[Federal Register Volume 63, Number 210 (Friday, October 30, 1998)]
[Proposed Rules]
[Pages 58524-58568]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-28974]



[[Page 58523]]

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Part III





Federal Trade Commission





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16 CFR Part 308



Pay-per-Call Rule; Proposed Rule

  Federal Register / Vol. 63, No. 210 / Friday, October 30, 1998 / 
Proposed Rules  

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FEDERAL TRADE COMMISSION

16 CFR Part 308


Pay-per-Call Rule

AGENCY: Federal Trade Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: In this document, the Federal Trade Commission (the 
``Commission'' or ``FTC'') issues a Notice of Proposed Rulemaking to 
amend the Commission's Trade Regulation Rule Pursuant to the Telephone 
Disclosure and Dispute Resolution Act of 1992 (the ``900-Number Rule,'' 
``Rule,'' or ``original Rule''), 16 CFR Part 308, and requests public 
comment on the proposed changes. The 900-Number Rule governs the 
advertising and operation of pay-per-call services, and establishes 
billing dispute procedures for those services as well as for other 
telephone-billed purchases.
    This document invites written comments on all issues raised by the 
proposed changes and, specifically, on the questions set forth in 
Section I of this Notice. This document also contains an invitation to 
participate in a public workshop to be held following the close of the 
comment period, to afford the Commission staff and interested parties 
an opportunity to explore and discuss issues raised during the comment 
period.

DATES: Written comments will be accepted until January 8, 1999. 
Notification of interest in participating in the public workshop also 
must be submitted on or before January 8, 1999. The public workshop 
will be held on February 25 and 26, 1999, from 9:00 a.m. until 5:00 
p.m.

ADDRESSES: Six paper copies of each written comment should be submitted 
to the Office of the Secretary, Room 159, Federal Trade Commission, 6th 
Street and Pennsylvania Avenue, N.W., Washington, DC 20580. To 
encourage prompt and efficient review and dissemination of the comments 
to the public, all comments should also be submitted, if possible, in 
electronic form, on either a 5\1/4\ or a 3\1/2\ inch computer disk, 
with a label on the disk stating the name of the commenter and the name 
and version of the word processing program used to create the document. 
(Programs based on DOS are preferred. Files from other operating 
systems should be submitted in ASCII text format to be accepted.) 
Individual members of the public filing comments need not submit 
multiple copies or comments in electronic form. Comments should be 
identified as ``Pay-Per-Call Rule Review--Comment. FTC File No. 
R611016.''
    Notification of interest in participating in the public workshop 
should be submitted in writing, separately from written comments, to 
Carole Danielson, Division of Marketing Practices, Federal Trade 
Commission, 6th Street and Pennsylvania Avenue, N.W., Washington, DC 
20580. The public workshop will be held at the Federal Trade 
Commission, 6th Street and Pennsylvania Avenue, N.W., Washington, DC 
20580.

FOR FURTHER INFORMATION CONTACT: Adam Cohn, (202) 326-3411, Marianne 
Schwanke, (202) 326-3165, or Carole Danielson, (202) 326-3115, Division 
of Marketing Practices, Bureau of Consumer Protection, Federal Trade 
Commission, Washington, DC 20580.

SUPPLEMENTARY INFORMATION:

Section A. Background

1. Telephone Disclosure and Dispute Resolution Act of 1992 (``TDDRA'')

    Congress enacted the Telephone Disclosure and Dispute Resolution 
Act of 1992 (``TDDRA''), 15 U.S.C. 5701 et seq., to curtail the unfair 
and deceptive practices engaged in by some pay-per-call businesses and 
to encourage the growth of the legitimate pay-per-call industry.\1\ 
Title I of TDDRA directed the Federal Communications Commission 
(``FCC'') to adopt regulations defining the obligations of common 
carriers in connection with providing tariffed common carrier services 
to pay-per-call services.\2\ Title I also set forth the original 
definition of ``pay-per-call services,'' which limited the term to 
certain specified services accessed through the use of a 900 telephone 
number.\3\
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    \1\ This statement summarizes Congress' findings regarding the 
pay-per-call industry at the time it passed the legislation. For 
greater detail concerning the problems Congress found to be 
associated with pay-per-call services, see 15 U.S.C. 5701(b).
    \2\ Title I is codified at 47 U.S.C. 228. The FCC published its 
Notice of Proposed Rulemaking and Notice of Inquiry at 58 FR 14371 
(March 17, 1993). The FCC's Rules are at 47 CFR 64.1501 et seq.
    \3\ 47 U.S.C. 228(i)(1). See note 14, infra.
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    Titles II and III of TDDRA required the FTC to prescribe 
regulations governing various aspects of telephone-billed purchases, 
including pay-per-call services.\4\ Title II of TDDRA directed the 
Commission to enact regulations governing the advertising and operation 
of pay-per-call services. Among other things, TDDRA specified that 
certain disclosures appear in all advertising for pay-per-call programs 
and in introductory messages (``preambles'') at the start of such pay-
per-call programs. Title II also prohibited pay-per-call providers from 
engaging in certain practices, such as directing their services to 
children under 12 years of age, or providing pay-per-call services 
through an 800 number or other toll-free number. In addition, the 
statute directed pay-per-call providers to comply with any additional 
standards the Commission might prescribe to prevent abusive 
practices.\5\
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    \4\ Title II of TDDRA is codified at 15 U.S.C. 5711-5714. Title 
III of TDDRA is codified at 15 U.S.C. 5721-5724.
    \5\ 15 U.S.C. 5711(a)(2)(J).
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    Title III of TDDRA required that the FTC's regulations establish 
procedures for dispute resolution and for correcting billing errors in 
connection with telephone-billed purchases.
    Both Title II and Title III directed the Commission to include 
provisions in its regulations that would prohibit acts or practices 
that evade the rules or undermine the rights provided to consumers by 
the statute.\6\ Notwithstanding Section 45(a)(2) of Title 15,\7\ TDDRA 
granted the FTC jurisdiction over common carriers in connection with 
their activities as service bureaus or pay-per-call providers, as well 
as in connection with any billing and collection activities undertaken 
on behalf of providers of pay-per-call services or other telephone-
billed purchases.\8\
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    \6\ 15 U.S.C. 5711(a)(4) and 5721(a)(1).
    \7\ Under that Section, ``common carriers subject to the Acts to 
regulate commerce'' are exempted from FTC jurisdiction to prohibit 
the use of ``unfair methods of competition in or affecting commerce 
and unfair or deceptive acts or practices in or affecting 
commerce.''
    \8\ 15 U.S.C. 5711(c) and 5721(c). The term ``telephone-billed 
purchase,'' as used in TDDRA, refers to a purchase of goods or 
services (other than telephone toll services) that is ``completed 
solely as a consequence of completion of the call or a subsequent 
dialing, touch tone entry, or comparable action of the caller.'' 15 
U.S.C. 5724(1). The term includes all pay-per-call services.
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2. 900-Number Rule

    On July 26, 1993, the FTC adopted its 900-Number Rule, 16 CFR Part 
308; the Rule became effective on November 1, 1993.\9\ Pursuant to 
TDDRA's requirements, the 900-Number Rule incorporated the definition 
of ``pay-per-call services'' set out in Section 228 of the 
Communications Act of 1934, thus limiting the applicability of the 
advertising and operating standards of the Rule to services accessed by 
dialing a 900 number.\10\ Among other provisions, the Rule requires 
that advertisements for pay-per-call services contain certain 
disclosures of material

[[Page 58525]]

information, including the cost of the call. This material information 
must also be included in an introductory message (preamble) at the 
beginning of any pay-per-call program where the cost of the call could 
exceed two dollars. The Rule requires that anyone who calls a pay-per-
call service must be given the opportunity to hang up at the conclusion 
of the preamble without incurring any charge for the call. In addition, 
the Rule requires that all preambles to pay-per-call services state 
that individuals under the age of 18 must have the permission of a 
parent or guardian to complete the call.
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    \9\ The Statement of Basis and Purpose and Final Rule were 
published at 58 FR 42364 (August 9, 1993).
    \10\ See note 14, infra.
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    The 900-Number Rule also establishes procedures for resolving 
billing disputes for telephone-billed purchases, such as pay-per-call 
services.\11\ The Rule imposes certain obligations on entities that 
bill and collect for telephone-billed purchases, such as investigating 
and responding to billing disputes.\12\
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    \11\ The term ``telephone-billed purchase'' is defined more 
broadly than the term ``pay-per-call services,'' and thus includes 
within its scope all pay-per-call services. See note 8, supra, and 
discussion, infra, on the definition of ``telephone-billed 
purchase.''
    \12\ Other TDDRA protections were established by the FCC in that 
agency's rules set out at 47 CFR 64.1501 et seq. Under the FCC 
rules, a consumer's telephone service cannot be disconnected for 
failure to pay charges for a 900-number call, and 900-number 
blocking must be made available to consumers who do not wish to have 
access to 900-number services from their telephone lines.
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3. Telecommunications Act of 1996 (``1996 Act'')

    On February 8, 1996, the President signed into law the 
Telecommunications Act of 1996 (the ``1996 Act'') \13\ to provide a 
regulatory framework for telecommunications and information 
technologies and services. Section 701(b) of the 1996 Act provides 
that:

    \13\ Pub. L. 104, 701, 110 Stat. 56 (1996) [codified at 47 
U.S.C. 228 and at 15 U.S.C. 5714(1)].
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    Section 204 of [TDDRA] is amended to read as follows:
    (1) The term `pay-per-call services' has the meaning provided in 
section 228(i) of the Communications Act of 1934,\14\ except that 
the [Federal Trade] Commission by rule may, notwithstanding 
subparagraphs (B) and (C) of Section 228(i)(1) of such Act, extend 
such definition to other similar services providing audio 
information or audio entertainment if the [Federal Trade] Commission 
determines that such services are susceptible to the unfair and 
deceptive practices that are prohibited by the rules prescribed 
pursuant to section 201(a) [of TDDRA]. [Emphasis and footnote 
added.]
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    \14\ Section 228(i)(1) of the Communications Act of 1934, 47 
U.S.C. 228(i)(1) provides that:
    The term `pay-per-call services' means any service--
    (A) in which any person provides or purports to provide--
    (i) audio information or audio entertainment produced or 
packaged by such person;
    (ii) access to simultaneous voice conversation service; or
    (iii) any service, including the provision of a product, the 
charges for which are assessed on the basis of completion of the 
call;
    (B) for which the caller pays a per-call or per-time-interval 
charge that is greater than, or in addition to, the charge for 
transmission of the call; and
    (C) which is accessed through use of a 900 telephone number or 
other prefix or area code designated by the [Federal Communications] 
Commission in accordance with subsection (b)(5) [47 U.S.C. 
228(b)(5)].``

    The 1996 Act thus authorizes the FTC, through its 900-Number Rule, 
to extend the definition of the term ``pay-per-call services''--and, in 
effect, the Rule's coverage--to include certain audiotext \15\ services 
that may use a dialing prefix other than 900 \16\ and services for 
which there is a charge that is greater than, or in addition to, the 
charge for transmission of the call.\17\ If the FTC determines that 
such audio information and entertainment services are susceptible to 
the unfair and deceptive practices that are prohibited by its 900-
Number Rule, the FTC has the authority to define those services as 
``pay-per-call services'' and require them to comply with the Rule's 
provisions.
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    \15\ The term ''audiotext`` describes audio information and 
entertainment services offered through any dialing pattern, 
including services accessed via 900 numbers as well as those 
accessed through international and other non-900-number dialing 
patterns.
    \16\ 47 U.S.C. 228(i)(1)(C).
    \17\ 47 U.S.C. 228(i)(1)(B).
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    Section 701 of the 1996 Act also modified several provisions in 
Title I of TDDRA, directing the FCC to amend its regulations regarding 
pay-per-call services.\18\ The FCC took action to implement this 
statutory mandate in July 1996.\19\ In that proceeding, the FCC also 
proposed certain other modifications to its rules not expressly 
mandated by statute in an attempt to reduce fraudulent practices in the 
audiotext industry.
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    \18\ Congress changed the definition of ''pay-per-call 
services`` as it applies to the FCC's regulations under Title I of 
TDDRA by deleting the exception for ''tariffed services,`` without 
authorizing either the FTC or the FCC to further modify the Title I 
definition in any way. The FTC's authority to change the definition 
only impacts Titles II and III of TDDRA. Thus, the FTC's proposed 
definition of ``pay-per-call services'' will only apply to this Rule 
and not to any regulations promulgated by the FCC pursuant to Title 
I of TDDRA.
    \19\ Policies and Rules Governing Interstate Pay-Per-Call and 
Other Information Services Pursuant to the Telecommunications Act of 
1996, Order and Notice of Proposed Rulemaking, CC Docket No. 96-146, 
11 FCC Rcd 14738 (1996) (``FCC Pay-Per-Call Order and Notice'').
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4. Initiation of Rule Review and Request for Comment

    The 900-Number Rule provides that the Commission initiate a 
rulemaking review proceeding to evaluate the Rule's operation no later 
than four years after its effective date of November 1, 1993.\20\ The 
Commission decided to conduct this review in conjunction with a Request 
for Comment to obtain information on whether, pursuant to Section 701 
of the 1996 Act, the definition of ``pay-per-call services'' should be 
extended to cover audiotext services that fall outside the original 
definition. Thus, on March 12, 1997, the Commission published a notice 
in the Federal Register seeking comment on the overall effectiveness of 
the Rule and on whether the Commission should extend the definition of 
``pay-per-call services'' to include a broader array of audio 
information and audio entertainment services provided through the 
telephone.\21\
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    \20\ 16 CFR 308.9.
    \21\ 62 FR 11749 (March 12, 1997).
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    Written and oral comment. In response to the notice, the Commission 
received 34 comments from industry, law enforcement, and consumer 
representatives, as well as from individual consumers.\22\ Virtually 
all of the commenters praised the effectiveness of the 900-Number Rule 
in combating the deceptive and unfair practices that had plagued the 
900-number industry before the Rule was promulgated. They also strongly 
supported the Rule's continuing role as the centerpiece in the effort 
to implement TDDRA's goals of protecting consumers and promoting the 
growth of the pay-per-call industry. As will be discussed in more 
detail infra, a number of commenters suggested modifications they 
believed would enhance the consumer protections offered by the Rule and 
reduce some of the burden on industry. In addition, the majority of 
commenters strongly urged the Commission to extend the Rule's 
definition of ``pay-per-call services'' to cover audio information and 
audio entertainment services provided by international direct dialing 
and by other non-900-number dialing patterns. Many commenters also 
supported additional restrictions on telephone-billed purchases that 
result in monthly or other recurring charges on consumers' telephone 
bills.
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    \22\ A list of the commenters, and the acronyms that will be 
used to identify each commenter in this notice, is appended as 
Attachment A.
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    On June 19 and 20, 1997, staff of the Commission conducted a public 
workshop at the Federal Trade

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Commission in Washington, DC. Fourteen associations, individual 
businesses, consumer organizations, and law enforcement agencies, each 
with an affected interest and ability to represent others with similar 
interests, were selected to engage in the roundtable discussion.\23\ 
The participants were encouraged to address each other's comments and 
questions, and were asked to respond to questions from Commission 
staff. The workshop was open to the public; oral comments from the 
public were invited and several individuals spoke during the course of 
the two-day workshop. The entire proceeding was transcribed and placed 
on the public record.\24\ The public record to date, including the 
comments that were submitted in electronic form and the workshop 
transcript, has been placed on the Commission's web site on the 
Internet.\25\
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    \23\ The selected participants were: AT&T, FLORIDA, GORDON, ISA, 
ITA, MCI, NAAG, NCL, SW, PILGRIM, PMAA, SNET, TPI, and TSIA. 
Consumers Union also was selected as a participant, but was unable 
to send a representative to the workshop.
    \24\ References to the workshop transcript are cited as ``Tr.'' 
followed by the appropriate page designation. References to comments 
are cited as ``[acronym of commenter] at [page number].''
    \25\ The electronic portions of the public record can be found 
at http://www.ftc.gov/ftc/consumer.htm. The full paper record is 
available in Room 130 at the Federal Trade Commission, 6th Street 
and Pennsylvania Avenue, N.W., Washington, DC 20580, telephone 
number: 202-FTC-HELP (202-382-4357).
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    Many commenters reported that the 900-Number Rule has been 
successful in reducing the abuses that led to the passage of TDDRA \26\ 
and that, since the 900-Number Rule became effective, consumer 
confidence has increased \27\ and complaints about 900-number services 
have decreased dramatically.\28\ Commenters credited the 900-Number 
Rule with these positive developments.\29\ Commenters generally agreed 
that the Rule has been effective yet balanced, without unnecessarily 
burdening the pay-per-call industry.\30\ Recognizing that the Rule 
appears to have substantially reduced the abuses that had plagued the 
900-number industry, commenters uniformly believe that it is important 
to retain the Rule.\31\
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    \26\ AARP at 1; AT&T at 2; FLORIDA at 4; GORDON at 1; ISA at 2; 
NAAG at 2; NCL at 2; PMAA at 1-2; SNET at 2-3; TPI at 2; and TSIA at 
2-3.
    \27\ GORDON at 1; AT&T at 2; NAAG at 2; PMAA at 1-2; TPI at 2; 
TSIA at 2-3. TSIA believes that the requirements established by the 
FTC in its 900-Number Rule have benefitted consumers and enhanced 
the fairness and credibility of the audiotext industry. TSIA at 2-3.
    \28\ AT&T at 3; TPI at 2; AMERITECH at 2; GORDON at 1; FLORIDA 
at 10; SW at 4; SNET at 2-3; NAAG at 2; NCL at 2; US WEST at 4-5 
(noting a ``materially significant reduction'' in 900-number 
complaints).
    \29\ According to one representative comment, the 900-Number 
Rule can be credited with ``eradicating abuses in the pay-per-call 
industry'' and helping to make 900 numbers ``a viable marketing and 
promotional tool for many legitimate marketers of consumer products 
and services.'' PMAA at 1-2.
    \30\ See, e.g., PMAA at 1-2, 4; NCL at 2; ISA at 2.
    \31\ See, e.g., FLORIDA at 4; GORDON at 1; NCL at 2; PMAA at 4.
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    Despite the success of the Rule in correcting the abuses in the 
900-number industry, complaints about other types of audiotext services 
(accessed via dialing patterns other than 900 numbers) continue to 
flood into the offices of local exchange carriers, consumer groups, and 
law enforcement agencies.\32\ The majority of complaints now involve 
800 numbers, international numbers, or other dialing patterns that do 
not use the 900-number prefix.\33\ Many consumer and law enforcement 
agencies also have been receiving complaints from consumers who have 
discovered unexplained monthly recurring charges on their telephone 
bills for services that were never authorized, ordered, received, or 
used.\34\
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    \32\ After an initial decrease in the number of pay-per-call 
complaints received by such organizations after the Rule became 
effective, the numbers soon began to increase. Although pay-per-call 
complaints dropped to 16th place in 1994 after the Rule became 
effective, by 1996 they had climbed back to 12th place. NCL at 2.
    \33\ ALLIANCE at 2-3; CINCINNATI at 1; FLORIDA at 4; NAAG at 1; 
NCL at 2; SW at 2; SNET at 3-4. NCL states that, in 1996, it 
received three times as many complaints about 800 numbers as it did 
about 900 numbers. NCL at 2.
    \34\ NCL at 3-4; SW at 3; Tr. at 382, 384, 498-504.
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    Some commenters expressed the opinion that the effectiveness of the 
900-Number Rule has led fraudulent operators to find alternate ways to 
market their services in order to evade the Rule's protections.\35\ 
Conversely, some industry members argue that the high chargeback rates 
experienced by services offered through 900 numbers have driven 
providers to seek other methods of delivering their services and of 
billing and collecting for them. In addition, these commenters point to 
high transport rates charged by the interexchange carriers in the 
United States as a reason for the development of alternate ways to 
market and bill for audio information and entertainment services. Thus, 
these audio information or entertainment providers allege that by using 
non-900-number dialing patterns they can provide consumers with 
services that are similar or comparable to those offered through 900 
numbers, but cost consumers less.\36\ Consumer groups and law 
enforcement responded to this argument by alleging that providers who 
offer their services through dialing patterns other than the 900-number 
exchange can charge less for their services precisely because the non-
900-number format enables providers to collect unauthorized and 
illegitimate charges from consumers without fear of chargebacks, 
because non-900 numbers do not provide the TDDRA protections to 
consumers.\37\
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    \35\ ALLIANCE at 2-3; FLORIDA at 4; NCL at 2; NAAG at 1; SW at 
2; SNET at 3-4.
    \36\ TSIA at 21.
    \37\ Tr. at 367-68, 372-74, 380-81, 388-460.
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5. Notice of Proposed Rulemaking

    Regardless of the factors that prompt providers to use alternatives 
to the 900-number dialing pattern to bill for their audiotext services, 
the question is whether these alternate billing methods undermine the 
rights that Congress intended for consumers to have under TDDRA. In 
TDDRA, Congress provided that consumers of audio information and 
entertainment services should be protected from unfair and deceptive 
practices and that they should have adequate rights of redress.\38\ 
Congress also realized that it could not anticipate all provisions that 
might be necessary to prevent abusive practices. Therefore, TDDRA gave 
the Commission the flexibility to prescribe ``such additional 
standards'' as may be needed ``to prevent abusive practices.'' \39\ In 
addition, in both Title II (advertising and pay-per-call standards) and 
Title III (billing and collection), Congress directed the Commission to 
include in its Rules provisions to ``prohibit unfair or deceptive acts 
or practices that evade such rules or undermine the rights provided to 
customers'' by the statute.\40\
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    \38\ 15 U.S.C. 5701(a)(7).
    \39\ 15 U.S.C. 5711(a)(2)(J).
    \40\ 15 U.S.C. 5711(a)(4) and 5721(a)(1). In Title II, Congress 
specifically directs the Commission to prohibit ``alternative 
billing or other procedures'' which are unfair or deceptive or 
undermine the rights provided to consumers under that Title. 15 
U.S.C. 5711(a)(4).
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    The record developed in this matter, as well as the Commission's 
law enforcement experience, leave little doubt that many important 
consumer protections provided by TDDRA have been eroded. The Commission 
believes that the record supports the necessity of establishing 
additional standards to ensure that consumers receive the protections 
and rights that TDDRA intended. Accordingly, the Commission has 
determined to retain its 900-Number Rule, but proposes to revise the 
Rule. The Commission believes these revisions are necessary in order to 
ensure that technological innovations in the telecommunications 
industry do not undermine the rights of consumers or otherwise operate 
to destroy the credibility and confidence that

[[Page 58527]]

consumers and vendors have come to expect from the legitimate pay-per-
call industry.
    By this document, the Commission is proposing revisions to its 900-
Number Rule. The proposed changes to the Rule are made pursuant to the 
rule review requirements of the Rule,\41\ and pursuant to the authority 
granted to the Commission by TDDRA to prevent abusive practices, to 
prohibit practices that evade the Commission's rules or undermine the 
rights of consumers, and to encourage the growth of the legitimate pay-
per-call industry.\42\ The proposed changes also are made pursuant to 
the authority granted to the Commission by Section 701(b) of the 
Telecommunications Act of 1996 Act to extend the definition of ``pay-
per-call services'' to cover similar audio information and 
entertainment services that are susceptible to the unfair or deceptive 
acts or practices prohibited by the 900-Number Rule. As discussed in 
detail infra, the Commission believes the proposed modifications are 
necessary to ensure that the Rule fulfills the Congressional mandate in 
TDDRA that the FTC encourage the growth of the legitimate audiotext 
industry, while curtailing those practices that are abusive, unfair or 
deceptive, that evade the 900-Number Rule, or that undermine the rights 
of consumers provided by TDDRA. The Commission believes that the 
proposed modifications strike a balance between maximizing consumer 
protections and minimizing the burden on the audiotext industry.
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    \41\ 16 CFR 308.9.
    \42\ 15 U.S.C. 5711(a)(2)(J), 5711(a)(4), and 5721(a)(1).
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Section B. Overview

1. Changes in the Marketplace

    At the time the original Rule was promulgated, the only significant 
example of a ``telephone-billed purchase'' was a purchase of audiotext 
services over a 900 number. These services were (1) blockable under 
Title I of TDDRA, (2) covered by the advertising restrictions and free 
preamble disclosure requirements of Title II of TDDRA, and (3) fully 
protected by the dispute resolution procedures of Title III of TDDRA.
    In the years since promulgation of the Commission's 900-Number 
Rule, the marketplace for telephone-billed purchases has changed in 
several significant ways:
    Proliferation of audiotext transactions that use dialing patterns 
other than 900 numbers (such as international audiotext and audiotext 
provided over toll-free numbers). The development of non-900-number 
audiotext services raises consumer protection implications because: (1) 
these transactions are not blockable in the manner contemplated by 
Title I of TDDRA; (2) they are not subject to the advertising 
requirements and preamble disclosure requirements provided by Title II 
of TDDRA; and (3) in instances where the charge for the cost of the 
information or entertainment is hidden within the cost of a toll call 
(i.e., international audiotext),\43\ these transactions are not subject 
to the dispute resolution mechanisms provided by Title III of TDDRA.
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    \43\ International audiotext services are accessed by dialing 
international telephone numbers. These services are beyond the 
current scope of the Rule because they are not provided over 900 
numbers, and because the resulting charges are not greater than or 
in addition to the charge for transmission, a requirement for pay-
per-call services contained in the TDDRA definition. 47 U.S.C. 
228(i). To receive payment for their services, international 
audiotext operators enter revenue-sharing arrangements with foreign 
telephone companies, and thus obtain a portion of the funds paid by 
callers to the telephone companies for transmission of international 
calls to the audiotext services.
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    Emergence of a market for non-audiotext telephone-billed purchases 
based on ANI. More recently, there has been a sharp rise in the 
development of a market for non-audiotext telephone-billed purchases 
that are in many cases not directly related to telecommunications 
services or sold by common carriers. For example, consumers can now 
purchase voice mail, Internet access, club memberships, and a host of 
other services from vendors who charge the consumer's telephone bill, 
often based solely on Automatic Number Identification (ANI).\44\ For 
these non-audiotext transactions, the telephone is merely the 
instrument of purchase, and the product or service may have little or 
nothing to do with the telephone. Rather, the telephone becomes much 
like a credit card data capture terminal, but without the security or 
accompanying dispute resolution procedures and other consumer 
protections afforded to consumers who make purchases with credit cards.
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    \44\ Automatic Number Identification (``ANI'') is technology 
similar to ``Caller-ID'' that permits the recipient of a telephone 
call to identify (or ``capture'') the telephone number from which a 
call is made.
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    The use of the telephone bill to charge for services, products, and 
memberships, even without the use of ANI. Consumers can sign up for a 
service in person, and charge the service to a telephone number (their 
own or someone else's), merely by filling in a phone number on a form. 
This has resulted in two newer types of unauthorized charges: (1) 
unauthorized charges billed to a telephone subscriber for a benefit 
received by someone else, such as entering a sweepstakes to win a 
prize; and (2) unauthorized charges to consumers who are unaware that 
by filling out a form, they are deemed to have authorized a telephone-
billed purchase. These practices are a growing part of a larger problem 
known as ``cramming''--the practice of placing unauthorized and 
deceptive charges on consumers' telephone bills.
    Emergence of a new type of service bureau providing critical 
billing and collection functions. Service bureaus now provide much more 
than the access to voice storage and telephone service that they 
typically provided when the original Rule was promulgated. In the 
current marketplace, a key function of service bureaus is to provide a 
contractual framework for billing and collection. As the recent 
Commission and State cramming cases have shown, some service bureaus, 
known as ``billing aggregators'' (i.e., billing clearinghouses) act as 
intermediaries between vendors and the local telephone companies 
(``local exchange carriers'' or ``LECs''). These service bureaus 
process their client-vendors' billing data into the electronic format 
required by the LEC, contract with the LECs to have their client-
vendors' charges appear on line subscribers' telephone bills, and act 
as conduits to the vendor for revenues collected by the LECs from 
consumers for the vendors' services. In addition, service bureaus also 
commonly structure revenue-sharing arrangements with foreign telephone 
companies and provide services to bill consumers by direct mail.
    Increase in the level of ``chargebacks'' for 900 numbers. Audiotext 
vendors report difficulty collecting valid 900-number charges from 
consumers. They report that, when LECs are unsuccessful in collecting 
these legitimate charges, the vendors have great difficulty in 
obtaining the information they need to collect the charges on their 
own.

2. Summary of Proposed Major Changes to the Rule

    Each of the changes in the marketplace described above has led to 
the growth of deceptive and fraudulent practices in areas not 
adequately addressed by the original Rule. The proposed Rule is 
intended to address these deceptive or abusive practices by adapting 
the Rule to respond to the changes in the marketplace in a manner 
consistent with the original intent of Congress. Each of the proposed 
changes is discussed in detail in this Notice. Additionally, Commission 
staff has prepared an unofficial redlined version

[[Page 58528]]

of the proposed Rule, showing proposed additions and deletions, which 
is available on the Commission's Internet site at www.ftc.gov. A 
summary of the proposed major changes to the Rule is set forth below:
    Coverage of Rule: The proposed revisions to the Rule would ensure 
that TDDRA protections apply to the offer and sale of every audiotext 
service, regardless of the dialing pattern used to access the service. 
In addition, the revisions would ensure that international audiotext 
services could not be offered in a manner that evades TDDRA's dispute 
resolution procedures.
    This would be achieved in two ways. First, the proposal would 
expand the Rule's definition of ``pay-per-call services.'' Second, the 
proposal would prohibit the practice of hiding the cost of an audiotext 
service within a regulated toll charge for either a domestic or 
international long-distance call.
    These proposed revisions address abuses that have arisen in 
connection with audiotext services offered through international 
numbers and other non-900 dialing patterns. Chief among these abuses is 
nondisclosure (or inadequate disclosure) of cost and other material 
information to consumers before they incur charges for an audiotext 
service. The revised Rule also would give consumers protection against 
charges for audiotext services that cannot be blocked from their 
telephone lines. In addition, the proposed revisions would ensure that 
consumers who incur charges for an audiotext service can use TDDRA 
procedures to dispute such charges, regardless of the number dialed to 
access the service.
    Toll-free Numbers: The original Rule prohibits charging consumers 
for an audiotext service accessed by dialing an 800 or other toll-free 
number, but it creates a limited exception to this prohibition where 
the consumer enters into a prior agreement (a ``presubscription 
agreement'') with the provider to pay for the service. The proposed 
Rule tightens this exception to prohibit certain abusive practices that 
have arisen in connection with billing for audiotext services accessed 
by dialing toll-free numbers. These abuses include sham presubscription 
agreements, and ineffective methods of preventing unauthorized access 
to services under presubscription agreements. The proposed Rule would 
require an audiotext provider, before permitting access to a service, 
to have a contractual agreement with the party responsible for paying 
for the service. The provider would be required to send that party a 
written statement of all material terms and conditions of the 
agreement, along with a ``personal identification number'' (``PIN'') to 
prevent unauthorized access to the service.
    Consumers cannot block calls from their lines to toll-free 
telephone numbers, so they cannot block access to audiotext services 
that are reached by dialing toll-free numbers. Thus, the proposed 
revisions to the requirements for presubscription agreements protect 
consumers from incurring charges for services they cannot block. The 
proposed revisions provide this protection by requiring that a contract 
exist between the provider and the person responsible for paying for 
the service before the service is provided, and by requiring an 
effective method to prevent unauthorized access to the contracted 
service.
    Finally, the proposed Rule gives consumers additional rights to 
dispute charges for audiotext accessed by dialing toll-free numbers. If 
consumers have not entered into a ``presubscription agreement'' that 
satisfies the proposed Rule's definition of that term, but are charged 
for audiotext services accessed through a toll-free number, the revised 
Rule permits consumers to challenge such charges as ``billing errors,'' 
and the Rule's dispute resolution rights and protections would apply.
    Unauthorized Charges, or ``Cramming'': Unauthorized charges that 
are ``crammed'' on to consumers'' telephone bills generally are for 
telephone-billed purchases that cannot be blocked by 900-number 
blocking, and many of them are recurring charges. The proposed Rule 
takes a four-fold approach to the problem of cramming.
    First, the proposed Rule provides that any telephone-billed 
purchase, other than one that arose from a blockable (i.e., 900-number) 
transaction, requires the express authorization of the person to be 
billed for the purchase. The proposed Rule also prohibits vendors, 
service bureaus, and billing entities from collecting or attempting to 
collect for such unblockable telephone-billed purchase charges where 
the vendor, service bureau, or billing entity knew or should have known 
that the purchase was not authorized by the person who was the target 
of the collection efforts. The revised Rule would create strong 
incentives for vendors, service bureaus, and billing entities who offer 
telephoned-billed transactions that cannot be blocked to ensure that 
such transactions are authorized by the party who is to be billed for 
them.
    Second, vendors would be prohibited from causing consumers to 
receive monthly or other recurring charges for pay-per-call services in 
the absence of a presubscription agreement with the person to be billed 
for the service. Thus, a single call to a pay-per-call service could no 
longer result in a consumer being enrolled in a ``psychic club'' or 
other service plan which would result in recurring fees. The vendor 
would be required to get advance authorization of the person to be 
billed for any pay-per-call service that resulted in recurring fees, 
and would be required to send that consumer a written copy of the 
agreement before any chargers could accrue.
    Third, consumers would be able to dispute unauthorized charges 
``crammed'' on to their phone bills and have these charges removed. 
Under the proposed Rule, when a consumer disputes a charge for a 
service that cannot be blocked,45 the billing entity, in 
order to sustain that charge, must provide the consumer with actual 
proof that the consumer expressly authorized the transaction that 
resulted in the charge. Similarly, under the proposed Rule, when a 
consumer disputes a charge purportedly resulting from a presubscription 
agreement, the billing entity cannot sustain the charge absent evidence 
of a valid presubscription agreement with the person being billed. 
Unless the billing entity provides such proof, the charge must be 
forgiven. These revisions are intended to deter the current widespread 
problem of cramming.
---------------------------------------------------------------------------

    \45\ The proposed Rule identifies these as charges that cannot 
be blocked in advance by 900-number blocking, or TDDRA blocking, as 
provided by 47 U.S.C. 228(c).
---------------------------------------------------------------------------

    Fourth, the proposed Rule provides dispute resolution protections 
for all transactions that result in non-toll charges on a subscriber's 
phone bill, even if the charges for such purchases did not result from 
a telephone call and were not based on ANI capture. This would be 
accomplished by expanding the definition of ``telephone-billed 
purchase'' to encompass all such transactions. This revision would 
ensure that a consumer who has an unauthorized charge on his or her 
phone bill--regardless of whether it arose from a telephone call--would 
be able to contest the charge through the Rule's dispute resolution 
procedures. This revision would address the growing problem of 
unauthorized charges being ``crammed'' on to a consumer's telephone 
bill as a result of filling out a sweepstakes entry form or some action 
other than placing a telephone call.
    Liability of Billing Entities and Billing Aggregators for 
Unauthorized Charges:

[[Page 58529]]

The proposed Rule would impose liability on billing entities and 
billing aggregators for providing unscrupulous vendors the sine qua non 
for cramming--access to the telephone billing and collection system. 
These parties would be unable to evade responsibility under the revised 
Rule for processing charges and inserting them in consumers' monthly 
telephone billing statements on behalf of unscrupulous ``crammers'' and 
other vendors who blatantly violate the Rule.
    Holding billing aggregators responsible for their part in cramming 
would be accomplished by amending the Rule's definition of ``service 
bureau'' to specifically include billing aggregators. This ensures that 
billing aggregators would be liable for civil penalties any time they 
``knew or should have known'' that their client-vendors were in 
violation of the Rule. Billing entities' responsibilities would be 
increased via a proposed provision that would hold them accountable for 
billing a consumer for unblockable telephone-billed purchases when they 
knew or should have known that the transaction was not authorized by 
the consumer being billed.
    The proposed revisions addresses the problem of billing entities 
and billing aggregators knowingly profiting from, facilitating, 
encouraging, and yet evading responsibility for, illegal practices such 
as cramming.
    Disputed Charges: The proposed Rule would ensure that any time a 
consumer disputes a charge for a telephone-billed purchase, the 
consumer will not be required to pay that charge until he or she is 
provided with both documentary evidence of the validity of the charge 
and a written explanation describing why the charge is valid.
    This would be accomplished by specifically prohibiting collection 
of a charge for a telephone-billed purchase that is in dispute unless 
the validity of the charge has been investigated, and unless the 
consumer has received an explanation and documentary evidence 
supporting the charge's validity. The Rule would also be modified to 
give more specific guidance as to what the requirement (present in the 
current Rule) for an ``investigation'' entails. To prevent ``passing 
the buck'' among multiple parties involved in collecting a charge for a 
telephone-billed purchase (e.g., the LEC that prepares and sends the 
consumer a phone bill, the billing aggregator that forwards billing 
data from the vendor to the LEC, and the vendor that handles the 
transaction from which the charge arises), the proposed Rule imposes a 
new requirement that these multiple parties (1) designate which of them 
will bear ultimate responsibility for receiving and responding to 
billing disputes, and (2) disclose that designation on the telephone 
bill.
    These revisions would address the problem experienced by many 
consumers who attempt to dispute a charge for a telephone-billed 
purchase, only to be faced with collection action by a party other than 
the original billing entity, and who are passed from one billing entity 
to another without ever achieving resolution of their dispute. Multiple 
parties involved in billing and collection could not hand a consumer 
off from one to another, but instead would be required to respond to 
the consumer's dispute.
    Deceptive Statements to Billing Entities Conducting Investigations: 
The proposed Rule would prevent vendors, service bureaus, and providing 
carriers from using deceptive tactics in attempting to sustain an 
illegitimate charge for a telephone-billed purchase.
    This would be accomplished by a provision in the proposed Rule that 
would prohibit a vendor, service bureau, or providing carrier from 
providing false or misleading information to a billing entity 
conducting an investigation of a disputed charge for a telephone-billed 
purchase. Thus, practices such as falsely representing to a billing 
entity that a consumer called a 900 number when, in fact, the consumer 
called a toll-free number, would be prohibited by the proposed Rule.
    Solicitations Transmitted by Pager or Facsimile: The proposed Rule 
addresses the use of pagers and facsimile machines to solicit calls to 
audiotext services. These two techniques have been used deceptively in 
connection with audiotext services that are accessed through numbers 
other than 900 numbers and that therefore cannot be distinguished from 
non-audiotext numbers. The proposed Rule would require disclosure of 
cost and other material information in any facsimile-transmitted or 
pager-transmitted solicitation to call a pay-per-call service.
    The proposed Rule would accomplish this by adding two new 
provisions, one expressly requiring the same disclosures in pager 
solicitations that are required in advertisements in other media, and 
another expressly requiring the same disclosures in facsimile 
solicitations that are required in advertisements in other media.
    The disclosure requirement for pager solicitations of calls to pay-
per-call services will remedy the deception that occurs when a consumer 
receives a pager message and reasonably assumes that an urgent business 
or personal reason exists to call a number that turns out to access a 
pay-per-call service. The consumer who calls such a number in response 
to a page may incur charges for audiotext services without intending to 
do so. This Rule modification will eliminate this problem. Similarly, 
the disclosure requirements for facsimile solicitations will address 
the increasing problem of consumers being urged by facsimile messages 
to call numbers that turn out to be pay-per-call services, without 
adequate disclosures of cost and other material information about the 
advertised service.

Section C. Discussion of Proposed Revisions to the Rule

1. General Changes

    Title of the Rule. The Commission proposes to change the title of 
the Rule to the ``Rule Concerning Pay-Per-Call Services and Other 
Telephone-Billed Purchases.'' The current title (``Trade Regulation 
Rule Pursuant to the Telephone Disclosure and Dispute Resolution Act of 
1992'') does not adequately describe the purpose of the Rule. The 
Commission believes that it is important for the industry and consumers 
to recognize that the Rule provides more than just pay-per-call service 
standards. The Rule also creates a structure for resolving billing 
disputes that applies to a broad array of telephone-billed purchase 
transactions. The Commission believes that the title ``Rule Concerning 
Pay-Per-Call Services and Other Telephone-Billed Purchases'' more 
accurately describes the substance of the Rule.
    Organization of the Rule. The Commission proposes to reorganize the 
original Rule in several ways to make it easier to read and understand. 
In the original Rule, Section 308.2 defined terms relating to the 
advertising and operation of pay-per-call services, while Section 308.7 
defined terms relating to the billing and collection of telephone-
billed purchases. The Commission proposes moving all of the Rule's 
definitions into a single section, proposed Section 308.2.
    The proposed Rule also rearranges the order of several other 
provisions, and divides the Rule into four subparts in order to improve 
its organization and to provide greater clarity: Subpart A, Scope and 
Definitions; Subpart B, Pay-Per-Call Services; Subpart C, Pay-Per-Call 
Services and Other Telephone-Billed Purchases; and Subpart D, General 
Provisions. The Commission also proposes dividing Sections 308.3 
(Advertising of pay-per-call services)

[[Page 58530]]

and 308.5 (Pay-per-call service standards) of the original Rule into 
several smaller sections, each dealing with a discrete subject. This 
approach allows provisions dealing with specific subjects (e.g., 
children's advertising or liability for refunds) to be more easily 
identified within the Rule.
    Global Wording Changes. The Commission decided to make several 
wording changes throughout the proposed Rule to standardize the usage 
of specific words and phrases, to more accurately reflect the extended 
coverage of the proposed Rule, and to reflect changes in technology 
since the original Rule was promulgated. Each change is discussed 
below.
    (1) Caller, consumer, and customer. The original Rule used three 
terms to describe the individual to be protected by the Rule's 
requirements--``consumer,'' ``caller,'' and ``customer.'' The 
Commission proposes to change the Rule's usage of these three words. In 
most cases, the word ``consumer'' has been replaced by one of the other 
terms because the term ``consumer'' is not sufficiently precise to 
describe the intended beneficiary of the Rule's protections. The terms 
``caller'' and ``customer'' better reflect the purpose and intent of 
the various provisions. For example, the proposed Rule uses the word 
``caller'' in provisions that regulate preamble disclosures because the 
person making the call is the beneficiary of the protections in those 
sections. On the other hand, the dispute resolution provisions afford 
rights to the ``customer,'' a term that includes both the caller and 
the person who receives the billing statement. In other provisions, 
such as the definition of ``presubscription agreement'' or ``personal 
identification number,'' the more generic term ``consumer'' has been 
retained because in those instances ``caller'' or ``customer'' would be 
too narrow. In some instances, the proposed Rule clarifies that the 
person referred to by the Rule is the person to whom the billing 
statement has been, or will be, directed.\46\
---------------------------------------------------------------------------

    \46\ See, e.g., Section 308.2(j)(1).
---------------------------------------------------------------------------

    (2) Vendor. The term ``vendor'' in the original Rule was used in 
the billing and collection section (Section 308.7 of the original Rule) 
to describe a person or entity that offers goods or services through a 
telephone-billed purchase. The term ``provider of pay-per-call 
services'' was used in the sections of the Rule regulating advertising 
and operation of pay-per-call services (Sections 308.2 through 308.6). 
Even under the original Rule, a ``provider of pay-per-call services'' 
was a ``vendor'' because all pay-per-call services were telephone-
billed purchases. The proposed Rule simplifies the terminology by using 
``vendor'' to refer to all providers of telephone-billed purchases, 
including all providers of pay-per-call services.
    (3) Use of 888 and 877 numbers. Since the original Rule was 
promulgated, the use of toll-free ``888'' and ``877'' numbers has 
grown. Therefore, the proposed Rule has added ``888'' and ``877'' to 
those provisions of the Rule that deal with the use of toll-free 
numbers.\47\
---------------------------------------------------------------------------

    \47\ Proposed Sections 308.2(b)(4), 308.7(e), and 308.13 contain 
those references.
---------------------------------------------------------------------------

2. Proposed Revisions to Specific Provisions

    The proposed Rule makes no substantive revisions to the following 
sections of the original Rule, apart from renumbering and any of the 
global wording changes discussed above that might affect these 
sections: 308.3(e), 308.4, 308.5(h), 308.5(k), and 308.8.\48\
---------------------------------------------------------------------------

    \48\ These sections of the original Rule correspond to the 
following sections of the proposed Rule: Original Sec. 308.3(e) is 
now proposed Sec. 308.5 (Advertising to children prohibited); 
original Sec. 308.4 is now proposed Sec. 308.8 (Special rule for 
infrequent publications); original Sec. 308.5(h) is now proposed 
Sec. 308.11 (Prohibition on services to children); original 
Sec. 308.5(k) is now proposed Sec. 308.15 (Refunds to customers); 
and original Sec. 308.8 is now proposed Sec. 308.21 (Severability).
---------------------------------------------------------------------------

Subpart A--Scope and Definitions

Section 308.1  Scope of Regulations
    The proposed Rule adds a citation to the Telecommunications Act of 
1996.
Section 308.2  Definitions
    The definitions that formerly appeared in the billing and 
collection section of the original Rule have been moved to Section 
308.2 of the proposed Rule, which contains all definitions. The 
definitions have been reordered alphabetically and renumbered 
accordingly. The following definitions from the original Rule are 
unchanged, apart from renumbering: ``bona fide educational service,'' 
``Commission,'' ``program-length commercial,'' ``providing carrier,'' 
``reasonably understandable volume,'' ``slow and deliberate manner,'' 
and ``sweepstakes.''
    (1) Section 308.2(a)--Billing entity. The proposed Rule clarifies 
that the term ``billing entity'' covers a person who transmits any 
statement of debt to a customer for a telephone-billed purchase, 
including, but not limited to, a telephone bill. The definition of 
``billing entity'' is critical to the dispute resolution process 
governed by Section 308.20 of the proposed Rule because all persons and 
entities that fall within the meaning of the term ``billing entity'' 
will be required to comply with the steps set forth in that section. 
This proposed change recognizes that multiple parties often play a role 
in the billing and collection of charges for telephone-billed 
purchases. The proposed modification helps preserve the consumer's 
billing dispute rights in situations where a disputed charge for a 
telephone-billed purchase is passed from one billing entity to another. 
Under the original Rule, this practice often allowed the consumer's 
rights to be extinguished.
    The revision to the definition of ``billing entity'' is designed to 
cover all of the participants in the typical billing and collection 
process for telephone-billed purchases. In most cases, the LEC sends 
the initial billing statement to the consumer. On that billing 
statement, the LEC provides the disclosures about consumers' rights and 
obligations regarding billing errors, as required by original Section 
308.7(n). Once a consumer disputes a charge, the other participants in 
the billing and collection process (i.e., the vendor or service bureau) 
may attempt to collect the disputed charge by calling the consumer and 
making oral statements that the consumer has an obligation to pay.
    The proposed Rule clarifies that any communication to a consumer 
regarding an alleged debt will bring a person within the definition of 
``billing entity,'' as long as the communication contains a statement 
of debt involving a telephone-billed purchase. Thus, the proposed Rule 
ensures that, where multiple entities (including LECs, vendors, service 
bureaus, and third-party debt collectors) are involved in collecting a 
charge for a telephone-billed purchase, each of those entities will be 
considered a billing entity and therefore must afford a consumer his or 
her dispute resolution rights under the Rule.
    (2) Section 308.2(b)--Billing error. This definition is also a key 
concept underlying the dispute resolution provisions set forth in 
proposed Section 308.20. Under that section, a billing entity will be 
required to refund any disputed amount on a consumer's bill, once the 
consumer has invoked his or her rights by submitting a ``billing error 
notice,'' unless the billing entity can provide evidence to the 
consumer that there was no billing error and that the disputed amount 
is a legitimate debt.\49\
---------------------------------------------------------------------------

    \49\ If a disputed charge is found not to be a ``billing 
error,'' the sole consequence is that the Rule does not require the 
billing entity to refund the consumer's money. The fact that a 
charge is not a ``billing error'' in no way affects any rights that 
a consumer may have under State law to dispute that charge or to 
receive a refund of that charge. In addition, under State law a 
consumer may have rights to dispute charges that are not ``billing 
errors.'' The Commission's Rule cannot by law supersede any rights a 
consumer may have under State law to dispute such charges, unless 
such law is inconsistent with the FTC's Rule. 15 U.S.C. 5722(a).

---------------------------------------------------------------------------

[[Page 58531]]

    Original definition. The original Rule delineates eight different 
types of billing errors. Six of these billing errors track almost 
verbatim provisions in TDDRA that define the term ``billing error'' in 
a similar list.\50\ A seventh billing error \51\ was added to the 
statutory definition pursuant to the Commission's authority to create 
additional billing errors,\52\ and in the eighth instance, the 
Commission determined that the Rule should not track the statute word-
for-word. In that instance, the statute stated that a billing error 
occurred when a telephone-billed purchase was not made by the customer. 
By contrast, the original Rule provided that a billing error occurred 
when the telephone-billed purchase was not made by the customer nor 
made from the customer's telephone.\53\
---------------------------------------------------------------------------

    \50\ 15 U.S.C. 5724(2)(B-G).
    \51\ 16 CFR 308.7(a)(2)(viii).
    \52\ 15 U.S.C. 5724(2)(H).
    \53\ The statute provided that a billing error occurred when 
there was ``[a] reflection on a billing statement for a telephone-
billed purchase which was not made by the customer or, if made, was 
not in the amount reflected on such statement.'' 15 U.S.C. 
5724(2)(A). By contrast, the original Rule defined the equivalent 
billing error as a ``[a] reflection on a billing statement of a 
telephone-billed purchase that was not made by the customer nor made 
from the telephone of the customer who was billed for the purchase 
or, if made, was not in the amount reflected on such statement.'' 16 
CFR 308.7(a)(2)(i) [Emphasis added].
---------------------------------------------------------------------------

    As a result of that modification, under the original Rule, a 
consumer was not entitled to dispute a telephone-billed purchase made 
from that consumer's telephone on the ground that it was unauthorized. 
The Commission refined the statutory definition of ``billing error'' in 
this way because, at the time the original Rule was promulgated, 
virtually all ``telephone-billed purchases'' were purchases of pay-per-
call services, accessed by dialing 900 numbers. Because TDDRA mandated 
that 900-number blocking be made available to consumers by common 
carriers,\54\ the Commission reasoned that TDDRA empowered the consumer 
to block access to pay-per-call services. The Commission therefore 
believed it unnecessary to make available in the case of alleged 
unauthorized telephone-billed purchases (in most cases for 900-number 
services) the dispute resolution mechanisms appropriate to other kinds 
of disputed charges.\55\
---------------------------------------------------------------------------

    \54\ 47 U.S.C. 228(c).
    \55\ The fact that a consumer could not dispute these charges 
under the Rule in no way affected the consumer's right under State 
law to refuse to pay for a service that was not ordered.
---------------------------------------------------------------------------

    Changes in the marketplace. In the years since adoption of the 
original Rule, the marketplace has changed. In addition to pay-per-call 
services, many other goods and services are now the subject of 
telephone-billed purchases. More important, billing based on ANI for 
services accessed or received through dialing patterns other than 900 
numbers (e.g., audiotext provided over international or toll-free 
numbers) has become more widely used. These dialing patterns are not 
blockable in the manner intended by TDDRA. Thus, it is clear now that 
it is possible to offer telephone-billed purchases through methods that 
cannot be blocked as TDDRA intended.
    In addition to audiotext services, many other products and 
services, including club memberships, voice mail, Internet access, 
personal 800 numbers, and pagers, are now available through telephone-
billed purchases.\56\ Though some of these services are offered in a 
non-deceptive manner, in many instances, consumers have been charged 
for these miscellaneous services on their telephone bills even though 
they had never authorized or ordered the goods or services for which 
they were being charged.\57\ These unauthorized charges have been 
characterized by the popular press as ``cramming.'' In theory, there is 
no limit to the types of products or services that may be billed on 
consumers' telephone statements.
---------------------------------------------------------------------------

    \56\ Such services, often referred to as ``enhanced services,'' 
are billed on a telephone bill through the use of the 42-50-01 
Exchange Message Interface (``EMI'') billing records.
    \57\ FTC v. Hold Billing Services, Ltd., No. SA98CA0629 FB (W.D. 
Texas, filed July 19, 1998).
---------------------------------------------------------------------------

    The Commission has received approximately 9,000 complaints about 
cramming since October 1997. Cramming has become the fifth most common 
complaint by consumers, as reflected in consumer contacts with the FTC 
through its Consumer Response Center. Based on the record in this rule 
review proceeding, on the consumer complaints received about this 
problem, and on recent State \58\ and Commission \59\ law enforcement 
experience, the Commission believes that unauthorized charges pose a 
very serious threat to consumers in the telephone-billed purchase 
marketplace, and thus a corresponding threat to the healthy growth of 
this innovative purchasing mechanism.
---------------------------------------------------------------------------

    \58\ See, e.g., State of Wisconsin v. Telecom Operator Service 
d/b/a USP&C Operator Services, No. 98 CV 2319 (Cir Ct. Milwaukee 
County, filed March 27, 1998; amended complaint filed July 27, 1998) 
(continuing to bill line subscribers who deny ordering services or 
who request backup regarding charges); People of Illinois v. RCP 
Enterprises Group, et. al., No. 98 CH 112 (Cir. Ct., 7th Jud. Cir.--
Sangamon County, filed March 19, 1998) (using \1/16\-inch print on 
opposite side of sweepstakes entry form as authorization to bill 
consumer for calling card services); People of Illinois v. BLJ 
Communications, No. 98 CH 113 (Cir. Ct., 7th Jud. Cir.--Sangamon 
County, filed March 19, 1998) (sustaining charges for unordered pre-
paid calling cards despite informing consumers that credits would be 
issued); People of Illinois v. Coral Communications Inc., No. 98 CH 
3526 (Cir. Ct., Ch. Div.--Cook County, filed March 1998) (using 
sweepstakes entry forms as authorization to bill for pre-paid 
calling cards and voice mail, and sustaining charges for unordered 
pre-paid calling cards and voice mail despite informing consumers 
that credits would be issued); People of Illinois v. New World 
Telecommunications Inc., No. 98 CH 115 (Cir. Ct., 7th Jud. Cir.--
Sangamon County, filed March 19, 1998) (billing line subscribers for 
voice mail which they did not order, and failing to provide 
effective billing dispute mechanism); State of Missouri ex. rel. 
Nixon v. Coral Communications Inc., No. 98 CC 716 (Cir. Ct., St. 
Louis County, filed 1998) (using miniature typeface on contest entry 
forms as authorization to bill for pre-paid calling cards and voice 
mail, and sending follow-up miniature typeface ``junk mail'' 
postcards as confirmation and last chance for consumer to cancel 
services).
    \59\ See, e.g., FTC v. Interactive Audiotext Services, Inc., No. 
98-3049 CBM (C.D. Calif., filed Apr. 22, 1998); FTC v. International 
Telemedia Associates, Inc., No. 1-98-CV-1935 (N.D. Ga., filed July 
10, 1998); and Hold Billing Services.
---------------------------------------------------------------------------

    Proposed definition. The first eight billing errors listed in 
Section 308.2(b) of the proposed Rule remain virtually identical to 
those in the original Rule.\60\ The proposed Rule, however, adds three 
additional billing errors to make newly-emerging problems associated 
with unauthorized charges subject to the Rule's dispute resolution 
procedures.\61\ A discussion of these provisions follows.
---------------------------------------------------------------------------

    \60\ The only change is that the proposed Section 308.2(b)(8) 
slightly modifies the language in Section 308.7(2)(viii) of the 
original Rule to more clearly convey that it is a billing error to 
identify charges for telephone-billed purchases in a manner that 
violates the Rule's requirements for billing statement disclosures.
    \61\ Specifically, these amendments are proposed pursuant to the 
Commission's authority under 15 U.S.C. 5724(2)(H) to prescribe 
additional billing errors, and pursuant to its rulemaking authority 
under 15 U.S.C. 5711(a), 5721(a), and 5723.
---------------------------------------------------------------------------

    Section 308.2(b)(9)--Charges resulting from a purported 
presubscription agreement that does not meet the requirements of the 
Rule. This proposed Section specifies that the term ``billing error'' 
includes any charge incurred pursuant to a purported presubscription 
agreement that does not meet the requirements of the proposed Rule's 
definition of that term.\62\ This would address a significant problem 
that has surfaced since the Rule was promulgated, whereby consumers who 
have never entered into a presubscription agreement with a

[[Page 58532]]

provider are charged for audiotext services that are, or allegedly have 
been, provided pursuant to a presubscription agreement.\63\
---------------------------------------------------------------------------

    \62\ ``Presubscription agreement'' is defined in the proposed 
Rule at Sec. 308.2(j).
    \63\ See, e.g., Interactive Audiotext Services. See, also, 
FLORIDA at 8; NCL at 4-5; NAAG at 11; Tr. at 169, 193-94.
---------------------------------------------------------------------------

    This situation occurs when a telephone line subscriber is billed 
for charges under a presubscription agreement entered into by some 
other party who dialed an 800 or other toll-free number using the 
subscriber's telephone.\64\ The Commission continues to be concerned 
that presubscription agreements not be mere shams to justify billing a 
consumer for calls to toll-free numbers, or for services sold under an 
``agreement'' that is based solely on the fact that a telephone call 
was placed from that consumer's telephone (i.e., based solely on ANI 
capture).\65\ The proposed new definition of presubscription agreement 
is based on this concern, and the corresponding billing error contained 
in Section 308.2(b)(9) provides recourse for consumers who have been 
wrongly billed for telephone-billed purchases resulting from purported 
presubscription agreements entered into by another party, or resulting 
from purported presubscription agreements \66\ that otherwise do not 
meet the requirements of the Rule.
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    \64\ See, e.g., Interactive Audiotext Services. In its comment, 
NCL stated that most of the audiotext-related complaints they 
receive involve 800 numbers. NCL at 2.
    \65\ See, e.g., U.S. v. American TelNet, Inc., No. 94-2551 CIV-
NESBIT (S.D. Fla., filed Nov. 30, 1994). In that case, the 
Commission obtained $2 million in redress and a civil penalty of 
$500,000 against American TelNet for charging consumers for 
information or entertainment services accessed by calling 800 
numbers, in violation of the Rule's requirements.
    \66\ For there to be a ``purported'' presubscription agreement, 
the vendor need not explicitly claim that a charge is based on a 
presubscription agreement. For instance, where a consumer is charged 
without authorization for a service for which the proposed Rule 
requires a presubscription agreement (e.g., monthly or other 
recurring pay-per-call service charges), the consumer can make use 
of this billing error to dispute the charge.
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    Section 308.2(b)(10)--Unauthorized charges not avoidable by 
blocking. Section 308.2(b)(10) of the proposed Rule would treat as a 
billing error any charges on a customer's billing statement that were 
``not expressly authorized by that customer'' and that were not 
``blockable pursuant to 47 U.S.C. 228(c).'' \67\ This provision would 
enable a consumer to dispute a charge and to receive a refund when a 
charge was not authorized by that consumer, and the charge would not 
have been avoided had the consumer elected TDDRA blocking. This 
proposed billing error dovetails with proposed Section 308.17, which 
explicitly requires the ``express authorization'' of the person to be 
billed for any telephone-billed purchase that is not avoidable by TDDRA 
blocking.
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    \67\ Proposed Section 308.2(b)(10). Only the form of blocking 
specified by Congress in TDDRA, codified at 47 U.S.C. 228(c), will 
satisfy the requirements of this subsection.
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    The Commission does not propose revising the definition of 
``billing error'' to bring in all unauthorized telephone-billed 
purchase charges. The Commission believes that this would sweep too 
broadly. In many instances, consumers still have a practical, simple, 
and cost-free method of avoiding a large category of unauthorized 
telephone-billed purchases--namely, blocking of services accessed 
through 900 numbers.\68\ Generally, where 900-number blocking would 
have been effective to enable a consumer to avoid an unauthorized 
charge, the Commission believes it would be an undue burden on billing 
entities to require them to determine if such charges were, in fact, 
authorized.\69\
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    \68\ Many commenters noted that the availability of 900-number 
blocking has resulted in a dramatic decrease in the number of 
complaints about 900-number services. AMERITECH at 2; AT&T at 3; 
FLORIDA at 10; SW at 4; SNET at 2-3; NCL at 2.
    \69\ However, where a single call to a blockable 900 number 
results in monthly or other recurring charges on a consumer's 
telephone bill, the Commission does not believe that it would be an 
undue burden for a billing entity to show proof of authorization. A 
single call to a pay-per-call service is simply not enough for a 
vendor, service bureau, or billing entity to assume that the 
telephone subscriber has authorized his or her enrollment in a 
``psychic club'' or other similar service plan. The Commission 
proposes requiring that these charges be provided only pursuant to a 
presubscription agreement that meets all of the requirements of the 
proposed Rule's definition of that term. See proposed Section 
308.14.
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    In situations where audiotext services are offered through an 
unblockable dialing pattern, however, a consumer has no means to 
protect herself from being billed for charges that result from another 
person accessing the service using her telephone. Many of the 
commenters and workshop participants identified this as a significant 
problem and a source of numerous complaints.\70\ Where TDDRA blocking 
cannot effectively prevent access to telephone-billed purchasing, the 
vendor, service bureau, and billing entity should have the obligation 
to ensure that the line subscriber has expressly authorized the 
purchase. Under these circumstances, consumers who believe that they 
have been billed for an unauthorized charge should have the right to 
dispute the charge under proposed Section 308.20, and to receive proof 
of authorization before collection activities continue.
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    \70\ FLORIDA at 8; NCL at 4-5; NAAG at 11; Tr. at 169, 193-94, 
472.
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    Some commenters urged that the Commission require that all 
audiotext services be provided through the 900-number dialing 
platform.\71\ Instead, the Commission proposes a more flexible 
approach--specifying that it is a billing error if the consumer 
receives charges for a telephone-billed purchase that the consumer did 
not authorize, and the telephone-billed purchase could not have been 
prevented by TDDRA blocking. This will create an incentive for 
providers to use a dialing platform that is subject to TDDRA-blocking, 
because by using such a dialing platform, these providers will not be 
obligated under the proposed Rule to secure evidence that such charges 
were expressly authorized by the person being billed.
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    \71\ See, e.g., SW at 2; SNET at 2; AT&T at 29-30.
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    The Commission uses the term ``express authorization'' in 
describing this billing error to indicate that it is not sufficient for 
a provider to demonstrate that the telephone of the consumer being 
billed was the telephone used to make the call that resulted in a 
telephone-billed purchase. In order to sustain the charge, the provider 
must show tangible evidence that the person being billed for the 
telephone-billed purchase actually consented to the charge.\72\
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    \72\ For example, a tape recording of the person who was billed, 
agreeing in advance to pay for the charge after hearing the material 
terms of the agreement, would constitute evidence of such 
authorization sufficient to show that this billing error did not 
occur. Of course, if the voice recording was not of the person being 
billed, the vendor would not be able to sustain the charge. For 
additional examples of evidence of ``express authorization,'' see 
discussion of proposed Sec. 308.17, infra.
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    Section 308.2(b)(11)--Inconsistency with blocking option selected. 
The Commission is aware of complaints from consumers who allege that 
900-number calls have been made from their telephones even though the 
consumer had previously opted to have a 900-number block on their 
telephone.\73\ Section 308.2(b)(11) of the proposed Rule addresses this 
situation by specifying that it is a billing error when a consumer 
receives a telephone bill containing a charge that is inconsistent with 
a blocking option already selected by the consumer. This billing error 
will provide the consumer with a means to challenge such a charge and 
receive a credit or refund if in fact the consumer had already elected 
to block access to that type of service or dialing pattern.

[[Page 58533]]

Under this scenario, regardless of the reason for the block being 
ineffective (i.e., because the block failed or because someone using 
the consumer's telephone ''dialed around`` the block),\74\ the consumer 
would be entitled to a credit or refund if they had elected to block 
such calls and the block was supposed to be in place at the time the 
call was placed. The Commission believes that once a consumer has taken 
the affirmative step to elect TDDRA blocking, this should be 
interpreted as an affirmative statement that the consumer does not 
authorize any telephone-billed purchases that should have been blocked 
by this action. If the TDDRA blocking system fails, the economic burden 
should not be borne by the consumer who had taken the steps available 
to guard against access to such purchases.
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    \73\ TURJANICA at 1. See also, Transcript of ``FCC Public Forum 
on Local Exchange Carrier Billing for Other Businesses,'' (June 24, 
1997), p. 113.
    \74\ For example, a caller can ``dial around'' a 900-number 
block that has been placed on the line by the line subscriber's 
carrier simply by dialing another carrier's ``10-XXX'' access code, 
then dialing a 900 number.
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    (3) Section 308.2(e)--Customer. The definition of ''customer`` 
remains largely unchanged. Depending upon the context, the term refers 
to either the person who made the call or the person who received the 
bill for a telephone-billed purchase, or both. The only proposed 
substantive change is that an unnecessarily limiting phrase at the end 
of the definition was deleted. The Commission intends for this 
definition to cover any recipient of a bill for a telephone-billed 
purchase, regardless of whether he or she is the subscriber.
    (4) Section 308.2(f)--Pay-per-call purchase. The Commission has 
added a definition of ``pay-per-call purchase'' to fill the need for a 
term that succinctly refers to both an attempt to purchase a pay-per-
call service as well as an actual purchase of such services.
    (5) Section 308.2(g)--Pay-per-call service--Background. Virtually 
all interested parties--industry as well as consumer advocates and law 
enforcement--overwhelmingly support extending the definition of ``pay-
per-call service'' to cover audio information and entertainment 
services that are accessed and delivered through dialing patterns other 
than 900, but in other respects are similar to 900-number services and 
subject to the same abuses.\75\ Indeed, the majority of complaints now 
relate to toll-free numbers, international numbers, or other dialing 
patterns that do not use the 900-number prefix.\76\ In general, the 
problems associated with these non-900 audiotext services are the same 
types of problems that Title II of TDDRA was designed to prohibit--
misrepresentations about the underlying service to be provided and 
inadequate cost disclosures.\77\
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    \75\ AARP at 3; ALLIANCE at 4-6; AT&T at 24; CINCINNATI at 1; CU 
at 1; FLORIDA at 2; NCL at 3; GORDON at 1, 3; ISA at 26-27; SNET at 
4-6; SW at 2, 4-5; TSIA at 20-21; Tr. at 17-19, 21-24, 38-40, 418, 
458.
    \76\ ALLIANCE at 2-3; CINCINNATI at 1; FLORIDA at 4; NAAG at 1; 
NCL at 2; SW at 2; SNET at 3-4. NCL states that, in 1996, it 
received three times as many complaints about 800 numbers as it did 
about 900 numbers. (NCL at 2).
    \77\ See, e.g., FTC v. International Telemedia Associates, Inc., 
No. 1-98-CV-1935 (N.D. Ga., filed July 10, 1998); FTC v. Interactive 
Audiotext Services, Inc., No. 98-3049 CBM (C.D. Calif., filed April 
22, 1998); FTC. v. Audiotex Connection, Inc., No. 97-0726 (E.D.N.Y., 
filed Feb. 13, 1997); and FTC. v. Daniel B. Lubell, No. 3-96-CV-8200 
(S.D. Iowa, filed Dec. 17, 1996).
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    The influx of complaints in recent years concerning international 
audiotext services drew particular attention from commenters, many of 
whom asserted that it is essential for international audiotext services 
to be subject to the same rules as 900-number services in order to 
``level the playing field'' among competitors and protect all consumers 
who utilize such services.\78\ In fact, several commenters suggested 
that all audiotext services should be restricted to the 900-number 
dialing pattern to ensure adequate protection to consumers.\79\ The two 
commenters representing the international audiotext industry were the 
only commenters who opposed the extension of the definition of ``pay-
per-call services'' to include international dialing patterns.\80\
---------------------------------------------------------------------------

    \78\ See, e.g., GORDON at 3; ISA at 26-27; CINCINNATI at 1; SNET 
at 3; Tr. at 17-19, 458.
    \79\ SNET at 2; SW at 2; AT&T at 29-30; Tr. at 344, 369.
    \80\ ATN generally; ITA at 3-9.
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    Characteristics of services that should be covered by the Rule. The 
Commission believes that there are two fundamental distinguishing 
characteristics of all audiotext services: (1) the instantaneous nature 
of the transaction; and (2) the eventual receipt of remuneration by the 
provider of the audio information or entertainment. The instantaneous 
creation of a financial obligation--the result of the instant capture 
of ANI by the provider--not only enhances the convenience for the 
seller and buyer, it also creates fertile ground for deception.\81\ 
Title II of TDDRA, and the provisions of the original Rule that 
implemented it, were designed specifically to remedy this potential for 
misrepresentation.
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    \81\ Congress recognized that the instantaneous nature of the 
purchase of pay-per-call services is what made the consumer 
protections under Title II of TDDRA so important. Congress noted 
that ``[b]ecause the consumer most often incurs a financial 
obligation as soon as the pay-per-call transaction is completed, the 
accuracy and descriptiveness of vendor advertisements become crucial 
in avoiding consumer abuse.'' 15 U.S.C. 5701(b)(6).
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    Based on the record in this proceeding, and based on the 
Commission's enforcement experience, the Commission believes that, in 
any circumstance where a provider solicits consumers to call a 
telephone number to receive information or entertainment, and where 
that provider will receive a per-call or per-minute payment as a result 
of those calls, the service is susceptible to the same types of unfair 
and deceptive practices that are prohibited by Title II of TDDRA.\82\ 
The record does not suggest any justification for treating non-900 
audiotext services any differently from 900 audiotext services.\83\ In 
both circumstances, the two key factors which create the incentive and 
susceptibility for fraud are both present: instantaneous purchase by 
virtue of placement of a telephone call, and receipt of remuneration 
from the call revenue to the provider of the audio information or 
entertainment.
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    \82\ See, e.g., FTC v. International Telemedia Associates, Inc., 
No. 1-98-CV-1935 (N.D. Ga., filed July 10, 1998); FTC v. Interactive 
Audiotext Services, Inc., No. 98-3049 CBM (C.D. Calif., filed Apr. 
22, 1998); and FTC v. Daniel B. Lubell, No. 3-96-CV-8200 (S.D. Iowa, 
filed Dec. 17, 1996). See also, ALLIANCE at 2, 4; AARP at 2-3; AT&T 
at 6; CINCINNATI at 1; CU at 1; FLORIDA at 1, 5; GORDON at 2; ISA at 
4, 26-27; NAAG at 9-10; NCL at 3; SNET at 4; SW at 2; TSIA at 20-21.
    \83\ In fact, the record indicates that the danger of unfair and 
deceptive practices may be greater in non-900 audiotext because 
consumers are not able to effectively block access to these 
services. See, e.g., International Telemedia Associates and 
Interactive Audiotext Services. See also, ALLIANCE at 2-4; NAAG at 
2.
---------------------------------------------------------------------------

    Proposed definition of ``pay-per-call services.'' Pursuant to the 
authority granted to the Commission under Section 701(b) of the 1996 
Act, the Commission proposes to extend the definition of ``pay-per-call 
services'' to cover all purchases of telephone-based audio information 
or audio entertainment services. The new definition is set forth in 
Section 308.2(g) of the proposed Rule.
    Section 308.2(g)(1) sets forth the statutory definition of ``pay-
per-call services.'' Sections 308.2(g)(2)-(3) augment this definition 
while retaining the substance of 47 U.S.C. 228(i)(1)(A) and 228(i)(2), 
pursuant to the Commission's mandate under Section 701 of the 1996 Act. 
The proposed definition is designed to bring within its reach any audio 
information or entertainment service, accessed by dialing any telephone 
number or receipt of any telephone call, where all or a portion of the 
charge paid by the consumer ``results in payment, either directly or 
indirectly, to the person who

[[Page 58534]]

provides or purports to provide such information or entertainment 
service.'' \84\ This proposed change in the Rule brings international 
audiotext services squarely within the definition of ``pay-per-call 
services.''
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    \84\ There are four exemptions which are discussed infra: (1) 
services resulting in de minimis remuneration to the provider; (2) 
services delivered pursuant to a valid presubscription agreement; 
(3) services utilizing telecommunications for the deaf; (4) and 
tariffed directory services provided by a common carrier or its 
affiliate.
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    Both the written comments and the workshop discussion strongly 
supported using remuneration to an information or entertainment 
provider as the distinguishing characteristic of pay-per-call 
services.\85\ Several commenters, however, were opposed to the strict 
use of a remuneration standard to the extent that it would encompass 
some services where the remuneration was disguised within the charge 
paid by the consumer for the transmission of the call (e.g., 10-XXX 
audiotext,\86\ international audiotext).\87\ One commenter supported 
expansion of the definition of pay-per-call services to cover ``all 
international audiotext transactions'' \88\ but strongly opposed the 
extension of the definition of pay-per-call services to cover audiotext 
services where the consumer merely pays a domestic toll charge that is 
similar in price to a ``content neutral'' (non-audiotext) call.\89\ 
Another commenter went further, opposing coverage of any audiotext 
services where the payment to the provider is contained within the 
toll-charge. The commenter characterized those services where the 
remuneration takes the form of a toll charge as ``free to consumers'' 
because the consumers pay ``no more than the normal toll charge.'' \90\
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    \85\ See, e.g., ALLIANCE at 5; NAAG at 9-10; AT&T at 8, 25-28; 
Tr. at 331.
    \86\ Another alternative to the 900-number dialing pattern is 
audiotext accessed through a particular common carrier's ``10-XXX'' 
access code (such as ``10-321''). Under this scenario, callers reach 
the audiotext service by dialing the 10-XXX number followed by a 
long-distance telephone number. The resulting toll charge to the 
consumer thus includes a hidden charge for the audiotext service 
itself, because the carrier and the vendor share the call revenue. 
The FCC effectively put an end to this practice through a 
pronouncement in an advisory opinion letter, which stated that 
common carriers that engage in such practices are ``not providing 
common carrier services in a just and reasonable manner as required 
by Section 201(b) of the [Communications] Act and the spirit of 
[Title I of TDDRA].'' See letter dated September 1, 1995, to Ronald 
J. Marlowe of Cohen, Berke, Bernstein, Brodie, Kondell & Laszlo, 
from John B. Muleta, Chief, Enforcement Division, Common Carrier 
Bureau, Federal Communications Commission. These 10-XXX access codes 
are currently being converted to ``101-XXX'' numbers.
    \87\ DMA generally and at 4; ISA at 28; Tr. at 309-310.
    \88\ ISA at 26-27.
    \89\ ISA at 28.
    \90\ DMA at 2-3. The Commission finds the characterization of an 
international audiotext service as ``free'' to be misleading. This 
issue is specifically addressed in FTC. v. Daniel B. Lubell, No. 3-
96-CV-8200 (S.D. Iowa, filed Dec. 17, 1996).
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    The fact that an international audiotext or 10-XXX audiotext call 
may cost the same as an ordinary, non-audiotext, ``content neutral'' 
toll call is not determinative on the issue of susceptibility to the 
unfair and deceptive practices prohibited by the Commission's Rule.\91\ 
Content neutral calls (i.e., regular toll calls) might cost the same 
amount as certain audiotext calls, but the fact that there is no 
remuneration to the call recipient in the case of a content neutral 
call is an important distinction. Because the recipient of a content 
neutral call lacks the economic incentive to induce consumers to call 
as often as possible and stay on the line as long as possible, content 
neutral calls are not susceptible to the types of unfair and deceptive 
practices that are prohibited by the original Rule. It is the presence 
of this economic incentive in audiotext services that gives rise to the 
susceptibility to unfair and deceptive practices.\92\
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    \91\ Similarly, the fact that some 900-number audiotext programs 
may cost the same or less than many international or domestic toll 
charges does not make these services any less susceptible to the 
unfair and deceptive practices prohibited by the Commission's Rule.
    \92\ On the other hand, to the extent that a great portion of 
the toll charge actually goes towards the genuine cost of 
transmission of the call, and not to the information or 
entertainment provider, a call might fit within the exemption 
proposed by the Commission for de minimis payments to a provider, 
discussed infra. Proposed Section 308.3(a)(3)(ii).
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    Circumstances where there will be a rebuttable presumption of 
remuneration to a provider. Although remuneration to the service 
provider is the hallmark of any pay-per-call service, the actual 
details evidencing certain remuneration agreements are not likely to be 
immediately available to federal and State law enforcement authorities. 
For example, information about contractual arrangements between a 
vendor and a foreign telephone company may not be readily available. 
Nonetheless, enforcement experience of the FTC and State attorneys 
general has shown that there are certain circumstances that generally 
indicate that a revenue-sharing agreement exists.\93\ Thus, any of 
these circumstances will give rise to a rebuttable presumption that 
payment to a provider of audio information or entertainment services as 
described under 308.2(g)(2) has been made:

    \93\ See, e.g., Interactive Audiotext Services, Inc., No. 98-
3049 CBM (C.D. Calif., filed April 22, 1998); FTC v. Audiotex 
Connection, Inc., No. 97-0726 (E.D.N.Y., filed Feb. 13, 1997); and 
Daniel B. Lubell.
---------------------------------------------------------------------------

    (a) Where persons are solicited to call an international 
telephone number in order to receive audio information or 
entertainment that is not specifically related to or dependent on 
the country where the call supposedly terminates; \94\
---------------------------------------------------------------------------

    \94\ For example, in Daniel B. Lubell, callers were solicited to 
call telephone numbers in Guyana and the Dominican Republic in order 
to enter a sweepstakes to win a free Hawaiian vacation and to 
receive information about free domestic airline travel.
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    (b) Where there is a sudden and unusual increase in the number 
of long-distance calls to a particular telephone number, or where 
the number of calls to an information or entertainment number is 
unusually high; \95\
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    \95\ For example, in Audiotex Connection, AT&T noted an unusual 
and sudden increase in call volume to several telephone numbers in 
Moldova.
---------------------------------------------------------------------------

    (c) Where persons are solicited to call one or more specific 
telephone numbers via a specific common carrier in order to receive 
audio information or entertainment services; \96\ and
---------------------------------------------------------------------------

    \96\ For example, solicitations for consumers to call specific 
telephone numbers, along with instructions for a caller to first 
dial a carrier's 10-XXX (now 101-XXXX) access code.
---------------------------------------------------------------------------

    (d) Where a provider of audio information or audio entertainment 
utilizes advertisements that emit electronic signals, including data 
transmission of computer programs or computer instructions, that can 
automatically dial a telephone number which will result in charges 
to a subscriber.\97\

    \97\ Audiotex Connection.
---------------------------------------------------------------------------

    The fact that any one of these circumstances is present will not be 
determinative of whether remuneration to a provider actually exists. It 
merely gives rise to a presumption of remuneration that can be rebutted 
with credible evidence that, in fact, there has been no payment to the 
provider.
    Scope of definition. The proposed definition of ``pay-per-call 
services'' covers ``audio information and audio entertainment 
[services], including simultaneous voice conversation services.''
    This phrase includes live as well as pre-recorded information or 
entertainment programs, in addition to so-called ``group access 
bridged'' services where a provider connects two or more callers to 
discuss a certain topic.\98\ In other words, this definition will 
include all services where a person provides or purports to provide the 
audio content of a call, and where that provider receives payment on 
the basis of calls placed to access that content.

[[Page 58535]]

The expanded portion of the proposed definition includes all of the 
audio information and audio entertainment services included in the 
statutory definition of ``pay-per-call'' \99\ but, pursuant to the 
Commission's authority under Section 701(b)(1) of the 1996 Act, omits 
any limitations based on dialing pattern.
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    \98\ For example, if a provider offers callers a list or menu of 
suggested topics or otherwise represents that callers will be able 
to listen to or participate in discussions concerning certain 
topics, such as ``adult'' chat, that service would be covered by the 
definition. Providers who make no representations regarding the 
content of a call, and who exercise no control, influence, or 
interest over the content of the call would not be covered by the 
definition.
    \99\ 47 U.S.C. 228(i)(1)(A)(i) and (ii).
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    The proposed expanded definition includes only those services 
``where the action of placing the call, receiving a call, or subsequent 
dialing, touch-tone entry, or comparable action of the caller'' results 
in a charge to a customer.\100\ This phrase is based on the language 
contained in the original Rule's definition of ``telephone-billed 
purchase.'' \101\ However, in addition to the language contained in 
that definition, the Commission has added ''receiving a call`` to the 
list of actions that would result in a charge to the consumer and thus 
be included as a ``pay-per-call service.''
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    \100\ ``Comparable action'' includes any scenario where a caller 
takes action that will result in a billing statement being generated 
by virtue of ANI. See, e.g., FTC v. International Telemedia 
Associates, Inc., No. 1-98-CV-1935 (N.D. Ga., filed July 10, 1998) 
and Interactive Audiotext Services, Inc., No. 98-3049 CBM (C.D. 
Calif., filed April 22, 1998). It also includes, but is not limited 
to, any action that a consumer might take while on the Internet or 
online that may cause his or her computer modem to dial a telephone 
number that results in a charge. See Audiotex Connection.
    \101\ Section 308.7(a)(6) of the original Rule uses the term 
``telephone-billed purchase'' to describe transactions to which the 
billing and collection provisions of the Rule apply.
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    The Commission uses the phrase ``receiving a call'' to refer to all 
instances where a consumer incurs a charge by virtue of receiving a 
telephone call, including traditional ``collect call'' services, as 
well as other scenarios whereby the receipt of a call results in a 
charge. The Commission's experience with callback schemes in response 
to toll-free calls by consumers demonstrates that these schemes are 
susceptible to the types of abuses prohibited by the Commission's 
Rule.\102\ The fact that the services are accessed by merely answering 
a telephone call (rather than placing a call) may make them even more 
susceptible to unfair and deceptive practices than outgoing calls from 
consumers because the recipient of the bill has even less ability to 
avoid charges for such services.\103\
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    \102\ In fact, the Commission's Rule explicitly prohibits 
collect callback schemes that result from calls to toll-free 
numbers. See, e.g., International Telemedia Associates.
    \103\ Although audiotext services delivered by incoming calls to 
consumers are covered by the proposed definition of pay-per-call 
services, this does not mean that such services would be permissible 
under the proposed Rule. On the contrary, billing for such services 
would almost certainly violate proposed Section 308.17.
---------------------------------------------------------------------------

    Section 308.2(g)(3)(i)-(iii)--Exemptions. These provisions describe 
the circumstances under which an audio information or entertainment 
service will not be considered to be a ``pay-per-call service'' and 
will thus be exempt from the Rule's requirements, even if it would 
otherwise meet the criteria contained in proposed Section 308.2(g)(2). 
Each exemption is discussed below.
    Section 308.2(g)(3)(i)--Presubscription agreement. This section 
will exempt from the Rule's requirements calls made pursuant to valid 
``presubscription agreements,'' which are described, infra. The 
Commission's intention is that no exemption will exist unless the 
presubscription agreement meets all of the elements of the definition 
of that term, as set forth in proposed Sec. 308.2(j). This includes the 
requirement that the provider demonstrate that the presubscription 
agreement has been entered into with the person from whom payment is 
sought. As discussed, infra, the Commission has learned that, in many 
instances, providers of audiotext services have attempted to collect 
payment pursuant to a purported presubscription agreement from persons 
who did not authorize or were not aware of the existence of such an 
agreement. In order to be valid, a presubscription agreement must meet 
the criteria set forth in proposed Section 308.2(j).\104\ Any agreement 
not meeting these criteria is not exempt from the Rule and its 
requirements.
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    \104\ Among other things, this means that the agreement must be 
entered into with the person to be charged for the service.
---------------------------------------------------------------------------

    Section 308.2(g)(3)(ii)--De minimis payments. This proposed section 
will allow a vendor of audio information or audio entertainment 
services to show that a service is not a pay-per-call service by 
demonstrating that the payment received by the provider does not exceed 
a specified amount.\105\ Many of the commenters and workshop 
participants supported a rebuttable presumption approach to a 
definition--whereby a service would be presumed to be ``pay-per-call'' 
unless the provider could show certain facts mitigating the likelihood 
of fraud.\106\ The Commission proposes such an approach. Providers 
could rebut the presumption of ``pay-per-call'' by demonstrating that 
the payment for the information or entertainment is de minimis as 
defined by Section 308.2(g)(3)(ii).
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    \105\ The Commission intends that the demonstration specified by 
this section need only be made upon a prior request by the 
Commission or its staff, or by any other government agency with the 
authority to enforce this Rule, or as a defense to an enforcement 
action under this Rule.
    \106\ Alliance at 5; ISA at 28; AT&T at 8, 25-28; Tr. at 329, 
331, 335.
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    At some point the amount of shared revenue is not sufficiently 
large for a service to be susceptible to the unfair or deceptive 
practices prohibited by Title II of TDDRA. Thus, the proposed Rule sets 
a specific threshold for such revenue, below which an audiotext service 
would not be considered pay-per-call, even if it otherwise met the 
definitional criteria. The comments and discussion at the workshop 
support this approach.\107\ The Commission has proposed that if the 
provider demonstrates that, on average,\108\ the payments to the 
provider will not exceed $.05 per minute or $.50 per call for the 
particular service, then the service will not be considered pay-per-
call.\109\ The Commission seeks comment on the appropriate threshold 
figure for defining pay-per-call, including any relevant statistics or 
other numerical support.\110\
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    \107\ Tr. at 335-36. The AT&T supplemental comment argued 
against a threshold that was triggered by a certain percentage of 
the payment going to the vendor. AT&T-2 at 2-4. However, the AT&T 
supplemental comment did not address the possibility of a threshold 
triggered by a specific per-minute amount as proposed by the 
Commission. Indeed, many of the arguments made by AT&T in opposition 
to a percentage threshold seem to provide support for a nominal per-
minute threshold.
    \108\ The average will be calculated for each different 
audiotext service offered by the provider. In the case of a ``loss 
leader,'' where call volumes are inflated with low charges for some 
consumers to bring down the average to allow others to be charged 
higher rates, the Commission will consider services that charge 
different rates (e.g., one high-priced and the other low-priced) to 
be separate services.
    \109\ The provider would only be required to demonstrate that 
the remuneration it receives fell below either the $0.50 per-call de 
minimis threshold or the $0.05 per-minute de minimis threshold. The 
Commission has selected these two figures based on its enforcement 
experience and on widely available data provided by service bureaus 
for international audiotext services. The appropriate threshold is 
one below which there is little incentive for vendors to solicit 
calls for the sale of audio information or entertainment. Certain 
arrangements, such as those described by AT&T in its comments 
(``TSAAs'') may not be subject to unfair or deceptive practices 
because the payments involved may fall below the threshold. Although 
the record does not contain details relating to the level of 
remuneration involved in TSAAs, AT&T's statements at the workshop 
would seem to indicate that a $0.05 de minimis threshold would 
exempt these agreements. Tr. at 355. As explained in note 110, 
infra, the Commission does not agree with the view of some 
commenters who urged that exemptions should be granted for specific 
categories or types of revenue sharing arrangements, such as an 
exemption for all TSAAs. See, e.g., AT&T at 8, 25-30.
    \110\ The Commission wants to ensure that its de minimis 
provision exempts only those information or entertainment services 
that are not susceptible to the unfair or deceptive practices 
covered by the Rule. One example of such a service is a local time 
or weather information line that is operated by a LEC. Undoubtedly, 
the LEC derives some minimal revenue for calls to these information 
lines. However, most callers will pay nothing to access the line. 
More importantly, the per-call and per-minute revenues derived by 
the common carrier for such a line are likely to be well below the 
de minimis thresholds. The Commission believes that the de minimis 
exemption is the best way to exempt such services--a categorical 
exemption for such information lines would be open to abuse by 
unscrupulous vendors who could use common carrier status to derive 
significant revenue from information or entertainment lines.

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[[Page 58536]]

    Other exemptions. Section 308.2(g)(3)(iii) exempts calls utilizing 
telecommunications services for the deaf, and tariffed directory 
services provided by a common carrier or its affiliate. This exemption 
tracks analogous language in the statutory definition of ``pay-per-call 
services'' found in Title I of TDDRA.\111\ The proposed Rule adds the 
word ``tariffed'' to clarify the meaning of the exemption, and to 
prevent unscrupulous vendors from seeking to abuse the exemption.
---------------------------------------------------------------------------

    \111\ 47 U.S.C. 228(i). The Commission has not been given the 
authority under Sec. 701(b) of the 1996 Act to extend the definition 
of pay-per-call services to eliminate these exemptions.
---------------------------------------------------------------------------

    Relationship to FCC regulations. Section 308.2(g)(4) states that 
this section shall not be construed to permit any conduct or practice 
otherwise precluded or limited by regulations of the Federal 
Communications Commission. For example, if the FCC were to adopt 
regulations prohibiting the use of a specific dialing pattern for pay-
per-call services, the FTC's ``pay-per-call service'' definition cannot 
be used as a basis to argue that the FTC has permitted such a practice. 
The Commission believes it is important to make it clear that a service 
is not necessarily legal or permissible for purposes of FCC regulation 
of pay-per-call services simply because it falls within the FTC's 
proposed definition of ``pay-per-call.''
    (6) Section 308.2(h)--Person. The definition has been modified to 
add ``unincorporated association'' and ``group'' to the list of 
entities that are considered to be a ``person'' for purposes of the 
proposed Rule. The Commission adds these two terms based on enforcement 
experience \112\ and the desire for consistency among its rules 
regulating telephone-related transactions.\113\
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    \112\ FTC v. Audiotex Connection, Inc., No. 97-0726 (E.D.N.Y., 
filed Feb. 13, 1997) (International audiotext scheme where one 
defendant did business as ``Electronic Forms Management,'' an 
unincorporated association).
    \113\ The definition of ''person`` in the Telemarketing Sales 
Rule includes all of these entities. 16 CFR 310.2(o).
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    (7) Section 308.2(i)--Personal identification number. Section 
308.2(i) provides a definition of ``personal identification number'' 
(``PIN''), a term used in the definition of presubscription agreement. 
The original Rule's definition of presubscription agreement used a 
similar term, ``identification number,'' but did not define that term 
or specify the manner in which it should be issued.
    Background. Use of a presubscription agreement allows a vendor to 
avoid the Rule's requirements by entering into a contractual agreement 
with a consumer for providing, and receiving payment for, goods or 
services in a manner that, absent the agreement, would otherwise be 
covered by the Rule. This means that if a provider has a valid 
presubscription agreement with a consumer, the provider may provide 
services to that consumer in a manner that would otherwise violate the 
Rule (e.g., the provider may charge a consumer for audiotext services 
accessed via a toll-free number). Where a consumer has entered a 
presubscription agreement, a PIN provides a means by which the consumer 
can control access to the service to which he or she has presubscribed. 
Thus, the original Rule establishes that one of the prerequisites of a 
PIN is that it prevent unauthorized access to the service by 
nonsubscribers.\114\
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    \114\ 16 CFR 308.2(e)(1)(iv).
---------------------------------------------------------------------------

    Nonetheless, some service providers have utilized PINs that do not 
prevent such unauthorized access. For example, some service providers 
have issued PINs over the telephone upon request, without taking 
sufficient steps to ensure that the party who has requested the PIN is 
also the person who will be billed for the presubscribed charges.\115\ 
Other providers have assigned a consumer's checking account number as a 
PIN and then debited that checking account for services purchased by 
any caller who presented that PIN number.\116\ Such billing methods do 
not prevent unauthorized access where insufficient steps are taken to 
ensure that the person paying by this method is actually authorized to 
debit that account. Purported presubscription agreements that entail 
these methods of assigning PINs do not satisfy the original Rule's 
criteria for a presubscription agreement because such PINs are 
ineffective to ``prevent unauthorized access by nonsubscribers.''
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    \115\ See, e.g., U.S. v. American TelNet, Inc., No. 94-2551 CIV-
NESBIT (S.D. Fla., filed Nov. 30, 1994) and FTC v. Interactive 
Audiotext Services, Inc., No. 98-3049 CBM (C.D. Calif., filed Apr. 
22, 1998). See, also, FLORIDA at 8, A44-A60; NAAG at 11; NCL at 4.
    \116\ Interactive Audiotext Services.
---------------------------------------------------------------------------

    Proposed definition of ``personal identification number.'' The 
proposed definition will furnish additional guidance to providers on 
what methods of assigning a PIN satisfy the Rule's requirements. The 
revised Rule specifies that the PIN must be ``unique to the 
individual.'' This means that the PIN must be assigned to the person 
who will be billed for the offered goods or services, not to a 
telephone number or account. PIN assignments on the basis of ANI do not 
satisfy the original Rule's requirement that a PIN prevent 
``unauthorized access to the service by nonsubscribers,'' \117\ and 
would continue to be inadequate under the proposed Rule because they 
are not unique to the individual. The requirement that a PIN be unique 
to the individual also means that a provider cannot issue the same PIN 
to more than one person. Moreover, a PIN cannot be based on a number 
that is likely to be known to other persons, such as the telephone 
number from which the call is placed, a person's checking account 
number, credit card number, or social security number. Since the 
purpose of a PIN is to limit access to the service to those persons who 
have entered into a presubscription agreement, allowing a well-known or 
published number (such as a telephone number) would do little to 
control access.
---------------------------------------------------------------------------

    \117\ 16 CFR 308.2(e)(1)(iv).
---------------------------------------------------------------------------

    The proposed definition also specifies that the PIN must be valid. 
Three conditions must be met in order for a PIN to be valid: (1) it 
must be requested by a consumer; \118\ (2) it must be provided to no 
person other than the person who will be billed for the service; \119\ 
and (3) it must be delivered to the person to be billed for the service 
simultaneously with a clear and conspicuous \120\ written disclosure of 
all the material terms and conditions associated with the 
presubscription

[[Page 58537]]

agreement, including the service provider's name and address, a 
business telephone number that the consumer may use to obtain 
additional information or register a complaint, and the rates for the 
service. Although the proposed Rule does not require that a 
presubscription agreement be signed, the Commission believes that it is 
important for the consumer to be provided with a written copy of the 
terms of the agreement before the service is accessed for the first 
time. Written disclosures sent along with the PIN ensure that the 
consumer will receive an ``unavoidable'' disclosure of the material 
terms and conditions before the service can be accessed and before any 
charges can accrue.
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    \118\ Thus, unsolicited issuance of PIN numbers will not meet 
the proposed Rule's requirements for establishing a valid PIN.
    \119\ A valid PIN will become invalid by later disclosure to the 
wrong party. Thus, providers must use caution when giving out PINs 
to persons who claim to have ``lost'' or ``forgotten'' a previously-
issued PIN.
    \120\ The concept of ``clear and conspicuous'' disclosure is 
well-developed in Commission case law and policy statements. See, 
e.g., Thompson Medical Co., 104 F.T.C. 648, 797-98 (1984); The 
Kroger Co., 98 F.T.C. 639, 760 (1981); Statement of Enforcement 
Policy, ``Clear and Conspicuous Disclosures in Television 
Advertising,'' Trade Regulation Reporter (CCH) para. 7569.09 (Oct. 
21, 1970); Statement of Enforcement Policy, ``Requirements 
Concerning Clear and Conspicuous Disclosures in Foreign Language 
Advertising and Sales Materials,'' 16 CFR 14.9.
---------------------------------------------------------------------------

    The Commission does not believe it is necessary to specify the 
method by which the PIN should be delivered; service providers may use 
whatever method of delivery is most appropriate. Regardless of the 
method chosen, however, the service provider will be responsible for 
ensuring that the PIN is not distributed to anyone other than the 
person who will be billed for services under the presubscription 
agreement.
    (8) Section 308.2(j)--Presubscription agreement--Background. The 
purpose of the presubscription agreement is to allow the seller and 
consumer to mutually agree to remove themselves from the TDDRA 
regulatory framework. The definition of this term generated substantial 
discussion both in the written comments and during the workshop. One 
significant issue was whether such agreements should be in writing and 
signed by the consumer. The audiotext industry generally opposed a 
writing requirement because it would inhibit the ``instantaneous'' 
nature of audiotext services offered through 800 numbers.\121\ Other 
parties countered industry's arguments by asserting that the proper 
vehicle for offering instantaneous information or entertainment has 
been, and continues to be, through the 900-number dialing pattern.\122\ 
These commenters believe that any vendor wishing to sell such goods or 
services through 800 numbers must take particular care to ensure that 
the consumer understands the material terms under which the service is 
offered, including that the consumer will be charged for the goods or 
services, and how much he or she will pay. One commenter specifically 
recommended that the Rule require these disclosures to be provided 
before the consumer incurs charges, even if that means that the 
purchase is not instantaneous.\123\
---------------------------------------------------------------------------

    \121\ PILGRIM at 19, 21-22; Tr. at 487-90.
    \122\ Tr. at 79, 493, 495.
    \123\ SW at 5.
---------------------------------------------------------------------------

    Many commenters favored a writing requirement because of the 
numerous complaints from consumers who have been charged for calls to 
800 numbers in situations where they did not authorize such charges or 
where the goods or services had been represented to be free.\124\ 
Several commenters were troubled by presubscription agreements that 
were formed orally during the course of a telephone call in which the 
consumer is issued an ``instant'' calling card or is asked to provide 
bank account information.\125\ As a result, they urged the Commission 
to ban oral transmission of presubscription agreements and to require 
that presubscription agreements be in writing.\126\ Many of the same 
commenters believed that a written agreement was particularly important 
in situations where charges would be recurring.\127\ NCL noted that 
many of the complaints received by its National Fraud Information 
Center (``NFIC'') were from consumers who thought that certain 800-
number calls were free but found out that they had been charged for the 
calls and/or inadvertently signed up for services, such as club 
memberships or voice mail, to which they had not expressly agreed.\128\ 
Two common carriers agreed that a presubscription agreement must be in 
writing.\129\
---------------------------------------------------------------------------

    \124\ FLORIDA at 8; NCL at 4-5; NAAG at 11; Tr. at 169, 193-94, 
472-74.
    \125\ NCL at 5; FLORIDA at 8; NAAG at 11.
    \126\ NCL at 5; FLORIDA at 8; NAAG at 11; SW at 2, 5-6; Tr. at 
18. NAAG suggested that electronic transmission of the agreement 
would also be sufficient to inform the consumer of the costs and 
terms and conditions of the service. (NAAG at 11). SW suggested that 
if electronic transmission is allowed, there should be a 10-day lag 
before the vendor could bill for the service, during which time the 
vendor should send a written confirmation of the agreement. (SW at 
2, 5-6).
    \127\ NCL at 5; FLORIDA at 8; NAAG at 11; TSIA at 16-17.
    \128\ NCL at 4. (In 1996, the NFIC received 85 complaints 
against one Texas-based company regarding unauthorized charges for 
voice mail service after consumers had called an 800-number for a 
``free'' psychic reading.)
    \129\ AT&T at 10; SW at 2, 5-6; Tr. at 488.
---------------------------------------------------------------------------

    The industry representatives as a whole generally opposed a 
requirement that the agreement be signed, based on the argument that 
the signature of an individual neither demonstrates legal competence 
nor that the proper person is being billed for the service.\130\ One 
industry member argued that requiring an executed agreement might 
prevent contemporaneous purchase of merchandise.\131\ Industry members 
also pointed out the difficulties in requiring an agreement to be 
signed and sent back, and that the failure of someone to sign and 
return an agreement would not necessarily indicate a lack of desire to 
use the service.\132\
---------------------------------------------------------------------------

    \130\ PILGRIM at 19, 21-22; Tr. at 487-90.
    \131\ PILGRIM at 19, 21-22; Tr. at 487-90.
    \132\ Tr. at 487-88.
---------------------------------------------------------------------------

    A presubscription agreement must meet general principles of 
contract law.\133\ Nonetheless, the Commission is aware of numerous 
examples of purported ``agreements'' created during calls to 800 
numbers that do not adhere to these basic principles of contract law--
e.g., agreements entered into with minors, or agreements where the 
party to be billed for the service is not the party who placed the call 
and supposedly entered into the agreement.\134\ Often, these purported 
``agreements'' involve the use of ANI to identify a billing name and 
address and to send a bill, a practice that frequently results in one 
consumer receiving a bill for a service ordered by another.\135\
---------------------------------------------------------------------------

    \133\ Complying with the 900-Number Rule: A Business Guide 
Produced by the Federal Trade Commission (Nov. 1993) at 3.
    \134\ See, e.g., FTC v. Interactive Audiotext Services, Inc., 
No. 98-3049 CBM (C.D. Calif., filed Apr. 22, 1998) and FTC v. 
International Telemedia Associates, Inc., No. 1-98-CV-1935 (N.D. 
Ga., filed July 10, 1998). Indeed, the Commission's first action to 
enforce the 900-Number Rule challenged invalid presubscription 
agreements. U.S. v. American TelNet, Inc., No. 94-2551 CIV-NESBIT 
(S.D. Fla., filed Nov. 30, 1994).
    \135\ The Commission's view that ANI is insufficient to identify 
the party to a presubscription agreement is shared by FCC staff, as 
evidenced by a 1994 letter from FCC staff, relating to the issue of 
billing for audiotext services offered through 800 numbers. The FCC 
letter stated that a legitimate presubscription agreement is not 
created if the vendor immediately issues a personal identification 
number without determining that the caller is both the subscriber to 
the line and legally capable of entering into a contractual 
agreement. ``The basic terms of the presubscription definition 
preclude reliance on ANI either to create or provide evidence of a 
valid presubscription or comparable arrangement, because ANI 
identifies only the originating line and not the caller who seeks to 
establish an arrangement. Thus billing systems based solely or 
primarily on ANI do not ensure that presubscribed information 
services charges are being properly assessed.'' Letter dated June 
15, 1994, to Randal R. Collett, Association of College and 
University Telecommunications Administrators, from Gregory A. Weiss, 
Acting Director, Enforcement Division, FCC.
---------------------------------------------------------------------------

    Proposed definition of ``presubscription agreement.'' Because the 
presubscription exception to Rule coverage circumvents the TDDRA 
protections, the Commission believes the exception should be carefully 
delineated and not be a source of abusive and deceptive practices. The 
proposed Rule modifies original Section 308.2(e)(1) to make it clear 
that the disclosures must be provided to, and the agreement must be 
reached with, the consumer who will be billed for the service. In 
addition, the proposed Rule

[[Page 58538]]

will require that presubscription agreements be delivered, in writing, 
to the person who will be billed for the service.\136\ As explained 
above, Section 308.2(i) of the proposed Rule requires that the provider 
of presubscription services deliver (to the person who will be billed 
for the service) a PIN, together with a written disclosure of all the 
material terms and conditions of the agreement. In every instance, an 
actual contractual agreement with the person to be billed for the 
service must be reached in advance of the provision of service and the 
person to be billed for the service must have received clear and 
conspicuous disclosure of the material terms of the contract.
---------------------------------------------------------------------------

    \136\ While this should prohibit the instantaneous sale of 
audiotext over toll-free numbers, the Commission believes that 900 
numbers, not toll-free numbers, should be the proper vehicle for 
offering ``impulse'' purchases of audiotext services. See 15 U.S.C. 
5711(a)(2)(F).
---------------------------------------------------------------------------

    The Commission has decided not to propose a requirement, advanced 
by some commenters, that the written agreement be signed by the 
consumer. Instead, the proposal would make it clear that the provider 
who engages in a transaction pursuant to a presubscription agreement 
has the burden to show that it obtained the actual authorization of the 
person who was billed for the service. The presubscription agreement is 
never valid (i.e., it does not meet the conditions of the current Rule 
or the proposed Rule) unless the agreement is reached with the person 
who will be billed for the service.
    In addition to the changes to the presubscription provisions 
discussed above, the proposed Rule makes two other minor modifications 
to the original Rule's treatment of presubscription agreements. First, 
to simplify the language of the proposed Rule, the phrase 
``presubscription agreement'' has been substituted for the phrase 
``presubscription or comparable arrangement.''
    Second, the proposed Rule adds language in Section 308.2(j)(1) to 
clarify that a presubscription agreement is an agreement to purchase 
goods or services, including audio information or audio entertainment 
services.
    Section 308.2(j)(2)--Billing by credit card. In promulgating the 
original Rule, the Commission stated that it did not appear that 
Congress intended to include credit card or charge card transactions 
within the regulatory framework of TDDRA. Therefore, in Section 
308.2(e)(2) of the original Rule, the Commission included within the 
definition of ``presubscription agreement'' those credit and charge 
card transactions that were subject to the dispute resolution 
requirements of the Truth in Lending Act (``TILA'') and Fair Credit 
Billing Act (``FCBA'').\137\
---------------------------------------------------------------------------

    \137\ 58 FR at 42367.
---------------------------------------------------------------------------

    In the current proceeding, some industry members urged the 
Commission to expand the types of billing methods that would be 
permitted to constitute a presubscription agreement.
    Specifically, one industry association advanced the argument that 
both pre-authorized drafts \138\ and a direct billing option would 
provide consumers with all of the material disclosures required by the 
Rule while giving vendors more flexibility in the methods by which they 
could bill consumers.\139\ Other commenters expressed concern with 
respect to direct billing, noting that there was no substantive 
difference between 800-number billing through a LEC and 800-number 
billing through direct billing by a third party. In other words, they 
believed that to allow these billing options under Section 308.2(e)(2) 
of the original Rule would effectively allow a person to be charged for 
a call to a toll-free number--a practice prohibited by TDDRA.\140\ 
These commenters expressed the belief that, if a vendor is charging for 
audiotext services offered through an 800 number, there should be an 
actual agreement, regardless of the billing method.\141\ Furthermore, 
some commenters pointed out that they have received complaints from 
consumers who were billed directly for services after they called an 
800-number, but who had not understood that there would be a 
charge.\142\
---------------------------------------------------------------------------

    \138\ By use of a pre-authorized draft (also known as a ``demand 
draft'' or a ``phone check'') a seller can obtain funds from a 
buyer's checking account without that person's signature on a 
negotiable instrument.
    \139\ TSIA at 15-16; Tr. at 473-82.
    \140\ 15 U.S.C. 5711(a)(2)(F). See also, Tr. at 480-87.
    \141\ Tr. at 483, 486-87.
    \142\ Tr. 483-84.
---------------------------------------------------------------------------

    The Commission has carefully considered all of the comments and 
discussion regarding presubscription agreements, and has decided to 
retain in the proposed Rule the ``credit and charge card'' 
presubscription option in its current form, with only minor technical 
changes. The Commission also has determined not to include within this 
option other types of cards, such as debit, prepaid, or calling cards, 
which are not subject to both TILA and FCBA.
    Presubscription agreements based on a credit or a charge card are 
permitted because these transactions are already subject to the legal 
protections of TILA and FCBA, including the right to dispute 
unauthorized charges. In the absence of the protections afforded by 
these Acts, however, it is essential that the consumer who will be 
billed for a service agree, in advance, to pay for the service after 
receiving clear and conspicuous disclosure of all the material terms of 
the agreement. Title III of TDDRA directed the Commission to promulgate 
rules with requirements ``substantially similar to the requirements 
imposed, with respect to the resolution of credit disputes, under the 
Truth in Lending and Fair Credit Billing Acts.'' \143\ To allow a 
calling card, a debit card, or other means not within the ambit of both 
TILA and FCBA to substitute for an actual agreement with the person to 
be billed for the service would undermine the entire purpose of the 
presubscription agreement exception to the Rule. It would also 
undermine the Commission's mandate to promulgate TDDRA rules 
substantially similar to TILA and FCBA.
---------------------------------------------------------------------------

    \143\ 15 U.S.C. 5721(a)(2).
---------------------------------------------------------------------------

    Allowing such types of payment methods to substitute for an actual 
agreement with the person to be billed for a service would also 
encourage the use of so-called ``instant'' calling cards. Such cards 
are often issued without any assurance that the caller obtaining the 
card is authorized to arrange for a purchase to be billed to the 
telephone number from which the call is being placed. Under the 
proposed Rule, cards not subject to TILA and FCBA do not constitute 
presubscription agreements unless they meet the requirements of Section 
308.2(j)(1).
    For the reasons discussed above, Section 308.2(j)(2) of the 
proposed Rule retains the language of the original Rule, with only 
three revisions that are dictated by the Commission's decision to 
expand coverage of the Rule beyond the ``pay-per-call services'' 
offered through the 900-number platform. First, the proposed Rule 
changes the language relating to the disclosure of a credit card number 
``during the course of a call to a pay-per-call service,'' to read 
``during the course of a call to purchase goods or services, including 
audio information or audio entertainment services.'' This change is 
designed to clarify that services billed to a credit card are purchases 
made pursuant to a presubscription agreement and thus are excluded from 
the definition of ``pay-per-call services.''
    Second, the proposed Rule deletes the last sentence of 308.2(e)(2) 
of the original Rule. This sentence made clear that providers are 
prohibited from

[[Page 58539]]

charging consumers for calls to presubscribed services unless the 
consumer either had entered an agreement before that telephone call, or 
was paying for the service with a credit or charge card. This sentence 
is no longer necessary because the proposed Rule in Section 308.2(j)(1) 
prohibits providers from charging consumers until the consumer has 
received, in writing, a PIN and a clear and conspicuous disclosure of 
all the material terms of the agreement.
    Finally, the proposed Rule clarifies that, in order for the Section 
308.2(j)(2) credit card alternative to a 308.2(j)(1) presubscription 
agreement to be available, the credit card must be ``the sole method 
used to pay for the charge.'' The Commission is aware that some 
providers request a credit card number from a consumer, but bill the 
consumer by some other method--a method that is not subject to the 
dispute resolution protections of TILA and FCBA.\144\ As the text of 
the original Rule and its Statement of Basis and Purpose make clear, 
this practice violates the Rule.\145\ The Commission proposes adding 
this clause to remove any possible ground for argument, unpersuasive 
though it may be, that the Rule could be construed to allow a provider 
to make use of the presubscription option through the meaningless 
eliciting of a credit card number without using the card to bill 
charges.
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    \144\ In one case recently filed by the Commission, a provider 
was allegedly collecting credit card numbers from consumers 
purportedly to create a valid presubscription service, but instead 
allegedly billed the consumers directly, based on ANI. FTC v. 
Interactive Audiotext Services, Inc., No. 98-3049 CBM (C.D. Calif., 
filed Apr. 22, 1998).
    \145\ 58 FR at 42367. See Tr. at 472 (NAAG: ``I think the proper 
way to construe the law is to say if you're going to acquire pay-
per-call services using a credit card, the charge ought to appear on 
the credit card.'').
---------------------------------------------------------------------------

    Relationship to FCC Regulations. Since passage of the 1996 Act, the 
FCC's regulations enacted under Title I of TDDRA have differed in some 
respects from the FTC's Rule enacted under Titles II and III of TDDRA. 
This is because the 1996 Act amended Title I of TDDRA to require the 
FCC to amend its rules governing the obligations of common carriers 
with respect to the use of toll-free numbers for audiotext 
services.\146\ These amendments affected what the FCC rules require 
common carriers to include in any tariff or contract relating to the 
use of toll-free telephone numbers for audiotext purposes. The proposed 
revision of the FTC's Rule would not conflict with any FCC requirements 
for what common carriers must include in their tariffs or contracts, 
and the two sets of regulations would continue to differ with respect 
to their approach to audiotext services provided over toll-free 
numbers.
---------------------------------------------------------------------------

    \146\ On July 11, 1996, the FCC published an Order and Notice of 
Proposed Rulemaking to amend its Rules in accordance with the 
amendments to Title I of TDDRA. ``FCC Pay-Per-Call Order and 
Notice,'' CC Docket Nos. 96-146 and 93-22, and FCC 96-289, 11 FCC 
Rcd 14738 (1996). The Order portion of this document amended 47 CFR 
Part 64 (the FCC's pay-per-call rules) in accordance with the 
mandate of the 1996 Act; the Notice of Proposed Rulemaking portion 
of the document requested comment on additional proposed changes to 
the FCC's rules not specifically mandated by the Act.
---------------------------------------------------------------------------

    Prior to the 1996 Act, the FCC's regulations pertaining to toll-
free numbers were virtually identical to the requirements imposed in 
Section 308.5(i) of the FTC's original Rule: the use of a toll-free 
number to charge for information conveyed during a call was prohibited, 
unless the charges were the result of a presubscription or comparable 
arrangement, which included (by definition) a charge to any credit card 
that was covered by TILA and FCBA. With the 1996 amendments, however, 
the FCC's regulations now differ from the FTC's Rule by requiring 
common carriers to prohibit the use of toll-free numbers to charge for 
information or entertainment unless the consumer has entered into a 
written agreement. At the same time, the FCC's new rules are more 
lenient than the FTC's Rule in that, under the FCC's new rules, common 
carriers can permit vendors and service bureaus using the carrier's 
networks to charge consumers for calls made to an 800 number in the 
absence of a presubscription agreement, if the call is charged to, 
inter alia, a debit card, calling card, or prepaid account. Section 
701(a) of the 1996 Act is silent as to TILA and FCBA coverage of 
transactions by these means.
    A number of commenters suggested that the Commission amend its 
original Rule \147\ to track the amended FCC regulations.\148\ 
Commenters advanced several arguments in support of such a 
modification. Several commenters supported tracking the FCC's amended 
rules so that the Commission's Rule would allow providers other methods 
to bill for toll-free audiotext services besides obtaining an explicit 
``presubscription'' agreement or charging the service to a credit card 
which is subject to TILA and FCBA.\149\ Other commenters favored such a 
modification because it would reinforce the FCC's requirement that 
presubscription agreements be in writing.\150\ Finally, some commenters 
argue that amending the FTC Rule to track the FCC's regulations would 
serve the goal of regulatory consistency; industry would only need to 
look to one set of rules.\151\
---------------------------------------------------------------------------

    \147\ Specifically, these commenters supported amending Sections 
308.2(e) and 308.5(i) of the original Rule--the provisions dealing 
with presubscription agreements and the use of toll-free numbers for 
audiotext purposes.
    \148\ AT&T at 5; ISA at 31-33; NAAG at 11; PMAA at 4, 15; SW at 
3, 10; TSIA at 19.
    \149\ ISA at 32-33; PMAA at 15.
    \150\ NAAG at 11; AT&T at 10. SW specifically opposed tracking 
the new FCC regulations with regard to its allowance of an 
``electronic'' signature. Such a form of written agreement, the 
commenter argued, would not provide a method of verifying that the 
execution was by a competent adult who is the person responsible for 
paying the telephone bill. SW at 5.
    \151\ AT&T at 5-6; ISA at 31-33; PMAA at 4, 15; SW at 3, 10; 
TSIA at 19.
---------------------------------------------------------------------------

    Regulatory consistency is an important goal. This is one of the 
primary reasons why, in promulgating the original Rule, the FTC chose, 
at its own discretion, to adopt a provision that paralleled the 
analogous FCC provisions regulating the use of 800 numbers \152\ and 
defining ``presubscription or comparable arrangement.'' \153\ However, 
were the FTC to adopt a definition of ``presubscription agreement'' 
that tracked the FCC's new definition, or if it were to similarly 
modify the Rule's provisions governing toll-free numbers, it would not 
be possible to achieve the explicit purposes of Titles II and III of 
TDDRA as amended by the 1996 Act.\154\
---------------------------------------------------------------------------

    \152\ 58 FR at 42387.
    \153\ Id. at 42367.
    \154\ In fact, the 1996 Act's amendments to TDDRA virtually 
mandate divergence between the FTC and FCC regulations. Under Title 
I of TDDRA, the FCC's regulations continue to operate under the 
statutory definition of ``pay-per-call services'' set forth in 47 
U.S.C. 228(i). However, under Title II of TDDRA, as amended by the 
1996 Act, the Commission may adopt an alternative definition of 
``pay-per-call services.'' Thus, after the 1996 Act, the FCC and FTC 
Rules are now focused on two different categories of ``pay-per-call 
services.'' In the current legal framework, an attempt to produce 
parallel Rules under Titles I, II, and III of TDDRA would be futile.
---------------------------------------------------------------------------

    There is no inherent conflict between the FCC's new regulations and 
the FTC's original or proposed Rule. The FCC's Title I regulations 
apply only to common carriers in their role of providing basic dial 
tone and transport service to service providers that use toll-free 
numbers, while the FTC's regulations under Title II of TDDRA directly 
apply to vendors and service bureaus who would be using toll-free 
numbers to charge a consumer for audio information or entertainment. 
Furthermore, there is nothing in the FTC's proposed Rule to prevent a 
vendor from offering to accept payment by means of a card not subject 
to TILA or FCBA, as long as the vendor reaches

[[Page 58540]]

a presubscription agreement with the person to be billed for the 
service and complies with the requirements of proposed Section 
308.2(j)(1).\155\ Thus, it is entirely possible to use any of the 
billing mechanisms permitted under Title I of TDDRA, as amended, as 
long as the provider complies with the additional precautions of 
proposed Rule Section 308.2(j)(1), which are designed to ensure that 
the party being billed for the toll-free audiotext service is the same 
person who agreed to be billed for that service.
---------------------------------------------------------------------------

    \155\ In fact, many of the billing options permitted by the 
FCC's rule (e.g., a calling card) might easily fall within the 
Commission's proposed definition of PIN.
---------------------------------------------------------------------------

    It is the mandate of the FTC, acting under Title II and III of 
TDDRA, to prohibit the use of unfair or deceptive practices in the 
provision of audiotext services.\156\ Title I of TDDRA gives the FCC no 
similar mandate. The FTC must consider the extent to which any proposed 
new exemption from the Rule (such as the exemption embodied in the 
revised FCC rules) would be likely to increase the types of unfair and 
deceptive practices that prompted enactment of the TDDRA. There is 
evidence on the record suggesting that audiotext services purchased 
using these billing methods--methods that would be permitted if the FTC 
Rule tracked the revised FCC rules--are susceptible to the same types 
of unfair or deceptive practices that are prohibited by the original 
Rule. To fulfill the mandate of Section 701(b) of the 1996 Act, it is 
necessary for the FTC's Rule to cover these purchases.\157\
---------------------------------------------------------------------------

    \156\ 15 U.S.C. 5711(a)(1), 5711(a)(4), and 5721(a)(1).
    \157\ See, e.g., NCL at 3-5; FLORIDA at 8, Attachments A44-A60; 
NAAG at 11; SW at 2, 5-6; Tr. at 194, 471-84, 498-500.
---------------------------------------------------------------------------

    Amending the FTC Rule to parallel the revised FCC rules would also 
undermine the FTC's mandate under Title III of TDDRA to promulgate 
rules that impose requirements that are ``substantially similar to the 
requirements imposed, with respect to the resolution of credit 
disputes, under the Truth in Lending and Fair Credit Billing Acts.'' 
\158\ The FCC's regulations are not subject to a similar mandate. The 
Commission believes that it is consistent with the regulatory framework 
of TDDRA that FCC and FTC regulations differ with respect to the 
requirement that billing alternatives to presubscription agreements be 
subject to TILA and FCBA.
---------------------------------------------------------------------------

    \158\ 15 U.S.C. 5721(a)(2).
---------------------------------------------------------------------------

    (9) Section 308.2(n)--Service bureau--Background. One of the more 
significant changes in the audiotext marketplace since the promulgation 
of the original Rule is that service bureaus now play an important role 
for many vendors in providing access to billing and collection systems. 
Some service bureaus act as ``billing aggregators''--i.e., they act as 
intermediaries between vendors and LECs in order to get their client-
vendors' charges to appear on telephone bills. Other service bureaus 
bypass the LEC billing system completely and provide their clients with 
direct billing services. Still other service bureaus have played an 
essential role in the growth of international audiotext by entering 
into revenue-sharing agreements with foreign telephone companies, and 
then providing vendors of audiotext services with international numbers 
through which their audiotext services can be accessed.\159\
---------------------------------------------------------------------------

    \159\ Some of these new types of service bureaus have played key 
roles in the new deceptive and unfair practices that have injured 
consumers. For example, one service bureau providing international 
audiotext programs to willing vendors proudly boasts ``no 
chargebacks'' in its advertisements--underscoring both the potential 
harm to consumers caused by international audiotext, as well as the 
essential role service bureaus play in making international 
audiotext possible.
---------------------------------------------------------------------------

    Proposed definition of ``service bureau.'' The Commission proposes 
several changes to the definition of ``service bureau'' reflecting the 
fact that the role of the service bureau has expanded since the 
original Rule was promulgated. The proposed definition of ``service 
bureau'' is also more specific than the definition of that term in 
Section 308.2(i) of the original Rule. The original definition of 
``service bureau'' was open-ended--i.e, it was defined as a person 
``who provides, among other things, access to telephone service and 
voice storage, to pay-per-call providers.'' \160\ By contrast, the 
proposed definition will define a service bureau as a person who 
provides one or more of a finite list of services to vendors. This 
format will provide better guidance to industry and law enforcement in 
determining which entities are service bureaus and will clarify that 
billing aggregators and entities providing access to international 
audiotext payment systems are covered by the definition.
---------------------------------------------------------------------------

    \160\ 16 CFR 308.2(i). [Emphasis added.]
---------------------------------------------------------------------------

    The proposed definition of service bureau is intended to 
incorporate all of the essential services that a vendor might need in 
setting up a business selling products or services through telephone-
billed purchases. Section 308.2(n)(1) of the proposed Rule identifies 
the following services: voice storage, voice processing, call 
processing, billing aggregation, call statistics (call and minute 
counts), call revenue arrangements (including revenue-sharing 
arrangements with common carriers), or pre-packaged pay-per-call 
investment opportunities (i.e, ``turn-key programs''). Any person 
providing one or more of these services to vendors will be covered by 
the proposed definition of service bureau.
    Billing aggregators are explicitly included in the proposed 
definition of service bureau. As the Commission's enforcement 
experience has demonstrated, billing aggregators play a key role in 
providing to vendors--including unscrupulous ones--access to a 
telephone billing and collection system that permits vendors to cost-
effectively bill and collect for their services. In many, if not most 
cases, they are the entity responsible for submitting the charges to 
the LECs for placement on consumers' telephone bills. Thus, the Rule's 
purposes would be thwarted unless billing aggregators were brought 
explicitly within the ambit of the Rule. Similarly, service bureaus 
that facilitate revenue-sharing arrangements between vendors and 
foreign telephone companies in connection with international audiotext 
are included in the proposed definition. This service bureau activity 
is essential to vendors seeking to sell audiotext in a manner that 
circumvents the consumer protections guaranteed by Title III of TDDRA.
    In the original Rule, the definition of ``service bureau'' 
contained an exemption for all common carriers.\161\ In its Request for 
Comment, the Commission asked whether it was still appropriate for the 
definition to exclude all common carriers, regardless of the activities 
they perform.\162\ Several commenters urged the Commission to reexamine 
this common carrier exemption, arguing that the service being provided, 
and not the type of entity that provides the service, should determine 
whether an entity is subject to the Rule.\163\ One commenter argued 
that the common carrier exemption enabled service bureaus to claim 
``common carrier'' status to evade regulation, thereby gaining a 
competitive advantage.\164\ The Commission is persuaded by these 
arguments. Therefore, under the proposed Rule, any person, including a 
common carrier, who provides the

[[Page 58541]]

services listed in 308.2(n)(1) to vendors would be considered a service 
bureau.
---------------------------------------------------------------------------

    \161\ 16 CFR 308.2(i).
    \162\ 62 F.R. 11753 (Mar. 12, 1997).
    \163\ NCL at 4; NAAG at 10; TSIA at 19-20.
    \164\ TSIA at 19-20.
---------------------------------------------------------------------------

    Nevertheless, the Commission recognizes that there is one key 
service bureau function--providing access to telephone service to 
vendors of pay-per-call services--that cannot be fairly applied to 
common carriers. This service, which was identified in the original 
definition of service bureau, is essential to any pay-per-call service. 
Indeed, it is a key function of those service bureaus who obtain 
international telephone numbers for vendors who wish to provide 
international audiotext services. However, a common carrier that merely 
provides a vendor of pay-per-call services with access to basic 
telephone service (the essential function of a common carrier) should 
not be considered a service bureau subject to the Commission's Rule 
promulgated under Title II and III of TDDRA. Acting as traditional 
common carriers, these entities are already subject to the regulations 
of the FCC promulgated under Title I of TDDRA. Therefore, the 
Commission proposes a limited exemption from the definition of service 
bureau for common carriers that provide vendors of pay-per-call 
services with nothing more than access to telephone service. Under 
proposed Section 308.2(n)(2), any person, other than a common carrier, 
who provides access to telephone service to vendors of pay-per-call 
services,\165\ would be considered a service bureau.
---------------------------------------------------------------------------

    \165\ It is important to note that proposed Sec. 308.2(n)(1), 
unlike Sec. 308.2(n)(2), applies to all vendors, and is not limited 
to vendors of pay-per-call services.
---------------------------------------------------------------------------

    (10) Section 308.2(q)--Telephone-billed purchase. The term 
``telephone-billed purchase'' defines those products and services that 
are covered by the dispute resolution provisions of the Rule 
promulgated under Title III of TDDRA. The term is much broader in scope 
than the term ``pay-per-call services,'' the category of services 
covered by Title II of TDDRA. The original Rule's definition of 
``telephone-billed purchase'' comes from Title III of TDDRA,\166\ and 
it currently includes ``any purchase that is completed solely as a 
consequence of the completion of the call or subsequent dialing, touch 
tone entry, or comparable action of the caller.''\167\ The term 
specifically excludes all local exchange or interexchange telephone 
services, as well as other services excluded by FCC regulation. Thus, 
any purchase of a product or service (other than telephone toll 
service) that results in a charge to a consumer or an account 
identified by reference to ANI is included in the current definition, 
and any person billed for such a purchase would be entitled to dispute 
the charges pursuant to the Commission's Rule.\168\
---------------------------------------------------------------------------

    \166\ 15 U.S.C. 5724(1).
    \167\ Section 308.7(a)(6) of the original Rule.
    \168\ Services provided pursuant to a presubscription agreement 
are excluded from the definition. 15 U.S.C. 5724(1)(A), 16 CFR 
308.7(a)(6)(i).
---------------------------------------------------------------------------

    Background. At the time the original Rule was promulgated, 900-
number services were the primary, if not the only, familiar example of 
telephone-billed purchases. Today, the growing use of ANI as a basis 
for billing consumers has increased the range of available telephone-
billed purchases. Consumers can purchase voice mail, Internet access, 
telephone equipment, roadside assistance club memberships, and other 
goods and services and have the charges billed to their telephone bill. 
Concurrent with this development, there has been a sharp increase in 
complaints about telephone-billed charges for such goods and 
services.\169\ Consumer organizations, as well as federal and State 
regulatory and law enforcement agencies, have received a large number 
of complaints from consumers who have found unclear or unexplained 
monthly recurring charges on their telephone bills for services that 
were never authorized, ordered, received, or used.\170\ These 
unauthorized charges (i.e., ``cramming'' charges), are often 
purportedly for club memberships, or subscriptions for psychic, 
personal, travel, or 900-number services. In other instances, the 
charges involve services such as personal 800 numbers, voice mail, 
paging, and calling cards.
---------------------------------------------------------------------------

    \169\ SW at 7-8; NCL at 4; Tr. at 382-84, 498-504. For example, 
NCL reported that most of the complaints received by the NFIC that 
relate to 800 numbers involve calls that the consumer thought were 
free, but by making them, the consumer had unknowingly signed up for 
services which resulted in charges (such as voice mail or club 
memberships).
    \170\ Tr. at 498-500.
---------------------------------------------------------------------------

    The common thread in all of these types of cramming charges is that 
a consumer is identified, and a billing statement is transmitted, based 
on a telephone number. In other words, in all of these instances, a 
telephone number was used in the same manner that a credit card account 
number might have been used in the past.\171\ While consumers have for 
a long time had numerous rights to dispute unauthorized or other 
incorrect charges to their credit card numbers,\172\ until 1992 they 
had no comparable rights to dispute charges for products and services 
billed to a telephone number. Title III of TDDRA was specifically 
designed to address this problem; Congress instructed the Commission to 
prescribe rules establishing a dispute resolution procedure for 
telephone-billed purchases that are ``substantially similar'' to the 
dispute resolution protections afforded credit card users under TILA 
and FCBA.\173\
---------------------------------------------------------------------------

    \171\ FCC Public Forum on Local Exchange Carrier Billing for 
Other Businesses (June 24, 1997). Transcript, pp. 232-237.
    \172\ 15 U.S.C. 1666.
    \173\ 15 U.S.C. 5721(a)(2).
---------------------------------------------------------------------------

    Proposed definition of ``telephone-billed purchase.'' The original 
Rule definition of ``telephone-billed purchase'' covered all (non-toll) 
charges resulting from ANI capture. This includes many, but not all, 
instances of cramming.\174\ It does not cover instances of cramming, 
for example, where a phone call is never made in connection with a 
charge, yet the charge is billed to the consumer's telephone bill.\175\ 
Proposed Section 308.2(q) expands the definition of telephone-billed 
purchase to include all purchases that are ``charged to a customer's 
telephone bill,'' even if the purchase did not involve a telephone 
call.
---------------------------------------------------------------------------

    \174\ As discussed elsewhere in this Notice, the Commission 
proposes several modifications to the Rule to provide greater 
protection to consumers who have been ``crammed'' (for example, 
proposed Secs. 308.2(b)(9)-(11)) and to prohibit vendors, service 
bureaus, and billing entities from engaging in cramming (proposed 
Sec. 308.17).
    \175\ In at least one case where unexplained or unauthorized 
charges did not result from a telephone call, a deceptive prize 
promotion allegedly was used to market a voice mail service. 
Allegedly, consumers were enticed to fill out a sweepstakes form for 
a chance to win a new vehicle or a sum of cash. The form failed to 
adequately disclose that the vendor interpreted the submission of a 
completed entry form as authorization to bill charges for a 
``membership'' to the telephone number listed on the form. In many 
instances, consumers allegedly were unaware that they had signed up 
for this ``membership''; in other instances, consumers allegedly 
found they were being billed for services because someone else had 
filled out the form and put down their telephone number. FTC v. Hold 
Billing Services, Ltd., No. SA98CA0629 FB (W.D. Texas, filed July 
19, 1998).
---------------------------------------------------------------------------

    Title III of TDDRA was intended to provide telephone-billed 
purchases the same types of protections afforded to credit card 
purchases under TILA and FCBA. The telephone number, in telephone-
billed purchases, is analogous to the credit card number. To carry the 
analogy further, instances of ``non-ANI cramming,'' such as a charge 
resulting from entry of a consumer's telephone number on a sweepstakes 
entry form, are much like instances where a consumer's credit card 
number is used in a transaction where the physical card is not itself 
presented. In the credit card environment (under TILA and FCBA), the 
fact that a transaction takes place without the presence of the actual 
card would not affect the cardholder's right

[[Page 58542]]

to dispute an unauthorized charge. By contrast, in non-ANI cramming, a 
consumer loses his or her right to dispute the charge simply because 
the telephone was not actually used in the transaction. In this 
respect, the Commission's Rule is no longer ``substantially similar'' 
to the rights afforded by TILA and FCBA.
    Congress has given the Commission significant flexibility in 
prescribing regulations that are ``necessary or appropriate'' to 
implement the provisions of Title III.\176\ The Commission has broad 
authority to prohibit unfair or deceptive practices that ``evade'' its 
dispute resolution rules or otherwise ``undermine the rights'' Congress 
gave to consumers under Title III of TDDRA.\177\ Non-ANI cramming is 
such a practice.
---------------------------------------------------------------------------

    \176\ 15 U.S.C. 5723.
    \177\ 15 U.S.C. 5721(a)(1). See also 15 U.S.C. 5711(a)(2)(J) and 
(a)(4) (providing similar authority under Title II).
---------------------------------------------------------------------------

    The Commission believes that consumers should have equal rights to 
dispute unauthorized non-toll charges on their telephone bills 
regardless of whether or not a telephone was used to generate the 
charges. Even if consumers carefully monitor the use of the telephone, 
they cannot keep their telephone number secure and private as they 
would their credit card number. Indeed, consumers may not be aware of 
the need to keep their telephone numbers secure. The ability to use a 
telephone number alone to bill a consumer, in the absence of an actual 
telephone call, represents a tremendous opportunity for fraud.
    The Commission believes that in order to provide consumers with 
rights that are substantially similar to the dispute resolution rights 
of TILA and FCBA, and in order to prevent unfair or deceptive practices 
that evade these rights, it is both necessary and appropriate to 
propose an amendment to the definition of ``telephone-billed purchase'' 
to include instances of cramming that do not arise from a telephone 
call from the consumer's telephone.
    Clarification. Proposed Section 308.2(q) also clarifies the 
definition of ``telephone-billed purchase'' by adding the phrase``pay-
per-call purchase.'' While the Commission believes that the current 
language of the Rule clearly encompasses pay-per-call services, this 
revision will prevent any misinterpretation of the Rule's coverage. 
This clarification will ensure that persons billed for pay-per-call 
services will have the full panoply of protections provided by the 
dispute resolution provisions of the Rule, regardless of the dialing 
pattern used to access the service. Proposed Section 308.2(q) also 
clarifies the definition by using the term ``presubscription 
agreement'' in place of the term ``preexisting agreement,'' and by 
specifying that the exemption for presubscription agreements applies 
only to those purchases where the presubscription agreement satisfies 
all of the requirements of the proposed Rule.
    (11) Section 308.2(r)--Variable option rate basis. The original 
Rule used the term ``variable rate basis'' to describe situations where 
the rate charged for a pay-per-call service varied depending on the 
options chosen by the caller. For example, in the course of a pay-per-
call program, a consumer might be asked to press a specific number on a 
touch tone keypad that would access a different program charged at a 
higher rate. The term ``variable rate basis,'' however, is no longer 
specific enough to describe the current situation. This is true 
because, as discussed infra, there are now pay-per-call services where 
the charge to the consumer may vary depending on factors other than the 
options specifically chosen by the consumer--e.g., services where the 
rates vary depending on the passage of time.\178\ To clarify the 
specific situations that the original phrase ``variable rate basis'' 
was intended to cover (i.e., those that are dependent on the options 
selected by the caller), the Commission proposes substituting the 
phrase ``variable option rate basis.'' Proposed Section 308.2(r) 
defines this term to refer to the rate structure of pay-per-call 
services where the rate billed to the consumer depends on the specific 
options chosen by the caller during the call.
---------------------------------------------------------------------------

    \178\ See, e.g., ISA at 22; PMAA at 10-12; TSIA at 17-18.
---------------------------------------------------------------------------

    (12) Section 308.2(s)--Variable time rate basis. As noted above, 
new forms of variable rates have become available since the original 
Rule was promulgated. For example, it is now possible to bill the first 
minute at one rate while subsequent minutes are billed at a higher or 
lower rate.\179\ Proposed Section 308.2(s) provides a term, ``variable 
time rate basis,'' to describe instances where charges vary according 
to the amount of time the caller is on the telephone or according to 
other factors not determined by the options chosen by the caller. 
Section 308.4(a)(1)(iii)(B) of the proposed Rule requires that, in 
advertisements for pay-per-call services billed on a variable time rate 
basis, the advertisement shall state the cost of each different portion 
of the call. This same requirement applies to the free preamble message 
under proposed Section 308.9(a)(2)(iii)(B). These provisions will 
ensure that consumers receive accurate disclosure of the full cost of 
the call before a call is placed or before charges are incurred.
---------------------------------------------------------------------------

    \179\ Id.
---------------------------------------------------------------------------

    (13) Section 308.2(t)--Vendor. The original Rule uses both the term 
``vendor'' and the term ``provider of pay-per-call services.'' Under 
the original Rule, a ``provider of pay-per-call services'' was a 
specific type of vendor--a vendor who happened to sell pay-per-call 
services. The proposed Rule discontinues the use of the term ``provider 
of pay-per-call services'' because the Commission does not believe 
there is any value to maintaining a separate term for those vendors who 
sell pay-per-call services. The proposed Rule therefore uses the term 
``vendor'' to refer to both providers of pay-per-call services as well 
as sellers of other telephone-billed goods or services.

Subpart C--Pay-Per-Call Services

Section 308.3  General Requirements for Advertising Disclosures
    Section 308.3 of the original Rule contained the provisions 
relating to disclosures of cost and other material information in the 
advertising of pay-per-call services. As discussed earlier, the 
proposed Rule has broken the former single Section 308.3 (``Advertising 
of pay-per-call services'') into several shorter sections, each dealing 
with a discrete subject.
    Section 308.3 of the proposed Rule, entitled ``General Requirements 
for Advertising Disclosures,'' retains the language from Section 
308.3(a) of the original Rule. This section sets forth the ``minimum 
standards'' applicable to disclosures required in advertisements under 
the Rule.\180\ The only proposed modification to this section is the 
addition of a new requirement relating to any advertising medium not 
specifically addressed in the Rule.
---------------------------------------------------------------------------

    \180\ See, discussion in the Statement of Basis and Purpose of 
the original Rule, 58 FR at 42369.
---------------------------------------------------------------------------

    Internet and online advertisements. In its Request for Comment, the 
Commission sought information and views on whether the advertising 
regulations of the original Rule should set forth specific requirements 
for advertising that appears on the Internet or online. In general, the 
commenters, both in writing and in the discussion at the workshop, 
expressed the view that the regulation of Internet and online 
advertising is an issue best suited for another rulemaking proceeding 
in which comment can be solicited from a

[[Page 58543]]

much broader array of online advertisers.\181\ Several participants at 
the workshop cautioned that this proceeding may not be an appropriate 
forum for setting such advertising standards,\182\ but nevertheless 
were troubled by the prospect of the Internet becoming the next haven 
for deceptive pay-per-call advertising. These participants suggested 
that some type of general standard for advertising might be necessary 
in order to ensure that this scenario did not occur.\183\
---------------------------------------------------------------------------

    \181\ PMAA at 14; ISA at 28-31; AT&T at 11-12, 32; USWEST at 2; 
Tr. at 560-75. One commenter suggested that the Commission specify 
reasonable requirements for clear and conspicuous disclosures for 
pay-per-call services advertised on the Internet or online. (NCL at 
5).
    \182\ In general, commenters argued that since online 
advertisements are still in their infancy, any comprehensive 
treatment of the topic in this forum might have an undesired impact 
on the entire online industry.
    \183\ Tr. at 569-74.
---------------------------------------------------------------------------

    The Commission agrees that standards for Internet or online 
advertising would best be considered in a proceeding focusing more 
narrowly on business practices in the newer types of electronic 
commerce. In fact, the Commission has begun this process by requesting 
comment on the applicability of many of its rules and guides to 
electronic media.\184\
---------------------------------------------------------------------------

    \184\ 63 FR 24996 (May 6, 1998).
---------------------------------------------------------------------------

    Nonetheless, the Commission shares the concerns of those who fear 
that, absent some specific provision in this Rule, unscrupulous vendors 
might use the Internet to sell pay-per-call services without providing 
consumers with the cost disclosures that are required of pay-per-call 
vendors using the traditional print and broadcast media specifically 
addressed in the original Rule. Accordingly, Section 308.3(g) of the 
proposed Rule requires that, in any advertising medium not specifically 
addressed elsewhere in the Rule, the required advertising disclosures 
must be clear and conspicuous and made in a manner in which they cannot 
be avoided by consumers acting reasonably. A vendor must ensure that in 
any Internet or online advertisement, a consumer will not receive the 
information required to make the purchase (i.e., the telephone number 
of the pay-per-call service), unless a consumer also receives the 
required disclosures, displayed clearly and conspicuously. This will 
usually mean that the disclosures must appear adjacent to the 
disclosure of the telephone number itself, and that the consumer must 
not be required to ``click through'' or ``scroll down'' to see the 
disclosures. This proposed change is consistent with the proposal 
contained in the Commission's Request for Comment regarding the 
applicability of its rules and guides to electronic media, referred to 
above.\185\
---------------------------------------------------------------------------

    \185\ 63 FR at 25002-04.
---------------------------------------------------------------------------

Section 308.4  Advertising Disclosures
    Proposed Section 308.4 incorporates the provisions set out the 
following sections of the original Rule: 308.3(b) (Cost of the call); 
308.3(c) (Sweepstakes; games of chance); 308.3(d) (Federal programs); 
and 308.3(f) (Advertising to individuals under the age of 18). Each of 
these provisions deal with specific, substantive disclosure and 
advertising requirements. The Commission has decided to group these 
requirements together in their own separate section in order to give 
them more prominence.\186\
---------------------------------------------------------------------------

    \186\ Original Section 308.3(e) (Prohibition on advertising to 
children) appeared adjacent to these provisions in the original 
Rule. However, this Section is not a substantive disclosure 
requirement for pay-per-call advertisements. Instead, it implements 
TDDRA's mandate to prohibit most pay-per-call advertisements to 
children under 12 (15 U.S.C. 5711(a)(2)(C)). This provision has been 
incorporated in the proposed Rule in Section 308.5 (Advertising to 
children prohibited).
---------------------------------------------------------------------------

    In addition to placing these requirements together in a separate 
section, the proposed Rule clarifies the term ``variable rate basis'' 
that was used in Section 308.3(b)(1)(iii) of the original Rule. As 
discussed, the Commission originally intended this term to cover 
situations where the rate charged would vary depending on the options 
chosen by the caller. However, technological advances since the 
original Rule was promulgated now allow other forms of variable rates, 
such as billing the first minute at one rate and billing subsequent 
minutes at a lower or higher rate.\187\ Thus, Section 
308.4(a)(1)(iii)(A) now uses the term ``variable option rate basis'' 
(emphasis added) in order to denote the type of cost disclosure to be 
made when the cost of the call varies depending on the options chosen 
by the caller.
---------------------------------------------------------------------------

    \187\ See, e.g., ISA at 22; PMAA at 10-12; TSIA at 17-18.
---------------------------------------------------------------------------

    The Commission believes that consumers should know, in advance of 
placing a call, that the rates may vary as time passes. Consumers must 
be given sufficient information to make judgments about how much time 
they wish to spend listening to a pay-per-call service and how much 
money they want to spend for it. Accordingly, the Commission proposes a 
new provision [308.4(a)(1)(iii)(B)] to specify the cost disclosures to 
be made in instances where charges vary according to the amount of time 
the caller is on the telephone or to other factors unrelated to options 
chosen by the caller. The Commission intends for these situations to be 
encompassed by the term ``variable time rate basis'' (emphasis added).
Section 308.6  Misrepresentation of Cost Prohibited
    Proposed Section 308.6(a) is a new provision that specifies that a 
deceptive practice for a vendor to misrepresent the cost of a pay-per-
call service. In many respects, this deceptive practice is already 
prohibited by the original Rule: the original Rule requires cost 
disclosures \188\ and prohibits the vendor from making representations 
in advertising that are ``contrary to, inconsistent with, or in 
mitigation of'' the cost and other required disclosures.\189\ 
Nevertheless, the Commission believes that the importance of the 
disclosure of cost warrants a separate provision explicitly prohibiting 
this type of misrepresentation. Importantly, unlike existing Rule 
provisions, proposed Section 308.6(a) will not only address 
misrepresentations of cost that appear in advertising, but it will also 
address misrepresentations that occur during the pay-per-call 
transaction itself. For example, proposed Section 308.6 will address 
situations where the recorded or live audiotext program misleads a 
caller into staying on the line by misrepresenting that charges on the 
pay-per-call service have stopped.
---------------------------------------------------------------------------

    \188\ 16 CFR 308.3(b).
    \189\ 16 CFR 308.3(a)(5).
---------------------------------------------------------------------------

    The Commission continues to believe, as it did when the original 
Rule was published, that callers should be left with no doubt as to 
when they must hang up to avoid being charged for the call.\190\ The 
original Rule requires a signal or tone at the end of the free preamble 
\191\ or after any free time following the preamble.\192\ Proposed 
Section 308.6(b) makes clear that if any portion of a telephone call is 
free,

[[Page 58544]]

regardless of where it occurs in the program, the vendor shall provide 
a clearly discernible signal or tone indicating the end of the free 
time.
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    \190\ This is especially important, given that the 
advertisements of some providers obscure the amount of ``free'' time 
a consumer will receive. For instance, Commission staff has observed 
some deceptive advertisements promising ``10 free minutes,'' when in 
reality the caller will not receive all of these free minutes in one 
call--the caller might receive only two free minutes in five 
different calls to the service. A caller who failed to read the fine 
print may believe it is safe to stay on the telephone line for ten 
minutes before charges accrued. The requirement of a signal or tone 
clearly indicating the end of the free time will be an important 
tool in curbing the harm to consumers from this type of advertising.
    \191\ 16 CFR 308.5(a)(3) and (b).
    \192\ See December 18, 1996, opinion letter from Eileen 
Harrington, Associate Director, Division of Marketing Practices, 
Federal Trade Commission, to Barry J. Cutler, Esq., McCutcheon, 
Doyle, Brown & Enerson. (This letter is appended to several 
comments. See, e.g., Exhibit 3 of AT&T comment or Appendix H of ISA 
comment.)
---------------------------------------------------------------------------

    Several workshop participants indicated that some pay-per-call 
services would experience technical difficulties in inserting a tone at 
the end of the free period of time.\193\ Other participants stated 
their belief that the original Rule did not require a tone at the end 
of the free portion of the call and that it was not necessary because 
consumers could watch their clocks and know when the free time 
expired.\194\ Similar opinions were expressed in several of the written 
comments.\195\ Conversely, one written comment specifically supported a 
requirement for a tone at the end of the free time to alert consumers 
to the fact that the free portion of the call was coming to an 
end.\196\ That sentiment was echoed at the workshop by law enforcement 
officials who had received complaints from consumers who had actually 
timed calls themselves to stay within the ``free'' time but were 
charged anyway.\197\ Proposed Section 308.6(b) would ensure that 
callers receive adequate notice of when charges begin, regardless of 
where in the program the free time is offered.
---------------------------------------------------------------------------

    \193\ Tr. at 522-25.
    \194\ Tr. at 528-29.
    \195\ PMAA at 9-12; TSIA at 17-18; ISA at 20-23.
    \196\ AT&T at 16-17.
    \197\ Tr. at 532.
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Section 308.7  Other Advertising Restrictions
    Section 308.7 of the proposed Rule incorporates several sections of 
the original Rule that deal with advertising restrictions and adds 
three new subsections.
    Use of electronic tones and referral to toll-free numbers. The 
proposed Rule retains the prohibition in the original Rule against 
using electronic tones in advertising.\198\ It also retains the 
original prohibition against referring to toll-free telephone numbers 
in an advertisement if the toll-free number is used in a manner that 
violates the prohibitions in proposed Section 308.13.\199\
---------------------------------------------------------------------------

    \198\ 16 CFR 308.3(g). The Commission believes this provision 
will play an important role in stopping scam artists from using the 
``modem hijacking'' techniques that allegedly formed the basis of 
the scheme targeted in the Commission's complaint in FTC v. Audiotex 
Connection. Internet advertisements that ``emit electronic tones'' 
via a modem and cause such modems to disconnect and redial a pay-
per-call service will violate this provision.
    \199\ 16 CFR 308.3(i).
---------------------------------------------------------------------------

    Disclosures in telephone message. The original Rule required any 
telephone message that solicits calls to a pay-per-call service to 
disclose the cost of the call in a slow and deliberate manner and in a 
reasonably understandable volume.\200\ Section 308.7(b) of the proposed 
Rule retains that requirement and clarifies that the term ``telephone 
message'' includes telephone messages conveyed during calls placed by a 
consumer, as well as those conveyed during calls placed by the vendor 
or its agent. The Commission added this clarifying language in order to 
ensure that consumers receive the necessary disclosures regardless of 
who places the telephone call and regardless of whether the message the 
consumer receives is the result of an inbound or an outbound call.
---------------------------------------------------------------------------

    \200\ 16 CFR 308.3(h).
---------------------------------------------------------------------------

    Disclosures in facsimile message. New Section 308.7(c) of the 
proposed Rule clarifies that any facsimile message soliciting calls to 
a pay-per-call service must include all disclosures required by the 
Rule. Since the original Rule was promulgated in 1993, consumers have 
had increased access to facsimile machines at work and in the home--
either as stand-alone machines or as part of a personal computer 
system. The Commission has received complaints from consumers regarding 
instances where consumers have received deceptive facsimiles soliciting 
calls to expensive international audiotext services.\201\ Vendors who 
solicit calls to pay-per-call services by using this technology should 
be governed by the same disclosure requirements as those providers who 
advertise in other printed media. Therefore, this proposed section 
clarifies that pay-per-call service information transmitted to 
consumers via facsimile must make all the relevant disclosures required 
by the Rule, and that such disclosures must be provided in the manner 
required for print advertisements in proposed Sections 308.3 and 
308.4(a)(2)(ii).
---------------------------------------------------------------------------

    \201\ See, e.g., ``Phone, E-Mail & Pager Messages May Signal 
Costly Scams,'' FTC Alert (Dec. 1996).
---------------------------------------------------------------------------

    FCC regulations ban unsolicited facsimile advertisements.\202\ The 
FTC's proposed Rule should not be read to permit unsolicited facsimile 
messages or any other practice that would be in violation of the FCC's 
rules. Therefore, Section 308.7(f) states that the FTC's proposed Rule 
should not be construed to permit any conduct or practice that the FCC 
otherwise has prohibited.
---------------------------------------------------------------------------

    \202\ 47 CFR 64.1200(a)(3).
---------------------------------------------------------------------------

    Use of pagers to solicit calls. New Section 308.7(d) of the 
proposed Rule clarifies that any beeper or pager message that solicits 
calls to a pay-per-call service must include all disclosures required 
by the Rule. The practice of soliciting calls in this manner has been 
the subject of numerous complaints over the past several years.\203\ In 
some instances, consumers report receiving a page from a pay-per-call 
service that simply listed an area code and seven-digit number as the 
return number to call. The number flashed on the pager did not use a 
900- or 976-number dialing pattern and thus could not be identified by 
the consumer as an audiotext service. Absent any explanation for the 
call, consumers reasonably assume that such pages indicate an urgent 
call from someone known personally or professionally. Upon dialing the 
number given on the pager and after later receiving a bill containing 
an expensive charge for the call, however, the consumer discovers that 
he or she has called an international audiotext service. Several 
commenters urged the Commission to design particular rules to prevent 
this practice and to prohibit all unsolicited messages left on 
pagers.\204\ One commenter urged the Commission to prohibit more 
narrowly unsolicited pay-per-call advertisements on pagers.\205\
---------------------------------------------------------------------------

    \203\ ``Sexy Calls Are a Headache for Pager Users,'' Memphis 
(TN) Commercial Appeal (March 2, 1995), p. 14-1. See also, ``Phone, 
E-Mail & Pager Messages May Signal Costly Scams,'' FTC Alert (Dec. 
1996).
    \204\ SW at 3; NCL at 5.
    \205\ NCL at 5.
---------------------------------------------------------------------------

    Given current pager technology, in all likelihood it is not 
possible for most pager solicitations to comply with the Rule's 
advertising disclosure requirements. Nevertheless, the Commission is 
not inclined to prohibit completely this method of advertising so long 
as such advertisements are not deceptive. Therefore, proposed Section 
308.7(d) makes it clear that pager messages soliciting calls to a pay-
per-call service will be treated like any other advertisement and thus 
must contain all relevant advertising disclosures required by the Rule. 
Vendors using this method of promoting their pay-per-call services are 
responsible for ensuring that all required disclosures are actually 
displayed by the consumer's beeper or pager; it is not sufficient to 
merely transmit this information with the hope that the recipient's 
beeper or pager is sophisticated enough to display all of the relevant 
disclosures.
    FCC regulations prohibit the use of automatic dialers to call a 
number assigned to a paging service.\206\ The FTC's proposed Rule 
should not be read to permit the use of automatic dialers to 
disseminate pay-per-call advertisements on beepers or pagers, or to 
permit any other practice that would be in violation of the FCC's 
rules. Therefore, Section

[[Page 58545]]

308.7(f) states that the FTC's proposed Rule should not be construed to 
permit any conduct or practice that the FCC otherwise has prohibited.
---------------------------------------------------------------------------

    \206\ 47 CFR 64.1200(a)(1)(iii).
---------------------------------------------------------------------------

Section 308.9  Preamble Message
    Proposed Section 308.9 incorporates the provisions previously 
contained in Sections 308.5(a)-(e) of the original Rule, setting out 
the requirements relating to the introductory disclosure message (or 
``preamble'') that must be provided without charge to callers to a pay-
per-call service. The Commission proposes two substantive changes to 
this section. First, the proposed Rule requires specific disclosures 
for services billed on a ``variable time rate basis.'' Second, the 
proposed Rule adjusts the ``nominal cost'' exemption to the preamble 
requirement.
    Variable option versus variable time rate basis. The proposed 
provision retains most of the language from the original provision, 
although the Commission added clarifying language to two of the 
subsections. Proposed Section 308.9(a)(2)(iii) details the manner in 
which the cost disclosure must be given, depending on whether the call 
is billed on a variable option rate basis or on a variable time rate 
basis. These changes parallel the proposed changes for disclosures in 
advertisements in proposed Section 308.4(a)(1)(iii). As in proposed 
Section 308.4(a)(1)(iii), the preamble cost disclosure for calls billed 
on a variable option rate basis are the same as those in the original 
Rule. In those instances where the call is billed on a variable time 
rate basis, however, the Commission has proposed that the preamble must 
state the cost of each different portion of the call (e.g., ``The first 
five minutes are $5.99 per minute; thereafter, you will be charged 
$3.99 per minute'').\207\
---------------------------------------------------------------------------

    \207\ Proposed Section 308.9(a)(1)(iii)(B).
---------------------------------------------------------------------------

    Nominal cost calls. Currently, the Rule allows a vendor to provide 
a pay-per-call service without a free preamble if the entire cost of 
the call is $2.00 or less.\208\ The comments suggest that this figure 
may be too low to encourage vendors to provide these low cost services 
to consumers.\209\ Section 308.9(c) of the proposed Rule thus raises 
the maximum charge for a ``nominal cost'' call to $3.00.
---------------------------------------------------------------------------

    \208\ 16 CFR 308.5(c).
    \209\ ISA at 26 (``a review of approximately 40,000 current 900 
number applications revealed that only 725 of the these applications 
(many of which involved polling) were priced at $2.00 or below. The 
ISA expects, that if the FTC increased the threshold to $3.00, more 
[vendors] would consider offering services at or about $3.00 per 
call. As a result, the number of low-priced services available to 
the public should increase.'').
---------------------------------------------------------------------------

    Parental permission advisory. Both TDDRA \210\ and the original 
Rule \211\ require the preamble to state that anyone under the age of 
18 must have the permission of a parent or legal guardian in order to 
call. Numerous commenters from industry urged that the Commission 
recommend to Congress that TDDRA be amended to change the parental 
consent requirement to reduce consumer confusion and to discourage 
minors from accessing adult-oriented material.\212\
---------------------------------------------------------------------------

    \210\ 15 U.S.C. 5711(a)(1)(E) and 5711(a)(2)(A)(iv).
    \211\ 16 CFR 308.5(a)(4).
    \212\ See, e.g., TPI at 4-5; ISA at 23-24; PMAA at 12-13; Tr. at 
190-91 and 550-53.
---------------------------------------------------------------------------

    To discourage minors from calling their services, some information 
providers prefer that the preamble present a stronger message--i.e., 
that no one under 18 may place the call and that anyone under that age 
must hang up. The Commission agrees that such a statement is stronger 
than the warning required by the statutory language. Because it is 
stronger than the required warning, the statement subsumes the mandated 
statutory language. For this reason, the Commission believes that such 
statements would comply with the requirement for a parental consent 
disclosure.\213\
---------------------------------------------------------------------------

    \213\ This statement is intended to supersede the position set 
out in the FTC staff opinion letter, dated May 17, 1994, from 
Heather L. McDowell, staff attorney, Federal Trade Commission, to 
William W. Burrington of the Interactive Services Association.
---------------------------------------------------------------------------

Section 308.10  Deceptive Billing Practices
    Section 308.10(a)--Deceptive billing for services in violation of 
the Rule. This section of the proposed Rule replaces the ``billing 
limitations'' provision contained in Section 308.5(f) of the original 
Rule, which: (1) prohibited vendors from billing consumers in excess of 
the amount stated in the preamble for those services; and (2) 
prohibited billing for any services provided in violation of any 
section of the Rule. Proposed Section 308.10(a) treats each of these 
two prohibitions in separate subparagraphs and, for greater clarity and 
precision, substitutes the phrase ``collect or attempt to collect'' for 
the original phrase, ``billing consumers.'' This proposed modification 
is meant to ensure that the Rule protects not only those consumers who 
have already paid their bill, but also those who have not yet paid but 
who have received a bill containing a charge for services that violate 
the Rule. In addition, the proposed provision would prohibit a vendor 
from engaging in these collection activities either ``directly or 
indirectly.'' This is meant to clarify that the proposed Rule does not 
permit a vendor or service bureau to evade this provision by filtering 
the charges through a third party, such as a billing aggregator.
    Finally, proposed Section 308.10(a) reformulates the prohibitions 
of 308.5(f) of the original Rule, specifying that they are deceptive 
practices. Attempting to collect charges for services that violate the 
Rule is a deceptive practice because the bills received by the consumer 
falsely indicate that the consumer must pay for these services when, in 
fact, the consumer is not legally obligated to do so. These are 
material misrepresentations that are likely to mislead reasonable 
consumers. Proposed Section 308.10(a) prohibits this deceptive 
practice, and has been re-titled to clarify the purpose of the 
provision.
    Section 308.10(b)--Deceptive billing for time-based charges after 
disconnection by the caller. Section 308.5(g) of the original Rule 
required the provider of pay-per-call services to ``stop the assessment 
of time-based charges immediately upon disconnection by the caller.'' 
Section 308.10(b) of the proposed Rule contains this same provision and 
reformulates it to specify that this constitutes a deceptive practice. 
Charging a consumer for more time than the consumer actually used is 
appropriately designated to be a deceptive practice. Vendors are in the 
best position to accurately measure the amount of time a consumer 
spends using a pay-per-call service. Charging a consumer for more than 
this time misrepresents the amount of time a consumer spent using the 
service, and is likely to mislead reasonable consumers into paying for 
more time on the service than they actually used. Thus, the practice of 
charging a consumer for time-based charges after a consumer has hung up 
the telephone is a deceptive practice.
    In the Statement of Basis and Purpose accompanying the original 
Rule, the Commission recognized that ``time-sensitive billing is 
accomplished in one-minute increments, and that any portion of a minute 
will be billed as full time.'' \214\ The Commission also stated then 
that billing in such a manner would ``not be considered a violation of 
this provision.'' In the Rule review, the Commission asked whether 
billing in fractions of minutes was now

[[Page 58546]]

possible.\215\ Comments revealed that fractional minute billing is now 
possible and is accomplished by some providers.\216\ Although several 
commenters requested that they be permitted to use business discretion 
when choosing whether or not to use one-minute billing or to implement 
fractional minute billing, the Rule as mandated by Congress does not 
allow for such discretion. Title II of TDDRA requires that the 
Commission promulgate rules requiring providers of pay-per-call 
services to ``stop the assessment of time-based charges immediately 
upon disconnection by the caller.'' \217\ Based on the current 
information contained in the record, the Commission believes that 
technology has made it possible to bill in increments smaller than one 
minute.\218\ Thus, under the proposed Rule, billing in one-minute 
increments will no longer be acceptable.
---------------------------------------------------------------------------

    \214\ 58 FR 42387 (August 9, 1993).
    \215\ 62 FR 11754 (March 12, 1997).
    \216\ AT&T at 14; US WEST at 6-7.
    \217\ 15 U.S.C. 5711(a)(2)(D). [Emphasis added].
    \218\ The Commission solicits comment on this determination.
---------------------------------------------------------------------------

Section 308.12  Prohibition Concerning Toll Charges
    As discussed, supra, the Commission proposes extending the 
definition of ``pay-per-call services'' to include all audiotext 
services, regardless of the dialing pattern used to access the 
service.\219\ The proposed definition would include many services 
offered over international or other long-distance numbers. By expanding 
the definition to cover these services, the Commission intends that the 
Rule should apply equally to all providers of audiotext, regardless of 
the dialing pattern used to access those services. The proposed Rule 
does not require that pay-per-call services be offered only over 900 
numbers; rather, the Rule requires that, regardless of the telephone 
number used to access a service, the vendor and the service bureau must 
provide the service in a manner that complies with the Rule.
---------------------------------------------------------------------------

    \219\ Excluding calls resulting in only de minimis payments to 
information or entertainment providers, presubscription agreement 
services, calls utilizing telecommunications services for the deaf, 
and tariffed directory services provided by a common carrier. 
Proposed Sections 308.2(g)(2)-(3).
---------------------------------------------------------------------------

    There was considerable discussion at the workshop relating to the 
issue of whether many of the basic consumer protections required by the 
Rule are technologically available in the international audiotext 
context.\220\ In written comments, one commenter pointed out that 
international audiotext services could not comply with the Rule's cost 
disclosure requirements because vendors cannot determine this 
information in advance.\221\ Several participants suggested that free 
preambles could not be inserted in international audiotext services 
because the international toll charges begin immediately upon 
connection, and because exact cost information could not be provided in 
the advertising or in a preamble due to the multitude of factors that 
affect the cost of an international telephone call (e.g., the caller's 
carrier, calling plan, time of day called, origin of call).\222\ 
Several LECs that bill for pay-per-call services indicated that 
currently it is impossible to ensure that calls to international 
audiotext services appear on a separate section of the telephone bill, 
as required by the original Rule,\223\ because there is no identifiable 
dialing pattern associated with international audiotext services.\224\ 
In addition to these important protections which are guaranteed by 
Titles II and III of TDDRA, international audiotext services, as a 
discrete category, cannot be blocked under Title I of TDDRA; i.e., 
consumers can choose to block calls to all international telephone 
numbers or none at all, but cannot block calls only to selected 
international numbers that access audiotext services.\225\ Moreover, a 
block on international dialing will not block calls to the Caribbean 
countries where many of these services terminate, because those 
countries are part of the North American Numbering Plan.\226\
---------------------------------------------------------------------------

    \220\ Tr. at 393-460.
    \221\ ISA at 27.
    \222\ TSIA at 20-21; Tr. at 345, 393.
    \223\ 16 CFR 308.5(j)(1).
    \224\ Tr. at 440-41.
    \225\ See, e.g., ALLIANCE at 2-3.
    \226\ Tr. at 432.
---------------------------------------------------------------------------

    These apparent technological difficulties in applying the Rule's 
consumer protections to international audiotext services prompted some 
commenters to suggest that, if the Commission were to extend the 
definition of pay-per-call services to cover international audiotext 
services, then the Commission should exempt these services from having 
to comply fully with the Rule.\227\ On the other hand, one consumer 
organization condemned the notion that businesses that choose to offer 
audio information and entertainment services via international dialing 
patterns should be permitted to do so without providing all of the 
consumer protections contemplated by TDDRA.\228\ Several commenters and 
participants supported the idea of requiring international pay-per-call 
services to be offered through 900 numbers, so that all of the consumer 
protections required by TDDRA and the Rule could be applied to such 
services.\229\
---------------------------------------------------------------------------

    \227\ ISA at 27.
    \228\ Tr. at 418 (NCL: ``What I am really hearing is that it is 
probably technically feasible to give consumers the same types of 
protections but it is not currently economically feasible, but 
nobody is forcing information providers to use international numbers 
to provide their services. That's a choice that they are consciously 
making. We're being asked essentially to countenance this choice to 
use these numbers and to not give consumers the same protections 
that we felt so strongly they were entitled to with 900 numbers, 
because it would be too expensive for the companies to do so, 
resulting in what--what we have seen as tremendous harm, economic 
harm, to consumers.'')
    \229\ SNET at 2; SW at 2; AT&T at 29-30; Tr. at 344, 369.
---------------------------------------------------------------------------

    Based on the record and on the Commission's enforcement 
experience,\230\ the Commission believes that the practice of 
disguising audiotext charges as long-distance or other telephone toll 
charges is inherently inconsistent with the protections set forth by 
Congress in Titles II and III of TDDRA. This is true for several 
reasons. First, billing statements containing these charges do not 
accurately identify the charges, nor do they meet the Rule's 
requirement in Section 308.5(j)(1)\231\ that the charges be displayed 
in a portion of the bill that is ``identified as not being related to 
local and long-distance telephone charges.''
---------------------------------------------------------------------------

    \230\ See, e.g., FTC v. Daniel B. Lubell, No. 3-96-CV-8200 (S.D. 
Iowa, filed Dec. 17, 1996) and FTC v. Interactive Audiotext 
Services, Inc., No. 98-3049 CBM (C.D. Calif., filed April 22, 1998).
    \231\ This provision is found in 308.18(a) of the proposed Rule.
---------------------------------------------------------------------------

    Second, international audiotext services cannot accurately disclose 
the costs callers will incur when they access the service.\232\ It is 
insufficient to disclose that ``long-distance rates apply'' \233\ or 
even that the rates are much higher than rates to some of the more 
familiar international destinations. TDDRA mandated that pay-per-call 
services disclose in advertising ``the total cost or the cost per 
minute.'' \234\
---------------------------------------------------------------------------

    \232\ See, e.g., ISA at 27; ITA at 11-12.
    \233\ See, e.g., Interactive Audiotext Services and Daniel B. 
Lubell.
    \234\ 15 U.S.C. 5711(a)(1)(A) and (2)(A)(ii).
---------------------------------------------------------------------------

    Third, according to the discussion at the workshop, current 
technology does not allow international audiotext to operate in such a 
way as to provide two of the other important protections intended by 
TDDRA: (1) a free preamble message that provides the caller with cost 
disclosures and the opportunity to hang up without incurring a charge; 
and (2) the ability to block access to these services without blocking 
access to other, non-audiotext, international numbers.\235\
---------------------------------------------------------------------------

    \35\ Tr. at 429-32. There seemed to be some disagreement between 
at least one of the common carriers and the international audiotext 
providers as to whether free preambles could be provided at the 
beginning of international audiotext services. The MCI 
representative suggested that international services could be 
offered via a 900 number and that would enable a free preamble to be 
provided. Tr. at 345-46. In any event, the FCC has no jurisdiction 
over foreign common carriers to require them to implement TDDRA-like 
blocking on their audiotext lines.

---------------------------------------------------------------------------

[[Page 58547]]

    Fourth, consumers who receive charges for international pay-per-
call are not able to exercise their dispute resolution and other rights 
guaranteed by TDDRA. Long-distance toll charges are expressly excluded 
from the statutory definition of ``telephone-billed purchase'' and thus 
are not covered by the billing and collection protections of Title III 
of TDDRA.\236\ By concealing a pay-per-call charge within an 
international telephone toll charge, a vendor effectively evades the 
requirement to fulfill the consumers' dispute resolution rights under 
Title III. By relying on a billing and collection system for toll 
charges--a system designed to guarantee payment to carriers for 
telecommunications transport services they provide--international 
audiotext service providers remain safely insulated from injured 
consumers who have no means to pursue refunds for international 
audiotext charges that may be incurred as a result of deceptive 
practices.\237\ Domestic long-distance carriers sometimes forgive these 
charges as a means of cultivating consumer goodwill, but in doing so 
they are willingly forfeiting payment for services rendered--i.e., 
long-distance transport of the call. Prohibiting vendors from 
disguising charges for information or entertainment services as toll 
charges will prevent consumers and common carriers from having to bear 
this loss.
---------------------------------------------------------------------------

    \236\ 15 U.S.C. 5724(1)(B).
    \237\ Tr. at 443-61. See also, e.g., Daniel B. Lubell. In fact, 
one advertisement for an international audiotext service bureau 
boasts that vendors who use their services suffer ``No 
Chargebacks!'' InfoText Magazine (May/June 1996), front cover.
---------------------------------------------------------------------------

    In sum, the Commission believes that concealing a pay-per-call 
charge within a telephone toll charge is a practice that is inherently 
deceptive because it evades all of the important protections intended 
by TDDRA that are set out in the original Rule. The Commission intends 
for consumers to receive all the protections of Title II and Title III 
of TDDRA when using any pay-per-call service. The practice of hiding 
the cost of an audiotext call within the cost of a toll charge 
represents a serious threat to this goal.
    Congress realized that it could not anticipate all provisions that 
might be necessary to prevent unfair, deceptive, or abusive practices 
that would undermine the rights afforded to consumers by TDDRA. 
Therefore, Section 5711(a)(2)(J) of TDDRA gave the Commission the 
flexibility to prescribe ``such additional standards'' as may be needed 
``to prevent abusive practices.'' Additionally, in Title II of TDDRA, 
Congress directed the Commission to include in its Rules provisions to:

prohibit unfair or deceptive acts or practices that evade such rules 
or undermine the rights provided to customers * * *, including the 
use of alternative billing or other procedures [emphasis 
added].\238\

    \238\ 15 U.S.C. 5711(a)(4).
---------------------------------------------------------------------------

Similarly, Title III of TDDRA directs the Commission to include 
provisions in its Rules to:

prohibit unfair or deceptive acts or practices that evade such rules 
or undermine the rights provided to customers under [Title III of 
TDDRA].\239\

    \239\ 15 U.S.C. 5721(a)(1).
---------------------------------------------------------------------------

    The record developed in this matter leaves little doubt that the 
practice of concealing a charge for audio information or entertainment 
services within a regulated toll charge has eroded the vital consumer 
protections provided by TDDRA.\240\ Thus, proposed Section 308.12 
provides that a vendor may not offer a pay-per-call service that would 
result in the consumer receiving a charge for a toll call. The most 
frequent example of this practice is international audiotext, where the 
consumer is billed for an international long-distance call and a 
portion of the long-distance charge paid by the consumer is shared with 
the provider of the audio information or entertainment.\241\ In 
addition, the Commission is aware of other situations where consumers 
have been assessed ''toll`` charges that are, in fact, charges for 
information or entertainment programs, not transmission of 
telecommunications.\242\
---------------------------------------------------------------------------

    \240\ As one commenter stated: ``The financial impact of pay-
per-call service abuses which occur over non-900 dialing patterns is 
staggering. Unsuspecting consumers run up huge amounts of debt, 
especially for international calls. Even authorized users are taken 
aback at the high dollar amounts charged to call these numbers.'' SW 
at 4.
    \241\ See, e.g., Daniel B. Lubell; FTC v. Interactive Audiotext 
Services, Inc., No. 98-3049 CBM (C.D. Calif., filed April 22, 1998). 
See also, Wisconsin v. Top Communications, Inc., No. 95 CV 200 (Cir. 
Ct., filed Jan. 10, 1997).
    \242\ See letter dated September 1, 1995, to Ronald J. Marlowe 
of Cohen, Berke, Bernstein, Brodie, Kondell & Laszlo, from John B. 
Muleta, Chief, Enforcement Division, Common Carrier Bureau, Federal 
Communications Commission, regarding the legality of providing 
information and entertainment programs through calls to long-
distance numbers, which would be reached by dialing a 10-XXX number, 
a 500-number, or a 700-number. The FCC concluded that such 
arrangements would violate ``both the letter and the spirit'' of 
TDDRA and Section 228 of the Communications Act of 1934, as amended.
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    Much of the language from Section 308.12 is taken from the TDDRA 
definition of ''telephone-billed purchase.`` This will ensure that the 
proposed Rule will prohibit precisely those types of pay-per-call 
services that would not be covered by the dispute resolution 
protections guaranteed by Title III of TDDRA. The Commission believes 
that this is essential in order to protect the rights afforded to 
consumers by TDDRA. Whenever a consumer is billed for pay-per-call 
services that result in a toll charge, the vendor of that pay-per-call 
service will have violated the proposed Rule.\243\
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    \243\ In all likelihood, the service bureau will have violated 
this provision as well because the service bureau ``should have 
known'' of this violation.
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Section 308.13  Prohibitions Concerning Toll-Free Numbers
    Section 308.13 of the proposed Rule retains the provision in 
Section 308.5(i) of the original Rule prohibiting any person from using 
a toll-free number to provide access to or delivery of pay-per-call 
services. Sections 308.13(a) through (d) of the proposed Rule have been 
modified to clarify and emphasize that a consumer cannot be held 
responsible for charges resulting from a presubscription agreement into 
which he or she did not enter. In addition, Section 308.13(c) clarifies 
that no consumer may be charged for information or entertainment 
conveyed during a call to a toll-free number, unless that consumer has 
agreed to be charged for the information or entertainment by entering 
into a presubscription agreement that satisfies the requirements of the 
proposed Rule.
    The Commission also proposes changing the language of 308.13(d) to 
provide that the prohibition applies to all incoming calls for which 
there is a charge, regardless of whether or not they are characterized 
as ``collect'' calls.\244\ The Commission also proposes modifying the 
language of proposed Sections 308.13(c) and (d) to clarify that the 
prohibitions against charging for the content of an outbound or inbound 
call include entertainment services as well as information services. 
This will more effectively implement the Congressional mandate set 
forth in Title II of TDDRA that the Commission prohibit vendors ``from 
providing pay-per-call services through an 800 number or other 
telephone number advertised or widely understood to be toll-free.'' 
\245\ Since pay-per-call services include

[[Page 58548]]

entertainment services in addition to information services, this 
section also should include entertainment services.
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    \244\ The Commission uses the term ``collect call'' in its most 
general sense to refer to any instance where a consumer incurs a 
charge by virtue of answering or accepting a telephone call.
    \245\ 15 U.S.C. 5711(a)(2)(F).
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Section 308.14  Monthly or other recurring charges
    Section 308.14 of the proposed Rule prohibits a vendor from 
providing a pay-per-call service that results in a monthly or other 
recurring charge to a consumer, unless that vendor and consumer have 
entered into a presubscription agreement that authorizes such monthly 
or other recurring charges. The proposed Rule also states that the 
presubscription agreement must meet the requirements of Sec. 308.2(j).
    There was discussion at the workshop concerning unexpected and 
unauthorized recurring pay-per-call service charges on consumers' 
telephone bills, often in connection with ``psychic'' services.\246\ 
Consumer organizations have received numerous complaints about such 
unauthorized recurring monthly charges.\247\ Several participants 
described scenarios where a consumer had made a call to an 800 number 
and then unexpectedly began to incur monthly charges on his or her 
phone bill.\248\ Several commenters and participants suggested that the 
problem of unauthorized recurring charges could best be remedied by 
requiring a presubscription agreement for all such charges.\249\
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    \246\ Tr. at 382-84, 498-505.
    \247\ See, e.g., NCL at 4.
    \248\ Tr. at 498-500.
    \249\ NCL at 5; FLORIDA at 8; NAAG at 11; TSIA at 16-17; Tr. at 
498.
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    The Commission agrees that such an approach is appropriate. The 
Commission believes that, when compared to the one-time purchase of an 
audiotext program, the continuing business relationship between a 
provider and a caller that is involved in long-term membership would 
likely entail more terms and conditions (and more complicated terms and 
conditions), as well as higher long-term costs. A presubscription 
agreement, with its requirements for written terms and a PIN, is 
therefore a more appropriate, and likely a more effective, format for 
disclosures of this information about telephone-billed purchases that 
involve recurring charges than is a preamble. As noted above, in most 
cases, the Commission believes that a vendor is justified in assuming 
that a call from a consumer's telephone to a 900-number service (and 
ensuing charges for the service) have been authorized by that consumer, 
since the consumer could have easily blocked the call and avoided the 
charges. Such an assumption is not justified, however, where a single 
call to a pay-per-call service results in charges, not only for the 
initial call, but monthly or other recurring charges that cannot be 
blocked, even though the initial call could have been. A single call to 
a pay-per-call service from a consumer's home is simply not an adequate 
basis for recurring charges. Thus, under the proposed Rule, a 
presubscription agreement would be required for all such arrangements.
Section 308.16  Service Bureau Liability
    Proposed Section 308.16 retains the provision of the original Rule 
which held service bureaus liable where they knew or should have known 
of violations of the Rule by vendors of pay-per-call services. However, 
where the original Rule contemplates service bureau liability only in 
those instances where its ``call processing facilities'' are used,\250\ 
the proposed Rule expands the circumstances under which a service 
bureau may be found to be indirectly liable--i.e., where a law-
violating vendor has availed itself of any of the services offered by a 
service bureau. Since adoption of the original Rule, the capabilities 
and offerings of service bureaus has greatly expanded to include 
services such as voice processing, call processing, billing 
aggregation, call statistics (call and minute counts), call revenue 
arrangements (including revenue-sharing arrangements with common 
carriers), and pre-packaged pay-per-call investment opportunities 
(``turn-key operations'').\251\ Some of these newly-available service 
bureau functions (e.g., acting as an aggregator for billing and 
collection) have given rise to many consumer complaints about cramming. 
Service bureaus that perform these functions are in the best position 
to know the practices of their client vendors because they contract 
directly with these vendors and because they are often the first point 
of contact for consumer complaints about charges for their client-
vendors' services or products. While the original Rule contemplated 
that a service bureau would be liable only for violations of a vendor 
when the vendor of pay-per-call services had used its call processing 
facilities, experience has demonstrated there is no reason to 
distinguish those services from any others provided by service bureaus. 
Thus, the proposed Rule imposes liability on a service bureau 
regardless of the service it provides a rule-violating vendor, if the 
service bureau knew or should have known of the violation.\252\
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    \250\ 16 CFR 308.5(l).
    \251\ See, e.g., FTC v. Hold Billing Services, Ltd., No. 
SA98CA0629 FB (W.D. Texas, filed July 19, 1998); FTC v. 
International Telemedia Associates, Inc., No. 1-98-CV-1935 (N.D. 
Ga., filed July 10, 1998); and FTC v. Interactive Audiotext 
Services, Inc., No. 98-3049 CBM (C.D. Calif., filed April 22, 1998). 
See also, ``9th Annual Service Bureau Review,'' InfoText Magazine 
(July/August 1997).
    \252\ In some circumstances, a service bureau will always be in 
a position where it should know of a vendor's violation. For 
example, service bureaus should know if they are providing services 
to vendors of pay-per-call services that result in toll-charges. In 
such instances, a vendor will be in violation of proposed Section 
308.12, and a service bureau providing services to that vendor will 
be liable under proposed Section 308.16 (Service bureau liability).
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Subpart C--Pay-Per-Call Services and Other Telephone-Billed Purchases

Section 308.17  Express Authorization Required
    Section 308.17 of the proposed Rule specifies that the ``express 
authorization of the person to be billed'' is required for a telephone-
billed purchase that is not blockable by TDDRA blocking. The proposed 
section also specifies that it is a deceptive practice and a Rule 
violation for any vendor, service bureau, or billing entity to collect 
or attempt to collect payment, directly or indirectly, for a telephone-
billed purchase that was not TDDRA blockable, where the vendor, service 
bureau, or billing entity knew or should have known that the purchase 
was not authorized by the person from whom payment is being sought.
    Requirement of authorization. Generally, purchases of goods or 
services require some form of authorization from the purchaser--that 
is, the purchaser must indicate some intent or desire to make the 
purchase.\253\ Telephone-billed purchases are no exception to this 
broad legal principle. For telephone-billed purchases that can be 
blocked by TDDRA blocking, the Commission believes it is reasonable for 
a vendor to presume that a call that comes from a telephone 
subscriber's telephone was authorized by that subscriber. After all, if 
the subscriber wanted to prevent these types of charges from being made 
through his or her telephone, there is a cost-free and simple method to 
do so: TDDRA blocking. Election of TDDRA blocking will not require the 
line subscriber to sacrifice other valuable uses of his or her 
telephone--he or she will still be able to use the telephone for any 
purpose other than making TDDRA-blockable telephone-billed purchases.
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    \253\ Restatement (Second) of Contracts (``Restatement'') 
Sec. 23 (1979).

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[[Page 58549]]

    However, where a telephone-billed purchase is not TDDRA blockable, 
the Commission does not believe that it is reasonable for vendors to 
presume that telephone-billed purchases made from a subscriber's 
telephone were, in fact, authorized by that subscriber. A line 
subscriber has no effective means of preventing these purchases from 
being made, short of monitoring the placement and content of every 
telephone call made from his or her telephone. A merchant is not 
entitled to presume that the line subscriber has agreed to pay for a 
good or service merely because that subscriber's telephone was used to 
order a product or service. A consumer is no more obligated to pay for 
a non-blockable telephone-billed purchase made from his or her 
telephone than the consumer is obligated to pay for any other purchase 
(for example, a purchase of a sweater from a clothing catalog) that 
just happened to be made from that consumer's telephone.\254\
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    \254\ This was illustrated in two of the Commission's recent 
cases. FTC v. Interactive Audiotext Services, Inc., No. 98-3049 CBM 
(C.D. Calif., filed April 22, 1998); and FTC v. International 
Telemedia Associates, Inc., No. 1-98-CV-1935 (N.D. Ga., filed July 
10, 1998). These situations can easily be distinguished from a 
consumer's obligation to pay for any tariffed charges for basic 
telecommunications service resulting from calls made from his or her 
telephone. First, basic telecommunications services are most often 
purchased from an entity with whom the consumer has a pre-existing 
and voluntary relationship. More importantly, consumers accept basic 
telecommunications services on terms and conditions that are 
regulated by the FCC, from carriers that are under a statutory duty 
to ensure that the services provided to consumers in a manner that 
is deemed ``just and reasonable.'' 47 U.S.C. 201.
---------------------------------------------------------------------------

    Meaning of the term ``express authorization.'' As explained in the 
discussion of the proposed new billing error in section 308.2(b)(10) of 
the proposed Rule, the Commission uses the term ``express 
authorization'' to indicate that the authorization contemplated by the 
proposed Rule cannot be inferred from the fact that a telephone call 
came from a specific telephone. ``Express'' authorization requires that 
the person to be billed for the service actually agree to make the 
purchase. For example, a tape recording of the person to be billed for 
the service being informed of the material terms of the agreement and 
then agreeing to make the purchase on those terms and pay the charge, 
would constitute evidence of express authorization.\255\ Similarly, an 
agreement containing a non-deceptive statement of material terms and 
conditions and signed by the person to be billed for the service, would 
be evidence of express authorization. If a valid PIN (as that term is 
defined by the proposed Rule), were used by the caller, after hearing 
all the material terms of the agreement, that would also constitute 
evidence of express authorization.\256\
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    \255\ It is important to reiterate that the recording must show 
that the person to be billed for the service authorized the charge.
    \256\ For example, if a LEC were to issue a secure PIN to 
subscribers, the LEC could require subscribers to use this PIN when 
ordering enhanced services.
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    Deceptive billing practice. A consumer is not legally obligated to 
pay charges for a telephone-billed purchase that falls within the 
Rule's enumerated billing errors. As discussed above, the proposed Rule 
would include within the term ``billing error'' charges arising from 
unauthorized, non-blockable telephone-billed purchases. Therefore, a 
representation to a consumer that he or she owes a charge for a 
telephone-billed purchase that was not, in fact, expressly authorized 
by that consumer is likely to mislead a reasonable consumer into paying 
a charge that is not collectible under the Rule. Proposed Section 
308.17 thus prohibits vendors, service bureaus, or billing entities 
from collecting or attempting to collect charges that result from an 
unauthorized, non-blockable telephone-billed purchase, if the vendor, 
service bureau, or billing entity knew or should have known that such 
charges were not authorized by the person from whom payment is being 
sought.
    Limited applicability--``Knew or should have known.'' Proposed 
Section 308.17 applies where the vendor, service bureau, or billing 
entity ``knew or should have known'' that the charge was not authorized 
by the person from whom payment is being sought. This standard 
encompasses not only those circumstances where a vendor, service 
bureau, or billing entity had actual knowledge that a particular 
consumer was charged without authorization, but also circumstances 
where the vendor, service bureau, or billing entity should have known 
that numerous consumers were likely to have been billed without 
authorization.
    The Commission believes that it is unnecessary to impose strict 
liability on the vendor, service bureau, or billing entity for each 
time an attempt is made to collect an unauthorized charge. The 
Commission believes that in most cases, the dispute resolution 
provisions of proposed Section 308.20 should supply an adequate remedy 
for consumers who receive these types of unauthorized charges on their 
telephone bills. Therefore, the Commission proposes limiting the 
applicability of this section to those circumstances where a vendor, 
service bureau, or billing entity ``knew or should have known'' of the 
lack of authorization.
    Parties affected--Vendors, service bureaus, and billing entities. 
Proposed Section 308.17 would apply to vendors and service bureaus 
because these entities are responsible for structuring and offering the 
underlying service, and they are in a position to know, with respect to 
any particular offering, whether sufficient steps were taken to ensure 
that express authorization has been obtained. Vendors are most directly 
in control of how their own transactions are conducted and the 
procedures used to secure authorization. They are in a position to know 
whether or not those procedures are effective in securing actual 
authorization from the person who will be billed for the service. 
Service bureaus are in a similarly strong position to demand (by 
contract or otherwise) that responsible procedures be used by the 
vendor to secure express authorization, and are in an excellent 
position to monitor vendors to ensure that adequate precautions are 
being followed.
    In addition to covering vendors and service bureaus, proposed 
Section 308.17 also applies directly to billing entities.\257\ These 
entities (in most cases LECs) play a unique and critical role in the 
billing of products and services on telephone bills. They are 
frequently in a position to know if the wrong consumer has been billed, 
because often they are the first point of contact for consumer 
complaints. Any billing entity that receives complaints from consumers 
who are being charged without their express authorization is on notice 
of the problem, and should take immediate action to stop the unlawful 
billing or risk violating proposed Section 308.17.\258\
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    \257\ Where a common carrier is also a billing entity, liability 
may already exist under Title I of TDDRA where the carrier knew or 
should have known of the violation. 47 U.S.C. 228(e)(1). Billing 
entity liability under proposed Section 308.17 would complement this 
Title I provision.
    \258\ The Commission supports the efforts of the LECs and the 
FCC in developing ``best practices'' guidelines to prevent cramming. 
Proposed Section 308.17 should work in complementary fashion to 
fight this harmful practice.
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Section 308.18  Disclosure Requirements for Billing Statements.
    Section 308.18 of the proposed Rule is a revised version of Section 
308.5(j) of the original Rule. The original provision applied only to 
billing statements for pay-per-call services, whereas the proposed 
revision requires disclosures to be placed on billing

[[Page 58550]]

statements for all telephone-billed purchases.
    Subsection 308.18(c) identifies those disclosures that will still 
be required only in billing statements for pay-per-call purchases. This 
subsection includes the substance of section 308.5(j)(2) of the 
original Rule, but also requires that the billing statement list the 
actual telephone number dialed for any pay-per-call purchase. 
Representatives from the LECs and other common carriers reported at the 
workshop that it was not uncommon for calls to be represented as having 
been made to one number when the consumer had actually dialed some 
other number.\259\ The Commission's enforcement experience confirms 
this. This practice of misrepresenting on a billing statement the 
number purported to have been dialed (and giving rise to the charge) is 
likely to mislead the consumer in attempting to understand his or her 
bill. It is also confusing to the LEC when it tries to identify a 
disputed call. The practice deprives consumers of material information 
about the actual nature of the charges allegedly owed.\260\ Therefore, 
the Commission believes that it is necessary that a billing statement 
accurately reflect the telephone number dialed by the caller. This 
information, coupled with the date, time, and duration of the call, 
should be sufficient information for both the consumer and the LEC to 
identify a particular call in the event of a dispute.
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    \259\ Tr. at 159-62 (SW reported that companies had submitted 
charges for 900 numbers that were never dialed). See also, Tr. at 
203-05; 233-38 (PILGRIM reports that calling card calls and calls to 
800 numbers are reported on consumers' billing statements as 700 
numbers).
    \260\ For example, consumers who receive bills that do not 
accurately reflect the telephone number dialed will not be able to 
compare the charges on the bill to the charges disclosed in an 
advertisement soliciting calls to a specific telephone number.
---------------------------------------------------------------------------

    Subsection 308.18(d) of the proposed Rule modifies the requirements 
of Section 308.5(j)(3) of the original Rule by expanding the provision 
to cover all telephone-billed purchases, not just pay-per-call 
purchases. The proposed provision retains the requirement that billing 
statements display a local or toll-free telephone number where 
consumers can obtain answers to questions and information about their 
billing rights and obligations in connection with telephone-billed 
purchases. The revised section also retains the requirement that 
consumers must be able to obtain the name and mailing address of the 
vendor by calling that number. In addition, the proposed Rule specifies 
that the consumer must be able to readily obtain this information when 
he or she calls the number listed on the statement.
    Several commenters and participants in the workshop reported 
widespread complaints from consumers who were unable to obtain 
information from LECs or billing aggregators about charges or about the 
identity of the vendor.\261\ In some instances (e.g., international 
pay-per-call services), a consumer can only get the name of the foreign 
telephone company from his or her long-distance provider, but not the 
identity of the audiotext service provider with whom the foreign 
carrier splits the revenues collected from the consumer.\262\ In some 
cases, consumers who call a listed customer service 800 number are 
unable to get through, and often give up in frustration or write to 
consumer or law enforcement agencies.
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    \261\ NAAG at 12-13; Tr. at 114-16, 173-74, 262-65. One of the 
NAAG representatives described the frustration consumers often feel 
when attempting to inquire about charges on their telephone bills in 
this way: ``By the time consumers get to us * * * they are 
tremendously angry, and part of this anger comes from having to go 
through this maze to discover, if they can, who put the charges on 
the bill.'' Tr. at 173-174. The Commission's enforcement experience 
confirms this observation.
    \262\ Tr. at 115.
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    NAAG recommended that the bill list the name of the actual vendor 
so consumers can take a dispute directly to that party in the first 
instance instead of going through the LEC and/or the third-party 
billing and collection entity.\263\ Industry representatives countered 
that many vendors do not have the capability to respond to routine 
billing inquiries; furthermore, industry noted that there are 
limitations on the amount of information that can be printed on the 
bill.\264\ In the alternative, NAAG recommended that the entity whose 
name and number appear on the bill must have ultimate authority for 
handling disputes and issuing refunds or credits.\265\ In response, 
industry countered that billing and collection entities already have 
full authority to satisfactorily resolve any dispute.\266\
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    \263\ NAAG at 13. See also, Tr. at 255, 263-64.
    \264\ Tr. at 258-59.
    \265\ Tr. at 263-64.
    \266\ Tr. at 265.
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    The Commission believes that it is important that billing entities 
and vendors be accountable to their customers. However, the Commission 
also is mindful that such protections must be balanced against the cost 
to industry. The Commission does not believe that it is necessary to 
list the name of the vendor on the bill, as long as the entity listed 
on the bill is the party with authority to answer questions and to 
resolve disputes, including authorizing a refund or credit.
Section 308.19  Access to information
    The proposed Rule retains the requirement from Section 308.6 of the 
original Rule that common carriers who provide telecommunications 
services to any provider of pay-per-call services must make available 
to the Commission, upon request, any records and financial information 
maintained by such carrier relating to the arrangements between the two 
entities. However, the proposed Rule expands that requirement to 
include records and financial information relating to arrangements with 
vendors of other telephone-billed goods or services, as well as to 
arrangements with service bureaus.
    The rapid growth of telephone-billed purchases (other than pay-per-
call), and the rapid growth of problems associated with such purchases 
has shown that there is no rationale for limiting this requirement as 
the original Rule did. Whenever a common carrier provides 
telecommunications services to a vendor that offers any type of 
telephone-billed goods or services (including pay-per-call), it should 
provide to the Commission, upon request, any records and financial 
information relating to its arrangements with those vendors. In 
addition, since the original Rule was promulgated, it has become clear 
to the Commission that, in most cases, the business arrangement exists 
between the common carrier and the service bureau, and not directly 
between the carrier and the vendor. Thus, on a practical level, a 
requirement limited to information regarding vendors will not result in 
meaningful information when, in many cases, the carrier will only 
possess the relevant information with respect to the service bureau.
Section 308.20  Dispute Resolution Procedures
    Section 308.20 of the proposed Rule is a revision of Section 308.7 
of the original Rule, which was titled ``Billing and collection for 
pay-per-call services.'' The proposed Rule changes the title to 
``Dispute Resolution Procedures'' because the Commission believes this 
title more accurately reflects the substance of the section.\267\ 
Although much of the language in the original section has been 
retained, the Commission has revised several provisions in this section 
to clarify the responsibilities of the parties, enhance consumer 
protections by closing loopholes, and increase the efficiency of the 
billing process, thus reducing the burden on industry.
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    \267\ Proposed Section 308.20 implements Title III of TDDRA, 15 
U.S.C. 5721-5724.

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[[Page 58551]]

    TDDRA requires that the Commission impose requirements that are 
substantially similar to the requirements imposed under TILA and FCBA 
with respect to the resolution of credit disputes.\268\ TDDRA also 
directs the Commission to consider the extent to which the regulations 
should diverge from the requirements of TILA and FCBA in order to 
protect consumers as well as be cost effective to billing 
entities.\269\ The proposed Rule preserves, wherever feasible, the 
balance struck by the original Rule. However, as described in more 
detail, infra, there are a number of instances where the Commission now 
believes that some additional divergence from TILA and FCBA may be 
necessary to protect consumers.
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    \268\ 15 U.S.C. 5721(a)(2).
    \269\ 15 U.S.C. 5721(d)(10).
---------------------------------------------------------------------------

    Definitions. As discussed supra, the definitions contained in 
Section 308.7(a) of the original Rule have been moved to Section 308.2 
of the proposed Rule and have been incorporated alphabetically into the 
other definitions.
    Clarification of the 60-day time limit to initiate a billing 
review. In proposed Sections 308.20(a) and 308.20(m), the Commission 
has clarified the meaning of the time limit within which the consumer 
may initiate a billing review. The original Rule provided:

    A customer may initiate a billing review * * * by providing the 
billing entity with notice of a billing error no later than 60 days 
after * * * the first billing statement that contains [the charge]. 
(emphasis added) [308.7(b)]

    Many industry members interpreted that provision to mean that the 
billing entity (generally the LEC) was prohibited from allowing any 
challenges to a bill containing charges for telephone-billed purchases 
after the 60-day period had ended.\270\ Conversely, the LECs understood 
the provision to mean that they were required to give the consumer at 
least 60 days to dispute a charge, but that they were not prohibited 
from giving the consumer more time.\271\ The Commission did not intend 
that the original Rule require a billing entity to refuse to honor a 
dispute raised after 60 days. Rather, consumers must raise a dispute 
within 60 days in order to preserve their rights under this section, 
including the right to an investigation and protection against further 
collection activity while the dispute is under investigation.\272\ In 
order to clarify this, the Commission has added an explanatory phrase 
at the beginning of proposed Sections 308.20(a) and (m) indicating that 
a consumer must initiate a billing review within 60 days of receiving 
the bill ``in order to be guaranteed the protections provided by the 
Rule.'' This language, however, does not prohibit the LECs from 
honoring disputes (and providing refunds) raised after the 60-day 
period has expired.\273\
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    \270\ Tr. at 25, 44, 63-64, 271-78.
    \271\ Tr. at 49-50, 101-03.
    \272\ Tr. at 245, 248, 274-75.
    \273\ As discussed infra, the proposed Rule also imposes new 
restrictions on the billing entities (generally the LECs) who 
initially deal with consumers. These new restrictions are designed 
to address vendors' complaints that they experience difficulty 
obtaining timely customer information from LECs.
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    Facilitating the reporting of a billing error. Consumers should be 
able to report billing errors easily. The Commission does not intend 
that any consumer waive his or her right to invoke the dispute 
resolution protections guaranteed by the Rule simply because he or she 
used the wrong words in a billing error notice. Therefore, Section 
308.20(a) of the proposed Rule modifies the language of original 
Section 308.7(b) to clarify the consumer's burden with respect to 
reporting a billing error. Under proposed Sections 308.20(a)(2) and 
(a)(3), a billing error notice need not indicate a belief that there is 
a ``billing error'' (as that term is defined by proposed Section 
308.2(a)); rather, it need only indicate a belief that there is an 
error of some kind. The purpose of the consumer's notice is to alert 
the billing entity of a potential problem, not to fully assert a list 
of facts, which if true, would constitute a ``billing error.'' Notices 
that would satisfy the proposed requirement include but are not limited 
to statements such as: ``There is something wrong with my bill,'' 
``Nobody was at home that day,'' ``I did not order these services,'' 
``I did not make these calls,'' ``I do not know what these charges are 
for,'' ``This is not what I paid for,'' or ``These were supposed to be 
free.''
    After receiving a notice from the consumer indicating that there is 
some sort of problem or error with the billing statement, the billing 
entity then has the burden under proposed Section 308.20 to determine 
whether there was, in fact, a ``billing error.'' Until it makes such a 
determination, a billing entity may not attempt to collect the disputed 
charges. It is the billing entity, not the consumer, who bears the 
responsibility of knowing the potential billing errors that may be 
involved in a given telephone-billed purchase. For example, if a 
billing entity has charged a customer for a ``telephone-billed purchase 
* * * that would not have been avoided by that customer's election of 
blocking pursuant to 47 U.S.C. 228(c)'' as described by proposed 
308.2(b)(10), and the customer subsequently submits a billing error 
notice, the billing entity is obligated to provide some supporting 
evidence that the customer being billed had ``expressly authorized'' 
that purchase in advance (e.g., by the voice recording or signature of 
the person being billed, reliably indicating authorization to bill for 
a specified product or service).
    Requirement that a reasonable investigation be conducted if 
collection attempted on disputed charge. Several commenters expressed 
concern that in many, if not most, circumstances where a consumer has 
submitted a billing error notice, no one (neither the billing entity, 
the vendor, nor the service bureau) provides supporting evidence to the 
consumer showing that a disputed charge is in fact valid.\274\ NAAG 
stated that, in many instances, the vendor or its agent simply sends a 
form letter stating that the call originated from the consumer's phone 
number and, thus, the consumer must pay the charge.\275\ The Commission 
believes that a consumer who disputes a telephone-billed purchase 
charge under the Rule should not have to pay that charge unless a 
billing entity conducts a reasonable investigation of the validity of 
the charge and determines that there was no billing error. The 
Commission also believes that the consumer who disputes the charge 
should be entitled to documentary evidence of the charge's validity, 
and a written explanation of the billing entity's conclusion that no 
billing error occurred. Section 308.20(f) of the proposed Rule requires 
that, once a customer has submitted a billing error notice to a billing 
entity, the customer need not pay the charge until a reasonable 
investigation of the charge has been conducted, and until the customer 
has received the written explanation and documentary evidence setting 
forth that no billing error has occurred.
---------------------------------------------------------------------------

    \274\ Tr. at 149-50; SNET at 7; FLORIDA at 2-3, 11; SW at 3, 8-
10.
    \275\ Tr. at 150. See also, FTC v. Hold Billing Services, Ltd., 
No. SA98CA0629 FB (W.D. Texas, filed July 19, 1998); FTC v. 
International Telemedia Associates, Inc., No. 1-98-CV-1935 (N.D. 
Ga., filed July 10, 1998); and FTC v. Interactive Audiotext 
Services, Inc., No. 98-3049 CBM (C.D. Calif., filed April 22, 1998).
---------------------------------------------------------------------------

    Secondary collection activities by billing entities other than the 
one designated to receive and respond to billing errors. If a billing 
entity receiving the billing error notice decides to respond to that 
notice by forgiving the disputed charge, it has no further obligation 
to conduct a reasonable

[[Page 58552]]

investigation. In these circumstances, the billing entity generally 
passes the charge back to the vendor, who often tries to collect on its 
own or through the services of some third party. Under the original 
Rule, only one billing entity was obligated to comply with the dispute 
resolution provisions of the Rule. This meant that these secondary 
collection efforts by later billing entities were not subject to the 
Rule's dispute resolution process--the consumer who has raised a 
billing dispute may continue to be pursued for collection, but never 
have the right to receive evidence that a valid debt was owed.\276\
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    \276\ This situation should be compared to the protections 
provided under the Fair Debt Collection Practices Act (``FDCPA''), 
15 U.S.C. 1692 et seq., to a consumer who disputes a debt. Under the 
FDCPA, once the consumer notifies the debt collector that the debt 
is disputed, the debt collector must cease attempting to collect the 
debt until the debt collector obtains verification of the debt and 
sends a copy of the verification to the consumer. 15 U.S.C. 1692g.
---------------------------------------------------------------------------

    In order to address this problem, the Commission proposes a 
modification of former Section 308.7(o). Proposed Section 308.20(n)(2) 
specifies that, once a billing entity has forgiven a disputed 
telephone-billed purchase charge, no billing entity may attempt to 
sustain charges for a telephone-billed purchase unless a reasonable 
investigation has been conducted and the consumer has received a 
written explanation of the charges and evidence of the debt. The 
proposed revision brings within the scope of the provision those 
situations involving multiple billing entities when a vendor (or its 
agent) attempts to collect after a LEC has forgiven a charge without 
providing any explanation.
    The proposed revisions will prevent consumers from being subjected 
to secondary collection efforts without ever receiving any explanation 
or proof that the charges are valid. Although the proposal goes 
marginally further than the analogous requirements set out in TILA and 
FCBA, the Commission believes the revisions are appropriate. In several 
recent cases, the Commission has addressed the issue of vendors or 
billing entities attempting to collect charges from a consumer without 
providing any evidence that those charges were valid, other than the 
fact that the charges purportedly were accessed or received on the 
consumer's telephone line.\277\
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    \277\ In these cases, the Commission made clear that it is 
deceptive and unfair to misrepresent that a consumer is obligated to 
pay for services, when that consumer did not access or purchase 
those services or was not a party to any purported agreement to 
purchase such services. Hold Billing Services; International 
Telemedia Associates; and Interactive Audiotext Services.
---------------------------------------------------------------------------

    Proposed section 308.20(f) prohibits collection activity by a 
billing entity once the charge has been disputed with any billing 
entity, regardless of whether the two entities are the same. This means 
that, where there are multiple billing entities, an entity should not 
attempt to collect a charge before verifying with the other entities 
that, if a billing error notice has been sent by the consumer, a 
reasonable investigation of the charge has been conducted.\278\ If such 
verification is not possible, a billing entity should not engage in 
secondary collection activities unless it first conducts the reasonable 
investigation of the validity of the charge, and provides the written 
explanation to the consumer in accordance with the 308.20(c)(2) of the 
proposed Rule.
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    \278\ The proposed Rule should ensure that such verification is 
possible. Proposed Section 308.20(c)(3)(i) requires the billing 
entity that handled the initial dispute to ``notify the appropriate 
providing carrier, vendor, or service bureau as applicable'' of a 
decision to forgive a disputed charge.
---------------------------------------------------------------------------

    Scope of ``reasonable investigation.'' The Commission proposes 
modifying original Section 308.7(d)(2) to remedy a somewhat awkward 
requirement of the original Rule. Under this section, a billing entity 
that received a billing error notice may either (i) correct the error 
and credit the customer's account, or (ii) conduct a reasonable 
investigation of the legitimacy of the charge, and transmit an 
explanation to the customer setting forth the reasons why the billing 
entity has determined that no billing error has occurred ``or that a 
different billing error occurred from that asserted'' by the customer. 
Under a literal reading, this creates the bizarre result that a billing 
entity conducting a reasonable investigation would be required to 
articulate to a customer that a billing error did occur, but the 
billing entity would not be required to correct the error and credit 
the customer's account. This provision could be read to require the 
customer to once again transmit a billing error notice specifically 
listing the error cited by the billing entity, and then wait for the 
billing entity to correct the error and credit the account. In revising 
this Section, the Commission intends to make it clear that these 
additional steps are not required.
    Under the proposed Rule, a billing entity is not obligated to tell 
the customer exactly what billing error did or did not occur. Instead, 
under proposed Section 308.20(c)(2), in response to a billing error 
notice, a billing entity may either (i) correct any billing error and 
credit the customer's account, or (ii) conduct a reasonable 
investigation into the legitimacy of the charge, and transmit a written 
explanation (including documentary evidence) that the charge is indeed 
valid (i.e., that ``no billing error'' occurred). The effect of this 
change will be to clarify a billing entity's obligations under the 
Rule.
    Finally, the proposed Rule specifies that a reasonable 
investigation and written explanation address every relevant billing 
error, and ``address with particularity'' the facts asserted by the 
customer in the billing error notice. These revisions are designed to 
clarify that billing entities must do more than merely send the 
customer a non-responsive form letter to reply to a billing error 
notice. A response to a billing error notice must provide evidence to 
the customer that the charge is valid (i.e., that ``no billing error'' 
occurred). The statement cannot be sent to a customer automatically or 
by rote--it must be preceded by a bona fide investigation to gather the 
information showing the validity of the charge. Under the proposed 
Rule, this investigation, where necessary, should include contacting 
the customer for further details in addition to contacting the vendor, 
service bureau, or providing carrier.
    Limitation on the rebuttable presumption created by documentary 
records. The proposed Rule also amends the footnote previously found in 
Section 308.7(d)(2)(ii), now Section 308.20(c)(2)(ii) of the proposed 
Rule. The original footnote established a rebuttable presumption that 
goods or services were actually delivered if the billing entity 
produced documents showing the date on, and place to, which the goods 
or services were transmitted or delivered (e.g., an ANI record). The 
Commission is aware that, in many instances, vendors are not allowing 
consumers the opportunity to rebut this presumption. If a consumer 
provides sufficient evidence to rebut the presumption that the 
provider's ANI records are valid, however, then the presumption must 
fall. The proposed Rule modifies the footnote to make this clear.
    Additionally, the footnote lists a specific method by which 
consumers may rebut the presumption of ANI validity: a declaration 
signed under penalty of perjury.\279\ For example, if a consumer 
disputes a charge for a

[[Page 58553]]

telephone-billed purchase on the ground that a particular phone call 
was not made from his or her phone, and the billing entity submits ANI 
records showing that a call was placed to the disputed number from the 
consumer's telephone number on the date and at the time indicated, a 
rebuttable presumption is raised that the charge is valid. However, the 
consumer can rebut this presumption by submitting a declaration, signed 
under penalty of perjury, that the documentary information upon which 
the bill was based is not correct and that the call could not have been 
made from the consumer's phone. Although this declaration can rebut the 
presumption of validity of ANI, it may not be enough to prevent 
collection activity in the face of more reliable evidence--i.e., 
evidence showing more than merely ``the date on, and the place to, 
which the goods or services were transmitted or delivered.'' If the 
vendor or service bureau can show additional reliable evidence of 
delivery of the goods or services (such as a true and accurate tape 
recording, a signature, or other evidence that the goods or services 
were actually delivered), then, depending on the facts of a given 
transaction, a billing entity's investigation might still conclude that 
no billing error occurred.
---------------------------------------------------------------------------

    \279\ This proposed provision is comparable to the steps a card 
issuer may take in the credit card context while conducting a 
reasonable investigation of a charge disputed on the basis of 
unauthorized use. 12 CFR Part 226, Supplement 1, section 12(b)-(3).
---------------------------------------------------------------------------

    The revised footnote further adds that the Commission can rebut the 
presumption with evidence indicating that, in numerous instances, the 
goods or services were not actually transmitted or delivered. It is not 
necessary to show that each and every consumer did not receive the 
goods or services, but only that numerous consumers did not receive the 
goods or services. For example, the Commission may introduce evidence 
showing that, while ANI records may indicate that calls were placed 
from the phones of particular consumers, in fact, the calls could not 
have been placed from those phones because the phones had a 900-number 
block in place, or there was other compelling evidence that no one 
could have made the call from within the home.
    New time limits within which the investigation must be conducted; 
modification of other time limits established in the original Rule. One 
of the major complaints from industry members has been the length of 
time it takes to learn from the LECs about chargebacks or refunds the 
LECs have granted.\280\ TSIA maintained that businesses had been 
destroyed when ``chargebacks came back that were a year, year and a 
half, and two years old.'' \281\
---------------------------------------------------------------------------

    \280\ See, e.g., GORDON at 2; ISA at 10-12, 17-18; PMAA at 13; 
TPI at 5, 6; TSIA at 10-12; Tr. at 20, 25, 43-44, 68, 224-27.
    \281\ Tr. at 25.
---------------------------------------------------------------------------

    In order to address this problem, the Commission has proposed 
several modifications to Section 308.7 of the original Rule (now 
proposed Section 308.20). First, in proposed Section 308.20(c)(3), the 
time period within which a billing entity must conduct an investigation 
and either sustain or forgive a charge has been shortened from 90 to 60 
days. In the event that the LEC forgives the charge or is otherwise 
unable to collect it, the shorter time frame will enable vendors to 
receive more expeditiously the information they need to initiate 
collection on their own.
    Second, in proposed Section 308.20(c)(3)(i), the Commission has 
added a new requirement that, within 30 days of determining not to 
sustain a charge, a billing entity (usually a LEC) must provide 
sufficient information to the vendor or service bureau to allow it to 
identify the customer account at issue. This provision addresses 
industry's complaint that when the LECs forgive charges, they do not 
provide the vendors and service bureaus with the timely information 
needed to initiate collection on their own.\282\ This provision should 
be viewed in conjunction with the new language requiring that a 
``reasonable investigation'' be conducted before a vendor or its agent 
can engage in secondary collection activities to collect an alleged 
debt. The Commission believes that consumers are entitled to an 
investigation and supporting evidence that a debt is valid. However, 
the Commission also believes that consumers must be held accountable 
for the valid debts they incur and that industry is entitled to attempt 
to collect such debts. Given this balance of interests, it seems fair 
to allow vendors and service bureaus the information they need to 
attempt their own collections, and to require that information be 
provided in a timely manner.
---------------------------------------------------------------------------

    \282\ PILGRIM--FCC comment at 6-7, 9; PILGRIM--FCC Reply 
comments at 20.
---------------------------------------------------------------------------

    Finally, several commenters asked that the Commission take steps to 
remedy the current LEC practice of writing off a charge after a lengthy 
period of attempting to collect.\283\ In some instances, a consumer may 
fail to provide notice of a billing error that the LEC can investigate; 
instead, the consumer, without explanation, simply withholds from his 
payment the amount of a particular charge. In the absence of a formal 
notice of a billing error from the consumer explaining the reason for 
non-payment, the LEC has no way to know whether payment is withheld 
because of a disputed charge, and thus continues to attempt to collect 
the debt. Apparently, after a lengthy period of time, the LEC may 
determine the debt to be uncollectible and charge the debt back to the 
vendor. In these instances, the vendor generally learns of the disputed 
charge only after it is too late to undertake its own collection 
effort. To remedy this situation, the Commission has proposed adding a 
new subsection 308.20(n)(4) requiring that a billing entity (usually 
the LEC) shall notify the vendor or service bureau of an unpaid charge 
no later than 120 days after the original bill was sent to the 
consumer, if a consumer has neither paid such charges nor initiated a 
billing error review within the allotted 60-day time period. The 
billing entity must provide the vendor or service bureau with notice of 
the failure to pay, the amount of the unpaid charge, and sufficient 
information to identify the customer's account.
---------------------------------------------------------------------------

    \283\ GORDON at 2; TSIA at 10-11; Tr. at 25, 43-44, 63-64.
---------------------------------------------------------------------------

    Revision of the Notice of Billing Error Rights to simplify the 
language and to clarify the meaning of the 60-day time limit by which 
the consumer must give notice. A number of commenters asked the 
Commission to revise the wording of the Notice of Billing Error Rights 
set out in Section 308.7(n) of the original Rule to enhance consumers' 
understanding that they have the obligation to pay for any valid pay-
per-call charges and that failing to pay valid charges may subject them 
to debt collection efforts.\284\ Some commenters maintained that 
consumers have abused their rights under the Rule to dispute billing 
errors and have refused to pay valid charges.\285\
---------------------------------------------------------------------------

    \284\ GORDON at 2-3; ISA at 6-9; PMAA at 3, 13; TSIA at 12-13; 
Tr. at 27-28, 68, 126-45.
    \285\ AT&T at 20-21; Tr. at 8, 25-26, 128.
---------------------------------------------------------------------------

    The Commission agrees that it is important for consumers to 
understand both their rights and their obligations when they are billed 
for pay-per-call services or telephone-billed purchases. In order to 
further consumers' understanding of their rights and obligations, the 
proposed Rule simplifies the requirements regarding the notice of 
customers' billing rights. Under Section 308.20(m) of the proposed 
Rule, such a notice of billing rights must be provided with each 
billing statement that contains charges for a pay-per-call service or 
for a telephone-billed purchase; the annual

[[Page 58554]]

notice option is no longer permitted.\286\ If each billing statement 
that contains charges for a telephone-billed purchase also contains a 
notice of billing error rights, customers will be assured of timely 
notice of their rights and obligations in the event that a billing 
dispute arises. The proposed Rule retains the requirements that the 
notice set forth the procedure the customer must follow to notify the 
billing entity of a billing error, that the notice must disclose the 
customer's right to withhold payment of any disputed amount, and that 
any action to collect that amount will be suspended pending the billing 
review. The proposed Rule would add the disclosure that, in order to be 
guaranteed the protections under the dispute resolution provisions of 
the Rule, the consumer must give notice of a billing error dispute 
within 60 days.
---------------------------------------------------------------------------

    \286\ The Commission is not aware of many instances where the 
annual statement format was being used.
---------------------------------------------------------------------------

    Two commenters suggested language for the notice that would advise 
the consumer of the consequences that may occur if the consumer fails 
to pay a valid charge, even if the charge was forgiven by the LEC.\287\ 
In the original Rule, the Commission declined to mandate specific 
language for the Notice of Billing Error Rights in order to give the 
billing entity the flexibility to fashion its own notice and to arrange 
and disclose the material information in a more cost-effective 
manner.\288\ The Commission believes this approach is still 
appropriate. As the Commission explained in the Statement of Basis and 
Purpose to the original Rule, the Rule does not preclude a billing 
entity from including additional information on the notice, as long as 
it does not confuse or mislead the consumer or obscure or detract from 
the required disclosures, which must appear separately and above any 
other information.\289\ The Commission still believes that vendors, 
service bureaus, and billing entities are in the best position to 
negotiate among themselves to provide any additional information to 
consumers regarding their liability for telephone-billed purchases. 
Several workshop participants agreed that the Rule need not be changed 
to accommodate specific language, and that it would be sufficient to 
provide additional sample language in the Commission's Compliance 
Guides.\290\
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    \287\ ISA at 7-9; GORDON at 2-3.
    \288\ 58 FR 42364, 42397 (August 9, 1993).
    \289\ 58 FR 42364, 42398 (August 9, 1993).
    \290\ Tr. at 141-42.
---------------------------------------------------------------------------

    Direct liability under the dispute resolution requirement extended 
to service bureaus in addition to vendors, providing carriers, and 
billing entities. Under the original Rule, billing entities, providing 
carriers, and vendors are all directly liable for compliance with the 
requirements of Section 308.20. Where appropriate, the proposed Rule 
adds `service bureau' to the parties who will be held directly liable 
for compliance with the provisions of this section. Thus, under the 
proposed Rule, service bureaus are directly liable for compliance with 
the following provisions of Section 308.20: 308.20(f)--Limitation on 
collection action; 308.20(g)--Prohibition on charges for initiating 
billing review; and 308.20(h)(1)--Prohibition on adverse credit 
reports.
    The proposed Rule extends direct liability to service bureaus in 
these instances because the service bureau often is the entity handling 
the dispute resolution process, as well as the party with whom the 
billing entity has a contract. Additionally, as aggregators or as 
entities developing ``turn-key'' pay-per-call service operations, 
service bureaus are often in the best position to make sure that the 
services are offered and provided in a non-deceptive manner that 
complies with the Rule.
    Clarification of the forfeiture of right to collect. Section 
308.7(j) of the original Rule provided that any billing entity, vendor, 
or service bureau that failed to comply with the requirements of the 
dispute resolution section would forfeit the right to collect any 
amount the customer has disputed in a notice of a billing error. 
Proposed Section 308.20(i) adds language to clarify that this 
forfeiture relates only to charges that are legitimate charges that the 
entity would otherwise be entitled to collect. If an entity does not 
comply with proposed Section 308.20, it must forgive even legitimate 
charges. However, this provision does not limit liability to provide 
refunds or credits for charges that are in error, nor does it affect 
liability for civil penalties for violations of proposed Section 
308.20, or for violations of other provisions of the Rule.
    Requirement for identifying information to be disclosed at time of 
billing. Section 308.20(b) of the proposed Rule clarifies and expands 
the requirements in current section 308.7(c) to disclose certain 
identifying information to the customer on the billing statement or in 
other material accompanying the billing statement. In addition to 
disclosing the method by which the customer can provide a billing error 
notice (required by the current Rule), under the revised provision, the 
billing statement must also disclose the name of the billing entity 
designated to receive and respond to billing error notices and how to 
contact that entity. For example, if the customer must submit written 
notice of a billing error, the disclosure must include the mailing 
address to which the notice should be sent; if the customer may submit 
notice orally, the disclosure must contain a local or toll-free number 
that is readily available for customers to call in the event of a 
billing error. The billing entity and vendor may agree to a single 
telephone number to satisfy both the requirements of this section as 
well as the requirements of proposed Section 308.18(d).
    This section is intended to ensure that consumers are able to reach 
a responsible party when they submit a billing error notice, and has 
been included to address the problems consumers reportedly encounter 
when they attempt to assert a billing error. Consumer groups at the 
workshop described the frustration consumers often feel when they 
attempt to inquire about charges on their telephone bills. Instead of 
reaching a helpful customer service representative, they often find 
themselves navigating a maze to find the entity to whom the billing 
error should be reported. Consumers reportedly get passed from one 
entity to another, are placed on hold for long periods of time, or the 
telephone numbers they are told to call are disconnected, perpetually 
busy, or are not answered at all.\291\ Under the proposed Rule, these 
types of practices will constitute a violation of Section 308.20(b).
---------------------------------------------------------------------------

    \291\ ISA at A4; NAAG at 12-13; Tr. at 114-16, 173-74, 262-65.
---------------------------------------------------------------------------

    Clarification that all billing entities must comply with the Rule's 
requirements. Where a telephone-billed purchase involves more than one 
billing entity, section 308.20(n)(1) of the proposed Rule requires them 
to agree which one of them will be responsible for receiving and 
responding to billing errors. Furthermore, proposed Section 308.20(b) 
requires that this designation be clearly and conspicuously disclosed 
on the billing statement. This will ensure that unscrupulous billing 
entities will not pass responsibility from one to another, leaving a 
consumer without an effective means of exercising his or her dispute 
resolution rights. Furthermore, the proposed Rule modifies the language 
of Section 308.7(o)(2) of the original Rule, which allowed multiple 
billing entities to agree among themselves which billing entity was 
responsible for compliance with the Rule. The Commission believes that 
all billing entities are under an obligation

[[Page 58555]]

to comply with the proposed Rule's requirements, regardless of which 
entity is designated to give disclosures and respond to billing error 
notices. Thus, each billing entity that attempts to sustain a charge 
for a telephone-billed purchase must comply with the requirement that 
it conduct a reasonable investigation and provide proof of the debt 
before collection attempts are made.
    Deceptive statements to billing entities by vendors, service 
bureaus, and providing carriers. Section 308.20(p) of the proposed Rule 
specifies that it is a deceptive act or practice for any vendor, 
service bureau, or providing carrier to provide false or misleading 
information to a billing entity conducting an investigation of a 
disputed telephone-billed purchase charge. One of the cornerstones of 
the Rule is that once a consumer disputes the validity of a charge, a 
billing entity cannot attempt to collect the disputed charge until an 
investigation of the validity of the charge has been conducted and the 
consumer has been provided documentary evidence of the charge, and an 
explanation of why the investigating billing entity has determined that 
no billing error has occurred. The proposed Rule provides that, in 
conducting the investigation, the billing entity should contact (where 
appropriate) the vendor, service bureau, or providing carrier. False or 
misleading statements to the investigating billing entity by the 
vendor, service bureau, or providing carrier would undermine the 
investigation of a disputed charge, and would be likely to mislead 
reasonable consumers into paying money that is not actually owed. The 
proposed Rule will prohibit such false or misleading statements.

Subpart D--General Provisions

Section 308.22  Actions by States
    TDDRA grants the States authority to enforce the rules that the 
Commission promulgates pursuant to 15 U.S.C. 5711. The original Rule 
did not contain a provision that detailed the procedures the States 
should follow in bringing actions under the Rule. The Commission's 
enforcement experience with its Telemarketing Sales Rule, 16 CFR Part 
310, indicates that such procedures are helpful in promoting 
consistency and in coordinating law enforcement activity in order to 
maximize the impact of such actions. Therefore, the proposed Rule adds 
Section 308.22, which outlines the procedures that State law 
enforcement officials should use in bringing actions under the Rule. 
The language in Section 308.22 tracks the language and procedures set 
out in Section 310.7 of the Telemarketing Sales Rule.
    Section 308.22 also closely tracks the statutory language of TDDRA 
which provided for such State action.\292\ Since Section 5712 of TDDRA 
gives States the authority to enforce only the rules promulgated under 
15 U.S.C. 5711 (i.e., Title II of TDDRA), the proposed Rule delineates 
those provisions that are not enforceable by the States because they 
have been proposed under the rulemaking authority granted in other 
sections of TDDRA. Thus, it specifies that States can bring actions 
only where a violation of the Rule relates to the provision of pay-per-
call services, since this is the subject matter of the Commission's 
rulemaking authority under Title II of TDDRA.\293\ In addition, 
proposed Section 308.22(a) specifies that States may not enforce 
Section 308.20, because that section is promulgated under the 
rulemaking authority granted under Title III of TDDRA.\294\
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    \292\ 15 U.S.C. 5712.
    \293\ 15 U.S.C. 5711.
    \294\ 15 U.S.C. 5721--5724.
---------------------------------------------------------------------------

Rulemaking Review Requirement
    The original Rule required that a rule review proceeding be 
commenced within four years of the effective date of the Rule. The 
proposed Rule does not have an equivalent provision. The Commission has 
a policy of reviewing all of its rules and guides on a periodic basis 
to ensure that they continue to meet the goals and provide the 
protections that were intended when they were promulgated. This 
periodic review also examines the economic costs and benefits of the 
particular rule or guide under review. The Commission believes that 
this periodic review should be sufficient for any final Rule, and that 
it is not necessary to include a specific deadline within the text of 
the Rule.

Section D. Invitation To Comment

    All persons are hereby given notice of the opportunity to submit 
written data, views, facts, and arguments concerning the proposed 
changes to the Commission's 900-Number Rule. The Commission invites 
written comments to assist it in ascertaining the facts necessary to 
reach a determination as to whether to adopt as final the proposed 
changes to the Rule. Written comments must be submitted to the Office 
of the Secretary, Room 159, Federal Trade Commission, Sixth Street and 
Pennsylvania Avenue, N.W., Washington, DC 20580, on or before January 
8, 1999. Comments submitted will be available for public inspection in 
accordance with the Freedom of Information Act (5 U.S.C. 552) and 
Commission Rules of Practice, on normal business days between the hours 
of 9:00 a.m. and 5 p.m. at the Public Reference Section, Room 130, 
Federal Trade Commission, Sixth Street and Pennsylvania Avenue, N.W., 
Washington, DC 20580. Comments submitted in electronic form will be 
made available on the Commission's web site at www.ftc.gov.

Section E. Public Workshop

    The FTC staff will conduct a public workshop to discuss the written 
comments received in response to the Federal Register notice. The 
purpose of the workshop is to afford Commission staff and interested 
parties a further opportunity to discuss issues raised by the proposal 
and in the comments, and, in particular, to examine publicly any areas 
of significant controversy or divergent opinions that are raised in the 
written comments. The workshop is not intended to achieve a consensus 
among participants or between participants and Commission staff with 
respect to any issue raised in the comments. Commission staff will 
consider the views and suggestions made during the workshop, in 
conjunction with the written comments, in formulating its final 
recommendation to the Commission regarding amendment of the 900-Number 
Rule.
    Commission staff will select a limited number of parties from among 
those who submit written comments, to represent the significant 
interests affected by the issues raised in the notice. These parties 
will participate in an open discussion of the issues, including asking 
and answering questions based on their respective comments. In 
addition, the workshop will be open to the general public. The 
discussion will be transcribed and the transcription placed on the 
public record.
    To the extent possible, Commission staff will select parties to 
represent the following interests: advertisers, billing entities, 
vendors, service bureaus, local exchange carriers, long-distance 
carriers, consumer groups, federal and State law enforcement and 
regulatory authorities; and any other interests that Commission staff 
may identify and deem appropriate for representation.
    Parties who represent the above-referenced interests will be 
selected on the basis of the following criteria:
    1. The party submits a written comment during the comment period.

[[Page 58556]]

    2. During the comment period the party notifies Commission staff of 
its interest in participating in the workshop.
    3. The party's participation would promote a balance of interests 
being represented at the workshop.
    4. The party's participation would promote the consideration and 
discussion of a variety of issues raised in this notice.
    5. The party has expertise in activities affected by the issues 
raised in this notice.
    6. The number of parties selected will not be so large as to 
inhibit effective discussion among them.
    The workshop will be held at the Federal Trade Commission, 6th 
Street and Pennsylvania Avenue, NW., Washington, DC 20580, on February 
25 and 26, 1999. Prior to the workshop, parties selected will be 
provided with copies of the comments from all other participants 
selected to participate in the workshop.

Section F. Communications by Outside Parties to Commissioners or 
Their Advisors

    Pursuant to Commission Rule 1.26(b)(5), communications with respect 
to the merits of this proceeding from any outside party to any 
Commissioner or Commissioner advisor during the course of this 
rulemaking shall be subject to the following treatment. Written 
communications, including written communications from members of 
Congress, shall be forwarded promptly to the Secretary for placement on 
the public record. Oral communications, not including oral 
communications from members of Congress, are permitted only when such 
oral communications are transcribed verbatim or summarized at the 
discretion of the Commissioner or Commissioner advisor to whom such 
oral communications are made and are promptly placed on the public 
record, together with any written communications and summaries of any 
oral communications relating to such oral communications. Oral 
communications from members of Congress shall be transcribed or 
summarized at the discretion of the Commissioner or Commissioner 
advisor to whom such oral communications are made and promptly placed 
on the public record, together with any written communications or 
summaries of any oral communications relating to such oral 
communications.

Section G. Paperwork Reduction Act

    Pursuant to the Paperwork Reduction Act (PRA), as amended, 44 
U.S.C. 3510-3520, the FTC has current approval from the Office of 
Management and Budget (OMB) for 3,241,200 total burden hours associated 
with certain reporting and disclosure requirements under the 900-Number 
Rule (control number 3084-0102, which expires on December 31, 1999). 
The Commission is seeking to extend this approval for the existing Rule 
requirements and to obtain such approval for certain additional or 
amended disclosure requirements being proposed by the Commission.
    The FTC has previously estimated that approximately 25 common 
carriers routinely maintain certain business records and make them 
available to the Commission under the Rule, at an average annual burden 
of 5 hours per submission, for a total reporting burden of 125 hours. 
Based on a 12 percent estimated growth of the industry since 1995 (when 
the last burden was calculated), the Commission estimates that the 
current burden would be 140 hours. The Commission is not proposing to 
change this reporting requirement in a manner that would increase the 
compliance burden.
    The Rule further requires that advertisements for pay-per-call 
services contain certain disclosures mandated by TDDRA as to the cost 
of the telephone call. The Commission has previously estimated that 
these requirements apply to approximately 20,000 vendors, who must make 
additional disclosures if the advertisement is directed to individuals 
under 18 (50 percent of the ads) or relates to pay-per-call services 
for sweepstakes or information on federal programs (30 percent of the 
ads). The Commission has estimated that each disclosure mandated by the 
Rule, whether cost or otherwise, requires approximately one hour of 
compliance time. Based on three advertisements per vendor, or a total 
of 60,000 ads, 80 percent of which would require a disclosure in 
addition to the cost disclosure, the Commission has estimated that 
approximately 110,000 burden hours are needed for vendors to comply 
with these requirements. Based on the estimated growth of the industry, 
the Commission now calculates the current burden to be 123,000 hours. 
The Commission is proposing to amend the advertising disclosure section 
of the Rule (proposed Section 308.4(a)(1)(iii)(B)) to require that 
advertisements for pay-per-call services billed on a variable time rate 
basis disclose the cost of each portion of the call. Assuming that 20 
percent of the 67,200 (adjusted from 60,000 for 12 percent growth) pay-
per-call services will be required to make the new disclosure, the 
Commission estimates that the additional burden associated with the 
proposed change will be 12,240 hours, assuming one hour for each 
disclosure. The Commission is also proposing that a new disclosure 
(i.e., a signal indicating the end of free time typically used to 
market pay-per-call services) be included in proposed Rule Section 
308.7(b). Based on an assumption that 25 percent of the 67,200 pay-per-
call services will be required to include the new signal, the 
additional burden associated with this proposed change is calculated to 
be 16,800 hours, again assuming one new burden hour for each 
disclosure.
    In addition, the Commission has previously estimated that 
approximately 60,000 pay-per-call services are required to make 
disclosures in the preamble to the pay-per-call service, at an average 
burden of 10 hours for each preamble, resulting in a total burden 
estimate of 600,000 hours. Based on the estimated growth of the 
industry, the Commission now calculates the current burden to be 
672,000 hours. The Commission's proposal to amend the preamble 
requirements of the Rule (proposed Section 308.9(a)(2)(iii)(B)) would 
further require the preamble to disclose the cost of each portion of a 
telephone call to a pay-per-call service billed on a variable time rate 
basis. Assuming that 30 percent of the 67,200 pay-per-call services 
would be required to make the new disclosure in the preamble, the 
Commission estimates that the new burden associated with the proposed 
change would be 20,160 hours, if each new disclosure requires one 
additional hour of compliance.
    The Commission's Rule also requires that vendors ensure that 
certain disclosures appear on each billing statement that contains a 
charge for a call to a pay-per-call service. Because these disclosures 
appear on telephone bills already generated by the local telephone 
companies, and because the carriers are already subject to nearly 
identical requirements pursuant to the FCC's rules, the Commission 
estimated that the burden to comply would be minimal. At most, the only 
burden on the vendor may be to conduct spot checks of telephone bills 
to ensure that the charges are displayed in the manner required by the 
Rule. Staff estimated that only 10 percent of the 20,000 vendors would 
monitor billing statements in this manner and that it would take 12 
hours each year to conduct such checks, for a total of 24,000 burden 
hours. Based on the estimated growth of the industry, the Commission 
calculates the current burden to be 26,880 hours. The Commission is not 
proposing to amend

[[Page 58557]]

this disclosure requirement section in a way that will increase the 
burden of compliance.
    The Commission's Rule imposes certain disclosure requirements 
relating to billing and dispute resolution. In particular, the Rule 
requires billing entities to notify pay-per-call service customers in 
writing of their rights and obligations with respect to pay-per-call 
service charges. The FTC has previously estimated that it would take 
7,000 hours for billing entities to provide such notice to customers, 
based on approximately 1,400 billing entities spending 5 hours to 
review, revise, and provide the disclosures annually. Based on the 
estimated growth of the industry, the Commission estimates the current 
burden to be 7,840 hours. Proposed Rule Section 308.18(m)(1), if 
adopted, would make this requirement mandatory with each billing 
notice, rather than annually. There should be no additional burden 
hours associated with this proposed change because most, if not all, 
entities already disclose customer rights and obligations in each 
billing statement that contains such charges. The Commission is also 
proposing to amend paragraphs (i) and (j) of proposed Section 308.2 of 
the Rule to require certain disclosures to customers regarding the 
personal identification numbers requested by and issued to such 
customers, and the material terms and conditions governing the use of 
such numbers. Assuming that 50,000 different audiotext services are 
provided via toll-free numbers and will be required to comply with 
these proposed new disclosure requirements, the Commission estimates 
that the additional burden will be 50,000 hours, based on 1 hour per 
service.
    The Commission has separately estimated that the compliance burden 
associated with the existing dispute resolution requirements of the 
Rule is, on average, about one hour per each billing error, and that 
approximately 5 percent of the estimated 50,000,000 calls made to pay-
per-call services each year would involve such a billing error, for a 
total burden of 2,500,000 hours. Based on the estimated growth of the 
industry, the Commission calculates the current burden to be 2,800,000 
hours. The Commission proposes to expand the disclosure requirements 
that apply to billing entities in the resolution of billing disputes, 
as set forth in the proposed amendments to proposed Sections 
308.18(n)(2) (notice to customer when attempting to collect charge that 
was forgiven by another billing entity), and 308.18(n)(4) (notice to 
vendor or service bureau of certain customer information by the billing 
entity designated to receive and respond to alleged billing errors). 
Assuming again that 5 percent of the 56,000,000 calls (adjusted for 12 
percent growth) require billing entities to respond to billing errors, 
the Commission estimates that the new burden associated with these two 
new disclosure requirements will be 1,400,000 hours, based on an 
additional \1/2\ hour of compliance time required for both disclosures.
    Based on the above figures, the total PRA burden under the existing 
requirements of the Rule was estimated to be approximately 3,241,125 
hours, comprising 125 hours for reporting requirements, with the 
remainder attributable to requirements for disclosures in advertising 
(110,000), preamble (600,000), billing statement disclosures (24,000), 
and billing dispute resolution (2,500,000 and 7,000). Based on 
estimated growth of the industry, the Commission calculates the current 
burden to be 3,630,060 hours. The Commission calculates that the new 
burden associated with all of the proposed changes described above will 
be 1,499,200 additional burden hours for industry to comply with the 
proposed Rule. Of course, the Commission seeks comment to determine 
whether its calculation of burden hours is accurate.

Section H. Regulatory Flexibility Act

    The provision of the Regulatory Flexibility Act requiring an 
initial regulatory flexibility analysis (5 U.S.C. 603) does not apply 
because it is believed that these Rule amendments, if adopted, will not 
have a significant economic impact on a substantial number of small 
entities (5 U.S.C. 605). This notice also serves as certification to 
the Small Business Administration of that determination.
    It appears that some vendors may be small entities, but the 
Commission, on the basis of information currently available to its 
staff, does not believe the number of such entities is clearly 
substantial when compared to the number and size of other businesses 
covered by the Rule (e.g., service bureaus, common carriers, and 
billing entities). Furthermore, to the extent that the Rule's 
requirements are expressly mandated by TDDRA, the Commission has no 
discretion to adopt alternative provisions that would reduce any 
significant impact that such requirements might have on small entities, 
as the Commission noted when the Rule was originally promulgated.
    Nonetheless, to ensure that no significant economic impact on a 
substantial number of small entities is overlooked, the Commission 
hereby requests public comment on the effect of the proposed Rule 
amendments on costs, profitability, competitiveness, and employment on 
small entities. After considering such comments, if any, the Commission 
will determine whether preparation of a final regulatory flexibility 
analysis (pursuant to 5 U.S.C. 604) is required.

Section I. Questions for Comment on the Proposed Rule

    The Commission seeks comment on various aspects of the proposed 
Rule. Without limiting the scope of issues on which it seeks comment, 
the Commission is particularly interested in receiving comments on the 
questions that follow. In responding to these questions, include 
detailed, factual supporting information whenever possible.

General Questions

    Please provide comment, including relevant data, statistics, 
consumer complaint information, or any other evidence, on each 
different proposed change to the Rule. Regarding each proposed 
modification commented on, please include answers to the following 
questions:
    (a) What is the effect (including any benefits and costs), if any, 
on consumers?
    (b) What is the impact (including any benefits and costs), if any, 
on individual firms that must comply with the Rule?
    (c) What is the impact (including any benefits and costs), if any, 
on industry?
    (d) What changes, if any, should be made to the proposed Rule to 
minimize any cost to industry or consumers?
    (e) How would those changes affect the benefits that might be 
provided by the proposed Rule to consumers or industry?
    (f) How would the proposed Rule affect small business entities with 
respect to costs, profitability, competitiveness, and employment?

Questions on Proposed Specific Changes

    In response to each of the following questions, please provide: (1) 
detailed comment, including data, statistics, consumer complaint 
information and other evidence, regarding the problem referred to in 
the question; (2) comment as to whether the proposed changes do or do 
not provide an adequate solution to the problems they were intended to 
address; and (3) suggestions for additional changes that might better 
maximize consumer protections or minimize the burden on industry.
    1. Unauthorized charges. Viewed together, do the new billing error 
and

[[Page 58558]]

express authorization sections (proposed 308.2(b) and 308.17) of the 
proposed Rule adequately address the problem of consumers being charged 
for unauthorized telephone-billed purchases? Is the ``knew or should 
have known'' standard for vendors, service bureaus, and billing 
entities sufficient to address the deceptive practices that the Rule 
intends to prevent?
    2. PIN number. Does the requirement that a PIN, as defined in 
proposed 308.2(i), be used in connection with a presubscription 
agreement adequately address the problem of controlling access to 
audiotext services provided through toll-free numbers?
    3. Presubscription agreement. Do the proposed changes to the 
definition of ``presubscription agreement''(proposed 308.2(j)), 
together with the provision relating to prohibitions concerning toll-
free numbers (proposed 308.13), adequately address the problem of 
consumers receiving charges on their telephone bills under 
presubscription agreements to which they were not a party?
    4. Service bureau. The proposed definition of ``service bureau'' 
(proposed 308.2(n)) is designed to include billing aggregators, and to 
prevent an entity from escaping liability under the Rule by hiding 
behind ``common carrier`` status. Does the revised definition include 
the appropriate entities? Are there other entities that should be 
included?
    5. Pay-per-call service. Does the proposed definition of ``pay-per-
call service''(proposed 308.2(g)) rely on the appropriate criteria to 
identify a pay-per-call service? Are the exemptions to the proposed 
definition of pay-per-call service appropriate? Are there additional 
exemptions that should be included?
    6. De minimis threshold for pay-per-call services. Does the 
proposed $.05 per minute or $.50 per call de minimis threshold strike 
the appropriate balance between services that should be considered pay-
per-call and services that should not be considered pay-per-call? 
Should the proposed threshold be higher or lower? Will some vendors be 
required to undertake additional record keeping in order to demonstrate 
their exemption? Is there a more efficient alternative to the de 
minimis approach?
    7. Rebuttable presumption of payment to a vendor. In the absence of 
direct evidence of payment, is a rebuttable presumption the best method 
of determining whether remuneration has been provided to a vendor? If 
so, has the Commission described the appropriate circumstances under 
which it should presume that payment has been made to a vendor? If not, 
what is a more appropriate method of determining whether remuneration 
has been provided to a vendor? Are there other circumstances under 
which payment should be presumed?
    8. Misrepresentation of cost. Does the proposed provision governing 
misrepresentation of cost (proposed 308.6) adequately address the 
problem of consumers being misled regarding the cost of services?
    9. Beepers and pagers. Is there any non-deceptive way in which 
beepers or pagers are used or could be used to solicit calls to a pay-
per-call service? Is the restriction in proposed 308.7 appropriate? Is 
it possible to make adequate disclosures in beeper or pager 
solicitations? Would it be appropriate to prohibit these types of 
solicitations altogether?
    10. Nominal cost calls. Do the data suggest that $3.00 is an 
appropriate threshold for designation of ``nominal cost calls'' 
(proposed 308.9) for which no preamble is necessary? If not, what 
``nominal cost'' threshold does the data support? Should the ``nominal 
cost'' figure be adjusted for inflation?
    11. Fractional minute billing. Under what circumstances are 
telecommunications calls or services currently billed in increments of 
less than one minute? In what increments are these calls or services 
billed? What billing increments are technologically feasible? What 
costs, if any, would be associated with requiring pay-per-call services 
to bill in increments of less than one minute?
    12. Toll charges. Does the proposal to prohibit audiotext services 
from being billed as toll charges (proposed 308.12) adequately address 
the problem of consumers being charged for audiotext services in a 
manner that does not provide them with all of the TDDRA-mandated 
protections? Are there other, less restrictive, means to address the 
problem?
    13. Express authorization. What costs would be associated with 
obtaining express authorization from consumers for non-blockable 
telephone-billed purchases (proposed 308.17)? Are there methods of 
obtaining express authorization that would impose lower costs than 
those methods described in the Notice? Is the proposed Rule 
sufficiently flexible to accommodate technological developments that 
may make it easier to obtain express authorization?
    14. Billing statement disclosures. Do the modifications regarding 
the disclosures on billing statements (proposed 308.18) adequately 
address the problem of consumers being unable to reach the entity whose 
telephone number is listed on the phone bill for billing inquiries? 
Does the provision adequately address the problem that consumers often 
cannot reach the entity with the authority to provide refunds or 
credits?
    15. Service bureau liability. What effect will the additional 
direct liability of service bureaus pursuant to proposed 308.17 and 
308.20 have on industry? Will it increase the level of industry's 
accountability to consumers? What effect will it have on cramming?
    16. Billing entity liability. What effect will the additional 
liability of billing entities pursuant to proposed 308.17 and 308.20 
have on industry? Will it increase the level of industry's 
accountability to consumers? What effect will it have on cramming?
    17. Information necessary to collect debts. Does the proposed Rule 
adequately address in proposed 308.20(n)(4) the need of vendors and 
service bureaus to obtain sufficient information from the LECs to 
continue collection activities against customers who refuse to pay 
valid charges?
    18. Reporting times. If the period of time that LECs or other 
billing entities have to respond to a billing error notice is shortened 
from 90 to 60 days, what effect, if any, would this have on billing 
entities? Would this impose additional costs? Do the changes in the 
proposed 308.20 of the Rule that shorten the times by which the LEC 
must provide information to the vendor or service bureau sufficiently 
expedite the process so that vendors or service bureaus will be able to 
pursue collection of valid debts in a timely manner? Are these 
deadlines feasible?
    19. Chargebacks. Are the proposed changes to the dispute resolution 
section the most cost effective and appropriate ways to deal with 
industry concerns regarding the chargeback process?
    20. Reasonable investigation. Does the proposed Rule adequately 
address in proposed 308.20 the problem of consumers becoming the target 
for a collection action without ever receiving an explanation or 
evidence that the alleged debt is in fact valid?
    21. Evidence of debt. What evidence (other than ANI information) is 
currently created or maintained that would show the delivery of 
telephone-billed purchases? If no such evidence is created or 
maintained, what would be the costs, if any, associated with creating 
and maintaining such evidence. What would be the benefits?
    22. TDDRA blocking. What records do LECs maintain with respect to 
900-number blocking? Do these records

[[Page 58559]]

indicate the date a consumer-requested block became effective? What 
measures do LECs take to ensure that blocks are not turned off by 
someone other than the subscriber? Do LECs make blocking information 
available to billing entities who are conducting ``reasonable 
investigations'' of disputed charges for telephone-billed purchases? 
Should LECs be required to do so? What would be the costs and benefits 
associated with such a requirement?
    23. Applicability to third-party debt collectors. The proposed 
definition of ``billing entity'' does not include an exemption for 
third-party debt collectors attempting to collect debts for telephone-
billed purchases. Should there be such an exemption? What, if any, 
costs or benefits would be associated with such an exemption?

Questions Relating to the Paperwork Reduction Act

    The Commission solicits comments on the reporting and disclosure 
requirements above to the extent that they constitute ``collections of 
information'' within the meaning of the PRA. The Commission requests 
comments that will enable it to:
    1. Evaluate whether the proposed collections of information are 
necessary for the proper performance of the functions of the agency, 
including whether the information will have practical utility;
    2. Evaluate the accuracy of the agency's estimate of the burden of 
the proposed collections of information, including the validity of the 
methodology and assumptions used;
    3. Enhance the quality, utility, and clarity of the information to 
be collected; and
    4. Minimize the burden of the collections of information on those 
who are to respond, including through the use of appropriate automated, 
electronic, mechanical, or other technological collection techniques or 
other forms of information technology (e.g., permitting electronic 
submission of responses).

Section J. Proposed Rule

List of Subjects in 16 CFR Part 308

    Advertising, 900 telephone numbers, Pay-per-call services, 
Telephone, Telephone-billed purchases, Toll-free numbers, Trade 
practices.
    Accordingly, it is proposed that part 308 of title 16 of the Code 
of Federal Regulations, be revised to read as follows:

PART 308--RULE CONCERNING PAY-PER-CALL SERVICES AND OTHER 
TELEPHONE-BILLED PURCHASES

Subpart A--Scope and Definitions

Sec.
308.1  Scope of regulations in this part.
308.2  Definitions.

Subpart B--Pay-Per-Call Services

308.3  General requirements for advertising disclosures.
308.4  Advertising disclosures.
308.5  Advertising to children prohibited.
308.6  Misrepresentation of cost prohibited.
308.7  Other advertising restrictions.
308.8  Special rule for infrequent publications.
308.9  Preamble message.
308.10  Deceptive billing practices.
308.11  Prohibition on services to children.
308.12  Prohibition concerning toll charges.
308.13  Prohibitions concerning toll-free numbers.
308.14  Monthly or other recurring charges.
308.15  Refunds to customers.
308.16  Service bureau liability.

Subpart C--Pay-Per Call Services and Other Telephone-Billed Purchases

308.17  Express authorization required.
308.18  Disclosure requirements for billing statements.
308.19  Access to information.
308.20  Dispute resolution procedures.

Subpart D--General Provisions

308.21  Severability.
308.22  Actions by States.

    Authority: Pub. L. 102-556, 106 Stat. 4181 (15 U.S.C. 5701, et 
seq.); Sec. 701, Pub. L. 104-104, 110 Stat. 56 (1996).

Subpart A--Scope and Definitions


Sec. 308.1  Scope of regulations in this part.

    This Rule implements Titles II and III of the Telephone Disclosure 
and Dispute Resolution Act of 1992, in relevant part at 15 U.S.C. 5711-
14, 5721-24, as amended by the Telecommunications Act of 1996, Sec. 
701, Pub. L. 104-104, 110 Stat. 56 (1996).


Sec. 308.2  Definitions.

    (a) Billing entity means any person who transmits a billing 
statement or any other statement of debt to a customer for a telephone-
billed purchase, or any person who assumes responsibility for receiving 
and responding to billing error complaints or inquiries.
    (b) Billing error means any of the following:
    (1) A reflection on a billing statement of a telephone-billed 
purchase that was not made by the customer nor made from the telephone 
of the customer who was billed for the purchase or, if made, was not in 
the amount reflected on such statement.
    (2) A reflection on a billing statement of a telephone-billed 
purchase for which the customer requests additional clarification, 
including documentary evidence thereof.
    (3) A reflection on a billing statement of a telephone-billed 
purchase that was not accepted by the customer or was not provided to 
the customer in accordance with the stated terms of the transaction.
    (4) A reflection on a billing statement of a telephone-billed 
purchase for a call made to an 800, 888, 877, or other toll-free 
telephone number.
    (5) The failure to reflect properly on a billing statement a 
payment made by the customer or a credit issued to the customer with 
respect to a telephone-billed purchase.
    (6) A computation error or similar error of an accounting nature on 
a billing statement of a telephone-billed purchase.
    (7) Failure to transmit a billing statement for a telephone-billed 
purchase to a customer's last known address if that address was 
furnished by the customer at least twenty (20) days before the end of 
the billing cycle for which the statement was required.
    (8) A reflection on a billing statement of a telephone-billed 
purchase identified in a manner that violates the requirements of 
Sec. 308.18.
    (9) A reflection on a customer's billing statement of a charge 
incurred pursuant to a purported presubscription agreement that does 
not meet the requirements of Sec. 308.2(j).
    (10) A reflection on a customer's billing statement of a telephone-
billed purchase not blockable pursuant to 47 U.S.C. 228(c) that was not 
expressly authorized by that customer.
    (11) A reflection on a billing statement of a charge that is 
inconsistent with any blocking option chosen by a customer pursuant to 
47 U.S.C. 228(c).
    (c) Bona fide educational service means any pay-per-call service 
dedicated to providing information or instruction relating to 
education, subjects of academic study, or other related areas of school 
study.
    (d) Commission means the Federal Trade Commission.
    (e) Customer means any person who acquires or attempts to acquire 
goods or services through a telephone-billed purchase, or who receives 
a billing statement for a telephone-billed purchase.
    (f) Pay-per-call purchase means any attempt to purchase, or any 
actual purchase of pay-per-call services.
    (g) Pay-per-call service means:
    (1) Any service covered by the definition of ``pay-per-call 
services'' provided in Section 228(i) of the

[[Page 58560]]

Communications Act of 1934, as amended;\1\ or
---------------------------------------------------------------------------

    \1\ Section 228(i) of the Communications Act of 1934, as amended 
by Section 701 of the Telecommunications Act of 1996, states:
    (1) The term pay-per-call services means any service--
    (A) In which any person provides or purports to provide--
    (i) Audio information or audio entertainment produced or 
packaged by such person;
    (ii) Access to simultaneous voice conversation services; or
    (iii) Any service, including the provision of a product, the 
charges for which are assessed on the basis of the completion of the 
call;
    (B) For which the caller pays a per-call or per-time-interval 
charge that is greater than, or in addition to, the charge for 
transmission of the call; and
    (C) Which is accessed through use of a 900 telephone number or 
other prefix or area code designated by the [Federal Communications] 
Commission in accordance with subsection (b)(5) (47 U.S.C. 
228(b)(5)).
    (2) Such term does not include calls utilizing 
telecommunications devices for the deaf, or directory services 
provided by a common carrier or its affiliate or by a local exchange 
carrier or its affiliate, or any service for which users are 
assessed charges only after entering into a presubscription or 
comparable arrangement with the provider of such service.
---------------------------------------------------------------------------

    (2) Any service that provides, or that is purported to provide, 
audio information or audio entertainment, including simultaneous voice 
conversation services, where the action of placing a call, receiving a 
call, or subsequent dialing, touch-tone entry, or comparable action of 
the caller results in a charge to a customer, and where all or a 
portion of such charge results in a payment, directly or indirectly, to 
the person who provides or purports to provide such information or 
entertainment services.
    (3) Services meeting the criteria of Sec. 308.2(g)(2) will not be 
considered pay-per-call services if:
    (i) The provider of the audio information or an audio entertainment 
service demonstrates that the person from whom payment is being sought 
has entered into a presubscription agreement, meeting the requirements 
of Sec. 308.2(j), to be charged for the information or service;
    (ii) The provider of audio information or audio entertainment 
services demonstrates that, on average, the payment to the providers of 
audio information or audio entertainment services will not exceed $0.05 
per minute or $0.50 per call for that particular service; or
    (iii) The services provided are calls utilizing telecommunications 
services for the deaf, or are tariffed directory services provided by a 
common carrier or its affiliate;
    (4) Nothing in this definition shall be construed to permit any 
conduct or practice otherwise precluded or limited by regulations of 
the Federal Communications Commission.
    (h) Person means any individual, partnership, corporation, 
association or unincorporated association, government or governmental 
subdivision or agency, group, or other entity.
    (i) Personal identification number means a number or code unique to 
the individual, that is not valid unless it:
    (1) Is requested by a consumer;
    (2) Is provided exclusively to the consumer who will be billed for 
services provided pursuant to that presubscription agreement; and
    (3) Has been delivered, in writing, to the consumer who will be 
billed for the agreement, simultaneously with a clear and conspicuous 
disclosure of all material terms and conditions of the presubscription 
agreement, including the service provider's name and address, a 
business telephone number which the consumer may use to obtain 
additional information or to register a complaint, and the rates for 
the service.
    (j)(1) Presubscription agreement means a contractual agreement to 
purchase goods or services, including audio information or audio 
entertainment services, in which:
    (i) The service provider clearly and conspicuously discloses to the 
consumer who will be billed for the service, all material terms and 
conditions associated with the use of the service, including the 
service provider's name and address, a business telephone number which 
the consumer may use to obtain additional information or to register a 
complaint, and the rates for the service;
    (ii) The service provider agrees to notify the consumer who will be 
billed for the service of any future rate changes;
    (iii) The consumer who will be billed for the service agrees to 
utilize the service on the terms and conditions disclosed by the 
service provider; and (iv) The service provider requires the use of a 
valid personal identification number to prevent unauthorized charges by 
persons other than the person who will be billed for the service.
    (2) Disclosure of a credit card or charge card number, along with 
authorization to bill that number, made during the course of a call to 
purchase goods or services, including audio information or audio 
entertainment services, shall constitute a presubscription agreement if 
the credit or charge card is subject to the dispute resolution 
requirements of the Fair Credit Billing Act and the Truth in Lending 
Act, as amended, and if the credit or charge card is the sole method 
used to pay for the charge.
    (k) Program-length commercial means any commercial or other 
advertisement fifteen (15) minutes in length or longer or intended to 
fill a television or radio broadcasting or cablecasting time slot of 
fifteen (15) minutes in length or longer.
    (l) Providing carrier means a local exchange or interexchange 
common carrier providing telephone services (other than local exchange 
services) to a vendor for a telephone-billed purchase that is the 
subject of a billing error complaint or inquiry.
    (m) Reasonably understandable volume means at an audible level that 
renders the message intelligible to the receiving audience, and, in any 
event, at least the same audible level as that principally used in the 
advertisement or the pay-per-call service.
    (n) Service bureau means:
    (1) Any person, including a common carrier, who provides one or 
more of the following services to vendors: voice storage, voice 
processing, call processing, billing aggregation, call statistics (call 
and minute counts), call revenue arrangements (including revenue-
sharing arrangements with common carriers), or pre-packaged pay-per-
call investment opportunities; or
    (2) Any person, other than a common carrier, who provides access to 
telephone service to vendors of pay-per-call services.
    (o) Slow and deliberate manner means at a rate that renders the 
message intelligible to the receiving audience, and, in any event, at a 
cadence or rate no faster than that principally used in the 
advertisement or the pay-per-call service.
    (p) Sweepstakes, including games of chance, means a game or 
promotional mechanism that involves the elements of a prize and chance 
and does not require consideration.
    (q) Telephone-billed purchase means any pay-per-call purchase or 
any purchase that is either charged to a customer's telephone bill, or 
that is completed solely as a consequence of the completion of the call 
or a subsequent dialing, touch tone entry, or comparable action of the 
caller. Such term does not include:
    (1) A purchase pursuant to a presubscription agreement that meets 
the requirements of Sec. 308.2(j);
    (2) Local exchange telephone services or interexchange telephone 
services or any service that the Federal Communications Commission 
determines by rule--
    (i) Is closely related to the provision of local exchange telephone 
services or interexchange telephone services; and

[[Page 58561]]

    (ii) Is subject to billing dispute resolution procedures required 
by Federal or State statute or regulation; or
    (3) The purchase of goods or services that is otherwise subject to 
billing dispute resolution procedures required by Federal statute or 
regulation.
    (r) Variable option rate basis refers to the rate structure of a 
pay-per-call service where the rate billed to the customer depends on 
the specific options chosen by the caller during the call.
    (s) Variable time rate basis refers to the rate structure of a pay-
per-call service where the rate billed to the customer changes during 
the call due to passage of time or due to other factors unrelated to 
specific options chosen by the caller.
    (t) Vendor means any person who sells or offers to sell a pay-per-
call service or who sells or offers to sell goods or services via a 
telephone-billed purchase. A person who provides only transmission 
services or only billing and collection services shall not be 
considered a vendor.

Subpart B--Pay-Per-Call Services


Sec. 308.3  General requirements for advertising disclosures.

    The following requirements apply to disclosures required in 
advertisements under Sec. 308.4:
    (a) The disclosures shall be made in the same language as that 
principally used in the advertisement.
    (b) Television, video, and print disclosures shall be of a color or 
shade that readily contrasts with the background of the advertisement.
    (c) In print advertisements, disclosures shall be parallel with the 
base of the advertisement.
    (d) Audio disclosures, whether in television or radio, shall be 
delivered in a slow and deliberate manner and in a reasonably 
understandable volume.
    (e) Nothing contrary to, inconsistent with, or in mitigation of, 
the required disclosures shall be used in any advertisement in any 
medium; nor shall any audio, video, or print technique be used that is 
likely to detract significantly from the communication of the 
disclosures.
    (f) In any program-length commercial, required disclosures shall be 
made at least three (3) times (unless more frequent disclosure is 
otherwise required) near the beginning, middle, and end of the 
commercial.
    (g) In any advertising medium not specifically addressed in this 
Rule, all advertising disclosures must be clear and conspicuous and not 
avoidable by consumers acting reasonably.


Sec. 308.4  Advertising disclosures.

    (a) Cost of the call. (1) The vendor shall clearly and 
conspicuously disclose the cost of the call, in Arabic numerals, in any 
advertisement for the pay-per-call service, as follows:
    (i) If there is a flat fee for the call, the advertisement shall 
state the total cost of the call.
    (ii) If the call is billed on a time-sensitive basis, the 
advertisement shall state the cost per minute and any minimum charges. 
If the length of the program can be determined in advance, the 
advertisement shall also state the maximum charge that could be 
incurred if the caller listens to the complete program.
    (iii)(A) If the call is billed on a variable option rate basis, the 
advertisement shall state, in accordance with Sec. 308.4(a)(1)(i) and 
(ii), the cost of the initial portion of the call, any minimum charges, 
and the range of rates that may be charged depending on the options 
chosen by the caller;
    (B) If the call is billed on a variable time rate basis, the 
advertisement shall state, in accordance with Secs. 308.4(a)(1)(i) and 
(ii), the cost of each different portion of the call;
    (iv) The advertisement shall disclose any other fees that will be 
charged for the service.
    (v) If the caller may be transferred to another pay-per-call 
service, the advertisement shall disclose the cost of the other call, 
in accordance with Sec. 308.4(a)(1)(i), (ii), (iii), and (iv).
    (2) For purposes of Sec. 308.4(a), disclosures shall be made 
``clearly and conspicuously'' as set forth in Sec. 308.3 and as 
follows:
    (i) In a television or videotape advertisement, the video 
disclosure shall appear adjacent to each video presentation of the pay-
per-call number. However, in an advertisement displaying more than one 
pay-per-call number with the same cost, the video disclosure need only 
appear adjacent to the largest presentation of the pay-per-call number. 
Each letter or numeral of the video disclosure shall be, at a minimum, 
one-half the size of each letter or numeral of the pay-per-call number 
to which the disclosure is adjacent. In addition, the video disclosure 
shall appear on the screen for the duration of the presentation of the 
pay-per-call number. An audio disclosure shall be made at least once, 
simultaneously with a video presentation of the disclosure. However, no 
audio presentation of the disclosure is required in an advertisement 
fifteen (15) seconds or less in length in which the pay-per-call number 
is not presented in the audio portion, or an advertisement in which 
there is no audio presentation of information regarding the pay-per-
call service, including the pay-per-call number. In an advertisement in 
which the pay-per-call number is presented only in the audio portion, 
the cost of the call shall be delivered immediately following the first 
and last delivery of the pay-per-call number, except that in a program-
length commercial, the disclosure shall be delivered immediately 
following each delivery of the pay-per-call number.
    (ii) In a print advertisement, the disclosure shall be placed 
adjacent to each presentation of the pay-per-call number. However, in 
an advertisement displaying more than one pay-per-call number with the 
same cost, the disclosure need only appear adjacent to the largest 
presentation of the pay-per-call number. Each letter or numeral of the 
disclosure shall be, at a minimum, one-half the size of each letter or 
numeral of the pay-per-call number to which the disclosure is adjacent.
    (iii) In a radio advertisement, the disclosure shall be made at 
least once, and shall be delivered immediately following the first 
delivery of the pay-per-call number. In a program-length commercial, 
the disclosure shall be delivered immediately following each delivery 
of the pay-per-call number.
    (b) Sweepstakes; games of chance. (1) The vendor that advertises a 
prize or award, or a service or product, at no cost or for a reduced 
cost, to be awarded to the winner of any sweepstakes, including games 
of chance, shall clearly and conspicuously disclose in the 
advertisement the odds of being able to receive the prize, award, 
service, or product at no cost or reduced cost. If the odds are not 
calculable in advance, the advertisement shall disclose the factors 
used in calculating the odds. Either the advertisement or the preamble 
required by Sec. 308.9 for such service shall clearly and conspicuously 
disclose that no call to the pay-per-call service is required to 
participate, and shall also disclose the existence of a free 
alternative method of entry, and either instructions on how to enter, 
or a local or toll-free telephone number or address to which customers 
may call or write for information on how to enter the sweepstakes. Any 
description or characterization of the prize, award, service, or 
product that is being offered at no cost or reduced cost shall be 
truthful and accurate.
    (2) For purposes of Sec. 308.4(b) disclosures shall be made 
``clearly and conspicuously'' as set forth in Sec. 308.3 and as 
follows:
    (i) In a television or videotape advertisement, the disclosures may 
be made in either the audio or video

[[Page 58562]]

portion of the advertisement. If the disclosures are made in the video 
portion, they shall appear on the screen in sufficient size and for 
sufficient time to allow customers to read and comprehend the 
disclosures.
    (ii) In a print advertisement, the disclosures shall appear in a 
sufficient size and prominence and such location to be readily 
noticeable, readable, and comprehensible.
    (c) Federal programs. (1) The vendor that advertises a pay-per-call 
service that is not operated or expressly authorized by a Federal 
agency, but that provides information on a Federal program, shall 
clearly and conspicuously disclose in the advertisement that the pay-
per-call service is not authorized, endorsed, or approved by any 
Federal agency. Advertisements providing information on a Federal 
program shall include, but not be limited to, advertisements that 
contain a seal, insignia, trade or brand name, or any other term or 
symbol that reasonably could be interpreted or construed as implying 
any Federal government connection, approval, or endorsement.
    (2) For purposes of Sec. 308.4(c), disclosures shall be made 
``clearly and conspicuously'' as set forth in Sec. 308.3 and as 
follows:
    (i) In a television or videotape advertisement, the disclosure may 
be made in either the audio or video portion of the advertisement. If 
the disclosure is made in the video portion, it shall appear on the 
screen in sufficient size and for sufficient time to allow customers to 
read and comprehend the disclosure. The disclosure shall begin within 
the first fifteen (15) seconds of the advertisement.
    (ii) In a print advertisement, the disclosure shall appear in a 
sufficient size and prominence and such location to be readily 
noticeable, readable, and comprehensible. The disclosure shall appear 
in the top one-third of the advertisement.
    (iii) In a radio advertisement, the disclosure shall begin within 
the first fifteen (15) seconds of the advertisement.
    (d) Advertising to individuals under the age of 18. (1) The vendor 
shall ensure that any pay-per-call advertisement directed primarily to 
individuals under the age of 18 shall contain a clear and conspicuous 
disclosure that all individuals under the age of 18 must have the 
permission of such individual's parent or legal guardian prior to 
calling such pay-per-call service.
    (2) For purposes of Sec. 308.4(d), disclosures shall be made 
``clearly and conspicuously'' as set forth in Sec. 308.3 and as 
follows:
    (i) In a television or videotape advertisement, each letter or 
numeral of the video disclosure shall be, at a minimum, one-half the 
size of each letter or numeral of the largest presentation of the pay-
per-call number. The video disclosure shall appear on the screen for 
sufficient time to allow customers to read and comprehend the 
disclosure. An audio disclosure shall be made at least once, 
simultaneously with a video presentation of the disclosure. However, no 
audio presentation of the disclosure is required in an advertisement 
fifteen (15) seconds or less in length in which the pay-per-call number 
is not presented in the audio portion, or an advertisement in which 
there is no audio presentation of information regarding the pay-per-
call service, including the pay-per-call number.
    (ii) In a print advertisement, each letter or numeral of the 
disclosure shall be, at a minimum, one-half the size of each letter or 
numeral of the largest presentation of the pay-per-call number.
    (3) For the purposes of this regulation, advertisements directed 
primarily to individuals under 18 shall include any pay-per-call 
advertisement appearing during or immediately adjacent to programming 
for which competent and reliable audience composition data demonstrate 
that more than 50% of the audience is composed of individuals under 18, 
and any pay-per-call advertisement appearing in a periodical for which 
competent and reliable readership data demonstrate that more than 50% 
of the readership is composed of individuals under 18.
    (4) For the purposes of this regulation, if competent and reliable 
audience composition or readership data do not demonstrate that more 
than 50% of the audience or readership is composed of individuals under 
18, then the Commission shall consider the following criteria in 
determining whether an advertisement is directed primarily to 
individuals under 18:
    (i) Whether the advertisement appears in publications directed 
primarily to individuals under 18, including, but not limited to, 
books, magazines, and comic books;
    (ii) Whether the advertisement appears during or immediately 
adjacent to television programs directed primarily to individuals under 
18, including, but not limited to, mid-afternoon weekday television 
shows;
    (iii) Whether the advertisement is broadcast on radio stations that 
are directed primarily to individuals under 18;
    (iv) Whether the advertisement appears on a cable or broadcast 
television station directed primarily to individuals under 18;
    (v) Whether the advertisement appears on the same videotape as a 
commercially-prepared videotape directed primarily to individuals under 
18, or preceding a movie directed primarily to individuals under 18 
shown in a movie theater; and
    (vi) Whether the advertisement, regardless of when or where it 
appears, is directed primarily to individuals under 18 in light of its 
subject matter, visual content, age of models, language, characters, 
tone, message, or the like.


Sec. 308.5  Advertising to children prohibited.

    (a) The vendor shall not direct advertisements for such pay-per-
call services to children under the age of 12, unless the service is a 
bona fide educational service.
    (b) For the purposes of this regulation, advertisements directed to 
children under 12 shall include any pay-per-call advertisement 
appearing during or immediately adjacent to programming for which 
competent and reliable audience composition data demonstrate that more 
than 50% of the audience is composed of children under 12, and any pay-
per-call advertisement appearing in a periodical for which competent 
and reliable readership data demonstrate that more than 50% of the 
readership is composed of children under 12.
    (c) For the purposes of this regulation, if competent and reliable 
audience composition or readership data do not demonstrate that more 
than 50% of the audience or readership is composed of children under 
12, then the Commission shall consider the following criteria in 
determining whether an advertisement is directed to children under 12:
    (1) Whether the advertisement appears in a publication directed to 
children under 12, including, but not limited to, books, magazines, and 
comic books;
    (2) Whether the advertisement appears during or immediately 
adjacent to television programs directed to children under 12, 
including, but not limited to, children's programming as defined by the 
Federal Communications Commission, animated programs, and after-school 
programs;
    (3) Whether the advertisement appears on a television station or 
channel directed to children under 12;
    (4) Whether the advertisement is broadcast during or immediately 
adjacent to radio programs directed to children under 12, or broadcast 
on a

[[Page 58563]]

radio station directed to children under 12;
    (5) Whether the advertisement appears on the same video as a 
commercially-prepared video directed to children under 12, or preceding 
a movie directed to children under 12 shown in a movie theater;
    (6) Whether the advertisement or promotion appears on product 
packaging directed to children under 12; and
    (7) Whether the advertisement, regardless of when or where it 
appears, is directed to children under 12 in light of its subject 
matter, visual content, age of models, language, characters, tone, 
message, or the like.


Sec. 308.6  Misrepresentation of cost prohibited.

    (a) Deceptive representation of cost. It is a deceptive act or 
practice, and a violation of this Rule for any vendor to misrepresent 
the cost of a pay-per-call service.
    (b) Signal indicating end of free time. If any portion of a 
telephone call to a pay-per-call service is offered as free, the vendor 
shall provide a clearly discernible signal or tone indicating the end 
of the free time, and shall inform the caller that to avoid charges, 
the call must be terminated within three (3) seconds of such signal or 
tone.


Sec. 308.7  Other advertising restrictions.

    (a) Electronic tones in advertisements. The vendor is prohibited 
from using advertisements that emit electronic tones that can 
automatically dial a pay-per-call service.
    (b) Telephone solicitations. The vendor shall ensure that any 
telephone message conveyed during an inbound or outbound call that 
solicits a person to place a call to a pay-per-call service discloses 
the cost of the call in a slow and deliberate manner and in a 
reasonably understandable volume, in accordance with 
Secs. 308.4(a)(1)(i) through (v).
    (c) Solicitations via facsimile machine. The vendor shall ensure 
that any facsimile message that solicits calls to a pay-per-call 
service contains all the relevant disclosures required by this Rule, 
and that such disclosures are provided in the manner required for print 
advertisements in Secs. 308.3 and 308.4(a)(2)(ii).
    (d) Solicitations via beeper, pager, or similar device. The vendor 
shall ensure that any beeper or pager message that solicits calls to a 
pay-per-call service contains all the relevant disclosures required by 
this Rule, and that such disclosures are provided in the manner 
required for print advertisements in Secs. 308.3 and 308.4(a)(2)(ii).
    (e) Referral to toll-free telephone numbers. The vendor is 
prohibited from referring in advertisements to an 800, 888, or 877 
number, or any other telephone number advertised as or widely 
understood to be toll-free, if that number is used in a manner that 
violates the prohibition concerning toll-free numbers set forth in 
Sec. 308.13.
    (f) Nothing in this section shall be construed to permit any 
conduct or practice otherwise precluded or limited by regulations of 
the Federal Communications Commission.


Sec. 308.8  Special rule for infrequent publications.

    (a) The vendor that advertises a pay-per-call service in a 
publication that meets the requirements set forth in Sec. 308.8(c) may 
include in such advertisement, in lieu of the cost disclosures required 
by Sec. 308.4(a), a clear and conspicuous disclosure that a call to the 
advertised pay-per-call service may result in a substantial charge.
    (b) The vendor that places an alphabetical listing in a publication 
that meets the requirements set forth in Sec. 308.8(c) is not required 
to make any of the disclosures required by Secs. 308.4(a) through (d) 
in the alphabetical listing, provided that such listing does not 
contain any information except the name, address, and telephone number 
of the vendor.
    (c) The publication referred to in Sec. 308.8(a) and (b) must be:
    (1) Widely distributed;
    (2) Printed annually or less frequently; and
    (3) One that has an established policy of not publishing specific 
prices in advertisements.


Sec. 308.9  Preamble message.

    (a) The vendor shall include, in each pay-per-call message, an 
introductory disclosure message (``preamble'') in the same language as 
that principally used in the pay-per-call message, that clearly, in a 
slow and deliberate manner and in a reasonably understandable volume:
    (1) Identifies the name of the vendor and describes the service 
being provided;
    (2) Specifies the cost of the service as follows:
    (i) If there is a flat fee for the call, the preamble shall state 
the total cost of the call;
    (ii) If the call is billed on a time-sensitive basis, the preamble 
shall state the cost per minute and any minimum charges; if the length 
of the program can be determined in advance, the preamble shall also 
state the maximum charge that could be incurred if the caller listens 
to the complete program;
    (iii)(A) If the call is billed on a variable option rate basis, the 
preamble shall state, in accordance with Sec. 308.9(a)(2)(i) and (ii), 
the cost of the initial portion of the call, any minimum charges, and 
the range of rates that may be charged depending on the options chosen 
by the caller;
    (B) If the call is billed on a variable time rate basis, the 
preamble shall state, in accordance with Sec. 308.9(a)(2)(i) and (ii), 
the cost of each different portion of the call;
    (iv) Any other fees that will be charged for the service shall be 
disclosed, as well as fees for any other pay-per-call service to which 
the caller may be transferred;
    (3) Informs the caller that charges for the call begin, and that to 
avoid charges the call must be terminated, three (3) seconds after a 
clearly discernible signal or tone indicating the end of the preamble;
    (4) Informs the caller that anyone under the age of 18 must have 
the permission of a parent or legal guardian in order to complete the 
call; and
    (5) Informs the caller, in the case of a pay-per-call service that 
is not operated or expressly authorized by a Federal agency but that 
provides information on a Federal program, or that uses a trade or 
brand name or any other term that reasonably could be interpreted or 
construed as implying any Federal government connection, approval, or 
endorsement, that the pay-per-call service is not authorized, endorsed, 
or approved by any Federal agency.
    (b) No charge to caller for preamble message. The vendor is 
prohibited from charging a caller any amount whatsoever for such a 
service if the caller hangs up at any time prior to three (3) seconds 
after the signal or tone indicating the end of the preamble described 
in Sec. 308.9(a). However, the three-second delay, and the message 
concerning such delay described in Sec. 308.9(a)(3), is not required if 
the vendor offers the caller an affirmative means (such as pressing a 
key on a telephone keypad) of indicating a decision to incur the 
charges.
    (c) Nominal cost calls. The preamble described in Sec. 308.9(a) is 
not required when the entire cost of the pay-per-call service, whether 
billed as a flat rate or on a time sensitive basis, is three (3) 
dollars or less.
    (d) Data service calls. The preamble described in Sec. 308.9(a) is 
not required when the entire call consists of the non-verbal 
transmission of information.
    (e) Bypass mechanism. The vendor that offers to frequent callers or 
regular customers to such services the option of

[[Page 58564]]

activating a bypass mechanism to avoid listening to the preamble during 
subsequent calls shall not be deemed to be in violation of 
Sec. 308.9(a), provided that any such bypass mechanism shall be 
disabled for a period of no less than thirty (30) days immediately 
after the institution of an increase in the price for the service or a 
change in the nature of the service offered.


Sec. 308.10  Deceptive billing practices.

    (a) Deceptive billing for pay-per-call services in violation of the 
Rule. It is a deceptive act or practice and a violation of this Rule 
for any vendor to collect or attempt to collect, directly or 
indirectly:
    (1) Charges for pay-per-call services in excess of the amount 
described in the preamble for such pay-per-call services; or
    (2) Charges for pay-per-call services that are provided in 
violation of this Rule.
    (b) Deceptive billing for time-based charges after disconnection by 
the caller. It is a deceptive practice and a violation of this Rule for 
the vendor to fail to stop the assessment of time-based pay-per-call 
service charges immediately upon disconnection by the caller.


Sec. 308.11  Prohibition on services to children.

    The vendor shall not direct pay-per-call services to children under 
the age of 12, unless such service is a bona fide educational service. 
The Commission shall consider the following criteria in determining 
whether a pay-per-call service is directed to children under 12:
    (a) Whether the pay-per-call service is advertised in the manner 
set forth in Sec. 308.5(b) and (c); and
    (b) Whether the pay-per-call service, regardless of when or where 
it is advertised, is directed to children under 12, in light of its 
subject matter, content, language, featured personality, characters, 
tone, message, or the like.


Sec. 308.12  Prohibition concerning toll charges.

    The vendor shall not offer a pay-per call service that would result 
in any customer being assessed a charge for any local exchange 
telephone service or interexchange telephone service or any service 
that the Federal Communications Commission determines by rule--
    (a) Is closely related to the provision of local exchange telephone 
services or interexchange telephone services; and
    (b) Is subject to billing dispute resolution procedures required by 
Federal or State statute or regulation.


Sec. 308.13  Prohibitions concerning toll-free numbers.

    Any person is prohibited from using an 800, 888, or 877 number, or 
any other telephone number advertised as or widely understood to be 
toll-free in a manner that would result in:
    (a) Any customer being assessed, by virtue of a caller completing 
the call, a charge for the call;
    (b) The caller being connected to an access number for, or 
otherwise transferred to, a pay-per-call service;
    (c) Any customer being charged for information or entertainment 
conveyed during the call, unless that person has entered into a 
presubscription agreement, meeting the requirements of Sec. 308.2(j), 
to be charged for the information or entertainment; or
    (d) Any person being charged for a call back for the provision of 
audio or data information services, entertainment services, 
simultaneous voice conversation services, or products.


Sec. 308.14  Monthly or other recurring charges.

    The vendor is prohibited from providing a pay-per-call service that 
results in a monthly or other recurring charge, unless the vendor and 
the person to be billed for the service have entered into a 
presubscription agreement, meeting the requirements of Sec. 308.2(j), 
that authorizes monthly or other recurring charges for that service.


Sec. 308.15  Refunds to customers.

    The vendor shall be liable for refunds or credits to customers who 
have been billed for pay-per-call services, and who have paid the 
charges for such services, pursuant to pay-per-call services that have 
been found to have violated any provision of this Rule or any other 
Federal rule or law.


Sec. 308.16  Service bureau liability.

    A service bureau shall be liable for violations of the Rule by any 
vendor of pay-per-call services using its call processing facilities or 
other services where the service bureau knew or should have known of 
the violation.

Subpart C--Pay-Per-Call Services and Other Telephone-Billed 
Purchases


Sec. 308.17  Express authorization required.

    Any telephone-billed purchase, other than a pay-per-call purchase 
that is blockable pursuant to 47 U.S.C. 228(c), requires the express 
authorization of the person to be billed for the purchase. It is a 
deceptive act or practice and a violation of this Rule for any vendor, 
service bureau, or billing entity to collect or attempt to collect, 
directly or indirectly, payment for such a telephone-billed purchase 
where the vendor, service bureau, or billing entity knew or should have 
known that the charge was not expressly authorized by the person from 
whom payment is being sought.


Sec. 308.18  Disclosure requirements for billing statements.

    The vendor shall ensure that any billing statement for its charges 
shall:
    (a) Display any charges for telephone-billed purchases in a portion 
of the customer's bill that is identified as not being related to local 
and long-distance telephone charges;
    (b) For each telephone-billed purchase charge so displayed, 
identify the type of service or product and the amount of the charge;
    (c) For each pay-per-call purchase charge so displayed, accurately 
specify the telephone number dialed by the caller, as well as the date, 
time, and, for calls billed on a time-sensitive basis, the duration of 
the call; and
    (d) Display the local or toll-free telephone number where customers 
can readily obtain answers to their questions and information on their 
rights and obligations with regard to their telephone-billed purchases, 
and can obtain the name and mailing address of the vendor.


Sec. 308.19  Access to information.

    Any common carrier that provides telecommunication services to any 
vendor or service bureau shall make available to the Commission, upon 
written request, any records and financial information maintained by 
such carrier relating to the arrangements (other than for the provision 
of local exchange service) between such carrier and any vendor or 
service bureau.


Sec. 308.20  Dispute resolution procedures.

    (a) Initiation of billing review. To be guaranteed the protections 
provided under Sec. 308.20, a customer shall initiate a billing review 
with respect to a telephone-billed purchase by providing the billing 
entity with notice of a billing error no later than sixty (60) days 
after the billing entity transmitted the first billing statement that 
contains the disputed charge. If the billing error is the reflection on 
a billing statement of a telephone-billed purchase not provided to the 
customer in accordance with the stated terms of the transaction, the 
60-day period shall begin to run from the date the goods or services 
are delivered or, if not delivered, should have been delivered, if such 
date is later than the date the billing statement was transmitted. The 
customer's billing error notice shall:

[[Page 58565]]

    (1) Set forth or otherwise enable the billing entity to identify 
the customer's name and the telephone number to which the charge was 
billed;
    (2) Indicate the customer's belief that the statement contains an 
error, and the date and amount of such error; and
    (3) Set forth the reasons for the customer's belief, to the extent 
possible, that the statement contains an error.
    (b) Disclosure of method of providing notice; presumption if oral 
notice is permitted. A billing entity shall clearly and conspicuously 
\2\ disclose on each billing statement or on other material 
accompanying the billing statement:
---------------------------------------------------------------------------

    \2\ The standard for ``clear and conspicuous'' as used in this 
Section shall be the standard enunciated by the Board of Governors 
of the Federal Reserve System in its Official Staff Commentary on 
Regulation Z, which requires simply that the disclosures be in a 
reasonably understandable form. See 12 CFR part 226, Supplement I, 
Comment 226.5(a)(1)-1.
---------------------------------------------------------------------------

    (1) The method (oral or written) by which the customer may provide 
a billing error notice in the manner set forth in Sec. 308.20(a); \3\
---------------------------------------------------------------------------

    \3\ If oral notice is permitted, any customer who orally 
communicates an allegation of a billing error to a billing entity 
shall be presumed to have properly initiated a billing review in 
accordance with the requirements of 308.20(a).
---------------------------------------------------------------------------

    (2) The name of the billing entity designated to receive and 
respond to billing errors;
    (3) If written notice is required, the mailing address to which 
notice should be sent;
    (4) If oral notice is permitted, a local or toll-free telephone 
number that is readily available for customers to submit a billing 
error notice. The billing entity and the vendor may, by agreement, 
select a single telephone number to satisfy the requirements of this 
section as well as Sec. 308.18(d).
    (c) Response to customer notice. A billing entity that receives 
notice of a billing error as described in Sec. 308.20(a) shall:
    (1) Send a written acknowledgment to the customer including a 
statement that any disputed amount need not be paid pending 
investigation of the billing error. This shall be done no later than 
forty (40) days after receiving the notice, unless the action required 
by Sec. 308.20(c)(2) is taken within such 40-day period; and
    (2)(i) Correct any billing error and credit the customer's account 
for any disputed amount and any related charges, and notify the 
customer of the correction. The billing entity also shall disclose to 
the customer that collection efforts may occur despite the credit, and 
shall provide the names, mailing addresses, and business telephone 
numbers of the vendor, service bureau, and providing carrier, as 
applicable, that are involved in the telephone-billed purchase, or 
provide the customer with a local or toll-free telephone number that 
the customer may call to readily obtain this information directly. 
However, the billing entity is not required to make the disclosure 
concerning collection efforts if the vendor, its agent, or the 
providing carrier, as applicable, will not collect or attempt to 
collect the disputed charge; or
    (ii) Conduct a reasonable investigation (including, where 
appropriate, contacting the customer, vendor, service bureau, or 
providing carrier), after which it shall transmit a written explanation 
to the customer, setting forth the reasons why it has determined that 
no billing error occurred, make any appropriate adjustments to the 
customer's account, and provide copies of documentary evidence of the 
customer's indebtedness. The reasonable investigation and written 
explanation shall, in every case, address each potential billing error, 
and shall address with particularity the relevant facts asserted by the 
customer.\4\
---------------------------------------------------------------------------

    \4\ There shall be a rebuttable presumption that goods or 
services were actually transmitted or delivered to the extent that a 
vendor, service bureau, or providing carrier produces documents 
prepared and maintained in the ordinary course of business showing 
the date on, and the place to, which the goods or services were 
transmitted or delivered. If a billing entity relies on this 
presumption in responding to a billing error notice, it shall 
provide the customer with the opportunity to rebut this presumption 
with a declaration signed under penalty of perjury. The billing 
entity shall not require this declaration to be notarized. In 
enforcing violations of this Rule, the Commission may rebut this 
presumption with evidence indicating that, in numerous instances, 
the goods or services were not actually transmitted or delivered.
---------------------------------------------------------------------------

    (3) The action required by Sec. 308.20(c)(2) shall be taken no 
later than sixty (60) days after receiving the notice of the billing 
error and before taking any action to collect the disputed amount, or 
any part thereof. After complying with Sec. 308.20(c)(2), if the 
billing entity has determined that any disputed amount is in error, or 
has for other reasons determined not to sustain the disputed charge, 
the billing entity shall:
    (i) Within thirty (30) days of such determination, notify the 
appropriate providing carrier, vendor, or service bureau as applicable, 
of its disposition of the customer's billing error and the reasons 
therefor, and provide sufficient information for the appropriate entity 
to identify the customer account at issue; and
    (ii) Promptly notify the customer in writing of the time when 
payment is due of any portion of the disputed amount determined not to 
be in error and that failure to pay such amount may be reported to a 
credit reporting agency or subject the customer to a collection action, 
if that in fact may happen. The billing entity shall allow the longer 
of ten (10) days or the number of days the customer is ordinarily 
allowed (whether by custom, contract, or State law) to pay undisputed 
amounts.
    (d) Withdrawal of billing error notice. A billing entity need not 
comply with the requirements of Sec. 308.20(c) if the customer has, 
after giving notice of a billing error and before the expiration of the 
time limits specified therein, agreed that the billing statement was 
correct or agreed to withdraw voluntarily the billing error notice.
    (e) Limitation on responsibility for billing error. After complying 
with the provisions of Sec. 308.20(c), a billing entity has no further 
responsibility under that section if the customer continues to make 
substantially the same allegation with respect to a billing error.
    (f) Customer's right to withhold disputed amount; limitation on 
collection action. Once the customer has submitted notice of a billing 
error to a billing entity, the customer need not pay, and no billing 
entity, providing carrier, service bureau, or vendor may try to 
collect, any portion of any required payment that the customer 
reasonably believes is related to the disputed amount until the billing 
entity receiving the notice has complied with the requirements of 
Sec. 308.20(c) and until the customer has received the written 
explanation and documentary evidence setting forth that no billing 
error has occurred, pursuant to Sec. 308.20(c)(2)(ii) or 
Sec. 308.20(n)(2). The billing entity, providing carrier, service 
bureau, or vendor are not prohibited from taking any action to collect 
any undisputed portion of the bill, or from reflecting a disputed 
amount and related charges on a billing statement, provided that the 
billing statement clearly states that payment of any disputed amount or 
related charges is not required pending the billing entity's compliance 
with Sec. 308.20(c).
    (g) Prohibition on charges for initiating billing review. A billing 
entity, providing carrier, service bureau, or vendor may not impose on 
the customer any charge related to the billing review, including 
charges for documentation or investigation.
    (h) Restrictions on credit reporting--(1) Adverse credit reports 
prohibited. Once the customer has submitted notice of a billing error 
to a billing entity, a billing entity, providing carrier, service 
bureau, vendor, or other agent may not report or threaten directly or 
indirectly

[[Page 58566]]

to report adverse information to any person because of the customer's 
withholding payment of the disputed amount or related charges, until 
the billing entity has met the requirements of Sec. 308.20(c) and 
allowed the customer as many days thereafter to make payment of any 
amount determined not to be in error, as prescribed by 
Sec. 308.20(c)(3)(ii).
    (2) Reports on continuing disputes. If a billing entity receives 
further notice from a customer within the time allowed for payment 
under Sec. 308.20(h)(1) that any portion of the billing error is still 
in dispute, a billing entity, providing carrier, vendor, or other agent 
may not report to any person that the customer's account is delinquent 
because of the customer's failure to pay that disputed amount unless 
the billing entity, providing carrier, vendor, or other agent also 
reports that the amount is in dispute and notifies the customer in 
writing of the name and address of each person to whom the vendor, 
billing entity, providing carrier, or other agent has reported the 
account as delinquent.
    (3) Reporting of dispute resolutions required. A billing entity, 
providing carrier, vendor, or other agent shall report in writing any 
subsequent resolution of any matter reported pursuant to 
Sec. 308.20(h)(2) to all persons to whom such matter was initially 
reported.
    (i) Forfeiture of right to collect disputed amount. Any billing 
entity, providing carrier, vendor, or other agent who fails to comply 
with the requirements of Sec. 308.20(b), (c), (f), (g), or (h) forfeits 
any right to collect from the customer the amount indicated by the 
customer, under Sec. 308.20(a)(2), to be in error, and any late charges 
or other related charges thereon, up to fifty (50) dollars per 
transaction. Nothing in this Section shall be construed to limit the 
liability of any billing entity, providing carrier, or other agent with 
respect to:
    (1) Providing full refunds or credits for charges that are in 
error;
    (2) Civil penalties for violations of Sec. 308.20; or
    (3) Liability for violations of any other provision of this Rule.
    (j) Prompt notification of returns and crediting of refunds. When a 
vendor other than the billing entity accepts the return of property or 
forgives a debt for services in connection with a telephone-billed 
purchase, the vendor shall, within seven (7) business days from 
accepting the return or forgiving the debt, either:
    (1) Mail or deliver a cash refund directly to the customer's 
address, and notify the appropriate billing entity that the customer 
has been given a refund; or
    (2) Transmit a credit statement to the billing entity through the 
vendor's normal channels for billing telephone-billed purchases. The 
billing entity shall, within seven (7) business days after receiving a 
credit statement, credit the customer's account with the amount of the 
refund.
    (k) Right of customer to assert claims or defenses. Any billing 
entity or providing carrier who seeks to collect charges from a 
customer for a telephone-billed purchase that is the subject of a 
dispute between the customer and the vendor shall be subject to all 
claims (other than tort claims) and defenses arising out of the 
transaction and relating to the failure to resolve the dispute that the 
customer could assert against the vendor, if the customer has made a 
good faith attempt to resolve the dispute with the vendor or providing 
carrier (other than the billing entity). The billing entity or 
providing carrier shall not be liable under this paragraph for any 
amount greater than the amount billed to the customer for the purchase 
(including any related charges).
    (l) Retaliatory actions prohibited. A billing entity, providing 
carrier, vendor, or other agent may not accelerate any part of the 
customer's indebtedness or restrict or terminate the customer's access 
to pay-per-call services solely because the customer has exercised in 
good faith rights provided by this Section.
    (m) Notice of billing error rights--(1) Billing notice. With each 
billing statement that contains charges for a telephone-billed 
purchase, a billing entity shall include a statement that sets forth 
the procedure that a customer must follow to notify the billing entity 
of a billing error. The statement shall also disclose:
    (i) The customer's right to withhold payment of any disputed 
amount;
    (ii) That any action to collect any disputed amount will be 
suspended, pending completion of the billing review; and
    (iii) That, to be guaranteed the protections provided under the 
Dispute Resolution Procedures of the Federal Trade Commission's Rule 
Concerning Pay-Per-Call Services and Other Telephone-Billed Purchases, 
a customer must initiate a billing review no later than sixty (60) days 
after the billing entity transmitted the first billing statement that 
contains a charge for such telephone-billed purchase.
    (2) General disclosure requirements. (i) The disclosures required 
by Sec. 308.20(m)(1) shall be made clearly and conspicuously and may be 
made on a separate statement or on the customer's billing statement. If 
any of the disclosures are provided on the back of the billing 
statement, the billing entity shall include a reference to those 
disclosures on the front of the statement.
    (ii) At the billing entity's option, additional information or 
explanations may be supplied with the disclosures required by 
Sec. 308.20(m), but none shall be stated, utilized, or placed so as to 
mislead or confuse the customer or contradict, obscure, or detract 
attention from the information required to be disclosed. The 
disclosures required by Sec. 308.20(m) shall appear separately and 
above any other disclosures except those required under 47 CFR 
64.1510(a)(2)(i).
    (n) Multiple billing entities. (1) If a telephone-billed purchase 
involves more than one billing entity, only one set of disclosures need 
be given, and the billing entities shall agree among themselves which 
billing entity must receive and respond to billing error notices.
    (2) If any billing entity has forgiven a disputed charge for a 
telephone-billed purchase, no other billing entity may attempt to 
collect such charge without first conducting the reasonable 
investigation and providing the customer with the written explanation 
and documentary evidence as specified by Sec. 308.20(c)(2)(ii).
    (3) If a billing entity other than the one designated to receive 
and respond to billing errors receives notice of a billing error as 
described in Sec. 308.20(a), that billing entity shall either:
    (i) Promptly transmit to the customer the name, mailing address, 
and business telephone number of the billing entity designated to 
receive and respond to billing errors; or
    (ii) Transmit the billing error notice within fifteen (15) days to 
the billing entity designated to receive and respond to billing errors. 
The time requirements in Sec. 308.20(c) shall not begin to run until 
the billing entity designated to receive and respond to billing errors 
receives notice of the billing error, either from the customer or from 
the billing entity to whom the customer transmitted the notice.
    (4) If a customer fails to pay for a telephone-billed purchase and 
fails to initiate a billing review within the sixty (60) days provided 
under Sec. 308.20(a), the billing entity that transmitted the first 
billing statement containing the unpaid charge shall, no later no later 
than one hundred and twenty (120) days after such statement was 
transmitted, provide the vendor or service bureau with:

[[Page 58567]]

    (i) Notice of the failure to pay;
    (ii) The amount of the unpaid charge; and
    (iii) Sufficient information to identify the customer's account.
    (o) Multiple customers. If there is more than one customer involved 
in a telephone-billed purchase, the disclosures may be made to any 
customer who is primarily liable on the account.
    (p) Deceptive statements to billing entities by vendors, service 
bureaus, and providing carriers. It is a deceptive act or practice and 
a violation of this Rule for any vendor, service bureau, or providing 
carrier to provide false or misleading information to a billing entity 
conducting an investigation of a telephone-billed purchase charge under 
Sec. 308.20(c) or Sec. 308.20(n).

Subpart D--General Provisions


Sec. 308.21  Severability.

    The provisions of this Rule are separate and severable from one 
another. If any provision is stayed or determined to be invalid, it is 
the Commission's intention that the remaining provisions shall continue 
in effect.


Sec. 308.22  Actions by States.

    (a) As provided by 15 U.S.C. 5712, whenever an attorney general of 
any State has reason to believe that the interests of the residents of 
that State have been or are being threatened or adversely affected 
because any person has engaged or is engaging in a pattern or practice 
which violates any section of this Rule relating to the provision of 
pay-per-call services, other than Sec. 308.20, the State may bring a 
civil action on behalf of its residents in an appropriate district 
court to enjoin such pattern or practice, to enforce compliance with 
this Rule (except for Sec. 308.20), or to obtain such further and other 
relief as the court may deem appropriate.
    (b) Any attorney general or other officer of a State authorized by 
the State to bring an action under this Rule shall serve written notice 
on the Commission, if feasible, prior to its initiating such action. 
The notice shall be sent to the Office of the Director, Bureau of 
Consumer Protection, Federal Trade Commission, Washington, DC 20580, 
and shall include a copy of the complaint and any other pleadings to be 
filed with the court. If prior notice is not feasible, the State shall 
serve the Commission with the required notice immediately upon 
instituting its action.
    (c) Nothing contained in this section shall prohibit an authorized 
State official from proceeding in State court on the basis of an 
alleged violation of any general civil or criminal statute of such 
State.
    (d) Nothing contained in this section shall prevent the attorney 
general from exercising the powers conferred on the attorney general by 
the laws of such State to conduct investigations or to administer oaths 
or affirmations or to compel the attendance of witnesses or the 
production of documentary and other evidence.
    (e) Whenever the Commission has instituted a civil action for 
violation of any provision of this Rule, no State may, during the 
pendency of such action instituted by the Commission, subsequently 
institute a civil action against any defendant named in the 
Commission's complaint for violation of any provision as alleged in the 
Commission's complaint.

    By direction of the Commission.
Donald S. Clark,
Secretary.

    Note: The following appendix will not appear in the Code of 
Federal Regulations.

                Appendix--List of Commenters and Acronyms
------------------------------------------------------------------------
              Acronym                             Commenter
------------------------------------------------------------------------
ALLIANCE..........................  Alliance of Young Families.
ALLIANCE-2........................  Supplemental comments (May 23, 1997)
                                     of Alliance of Young Families.
AARP..............................  American Association of Retired
                                     Persons.
AMERITECH.........................  Ameritech.
ATN...............................  Atlantic Tele-Network.
ATN-2.............................  Supplemental comments (September 3,
                                     1997) of ATN.
AT&T..............................  AT&T.
AT&T-2............................  Supplemental comments (August 8,
                                     1997) of AT&T.
AUDIOTEX..........................  Audiotex Connection Inc.
BELL..............................  W. Marie Bell.
CINCINNATI........................  Cincinnati BBB.
CVS...............................  Communications Venture Services,
                                     Inc.
CU................................  Consumers Union.
DMA...............................  Direct Marketing Association.
FLORIDA...........................  Florida Public Service Commission.
GORDON............................  Honorable Bart Gordon, U.S. House of
                                     Representatives.
GORDON-2..........................  Supplemental comments (September 4,
                                     1997) of Honorable Bart Gordon.
HFT...............................  HFT and LO-AD Communications Corp.
UK................................  Independent Committee for the
                                     Supervision of Standards of
                                     Telephone Information Services.
ISA...............................  Interactive Services Association.
ITA...............................  International Telemedia Association.
MCI...............................  MCI Telecommunications Corporation.
NAAG..............................  National Association of Attorneys
                                     General.
NCL...............................  National Consumers League.
PILGRIM...........................  Pilgrim Telephone, Inc.
PMAA..............................  Promotion Marketing Association of
                                     America.
SNET..............................  Southern New England Telephone
                                     Company.
SW................................  Southwestern Bell and Pacific Bell.
TPI...............................  Tele-Publishing, Inc.
TSIA..............................  TeleServices Industry Association.
TSIA-2............................  Supplemental Comments (July 24,
                                     1997) of TSIA.
TURJANICA.........................  William L. Turjanica.
US WEST...........................  U S West, Inc.

[[Page 58568]]

WISCONSIN.........................  Wisconsin Department of Justice.
------------------------------------------------------------------------


[FR Doc. 98-28974 Filed 10-29-98; 845 am]
BILLING CODE 6750-01-P