[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











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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.
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    \1\ What are sold in this way are almost always services, rather 
than goods.
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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.
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    \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\
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    \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 
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        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.
[email protected]
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.
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    \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.
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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\
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    \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).
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    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, [email protected] or NARUC General Counsel Brad 
Ramsay at (202)898-2207, [email protected]
            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