban that
    opportunity, you will prevent that fraud from migrating from
    the landline bills to the wireless bills. Many people, at this
    point, are starting to rely exclusively on wireless service as
    opposed to landline service. And so your concern is a good one.
        What I would tell you is that we haven't seen the problem,
    at this point, at the level that it exists at the landlines.
    But it certainly has that opportunity if we don't just cut it
    off entirely.
        Senator Udall. Mr. Burg, do you have any thoughts?
        Mr. Burg. Senator, the one thought I have is that I think
    it's important, once again, to look at the issue of consumer
    expectations and whether--in terms of how you can be billed,
    and for what, and to see if those expectations are the same in
    the wireless environment as in the landline environment. It may
    be that, because of the availability of various wireless-
    related services, apps, and ringtones, and those kinds of
    things, that can be billed to your wireless account, that
    people expect to be billed in that way, that an outright
    prohibition would not be the right way to go.
        There are other options. You could have a blocking system.
    It could be an automatic block when you open a wireless account
    and then you opt out of that, which would protect the broad
    public and those people who want to be billed for a whole range
    of things on their cell phone account--they can do that.
        Senator Udall. Do any other of the panels have any thoughts
    on this issue that I've raised here?
        Mr. Spofford. So related to wireless, Senator?
        Senator Udall. Yes.
        Mr. Spofford. Yes, our--our company actually has a service
    out now which allows people to upload a--a phone bill and
    detect these third-party charges. And we are seeing an increase
    on the wireless side. It is nowhere near as bad a problem yet,
    but due to the legitimacy of many third-party charges on
    wireless bills, apps, movies, songs you have, et cetera, et
    cetera, for smart devices, it's going to be a really tough
    challenge to determine what's legitimate and illegitimate.
        We do that, based on actual hard research of every line
    item charge, so that we can then catalog the bad ones and
    inform our customers about it. But you know, a broad
    prohibition on it would be difficult, but it's coming and it's
    going to get--it's going to get much worse on wireless. And I
    don't think any legislation on the wireless side is going to
    affect wireless, actually.
        Senator Udall. Ms. Eppley? Thank you, Senator Rockefeller,
    and I'd also ask consent to put my opening statement into the
    record.
        The Chairman. Absolutely.
        [The prepared statement of Senator Udall follows:]

       Prepared Statement of Hon. Tom Udall, U.S. Senator from New Mexico
        I want to thank you, Chairman Rockefeller, for this hearing today
    and for your leadership in consumer protection.
        I was shocked to learn from the investigation and report on
    ``cramming'' that this widespread problem has potentially cost
    Americans billions of dollars of unauthorized charges on their landline
    telephone bills. Cramming has affected too many New Mexican families,
    small businesses, nonprofits, and even community health centers. I look
    forward to hearing from our panel on how cramming can be stopped.
        I also want to raise the issue of cramming on cell phone bills.
    Americans today have over 300 million mobile phones, and consumers
    increasingly use these phones to make purchases similar to a credit
    card. News reports highlight an increase in scams that place
    unauthorized monthly charges on consumers' cell phone bills, leading to
    ``bill shock.'' A constituent from Santa Fe contacted me after
    discovering $170 of fraudulent, unauthorized premium text message
    charges for a trivia game he did not want and did not sign up for.
        I was not surprised to learn that the founders of the company
    billing him were previously involved in a class action lawsuit for a
    separate landline cramming scam. The wireless phone company involved
    did eventually provide a full refund in this case. However, this
    constituent's concern was that he was probably just one of many people
    who had been similarly scammed. He told me: ``My main goal [is] to get
    this practice stopped. It was nice to get the money back, but the
    bigger deal by far is to put these scams out of business.''
        So, I want to thank you again, Chairman Rockefeller, and the
    witnesses who are here today. It is good to see a state attorney
    general and assistant attorney general here with us today. They have
    experience on the ground fighting this type of fraud. I know from my
    days as attorney general that legitimate companies are happy when
    fraudsters are shut down. That's because a good business wants a bad
    business, out of business.

        Senator Udall. Thank you.

                    STATEMENT OF HON. JOHN BOOZMAN,
                       U.S. SENATOR FROM ARKANSAS

        Senator Boozman. So I really don't have any questions, Mr.
    Chairman. I appreciate you holding the hearing, and the Ranking
    Member being here, and participating. This is a problem that I
    think is going to continue to grow. And it's not just this
    area.
        I know my daughter was telling me the other day--she's a
    realtor and she had somebody call and say, would you like to
    increase your sales and your visibility throughout the country?
    And she said yes, I'd very much like to do that. Well, they
    took the yes. They were recording it, and took that yes, I'd
    very much like to do that, and then used that as a
    justification to add about a hundred dollars a month. I mean,
    it was very substantial.
        So I think that there are just all of these areas, and
    certainly, wireless is important. I think, in Arkansas, we're
    70 percent wireless at this point, something like that,
    something very dramatic. And you know, as you see that,
    especially in young people, they just don't have landlines. So
    it really does all go together and I think it's really
    important that we discuss it. And you know, we've got a lot of
    differences of opinion from the panel and the panel is
    excellent.
        We appreciate your being here, and sharing your insights,
    and many of you, all of you, being on the front lines, really
    fighting the battle in your own way. I know that the law
    enforcement--they don't want to see it happen. I know that our
    phone companies don't want to see it happen also.
        The key is, how do you do it in a reasonable way. So thanks
    again, Mr. Chairman.
        The Chairman. Thank you, Senator. It's interesting to me.
    We have to wind up. It's interesting to me that AT&T itself has
    been crammed some 80 times. And I guess my question to you, Mr.
    McCormick, is, you--you're--I mean, I think there's total
    agreement on this panel, except for you and you're trying to
    sort of slide it off as happens. But if AT&T itself is being
    crammed 80 times and they probably don't know about it--but on
    the other hand, how can they not know about it? Because they
    have really good auditors, and bill counters, and bean
    counters, and they're bound to find them.
        Why don't we just take a simple thing, and put all of our
    agony at an end here, try to somehow protect authorized
    charges, but just get rid of all the rest? Why wouldn't we do
    that? There's just millions of sleepless hours for millions of
    Susan Eppleys. Why go through all the tomfoolery of hedging
    bets?
        Or is this really clear? What really is clear ought to be a
    monumental embarrassment just to the telephone companies that
    we've done. And we're going to persist on this because that's
    what we do here. We protect consumers. We've got a lot of other
    things, but we protect consumers. Why wouldn't--why wouldn't we
    just ban that, so you wouldn't have to sort of compromise
    yourself so much as a witness?
        Mr. McCormick. Mr. Chairman, as you know, in Vermont, with
    some limited exceptions, the industry supported that
    legislation. This business of third-party billing represents,
    as I said, less than one-tenth of 1 percent of all----
        The Chairman. I don't care. You've said that--you see,
    don't you understand----
        Mr. McCormick. So----
        The Chairman.--what--how misleading that is? The point is,
    it doesn't to Susan Eppley. It doesn't to hundreds, hundreds of
    thousands of other citizens all across the United States, every
    single year for years, and years, and years, and years. So
    don't give me, it represents one-half of one--that's the
    corporate point of view. So why do you use it? Why don't you
    think about her, rather than about one-half of 1 percent, which
    I don't necessarily agree with? Why not ban it, ban the
    unauthorized billings, give America a reason to wake up with a
    smile?
        Mr. McCormick. Well----
        The Chairman. Don't embarrass the phone companies and all
    the others that we're going to be investigating, too. Why not?
        Mr. McCormick. Well, Mr. Chairman, we do ban all
    unauthorized billings. With regard to banning all third-party
    billings whatsoever, that's something, as a policy, I'll
    explore with the industry, to see if that's something the
    industry would like to support.
        The Chairman. OK. I'll turn to Senator Ayotte, to ask the
    final question, if she wants to, and then I'll have a closing
    statement, the last 15 seconds.
        Senator Ayotte. Thank you, Mr. Chairman. And just as a
    follow-up, Mr. McCormick, I appreciate your willingness to
    speak with your industry colleagues, and I look forward to your
    supplement to the question I asked you so that we can have a
    better understanding of the full consequences of doing so for
    consumers, as well as businesses.
        Attorney General Madigan, Illinois passed a cramming law in
    2009, which does not have the complete ban on third-party
    billing. So can you help us understand? You're here asking us
    to do a complete ban on third-party billing. What hasn't worked
    in your law? And what has brought you to this position today?
        Ms. Madigan. Senator, as I mentioned, when we've brought
    our lawsuits, all 30 of them, we've used our Consumer Fraud
    Act. Even though that new law has been passed, we have yet to
    use it.
        The reason that we're here today is, we would like to be
    more like Vermont because Vermont has been successful in being
    able to pass an outright ban and it is insane that we have to
    spend countless hours, I mean, in a slightly similar way to
    what Ms. Eppley does. We take in hundreds of complaints. We
    file a lawsuit, eventually, after we do a thorough
    investigation, and then, you know, we get restitution for, you
    know, many of those consumers, but not nearly all of those
    consumers.

        Response: We share the Committee's desire to stop unscrupulous
    merchants from bilking our customers by charging them for goods and
    services they have not actually and knowingly purchased, and we support
    our customers' right to be fully informed about what they are being
    billed for. As the Committee is aware, on July 12, 2011 the FCC issued
    a Notice of Proposed Rulemaking seeking comment on additional steps it
    is considering to further curb cramming and to protect consumers of
    both wireline and wireless carriers. Several of the steps the FCC
    proposes are interesting and deserving of full consideration, which the
    industry looks forward to providing. We hope to engage in a
    constructive dialogue with the FCC in the context of the NPRM.
        We believe the best course here would be to allow the FCC, as the
    agency of expertise, to complete its rulemaking process before Congress
    decides whether additional statutory mandates are necessary. But if the
    Committee proceeds to consider legislation in advance of FCC action, we
    would urge that any proposed legislation focus narrowly on preventing
    unauthorized charges while recognizing that some services provided to
    end users through third party billing (e.g., wireless, DSL, video,
    satellite, and calls originating from within correctional facilities)
    provide a valuable service to consumers. To that end, the industry has
    formed a working group to examine current practices and to discuss
    potential legislative and regulatory measures intended to further
    protect against unauthorized charges while balancing customer
    convenience and harm to legitimate businesses. The testimony of Vermont
    Assistant Attorney General Burg about his state's new statute described
    what could be a useful model for Federal legislation, and the industry
    working group will consider the Vermont law and other possible
    approaches in our effort to assist the Committee in pursuing the best
    approaches to protect our customers from being charged for goods or
    services they did not consent to purchasing.

        What we have seen repeatedly, and--and what you've heard
    everyone testify to today is that consumers don't know that
    their phone bill can be used like a credit card account.
    Consumers end up with services and products crammed on their
    phone bill they never asked for, and ultimately, because they
    never asked for them, they never knew they were paying for
    them, and they never used them.
        The way to eliminate that, without having to go through,
    you know, the heroic efforts of most people on this panel, is
    to simply ban these third-party charges. And yes, there are
    some exceptions, you know--operator assistance, dial-around
    services. There are certain things that--that everybody knows
    what those exceptions are. Those are things that individual
    consumers or businesses, if they want, affirmatively ask to be
    put on their bill.
        It is not some secret mystery that ends up crammed onto
    their bill, when all they've done is--you know, put their name,
    their address, and their telephone number into an online
    solicitation to get coupons. And that seems to be the way that
    many people, at least on the Internet, end up being charged for
    these things, if they were on the Internet at all, if it wasn't
    just outright fraud. So because of the enormous level of fraud
    and deception that really, I would say, is--is the entire
    industry here, it should just be banned outright.
        Senator Ayotte. And as one final follow-up to Mr.
    McCormick, if an industry is having to follow a whole host of
    different State laws in this area, say, you've got to follow
    the law that Illinois passed, I assume this is what you're
    dealing with. You don't have preemption in this area.
        As this committee draws its conclusions from Chairman
    Rockefeller's report, what is your industry's view on having
    one Federal standard, whether it's the banning of third-party
    or some other solution? Senator McCaskill raised one here.
    What's your perspective on that?
        Mr. McCormick. Senator, this is primarily a national
    business and as these issues have come up, we really have been
    looking to the FTC as the principal regulatory agency. So it's
    a great benefit to our industry to have a single mission-like
    standard.
        The Chairman. OK.
        Senator Ayotte. Again, I have to ask the Attorney General--
    if you have any preemption concerns here, if we come up with a
    solution?
        Ms. Madigan. We always have preemption concerns at the
    State level and I think there was somebody who--who kindly
    mentioned the fact that, you know, you would want to make
    sure--and I think it was you--that, you know, while the Federal
    regulators had authority to do whatever they needed to do
    against cramming, that the States are not stripped of that
    authority, because far too frequently, unfortunately, we find
    that when the solution is one at the Federal level and the
    States are preempted, it oftentimes is not strong enough for us
    to contend with the on-the-ground problems that we have in the
    States.
        Senator Ayotte. Thank you.
        The Chairman. Let me just close by a couple things: one,
    thanking all of you very much for being here on what I think is
    a classic American problem. I mean, we're not talking about the
    war in Afghanistan here. We're not talking about raising the
    debt ceiling. I grant that. But we are talking about something
    which is profoundly troubling and disturbing to millions of
    Americans. And it's also unnecessary.
        I mean, I thought what we were meant to do is try to clear
    up problems here and 10 years ago, the telephone industry came
    to us and said, we'll clear up the problems because they really
    make us look bad if we don't, and therefore, you can trust us
    to do it. And they didn't.
        So all I'm saying is that we're going to stick with this.
    You know, the FCC stated yesterday that it's now seeking
    comment on whether a ban to third-party billing, you know,
    that--I appreciate that and they settle things. They have--
    don't they have some settlements, the FTC? But that's all stuff
    that's already done and it also is an admission of guilt. I
    mean, if you settle something, to me, it's an admission of
    guilt. I'm not a lawyer. Attorney General Madigan, I want you
    to know that. But that's the way I read it.
        So anyway, in the near future, I plan to introduce, working
    with colleagues from both sides of the aisle, legislation that
    will put a stop to this, because I simply cannot find any grain
    of sense in us having to have a hearing like this and have all
    the Susan Eppleys--Mr. Spofford, you haven't got enough of the
    spotlight. But you know, Susan Eppley's just better looking
    than you are. That's all.
        Mr. Spofford. No argument.
        The Chairman. You know. But I mean, why put her through
    that, and the millions of others? Why put people through that?
    It doesn't make any sense. It isn't going to change the future
    of the nation, but it's going to change a whole lot of
    household functioning and ability to survive in truly horrible
    economic times, which are going to be with us for quite some
    time--would be my guess.
        So I don't think we should mess around with this. Let's not
    worry about whether something is convenient or not or whether
    something's a quarter of 1 percent or not. Let's just--let's
    say, if there are certain authorized things that are--that
    should be done, let's work on that, and figure that out, and
    then take the rest, and just ban it. So with that neutral
    statement, this hearing is adjourned.
        [Whereupon, at 12:03 p.m., the hearing was adjourned.]
                                A P P E N D I X

       Response to Written Questions Submitted by Hon. Amy Klobuchar to
                                  Lisa Madigan
        Question 1. The Commerce Committee's investigation and the FCC's
    new proposed rules focus mostly on wireline cramming. You testified
    that approximately 16 percent of cramming complaints are filed to
    dispute wireless bill charges. Do you think we need better rules to
    protect wireless consumers from being crammed?
        Answer. I was reciting a statistic from a recent FCC release in
    which the FCC indicates that 16 percent of its phone bill cramming
    consumer complaints pertain to wireless phone bill cramming.
        As we move toward using our wireless devices as payment mechanisms
    and this type of billing mechanism begins to take root, I think the
    area of third party billing on wireless phone bills needs to be studied
    further to determine whether consumers are being adequately protected
    from cramming on their wireless phone bills.

        Question 2. Cramming takes some technical know-how and a
    willingness to engage in clearly fraudulent practices. Is there
    evidence from your investigations that some of these offenders may be
    tied to organized criminal networks, or are they mostly operating on
    their own?
        Answer. My investigations have not revealed whether or not the
    defendants are tied to organized criminal networks.

        Question 3. You have advocated for better billing practices and
    successfully championed passage of an Illinois law in 2009 that
    includes the very important requirement that a third party cannot
    charge a consumer until consumer consent is verified by the telephone
    service provider before any charges are billed. What do you consider to
    be the most effective parts of this legislation? How do the new laws
    affect the number and severity of cramming crimes and abuses? In your
    experience, did this law lead service providers to drastically change
    their disclosure practices?
        Answer. My office did not draft or push for the law. Rather, upon
    request, I helped shape the final legislative language after the
    framework for the bill had already been established by the sponsor and
    stakeholders. It was a compromise piece of legislation that did not go
    as far as I would have liked.
        The Office of the Illinois Attorney General has brought successful
    enforcement actions against phone bill crammers using the general
    language in Section 2 of the Illinois Consumer Fraud and Deceptive
    Business Practices Act. The lawsuits basically allege that vendors have
    placed unauthorized charges on consumers' phone bills, and that it is
    an unfair and deceptive practice to do so. The basis for the claims of
    unauthorized charges is that the sales pitches are deceptive, and that
    if any attempt is made to verify the order, it is inadequate, because
    it fails to demonstrate that the phone bill subscriber knowingly
    authorized a purchase to be billed to his or her telephone bill. My
    office's investigations routinely reveal a low level of customer
    awareness of the charges and a high refund rate among customers who
    have become aware of the charges.
        815 ILCS 505/2HHH, effective in 2009, provided specific guidance as
    to what authorization and verification must be completed in order to
    have a legitimate sale to be billed on the phone bill.
        It does not appear that the new law has caused service providers to
    change their stated procedures. The billing aggregators and carriers
    have claimed for over a dozen years now that they have procedures in
    place to protect against phone bill cramming, including the procedures
    required by Section 2HHH.

        Question 4. In your experience, are U.S. Telecom's ``Best
    Practices'' guidelines sufficient to combat cramming or are legal
    protections necessary?
        Answer. The industry best practices do contain some steps that can
    be helpful to detect fraud, but they are not sufficient to combat
    cramming. As I referenced in my oral and written testimony, my
    experience indicates that, although the billing aggregators and the
    LECs may request the marketing materials their clients use, no
    substantive review of the marketing materials or marketing methods is
    taking place.
        Other aspects of the best practices, such as searching for cramming
    complaints or whether the named president of the company has engaged in
    cramming before, are unlikely to yield any significant results, as it
    is quite simple for a company to dissolve and resurface with a new
    company name, address, and named president while retaining
    substantially the same products and sales practices.
        The bottom line is that my investigations uniformly reveal numerous
    consumers who do not even know they are being billed on their phone
    bills for third party products or services. If they do discover these
    charges, they seek refunds and bill credits because they do not want or
    use these products and did not authorize their purchase. It could be
    that the best practices are ineffective, or that they are not being
    enforced, but my experience has been that they are not sufficient to
    combat phone bill cramming.
                                     ______

         Response to Written Questions Submitted by Hon. Mark Pryor to
                                  Lisa Madigan
        Question 1. Do you believe Federal legislation regarding cramming
    is needed? What provisions would you advocate that potential
    legislation include and why?

        Question 2. You are an advocate for a ban on third party billing on
    telephone bills. Can you explain how you arrived at this course of
    action?

        Question 3. Do you believe there are legitimate uses of third party
    billing that should be exempted from a comprehensive ban? If so, what
    are they?

        Question 4. How best can we separate the good actors in this market
    who play by the rules from the bad actors that do not?
        Answer. My oral and written testimony call for federal or state
    legislation banning third party billing, with certain appropriate
    exceptions for regulated services such as operator-assisted calls and
    long distance calls.
        My office's experience over the last 15 years or so is that third
    party vendors just haven't gotten it right, many times employing
    fraudulent marketing practices that do not apprise consumers that t hey
    are making a purchasing decision. On top of that, they peddle products
    and services that no one wants or uses. The billing aggregators and
    LECs have failed to come up with any meaningful efforts to correct the
    vendors' practices.
        Phone bill cramming will not stop until third party billing stops.
    I recognize that some exemptions may be appropriate for products and
    services that are regulated by the Illinois Commerce Commission and/or
    the Federal Communications Commission, such as operator assisted calls,
    long distance service, and dial around services, and the ban that I
    call for would allow for appropriate exemptions.
                                     ______

        Response to Written Questions Submitted by Hon. Kelly Ayotte to
                                  Lisa Madigan
        Question 1. Attorney General Madigan, what are the penalties under
    Federal law for conducting cramming operations? What are the success
    rates for prosecuting crammers and do you have the resources and
    manpower to go beyond the low-hanging fruit. Is prosecution and
    effective option for smaller actors as well as the larger operations?
        Answer. Under certain circumstances, the Federal Trade Commission
    has authority to request civil penalties in its actions in Federal
    court, which can bring up to $16,000 per violation.
        Despite the numerous law enforcement actions against crammers by my
    office, the FTC, and other states, cramming continues. Although
    individual law enforcement actions may be successful in removing a
    specific vendor from the market, any number of similar vendors can and
    do reappear in the same space.
        It simply is not a good use of limited law enforcement resources to
    continue to file cramming cases against individual vendors for billing
    consumers on their phone bills for products and services no one wants,
    never uses, and never agreed to purchase, let alone be billed for on
    their phone bill.
        Even after questions have been raised publicly about whether third
    party billing has any legitimate uses, no one from the billing or
    vendor industry has come forward to provide examples of products and
    services that consumers both want, and want to be billed for via their
    landline telephone bill.
        Phone bill cramming will not disappear until third party billing
    disappears.

        Question 2. Attorney General Madigan, Illinois passed a law to
    address cramming in 2009 that was not a complete ban. You
    wholeheartedly supported this ban at the time, but are now suggested we
    need a complete ban. Is the 2009 law not working? Where is it lacking?
        Answer. Upon request, I helped shape the final legislative language
    after the framework for the bill had already been established by the
    sponsor and stakeholders. It was a compromise piece of legislation that
    did not go as far as I would have liked.
        Basic consumer law and advertising law principles in place for
    dozens of years require clear and conspicuous disclosure of material
    terms and conditions of a seller's offer, followed by explicit
    acceptance of the offer. This legislation merely codifies and provides
    a few specifics to what already was the law. My office brought numerous
    law enforcement actions before the legislation became effective by
    using the general consumer protection authority in the Consumer Fraud
    and Deceptive Business Practices Act.
        The lawsuits typically allege that consumers were billed for
    products or services they did not want, did not use, and did not agree
    to buy or be billed for on their phone bills. These billings occurred
    as a result of deceptive (and in some cases, nonexistent) sales
    pitches.
        It is my opinion that the 2009 law has had no effect on phone bill
    cramming.

        Question 3. Attorney General Madigan, what more can be done to
    educate the consumer about the existence of these charges, to keep a
    close eye on monthly telephone statements, and know where to complain
    to be removed any unauthorized charges on their bill?
        Answer. My office does try to educate consumers to read their
    monthly telephone statements and to contact my office for assistance
    with removing unauthorized charges. Phone bills provide the name, and
    often a phone number, for third parties whose charges appear on the
    phone bill.
        In addition, my Office's outreach bureau provides consumer tips on
    avoiding and detecting phone bill cramming, and we are highlighting
    phone bill cramming in my office's booth at the Illinois State Fair.
        Even though consumer education is an important preventative tool,
    frankly, consumers should not have to constantly police their phone
    bills from a barrage of fraudulent charges and try to figure out how to
    have them removed. The fraudulent charges should not be on the bill in
    the first place, and the LECs and the billing aggregators have failed
    to stop phone bill cramming despite their efforts over more than a
    dozen years.

        Question 4. Attorney General Madigan, According to your testimony,
    the ``only piece of information'' that vendors have to provide to
    billing aggregators to process a transaction is ``the consumer's
    telephone number.'' However, after reviewing some of the comments filed
    at the recent FTC Workshop on cramming, some LECs require that:

       The customer must provide explicit consent to the purchase
            and to have the service billed to the customer's telephone
            bill.

       The customer's authorization must be documented by either
            (a) a written document signed and dated by the customer (or an
            electronic confirmation that is valid under the law of the
            state in which the customer resides); or (b) a recorded verbal
            authorization by the customer, which must be obtained by an
            independent third-party.

       For Internet-based transactions, in addition to the above,
            the following information must be obtained from the customer:

          a. First and last name;

          b. Billing Telephone Number (``BTN'');

          c. Address, including street, city, state and zip code;

          d. Confirmation of legal age and authority to bill to telephone
                account; and

          e. Some form of ``non-public'' information, such as date of birth
                or last four digits of Social Security Number.

          f. The clearinghouse or an independent provider must then verify
                the accuracy of the customer's information using ``an
                established and reputable database provider'' (e.g., LEXIS,
                Experian).

        Are these requirements helpful? Are the LECs in Illinois
    implementing similar requirements? If so, is the problem that the
    vendors are gaming the requirements or that the LECs aren't
    sufficiently policing compliance and/or auditing submissions?
        Answer. Technically, all that one needs is the billing telephone
    number. That is what the billing aggregator transmits to the LEC to
    effectuate the billing.
        The LECs say they follow various procedures to check out potential
    customers before allowing them onto the billing platform and have
    various rules about marketing that its clients are required to follow.
    Some of the LECs' procedures and rules are relatively new, implemented
    as recently as 2010.
        The overarching problem of deceptive sales pitches remains.
    Consumers do not understand they are making a purchasing decision, or
    that they will be billed on their telephone bill.
        If someone thinks he is filling out an entry form for a chance to
    win a flat screen TV or a DVD player, he provides certain information
    for that purpose, including the information the LECs say they require.
    If a small business owner or not for profit company or church, or a
    receptionist who works for one of these entities answers the phone and
    accepts what he thinks is an offer for a free yellow pages listing, or
    an update to an existing yellow pages listing, or to receive written
    information about an offer, he is going to be willing to provide some
    contact information for that purpose. All of these scenarios involve
    obtaining the required information from someone who, because of a
    deceptive sales pitch, has no idea that he is making a purchasing
    decision, much less authorizing billing on his phone bill.
        As for verifying the name, address, and phone number through LEXIS
    or a similar service, that may serve to cut back on specific types of
    cramming. For example, where someone (someone who works for the vendor,
    or a lead generator for the vendor) submits to the vendor a name,
    telephone number, and address that are completely fabricated, running
    the order through a LEXIS-type service may help identify these orders
    as fraudulent because the name, address, and telephone number may not
    match up. Those non-matching orders can be rejected. However, if the
    vendor or lead generator has access to any public record data base, of
    which there are many, it can falsify orders easily with matching
    information that would not be detected by running them through LEXIS.
        As for the requirement to obtain explicit consent and documentation
    of that consent, my experience is that requirement is not meaningfully
    implemented or policed. As I indicated in my testimony, I have seen
    numerous deceptive sales pitches disseminated via a variety of
    marketing methods.
        The LECs and the billing aggregators both claim to review marketing
    materials, but as I indicated, based on investigations that my office
    has done, it does not appear that any real review is taking place. I
    have requested marketing materials from billing aggregators for
    specific vendors, and have found deceptive telemarketing scripts and
    Internet sign up portals that aren't even actually used for customer
    sign up. The billing aggregator in some cases does not seem to know
    what the sign up page looks like online or have screen shots.
        On top of suspicious marketing materials, it does not appear that
    anyone is checking to see whether vendors are marketing as they
    represented, or whether the actual sales pitches as implemented follow
    basic consumer and advertising law principles of disclosing material
    terms and conditions clearly and conspicuously.
        As I stated in my testimony, deceptive sales pitches for products
    and services that no one wants or agreed to pay for at all, let alone
    via his telephone bill, have been occurring for over a dozen years. No
    set of best practices has fixed it, and no amount of law enforcement
    suits can fix it. This problem will not go away until LEC billing goes
    away.
                                     ______

       Response to Written Questions Submitted by Hon. Amy Klobuchar to
                                  Elliot Burg
        Question 1. In your testimony you mentioned that wireless anti-
    cramming rules would differ from those intended to combat wireline
    cramming. One potential measure you suggested was an automatic block on
    third party charges that consumers could opt out of if they so choose.
    Do you think we need better rules to protect wireless consumers from
    being crammed?
        Answer. In a word, yes. Third party billing on wireless telephone
    bills is a largely unregulated area of commerce in a growing market;
    and despite the fact that at present, most cramming complaints concern
    landline bills, a not insignificant percentage of cramming complaints
    arise in the wireless sector.
        For example, the Federal Communications Commission (``FCC'') has
    reported that 16 percent of the cramming complaints it received in
    2008-2010 involved wireless cramming.\1\ In 2010, approximately 10
    percent of the cramming complaints received by the Federal Trade
    Commission (``FTC'') occurred in the wireless environment.\2\ The
    comparable figures for wireless cramming complaints received by the
    California Public Utilities Commission in 2009-2010,\3\ the Florida
    Attorney General's Office in 2006--March 2011,\4\ and the Vermont
    Attorney General's Office in 2005-2011, were 5 percent, 24 percent, and
    16 percent, respectively. In addition, as noted in the Commerce
    Committee's recent staff report on cramming, earlier this year the
    State of Texas and Verizon Wireless filed separate lawsuits against
    defendants accused of large-scale cramming to consumers' wireless
    bills.\5\
    ---------------------------------------------------------------------------
        \1\ FCC, Notice of Proposed Rulemaking, In the Matter of Empowering
    Consumers to Prevent and Detect Billing for Unauthorized Charges
    (``Cramming'') (CG Docket No. 11-116), Consumer Information and
    Disclosure (CG Docket No. 09-158), and Truth-in-Billing and Billing
    Format (CC Docket No. 98-170) (``FCC NPRM''), at 4 n. 11 (July 12,
    2011).
        \2\ Id.
        \3\ Id. at 12.
        \4\ E-mail from Keith P. Vanden Dooren, Special Counsel, Office of
    the Florida Attorney General, Economic Crime Division (Aug. 9, 2011).
        \5\ Senate Committee on Commerce, Science, and Transportation,
    Office of Oversight and Investigations, Majority Staff Report for
    Chairman Rockefeller, Unauthorized Charges on Telephone Bills, at 6
    (July 12, 2011).
    ---------------------------------------------------------------------------
        The long-term impact of wireless cramming should also be considered
    in light of the current growth of mobile commerce, which sector is
    expected to reach $31 billion by 2016.\6\ As more Americans opt to use
    their mobile phones to pay for phone-related goods and services such as
    games, apps, ringtones and wallpapers, as well as for unrelated
    consumer goods,\7\ the potential for fraud may well increase.
    ---------------------------------------------------------------------------
        \6\ AOL Tech, ``Forrester: U.S. Mobile Commerce To Reach $31
    Billion By 2016,'' http://techcrunch.com/2011/06/17/forrester-u-s-
    mobile-commerce-to-reach-31-billion-by-2016/.
        \7\ See, e.g., Rimma Kats, ``Office Depot expands mcommerce reach
    via business app,'' http://www.mobilecommercedaily.com/ (describing how
    retailer is now offering a mobile application designed to allow its
    contract customers to ``browse, research, buy and approve office supply
    orders via their smartphones'').

        Question 2. What would this legislation look like compared to
    wireline legislation?
        Answer. Given the likelihood that many wireless subscribers are
    aware of--and may desire--the availability of their mobile phone
    account to pay for unrelated goods and services, it does not seem
    appropriate to prohibit third-party charges, as has been done by
    statute in Vermont for landline bills. However, there are a number of
    steps short of a ban that could be taken to ensure that consumers are
    not crammed on their wireless bills. These include:

       Most effectively, blocking such charges unless and until the
            consumer opts out of the block. The need to opt out before
            being charged will ensure that consumers are informed of the
            potential for being charged, and that only those consumers who
            agree to the use of their wireless bill for that purpose will
            be subject to such charges.

       Introducing an ``adjust first'' requirement, whereby
            wireless companies must issue credits immediately to all
            customers with cramming complaints, but can then seek
            reimbursement from the aggregator or third-party merchant.

       Requiring a ``double opt-in,'' perhaps with a PIN, whereby
            consumers must give consent once, and then separately confirm
            their consent, before being billed by a third party.

       Requiring that wireless companies periodically report on the
            cramming complaints they have received to a designated
            governmental agency, so that the extent of cramming can be
            gauged and cases of cramming investigated as appropriate.\8\
    ---------------------------------------------------------------------------
        \8\ California's Public Utilities Commission recently required
    wireless carriers and billing aggregators to report the cramming
    complaints received by their customers. See FCC NPRM at 11.

       Imposing strict liability on billing aggregators, and some
            form of liability on carriers, that extend beyond simply
            restoring consumer losses due to wireless cramming. Vermont law
            now renders billing aggregators potentially liable for consumer
            restitution and civil penalties when their merchant-clients
            violate the ban on third-party charges on local (landline)
            telephone bills. Extending such liability to the wireless
            environment, and in some form to wireless carriers, should
            incentivize those companies to screen the merchants whose
    ---------------------------------------------------------------------------
            charges they propose to facilitate.

        Other measures, such as prominent billing disclosures and mandatory
    due diligence by wireless companies in screening merchants before
    third-party charges are applied, might also be considered, but I
    believe they are much less likely to prevent cramming than the
    recommendations described above.

        Question 3. In the last decade, state attorney generals and federal
    authorities have charged cramming companies with bilking consumers out
    of tens of millions of dollars. Do you believe that we are getting the
    bad actors or is the problem so large that enforcement actions will
    only address a small percentage of the illegal activity going on?
        Answer. I believe that law enforcement agencies are seeing, and
    reaching, only the tip of the iceberg, in several senses. First, the
    number of third-party merchants whose charges appear on consumers'
    local telephone bills is very large, and there is no way that any
    single state attorney general's office, group of AGs' offices, or
    federal agency can take legal action against most of them. Second, the
    resources available to state law enforcement agencies are limited; even
    if one state, or several states, take action against a cramming
    merchant, that company may avoid sanctions, and continue to do its
    customary business, in the rest of the country. Third, it is in any
    event difficult for law enforcement agencies to make consumer victims
    entirely whole, returning to them all the money they have lost;
    although Vermont has made full restitution a priority in its
    settlements with third-party merchants, there is a substantial risk
    that insisting on such an outcome in other cases will cause the
    merchants to refuse to settle, leaving the government with no option
    but resource-intensive litigation (and a diminished capacity to pursue
    other wrongdoers).
                                     ______

         Response to Written Questions Submitted by Hon. Mark Pryor to
                                  Elliot Burg
        Question 1. Do you believe Federal legislation regarding cramming
    is needed? What provisions would you advocate that potential
    legislation include and why?
        Answer. Yes, and I think specifically that federal legislation,
    initially in the area of landline billing, holds the potential for
    extending to the Nation the kind of protection of consumers from
    cramming that Vermont has introduced at the state level.
        By way of explanation, as noted in my oral and written testimony
    before the Commerce Committee, the level of consumer awareness about
    third-party charges on local telephone bills is very low; and the
    incidence of cramming is very high. Specifically, the ongoing
    investigation of cramming by the Vermont Attorney General's Office
    found--among other things--that only an estimated 27.4 percent of
    consumer survey respondents whose local telephone bills contained a
    third-party charge noticed the charge even within the first 3 months of
    its appearance on their telephone bill; and fully 89.5 percent stated
    that they had not agreed to be charged for the third-party services
    that appeared on their bill. In fact, a number of these consumers
    stated that they had no reason to order the services for which they
    were charged, giving such explanations as, ``[I] have an answering
    machine [and so] would never use this service,'' ``I had voice-mail
    from the phone company [and] did not need [another service],'' and
    ``[I] can't imagine agreeing to voice-mail since we have always had a
    personal voice recorder.''
        In light of numbers such as these, it is unreasonable to expect
    consumers to scrutinize their phone bills for unexpected charges.
    Indeed, a ten-year statutory requirement in Vermont that third-party
    merchants mail to consumers and businesses a free-standing notice of
    upcoming charges on their local phone bill . . . now supplanted by the
    state's outright ban on such charges . . . was ineffective in creating
    a high level of awareness of such billings or a low level of cramming.
    Whether consumers did not read or understand the notices, or merchants
    did not actually send them, or the possibility of an unrelated charge
    assessed on a local phone bill was just beyond most people's reasonable
    expectation . . . this serious attempt to use disclosure to cure
    cramming did not work.
        By contrast, the simplest, and most effective, way to address
    cramming in the landline context is to prohibit third-party charges,
    with reasonable but narrow exceptions, such as direct dial or dial-
    around services initiated from the subscriber's telephone, and
    operator-assisted and collect calls. This approach, adopted in May 2011
    by statute in Vermont, takes into account the overwhelming lack of
    consumer awareness of the potential for third-party charges on local
    phone bills but also leaves merchants free to bill consumers through
    the more familiar channels of credit cards, debit cards, checks,
    electronic funds transfers, and PayPal.

        Question 2. You are an advocate for a ban on third party billing on
    telephone bills. Can you explain how you arrived at this course of
    action?
        Answer. To clarify, the State of Vermont has instituted a ban on
    most third-party charges to landline bills. The rationale underlying
    that measure is set out in my response to no. 1.

        Question 3. Do you believe there are legitimate uses of third party
    billing that should be exempted from a comprehensive ban? If so, what
    are they?
        Answer. Vermont law contains the following exemptions from its
    prohibition on third-party charges on landline bills, which represent
    types of charges that lawmakers believed consumers could reasonably
    expect to appear on their local telephone bill:

       Billing for goods or services marketed or sold by a company
            subject to the jurisdiction of the Vermont Public Service Board
            (the state utilities regulator);

       Billing for direct dial or dial-around services initiated
            from the consumer's telephone; and

       Operator-assisted telephone calls, collect calls, and
            telephone services that facilitate communication to or from
            correctional center inmates.

        Question 4. How best can we separate the good actors in this market
    who play by the rules from the bad actors that do not?
        Answer. In the third-party merchant world, the good actors are
    either companies that sell services that consumers reasonably expect
    may be charged on their local telephone bills, or companies that choose
    some other billing method that consumers reasonably expect may be used,
    such as a credit or debt card. Merchants that use a billing method that
    runs counter to normal expectations are, I would submit, not good
    actors.
                                     ______

        Response to Written Question Submitted by Hon. Kelly Ayotte to
                                  Elliot Burg
        Question. Vermont clearly has a very aggressive law on cramming.
    What are some of the difficulties you Ace in your enforcement actions
    against the practice of cramming?
        Answer. As noted in my response to Senator Klobuchar, law
    enforcement agencies face several significant hurdles in their efforts
    to address landline cramming. These include the very large number of
    third-party merchants whose charges appear on consumers' local
    telephone bills, relative to the limited resources available to work
    the issue; the fact that only some states are in a position to take
    enforcement action, leaving other jurisdictions open to cramming; and
    the difficulties that exist in trying to make consumer victims entirely
    whole. Without a national ban on third-party charges to local landline
    bills, I believe that large numbers of American consumers will continue
    to be crammed, losses will continue to mount, and crammers will
    continue to profit.
                                     ______

       Response to Written Questions Submitted by Hon. Amy Klobuchar to
                                 David Spofford
        Question 1. You testified in last week's cramming hearing that your
    company is seeing an increase in wireless cramming charges. How
    drastically have these types of charges increased in the past few
    years? Please offer statistics.
        Answer. We have only begun to compile these numbers recently. I
    believe less than 5 percent of wireless invoices have cramming charges.

        Question 2. Do you believe stronger rules are or will be necessary
    to combat wireless cramming?
        Answer. It is too early to tell at this time.

        Question 3. How would these rules differ from wireline rules? What
    might that legislation look like?
        Answer. The banning of these charges in the wireless arena might
    have more unintended consequences for consumers and actually hinder
    convenience since there are more legitimate 3rd party charges for smart
    phones than for landline phones.

        Question 4. Your business exists to help other businesses sort
    though and minimize telecom charges and expenses, and one of your
    services is disputing third party charges placed on phone bills. How
    big a problem are cramming charges for your medium and small business
    clients?
        Answer. For landline customers, the problems are similar in medium
    size businesses. We don't serve small business clients for landline
    services.

        Question 5. Do these companies have the resources to go through
    their bills with a fine-tooth comb?
        Answer. No
                                     ______

         Response to Written Question Submitted by Hon. Mark Pryor to
                                 David Spofford
        Question. In your written testimony, you cited some eye opening
    statistics about the prevalence of cramming. What steps would you
    recommend for this committee to consider taking to address the problem?
        Answer. Respectfully, I really don't know. Taking away any carrier
    liability protection so that the carrier billing for the third party
    charges is not protected by tariffs or other liability limits might be
    a ``free market'' solution. The carriers often write and use tariffs to
    protect themselves from erroneous billing claims and other liability.
    Taking away this protection might force them to abandon the practice
    due to increased legal and financial exposure or to do a better job
    auditing and vetting the third party billers. The regulatory solution
    would be an outright ban. Unfortunately, this will create a precedent
    when you are confronted with similar challenges in wireless billing
    where third party charges are often legitimate--thus ``hurting''
    consumers by making services less convenient to pay for. The free
    market solution might be easier to universally apply. That being said,
    I have no training in law or legislation.
                                     ______

        Response to Written Questions Submitted by Hon. Kelly Ayotte to
                                 David Spofford
        Question 1. Mr. Spofford, if a company is made liable for
    fraudulent charges once notified by the consumer, should they also be
    responsible retrospectively?
        Answer. Yes. Unless the company (carrier or third party biller) can
    demonstrate with certainty that the consumer ordered the service being
    billed for, the company should be held liable for all prior charges.

        Question 2. Should companies only incur liability if they fail to
    audit or vet 3rd party billers?
        Answer. No. My understanding is that the carriers already claim to
    audit or vet 3rd party billers. This apparently hasn't worked. Unless
    carriers shoulder liability it seems unlikely they will perform
    adequate audits that only result in a decrease of profit to them.

        Question 3. Mr. Spofford, what is the typical experience you have
    with telephone companies and vendors when you have attempted to removed
    third-party charges from your clients' phone bills?
        Answer. Typically, removal of third party charges requires 2 to 3
    phone calls or transfers and possibly some follow-up calls if the
    removals/credits do not appear to be implemented in a timely fashion.

        Question 4. Can you give me some examples of how much money your
    clients were being cheated out of annually?
        Answer. The largest amount of improper third party billing for one
    Xigo Client was a total $140,514.

        Question 5. Were the unauthorized third-party charges always
    refunded?
        Answer. Unauthorized charges disputed by Xigo are normally stopped
    by the third party companies--however in some cases these charges
    continue for 2-3 months. Our statistics show that 93 percent of
    disputes were accepted and closed. However, generally, third parties
    are only willing to refund 2-3 months of charges.
                                     ______

       Response to Written Questions Submitted by Hon. Amy Klobuchar to
                            Walter B. McCormick, Jr.
        Question 1. Since all guidelines required by U.S. Telecom must be
    approved by representatives from telecom companies, each rule is
    essentially a voluntary measure. Cramming has been on the rise since
    the 1999 ``Truth-in-Billing'' guidelines were implemented. How would
    you suggest changing phone bill regulations to further clarify charge
    descriptions for consumers? How would you suggest mandating that
    telecommunications providers offer bills that clearly indicate third
    party charges, even if they stand to lose profits from the
    clarification?
        Answer. To be clear, the ``Truth-in-Billing'' Order adopted by the
    FCC in 1999 establishes mandatory obligations on carriers with respect
    to providing clear billing information to customers. These rules
    require telephone companies to have bills that:

            (i) are clearly organized, clearly identify the service
            provider, and highlight any new service providers;

            (ii) contain full and non-misleading descriptions of charges
            that appear therein; and

            (iii) contain clear and conspicuous disclosure of any
            information the consumer may need to make inquiries about, or
            contest charges, on the bill.

        To further clarify, the Anti-Cramming Best Practices Guidelines are
    not ``required by U.S. Telecom,'' which does not conduct programs
    involving standard-setting, certification, or auditing for the
    industry. Rather, these Best Practices Guidelines were developed and
    adopted by individual companies in response to a challenge issued by
    then-FCC Chairman Bill Kennard to reduce or eliminate the cramming
    problem. These voluntary industry best practices go beyond the FCC's
    ``Truth in Billing'' requirements with the aim of further preventing
    bad actors from obtaining access to the consumer's bill, identifying
    cases of fraud quickly, and simplifying and expediting consumers'
    ability to obtain refunds in those instances where they have paid
    unauthorized charges.
        We do not believe that bill format is the primary cause of
    unauthorized charges. As Illinois Attorney General Lisa Madigan's
    testimony acknowledged at the hearing, the industry's Best Practices
    Guidelines appeared to reduce the incidence of cramming until about
    three or 4 years ago. In response to an apparent rise in complaints in
    more recent years, many of our member companies have strengthened their
    practices to combat cramming. These companies have practices in place
    to clearly identify third party charges on subscriber bills, such as
    separate identification on the first page of the bill, separate billing
    page detailing all third-party charges, providing contact information,
    and noting new charges by an asterisk. Other controls, focused directly
    on aggregators and third-party providers, also appear to have been
    successful. AT&T, for example, achieved an 89 percent reduction in
    consumer cramming complaints in a 17-month period--from January 2010 to
    May 2011--following the imposition of audit requirements, financial
    penalties for each cramming complaint it receives, and more aggressive
    complaint thresholds.
        Bill clarity is important. It improves customer service by reducing
    the number of inquiries our companies receive. Bill quality, including
    clarity and absence of erroneous or unauthorized charges, is a major
    factor in overall customer satisfaction. As a result, telephone
    companies have a natural incentive to provide subscribers accurate and
    clear information on their bills.
        Having said all that, however, I reiterate the central point of my
    testimony: No consumer should be charged for a product or service that
    he or she has not actually and knowingly purchased, and the cramming
    problem has obviously persisted despite industry's efforts to combat
    it. On July 12, 2011, the day before the Senate Commerce Committee
    hearing on this issue, the FCC initiated a rulemaking proceeding that
    proposes new regulations to protect consumers from the illegal
    placement of an unauthorized fee or charge onto monthly phone bills.
    The FCC notice of proposed rulemaking proposes a number of intriguing
    and potentially promising new approaches to ending or at least
    minimizing the occurrence of cramming. Once the FCC publishes the text
    of its proposed rules in the Federal Register and announces a formal
    comment period, we expect that industry members and other interested
    parties will carefully and thoughtfully review those proposals and
    provide constructive input for the FCC's rulemaking process.

        Question 2. In your testimony you address levels of protection
    phone companies commonly use when dealing with new service providers.
    Even with contractual provisions, bad actors are continuing to find a
    way through protections. Are there penalties for phone companies or
    aggregators who cut corners when screening new actors? Though you refer
    to providing instant credit to a defrauded customer as ``common
    practice,'' do most companies actually require this credit?
        Answer. Although I cannot speak to the practices of each of the
    hundreds of local exchange companies (LECs) operating in the United
    States, the industry's leading companies do indeed impose penalties on
    aggregators who fail to properly screen new product or service vendors,
    as well as on the vendors themselves. As my testimony indicated, these
    LECs set complaint thresholds applicable to these parties and provide
    for suspension or termination of billing services if those thresholds
    are exceeded. Contracts with aggregators often include penalties to be
    paid by the aggregator for each complaint received. Companies are also
    looking to other measures to screen new and existing aggregators and
    providers. For example, AT&T requires aggregators to ``actively
    oversee'' the operations of service providers. The aggregators are then
    subject to annual audits. Based on the first set of audit reports, AT&T
    has identified both ``best practices'' and weaknesses in the operations
    of the aggregators. When weaknesses are identified, AT&T requires that
    they be corrected. Over time, AT&T expects the audit process to drive
    significant improvements in aggregator operations.
        It is also the policy of these companies to offer an instant credit
    to a customer who complains that a charge on his or her bill is not
    recognized or was not authorized. Although we recognize that among the
    many thousands of interactions our companies have with their customers
    on a daily basis the Committee may have uncovered instances in which
    that credit was not offered immediately, we believe that in the vast
    majority of cases, such charges are credited back to the customer
    promptly with no questions asked.

        Question 3. Your predecessor stated to Congress in 1998 that
    consumers must take more responsibility in examining their bills.
    Deceptive techniques are intentionally used to confuse customers into
    missing cramming charges. Do you believe it is reasonable to put the
    burden on the customer to catch vaguely identified charges on their
    personal phone bills?
        Answer. I cannot speak to the intent behind the statement of my
    predecessor described in your question, but based on my current
    understanding of this issue, I do not believe he meant to place the
    entire burden on the customer for identifying or catching vague or
    otherwise disguised charges on their phone bills. Rather, he seemed to
    be making the common-sense suggestion that consumers review their phone
    bills as carefully as they would any bill they receive--whether their
    monthly water or electric bill, or their grocery bill, or an insurance
    premium bill--to ensure they understand what they're being charged for
    and to challenge any item that appears questionable or suspicious.
    Indeed, both the FCC and FTC have issued consumer bulletins encouraging
    consumers to take the same steps. In the FTC's ``Facts for Consumers''
    and the FCC's ``Consumer Facts'' both agencies urge consumers to review
    their telephone bills for unauthorized charges. This is just good
    common-sense advice, and no one should consider it as intended to take
    the place of company steps to provide clear bills and aggressively
    working to prevent cramming in the first place.
        Existing truth-in-billing rules already require that ``the
    description must be sufficiently clear in presentation and specific
    enough in content so that customers can accurately assess that the
    services for which they are billed correspond to those that they have
    requested and received and that the costs assessed for those services
    conform to their understanding of the price charged.'' Our members
    review third parties' service descriptions before they approve the
    ``text phrases'' that appear on their bills, and they attempt to ensure
    that those text phrases are brief, clear, and non-misleading. It may be
    that companies need to provide consumers with additional information
    about third party billing availability and third party bill blocking.
    The Commerce Committee's current investigation, as well as the FCC's
    Notice of Proposed Rulemaking, has also raised awareness of the issue.
                                     ______

         Response to Written Question Submitted by Hon. Mark Pryor to
                            Walter B. McCormick, Jr.
        Question. Some of your members have been involved with settlements
    with Attorneys General over third party billing. To what extent have
    those agreed to conditions been incorporated into ``best practices''
    for your industry?
        Answer. Although I have not done an exhaustive study of the
    subject, I am aware of only one settlement by a member company of our
    Association with a State Attorney General. In that case, AT&T was
    required, in an agreement with the Florida Attorney General, to reduce
    the incidence of cramming complaints by its customers throughout its
    Southeast region. AT&T implemented a new and aggressive enforcement
    program in early 2010 and achieved an 89 percent reduction in consumer
    cramming complaints in the succeeding 17 months through May 2011,
    exceeding the requirements of its Florida settlement.
        Likewise, while crammers, scammers, and con artists have continued
    to find new and more sophisticated ways of evading detection, our
    leading member companies have continued to improve and tighten their
    own third-party billing practices to guard against consumer complaints.
    The ways in which those practices have evolved in recent years are
    spelled out more specifically in my written testimony. The testimony of
    Illinois Attorney General Madigan and Vermont Assistant Attorney
    General Burg indicated that the cases they have brought in this area,
    and the settlements or judgments they have obtained, involve billing
    aggregators and third-party vendors rather than local exchange
    companies.
                                     ______

        Response to Written Question Submitted by Hon. Kelly Ayotte to
                            Walter B. McCormick, Jr.
        Question. Mr. McCormick, as you know, in 1998 the FCC held a
    workshop on cramming and from that workshop, it developed the ``Anti-
    Cramming Best Practices Guidelines''. One of the recommendations in the
    guidelines is for the Local Exchange Carriers to provide law
    enforcement with data to help control and combat cramming. Can you
    expand a little on how your industry has been working with law
    enforcement and what improvement and changes you would recommend we
    make to better address cramming?
        Answer. I am assured by our large and midsize companies that they
    cooperate with law enforcement during investigations of cramming fraud
    and similar violations of law. For example, in response to subpoenas
    and legal requests, our member companies have in many cases provided
    billing data and information to assist in investigations by both state
    and federal agencies. Additionally, several of our members have also
    been engaged in regular dialogue with law enforcement on cramming
    issues in general, and they will continue to cooperate with law
    enforcement as an industry and on a case-by-case basis. Details
    regarding specific instances of cooperation with law enforcement are
    highly sensitive, as they could reveal tactics related to ongoing
    investigations. Accordingly, if you would like a private briefing from
    any of these companies to learn more about how they deal with law
    enforcement requests, we would be happy to help facilitate that.
                                     ______

                        Submitted Statements and Letters
                                                      Teletruth
                                                          July 14, 2011
                       Cramming and Mysterious Phone Fees
        We are glad to see that this Committee is again addressing
    ``cramming,'' usually defined as ``placing unauthorized third-party
    charges on consumers' telephone bills.'' However, ``Ramming'' is the
    major creator of ``mysterious phone fees'' and overcharging in America,
    impacting over 80 percent of all small business and residential
    customers, and costing $8-$10 billion in excess wireline-based local
    and long distance phone charges annually.

        ``Ramming''--The phone company you already have a relationship with
    is harming you, by not telling you the ``best option'' and putting you
    on the most expensive plan or on a service you can't even use, need or
    didn't even order.
        Unfortunately, neither ramming nor cramming is new.
        Bill Kennard, former Chairman of the FCC, stated, February 4, 1999
    http://transition.fcc.gov/Speeches/Kennard/spwek904.html.

            ``After receiving thousands of complaints about companies
            cramming all these strange and hard-to-understand charges on
            bills, we have taken action. We have proposed new guidelines
            for phone companies on how they can make phone bills simpler
            and easier to understand. We want to make it so that the
            statement sent to you each month is as clear and easy to
            understand as the nutrition label on a box of Wheaties.''

        According to the FCC, in 2011, 1 in 20 are impacted by cramming and
    it is usually a one-time fee, accounting for hundreds of millions of
    dollars annually.
        ``Ramming,'' however is the larger problem because it can cost a
    small business $500.00-$1,000.00 annually, $100.00-$500.00 for
    residential customers--and it can go on for years.
    ``Ramming'' Example
        In the front of our testimony we present a typical Verizon, New
    York small business grocer's bill with only 2 lines who has been
    ``rammed,'' put on 4 different packages that they do not use and claim
    in interviews they did not order. The bill shows two ``Centrex Plus
    Assumed Dial 9 (Custopak)'' services (which is a package of calling
    features that is supposed to replace a phone system and has features
    like ``call transfer'' and ``intercom'' ). Unfortunately, one line is a
    data-line, used for an ATM machine that can't use the features and
    can't ``intercom'' with the other line. This grocer was put on an
    unlimited plan for local, toll and long distance calling, where they
    make virtually no local, toll or long distance calls. This customer was
    overcharged over $1,000.00 a year.
        From school boards and police stations, restaurants and grocery
    stores, to non-profits or home offices, ramming of services is a fact
    of life. In our new research we documented various toll and long
    distance calling packages on phone lines that can't make calls,
    phantom-missing lines being charged, calling feature packages where the
    features can't be used, or paying for Internet-related services that
    the customer didn't order.
    There Is No Truth in ``Truth-In-Billing''
        It is no wonder that 80 percent of customers, both residential and
    small businesses, are being overcharged through ramming, cramming and
    slamming.
        We will be filing a new complaint to the FCC and FTC outlining over
    the 138 potential truth-in-billing and truth-in-advertising violations
    on just 1 Verizon New York small business bill, the affiliated
    advertising and web information surrounding the customers' charges,
    making it impossible to understand basic costs and services.
        Using this one Customer's bills and information supplied we found:
    (NOTE: The ``detailed'' phone bill in the front is only sent 3 times a
    year. Not one customer we interviewed knew there was a more detailed
    bill.)

       The ``Monthly'' bill is useless and is hiding under
            ``monthly service'' four rammed packages the customer did not
            need, want, order or can even use.

       Verizon does not give basic information, such as how many
            lines there are or what is on each line on either the monthly
            or ``tri-annual'' bills.

       There is no Rosetta Stone to understand how the myriad of
            taxes are applied.

       Under ``monthly service,'' taxes and surcharges are hidden,
            being double taxed or even triple taxed as in some cases they
            are made up or pass-through taxes the company should be paying.

       The long distance charges are ``made up'' as they do not
            reflect ALL of the long distance fees, taxes, and surcharges
            added, just two questionable ``PICC'' fees which were supposed
            to be removed a decade ago, that is taxed.

       Website: Verizon does not supply even basic, accurate
            information on what a ``basic'' POTS, (plain old telephone
            service), business line costs.

       Website: Verizon's packages never explain the actual costs
            of a service on either their website or even in customer
            presentations, leaving out 20-50 percent of the actual costs,
            or the costs after the promotion price leaves.

       Verizon, New York still uses the term ``FCC Line Charge,''
            which was considered a violation of TIB because it sounds like
            the charges goes to fund the FCC, but it is direct revenue back
            to the Verizon.

        These are just a few of hundreds of issues that make phone bills
    unreadable to the average customer, who just reads the front page total
    and pays their bills.
    ``Harvesting'' of Customers and the FCC Cover Up through Atrocious Data
        Related to ramming is ``Harvesting,'' where AT&T and now even the
    local phone companies are essentially raising rates continuously until
    the customer screams uncle and is pushed onto a more expensive package
    of services or is gouged.
        This practice has been focused on gouging low income, low volume
    users, including Lifeline customers and Seniors.
        The FCC has been claiming that they are ``data driven'' yet, how
    can the Agency be data driven when they don't use actual phone bills
    are the source materials for phone bill charges information, our they
    fail to collect industry-wide data via actual bill surveys?
        In short, the FCC's data on phone bill charges is atrocious and has
    covered over massive customer overcharging, We can say this without
    flinching as we've been critical about FCC phone charges data since our
    first complaint in 1994 and have been filing, in not only about truth-
    in-billing proceedings, but on cost of service issues, mistakes on
    bills, and the problems of using industry statistics. (In fact,
    Teletruth has its own web pages at the FCC in the ``Data Quality Act''
    section of the site.)
        Let me be specific. AT&T's has been ``harvesting'' customers, which
    started as a result of the FCC's decision to close down competition on
    the phone networks, including stopping then AT&T and MCI's ability to
    compete for local service.
        Today, AT&T's basic 1 minute long distance rate if you don't have a
    plan (or it expired) is now $.39 a minute, $.97 a minute for business.
    How many customers are paying that? How many customers have ``minimum
    usage'' fees, plan fees, made up taxes and make few, if any calls?
        Note: International calls without plans are truly gouged: France
    cost $3.25 a minute, United Kingdom is $2.82, Canada is $1.13, Japan is
    $3.76, and the Ukraine is $5.99 a minute.
        In 2004 and 2008 Teletruth, working with UCAN, a consumer group in
    San Diego, California collected hundreds of actual wireline, wireless,
    cable, broadband and Internet bills, then did follow interviews. Funded
    by a grant from the California Consumer Protection Fund, large segments
    of the population, including Lifeline customers, seniors and customers
    who `just pay their bills,' were being forced to pay continuously
    higher fees--customers paying $.50-$1.00 a minute for wireline long
    distance service was common. (Note: AT&T grandfathered a host of
    different plans with different pricing, minimum usage, etc.)
        The FCC claims that a 1 minute long distance or wireless call is
    $.05, and this is based on industry statistics with no reality to what
    customers are actually paying.

       Read Our California Phone Bill Survey Report

       http://www.teletruth.org/docs/UCANteletruth.pdf

       Read the Phone Bill Related Data Quality Complaints

       http://www.teletruth.org/docs/DQAphonecharges.doc

       To Read Our Report on AT&T Harvesting

       http://www.teletruth.org/docs/Dataqualityactharvesting.doc
    How to Fix the Problem?
        Chairman Bill Kennard in 1999 stated that he couldn't read the
    phone bill.

            ``A few months ago, my wife was going over our bills, and she
            called me over. `Honey, can you give me hand with this phone
            bill. I just don't understand all these charges.' I walked
            over, ready to make good use of hours of reading, countless
            briefings, and years of practicing communications law. And you
            know what? I didn't understand them either. . . . Now, if the
            Chairman of the FCC can't understand his phone bill, then
            there's a problem.''

        He added that phone bills would get ``more confusing.''

            ``In the next few years, these bills have the potential to get
            even more confusing as more and more of us will be buying more
            advanced services from a huge array of companies. That is why
            it is imperative that bills are clear and easy to read. It is
            imperative that nothing is crammed onto them that you don't
            want or don't understand. You should be able to read your bill
            and know what you're paying for.''
    What Should Be Done?
        Have us testify about ramming and read our books: Teletruth has
    just released our two volume set, ``Survival Guide & Workbook for
    Residential & Small Business Wireline & Wireless Telecommunications''
    to help the phone customers examine their bills for potential mistakes
    and overcharging on their Verizon, AT&T and other phone bills that
    could lead to refunds or future savings.

       ``Secrets of Your Phone Bills: Have You Been Rammed, Slammed
            Or Crammed By Your Phone Company and are Owed Money?''

       ``Teletruth's Step-by-Step, Auditing Your Phone Bills for
            Refunds & Savings Workbook''

        We wrote them because right now $8-$10 billion dollars of
    overcharging has been and will be placed on customers' phone bills
    during 2011 and neither the FCC nor Congress has a clue about how to
    fix these problems, or has investigated our claims over the last two
    decades.
        If Congress is serious about this, there are a host of steps it
    could take immediately to fix the problems of unreadable phone bills
    and customer overcharging. When we testify we will be glad to outline
    them or you can read about them in our new publications.
    About Teletruth
        Teletruth is a nationwide, customer advocacy group created to
    defend the rights of all customers, residential and businesses alike.
    Tom Allibone, Teletruth's Director of Auditing is a 40 year telecom
    veteran having started at AT&T and has been offering forensic phone
    bill auditing services for decades, recovering millions for customers.
    Bruce Kushnick, Executive Director of New Networks Institute, has been
    a visionary telecom analyst for 30 years, working with the industry
    leaders to deploy new services, such as the first 3 digit information
    service (like 311), in 1992, to examining and tracking the impacts the
    progeny of Ma Bell has had on broadband deployment, economic growth and
    customers' pocketbooks.
        Working as a team, Teletruth has helped to create multiple class
    action suit settlements, acted as ``expert witnesses'' and was on the
    FCC Consumer Advisory Committee. Teletruth is not funded by and is not
    affiliated with any political party or corporation.

    Bruce Kushnick,
    Chairman, Teletruth.
    Executive Director, New Networks Institute.
    bruce@teletruth.org
    http://www.teletruth.org
                                     ______

                                                Consumers Union
                                                          July 13, 2011
    Hon. John D. Rockefeller IV,
    Chairman,
    Committee on Commerce, Science, and Transportation
    U.S. Senate
    Washington, DC.
    Hon. Kay Bailey Hutchison,
    Ranking Member,
    Committee on Commerce, Science, and Transportation,
    U.S. Senate
    Washington, DC.

    Re: Unauthorized Charges on Telephone Bills: Why Crammers Win and
                Consumers Lose

    Dear Chairman Rockefeller and Ranking Member Hutchinson:
        Consumers Union, the nonprofit publisher of Consumer Reports
    magazine, writes to express support of the Committee on Commerce,
    Science, and Transportation's upcoming hearing on unauthorized
    telephone billing or ``cramming.''
        Cramming presents a significant threat to consumers. Consumer
    Reports  reported on the experience of John Arwe, a computer
    programmer who found a $15 charge on his Verizon bill for voice mail
    and, again, a pair of $8 charges for voice mail. He never authorized
    either and spent over twenty hours getting the charges from the third
    party billers and aggregators removed.
        The Federal Communications Commission has indicated also that
    roughly 20 million Americans are victimized annually by unscrupulous
    companies which illegally insert consumer bills with these
    unauthorized, cryptic charges. So duplicitous are the methods used by
    the third party billers and aggregators who engage in cramming that
    only around 5 percent of those consumers are even aware they are being
    defrauded.
        It is evident that cramming is a wide-spread threat to consumers.
    Effective regulation of cramming is vital in order to protect consumers
    from unauthorized charges. We look forward to working with Congress to
    address the unfair and misleading practices employed by companies that
    profit from the practice of cramming.
                Respectfully Submitted,
                                                Parul P. Desai,
                                                        Policy Counsel,
                                                           Consumers Union.
                                     ______

                                      National Consumers League
                                                          July 13, 2011
    Hon. John D. Rockefeller IV,
    Chairman,
    Committee on Commerce, Science, and Transportation,
    U.S. Senate,
    Washington, DC.

    Dear Chairman Rockefeller:

        The National Consumers League \1\ (NCL) would like to take this
    opportunity to thank you for convening today's hearing on stopping
    *cramming,* the placement of unauthorized charges on consumers* monthly
    phone bills. For too long, cramming has bedeviled American
    telecommunications consumers. You and the members of the Commerce
    Committee are to be applauded for your leadership in bringing attention
    to this important issue.
    ---------------------------------------------------------------------------
        \1\ The National Consumers League, founded in 1899, is America's
    pioneer consumer organization. Our mission is to protect and promote
    social and economic justice for consumers and workers in the United
    States and abroad. For more information, visit www.nclnet.org.
    ---------------------------------------------------------------------------
        For more than a decade, NCL has sought to raise consumer awareness
    about cramming. Despite vigorous consumer education efforts by
    governmental agencies and non-profit groups, cramming continues to be a
    lucrative crime. The FCC estimates that 15 to 20 million American
    households receive crammed charges on their wireline phone bills each
    year.\2\ Voluntary efforts by the telecommunications industry and
    billing aggregators to address the issue have been largely
    unsuccessful. We believe that now is the time to take concrete steps to
    rein in cramming scams by prohibiting, with few exceptions, third-party
    billing on wireline phone bills and by giving regulators better tools
    to crack down on crammers.
    ---------------------------------------------------------------------------
        \2\ ``Cramming: The practice of placing charges on your telephone
    bill for unauthorized products or services,'' Federal Communications
    Commission fact sheet. Online: http://transition.fcc.gov/
    Daily_Releases/Daily_Business/2011/db0620/DOC-307726A1.pdf.
    ---------------------------------------------------------------------------
    Cramming is a Significant Crime with Real Victims
        Cramming is a significant problem for consumers for a number of
    reasons. First, identifying mistakes in a phone bill requires careful
    perusal of multi-page phone bills to identify suspicious charges. Even
    when reviewing a printed monthly phone bill, a small charge of $2.99
    can get lost among regulatory fees, taxes and other legitimate line
    items. Descriptions of the services also act to confuse consumers, with
    some examples including, ``voice online, dial forward, dial flex, plan
    plus, network one, call advantage, custom call, and value plan.'' \3\
    Today, with telephone bills increasingly paid electronically via
    ``paperless'' initiatives, the chances of a consumer catching erroneous
    charges are smaller than ever. It is therefore unrealistic to expect
    consumers to go line by line through their phone bills on a regular
    basis. Crammers are well aware of this tendency and in fact depend on
    it. According to a Federal Trade Commission (FTC) survey, only one in
    twenty victims of cramming were aware that they were being
    defrauded.\4\
    ---------------------------------------------------------------------------
        \3\ Comments of Beth Blackston, FTC workshop on cramming, May 11,
    2011. Pg. 27. Online: http://www.ftc.gov/bcp/workshops/cramming/
    10511phoneworkshop.pdf.
        \4\ FTC v. INC21.com Corp., (N.D. CA 2010).
    ---------------------------------------------------------------------------
        Even when a consumer does identify a suspicious charge, it is often
    difficult to resolve the situation. For example, Joe Ticich, a consumer
    in West Virginia, recently noticed an erroneous charge of $15.22 from a
    company called Main Street Telephone on his Verizon home telephone
    bill. The charge reappeared on his phone bill even after both Verizon
    and Main Street Telephone assured Ticich that the charge had been
    rectified.\5\ Main Street Telephone was later ordered to return more
    than $4.2 million in fraudulent payments.\6\ Mr. Ticich is not alone. A
    recent Federal Communications Commission investigation noted a woman
    from Missouri who filed a complaint after she learned she had paid
    unauthorized charges unnoticed for 25 months.\7\
    ---------------------------------------------------------------------------
        \5\ Susanna Kim, ``How to spot and prevent unauthorized phone
    bills,'' ABC News, June 21, 2011. http://abcnews.go.com/Business/95-
    percent-victims-detect-unauthorized-charges/story?id=
    13892850.
        \6\ FCC press release, ``FCC chairman Genachowski unveils new
    actions to help consumers prevent & identify mystery fees* on phone
    bills, known as `cramming,' '' June 20, 2011. Online: http://
    transition.fcc.gov/Daily_Releases/Daily_Business/2011/db0620/DOC-
    307732A1.pdf.
        \7\ FCC press release, ``Cramming & Consumers: How the FCC is
    fighting unauthorized ``mystery fees'' on phone bills,'' June 20, 2011.
    Online: http://transition.fcc.gov/Daily_Releases/Daily_Business/2011/
    db0620/DOC307728A1.pdf.
    ---------------------------------------------------------------------------
        Second, the crammers themselves have perfected methods for gaming
    the system to keep their fraud undetected. Last year, a Federal Trade
    Commission investigation uncovered a scheme 5 years running, where two
    San Francisco brothers, Roy and John Lin, made over $37 million through
    cramming charges. The brothers employed telemarketers to call consumers
    and ``verify'' their addresses, only to use recordings of the phone
    calls as ``proof'' of authorization for later charges. The FTC even
    found that only 5 percent of those billed in this case knew about the
    charges.\8\
    ---------------------------------------------------------------------------
        \8\ ``Court Permanently Shuts Down Massive Cramming Operation,''
    Federal Trade Commission press release. Sept. 30, 2010. Online: http://
    www.ftc.gov/opa/2010/03/inc21.shtm.
    ---------------------------------------------------------------------------
        Cramming is a problem that affects businesses as well as individual
    consumers. Beth Blackston, an Assistant Attorney General for the State
    of Illinois, recently described one example where 9,842 phone company
    customers had received charges on their phone bills for credit repair
    services, typically considered a service for individuals, not
    businesses. Victims included a Steak 'n Shake restaurant, a county
    coroner's office, a Super 8 lodge, and the story line of the local
    public library.\9\
    ---------------------------------------------------------------------------
        \9\ Comments of Beth Blackston, FTC workshop on cramming, May 11,
    2011. Pg. 27. Online: http://www.ftc.gov/bcp/workshops/cramming/
    10511phoneworkshop.pdf.
    ---------------------------------------------------------------------------
        Despite industry efforts to reign in cramming, third-party billing
    remains an avenue to consumers* pocketbooks that is rife with fraud.
    Except in a very few circumstances, we believe that there is little
    reason why a consumer would want to be billed by a legitimate third-
    party service provider on their wireline telephone bill. Indeed, a FCC
    investigation found that only 20 out of 17,384 consumers actually used
    the third-party service for which they were billed. The same
    investigation found that just 22 of the 18,571 consumers charged for
    dial-around long distance actually used the service, a usage rate in
    both cases of roughly 0.1 percent.
    State Anti-Cramming Efforts Are a Template for Federal Protections
        Across the country, twenty-five states have implemented legislation
    related to cramming. These laws vary greatly in scope, from difficult-
    to-enforce general prohibitions to more comprehensive laws that
    effectively end fraudulent third-party billing.
        We urge the Committee to consider the unique approach taken by the
    state of Vermont where new anti-cramming legislation uniquely positions
    that state to end this scam for good. The Vermont law generally
    prohibits third-party billing, unless the third party (1) is subject to
    the jurisdiction of the Vermont Public Service Board including phone
    companies that market television and Internet services, (2) is a direct
    dial service or dial-around service initiated from an individual's
    telephone, or (3) is an operator assisted call, collect call, or
    service for inmates making calls.
        For some time, opponents of anti-cramming legislation have pointed
    to legitimate third-party services that should be allowed. Some third-
    party service providers, billing aggregators and telecommunications
    carriers have taken steps to make fraud less likely. Still the FCC's
    finding that virtually no consumers used the third-party services for
    which they were billed coupled with so many examples of abuse over the
    last decade, suggest that any solution other than that enacted in
    Vermont is insufficient to address the problem.
        In light of the potential for continued cramming abuses, we urge
    that FCC and FTC oversight over third-party billing be strengthened. In
    this area, we recommend that the Committee consider the new rules
    adopted by the California Public Utilities Commission (CPUC) last year.
    Under these new rules, the CPUC requires billing aggregators to submit
    quarterly reports that indicate (1) refunds they made to their
    customers in response to cramming complaints, and (2) third-party
    services they suspended or terminated from access to third-party
    billing. The new rules also require explicit permission from customers
    before allowing third-party charges and require billing aggregators to
    provide consumers with a no-cost option to block or limit third-party
    offerings.\10\
    ---------------------------------------------------------------------------
        \10\ ``CPUC Strengthens Consumer Protections Against Cramming and
    Fraud on Telephone Bills.'' California Public Utilities Commission
    press release. October 28, 2010. Online: http://docs.cpuc.ca.gov/
    PUBLISHED/NEWS_RELEASE/125716.htm.
    ---------------------------------------------------------------------------
        While these rules do not immediately prevent cramming and continue
    to put the onus on consumers to study their monthly phone bills
    carefully, these reporting requirements are critical both for
    determining the efficacy of anti-cramming measures and for indicating
    to consumers those third-party billers they should avoid due to known
    violations. Strong oversight and reporting are thus critical components
    to any future anti-cramming legislation.
    Solutions To Cramming Are Within Reach
        Consumers should never be billed for services they do not want or
    did not request. For over a decade, consumer groups have called on
    telecommunications carriers to notify customers in advance of billing
    for services, to clearly describe services on phone bills, and to
    provide customer service that is focused on clearing erroneous charges.
    Despite these efforts, cramming remains a fraud that regularly affects
    millions of Americans.
        The evidence of a significant cramming problem is clear. We call on
    the committee to take a tough stand against crammers, to recognize that
    third-party billing is generally not consumer-friendly, and that the
    FCC, FTC and consumers need more tools to address the problem. With
    Vermont's new law and the CPUC's cramming regulations as a template, a
    workable solution that protects consumers is within reach.
        Thank you for your attention to this issue. We look forward to
    answering any questions you or your colleagues on the Senate Commerce
    Committee may have.
                Sincerely,
                                               Sally Greenberg,
                                                    Executive Director.
    cc: The Honorable Kay Bailey Hutchison, Ranking Member
                                     ______

       National Association of Regulatory Utility Commissioners
                                                          July 12, 2011
    Hon. John D. Rockefeller IV,
    Chairman,
    Committee on Commerce, Science, and Transportation,
    Washington, DC.
    Hon. Kay Bailey Hutchison,
    Ranking Member,
    Committee on Commerce, Science, and Transportation,
    Washington, DC.

    Re: Senate Commerce Committee Hearing on Unauthorized Charges on
                Telephone Bills: Why Crammers Win and Consumers Lose--July
                13, 2011

    Dear Chairman Rockefeller and Ranking Member Hutchison:

        On behalf of the National Association of Regulatory Utility
    Commissioners (NARUC), we are writing to commend your investigation
    into and hearing on cramming issues. This issue continues to affect
    consumers despite unprecedented technological advancements in the
    telecommunications space marketplace and focused Federal and State
    enforcement activity.
        NARUC represents the government experts from each of your States,
    U.S. Territories, and the District of Columbia on, among other things,
    telecommunications utilities. These public utility commissions know and
    understand local markets and conditions. They excel at responsive
    consumer protection, handling new abuses, and enforcing federal
    standards where appropriate. NARUC members share your concern with
    fraudulent or deceptive billing practices that harm consumers.
        As early as 2002, NARUC adopted a resolution concerning
    Telecommunications Consumer Bill of Rights (text attached). The
    resolution, among other things, affirmed ``consumers should have a
    right to receive clear and complete information about rates, terms and
    conditions for available products and services, and to be charged only
    according to the rates, terms and conditions agreed to'' and called for
    consumers to have ``fair, prompt and courteous redress for problems
    they encounter.''
        NARUC members receive and resolve thousands of cramming complaints
    every year returning hundreds of thousands of dollars to consumers as a
    result of their actions. Cramming is a prime example of States working
    hand in glove with their federal partners at the Federal Communications
    Commission (FCC) and Federal Trade Commission (FTC). Indeed, a December
    2009 GAO report (http://www.gao.gov/new.items/d1034.pdf) on wireless
    oversight by the FCC touted the obvious benefits of coordinated federal
    and state action. Consumers only benefit from a continuation of that
    collaborative enforcement partnership.
        Despite these efforts, it is clear that cramming remains a problem.
    This demonstrates how ``bad actor'' problems cannot be handled by
    market forces alone and how changes in technology don't necessarily
    change or resolve consumer concerns.
        We appreciate your leadership on this important issue. NARUC stands
    willing to work with Congress, the FCC, FTC and other stakeholders to
    address this and other consumer concerns.
        If you have questions about NARUC's positions or would like to
    discuss it further, please contact NARUC Legislative Director Brian
    O'Hara at (202)898-2205, bohara@naruc.org or NARUC General Counsel Brad
    Ramsay at (202)898-2207, jramsay@naruc.org.
                Sincerely,
                                           Tony Clark, President, NARUC
                     John Burke, Chair, Committee on Telecommunications

    cc: Members of the Commerce, Science, and Transportation Committee
            Resolution on Telecommunications Consumer Bill of Rights
        WHEREAS, The past decade has been witness to a rapid evolution in
    the telecommunications industry, not only in the technology the
    industry employs, but also in the industry's structure, the mix of
    services provided, and the way services are provided to consumers; and
        WHEREAS, Many of what were once monopoly services are increasingly
    available from competing providers, and regulatory policies have
    likewise been evolving in ways aimed at enabling and promoting
    competition to foster the benefits competition has promised to provide;
    and
        WHEREAS, It was once envisioned that competition would result in
    lower levels of consumer abuse and fraud, but the contrary has proven
    true; and
        WHEREAS, Consumers are now exposed to unprecedented levels of
    consumer abuse and fraud in many segments of the market, including
    segments that previously experienced only occasional examples of such
    problems; and
        WHEREAS, With the emergence of competition and the deployment of
    new telecommunications technologies, general consumer protection rules
    that were developed under monopoly conditions may in some respects be
    no longer adequate to protect small consumers. Consumers require
    protection against abusive practices in the marketing and provisioning
    of both old and new types of telecommunication services; and
        WHEREAS, Such changes in the telecommunications industry suggest
    that it would be timely for regulatory bodies to review the general
    rules protecting consumers and determine whether new rules using a new
    format should be developed; and
        WHEREAS, A Consumer Bill of Rights can be a useful vehicle to
    educate consumers and guide the revision of existing consumer
    protection rules and/or establish new rules applicable to all regulated
    telecommunications carriers that provide service to residential and
    small business consumers; and
        WHEREAS, Fundamental rights of consumers should include rights to
    disclosure, choice, privacy, participation in public policy
    proceedings, enforcement, accurate bills, freedom from discrimination,
    and safety; now therefore be it
        RESOLVED, That the Board of Directors of the National Association
    of Regulatory Utility Commissioners (NARUC), convened at its July 2002
    Summer Meetings in Portland, Oregon, urges that a Consumer Bill of
    Rights for consumers of telecommunications services be developed for
    the protection of all residential and small business telecommunications
    consumers, regardless of their provider of such services, and should
    include the following:

            1. Disclosure: Consumers should have a right to receive clear
            and complete information about rates, terms and conditions for
            available products and services, and to be charged only
            according to the rates, terms and conditions they have agreed
            to, and that reasonable notice is given prior to an increase in
            rates or more restrictive terms or conditions; and

            2. Choice: Consumers should have a right to select their
            services and vendors, and to have those choices respected by
            industry; and

            3. Privacy: Consumers should have a right to personal privacy,
            to have protection from unauthorized use of their records and
            personal information, and to reject intrusive communications
            and technology; and

            4. Public Participation Enforcement: Consumers should have a
            right to participate in public policy proceedings, to be
            informed of their rights and what agencies enforce those
            rights, and to have effective recourse if their rights are
            violated; and

            5. Accurate Bills and Redress: Consumers should have a right to
            accurate and understandable bills for products and services
            they authorize, and to fair, prompt and courteous redress for
            problems they encounter; and

            6. Non-Discrimination: Every consumer should have the right to
            be treated equally to all other similarly situated consumers,
            free of prejudice or disadvantage; and

            7. Safety: Consumers should have a right to safety and security
            of their persons and property; and be it further

        RESOLVED, That NARUC urges both the Federal Communications
    Commission and individual state commissions to consider adoption of
    comprehensive and effective rules to implement these rights which do
    not preempt the ability of the states to promulgate more stringent
    rules than the FCC, while taking into account the specific parameters
    of each state commission's telecommunications jurisdiction.

    Sponsored by the Committee on Consumer Affairs
    Adopted by the NARUC Board of Directors July 31, 2002