Telecommunications: Update on State-Level Cramming Complaints and
Enforcement Actions (Letter Report, 01/31/2000, GAO/RCED-00-68).

Cramming is the inclusion of unauthorized, misleading, or deceptive
charges in consumers' telephone bills. Phone companies can cram
consumers by adding unauthorized charges for telephone services, such as
call messaging. Cramming can also involve third-party vendors who offer
products and services that are unrelated to telephone services, such as
live or recorded information on the stock market, sports, or products;
chat lines and dating services; and Internet Web page design. The
Federal Communications Commission (FCC) and the Federal Trade Commission
(FTC) reported that cramming complaints declined during the first nine
months of 1999 compared with the same period during the previous year.
The situation at the state level, however, was mixed: 22 states and the
District of Columbia reported declines in cramming complaints, 15 states
reported increases, and 11 reported no changes. The states are
continuing their efforts to combat this abuse. For example, by the end
of 1998, most states had made information available to consumers on ways
to prevent cramming and had established administrative procedures for
resolving complaints about telephone billing. The states were also
taking additional enforcement actions against crammers. Between 1996 and
1998, 16 states completed 25 enforcement actions against companies and
individuals involving in cramming, resulting in more than $3.5 million
in restitution and fines.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  RCED-00-68
     TITLE:  Telecommunications: Update on State-Level Cramming
	     Complaints and Enforcement Actions
      DATE:  01/31/2000
   SUBJECT:  Fraud
	     Telecommunication industry
	     Consumer protection
	     Federal/state relations
	     Telephone
	     Commercial law
	     Defective pricing
IDENTIFIER:  Internet

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GAO/RCED-00-68

Resources, Community, and Economic
Development Division

B-284409

January 31, 2000

The Honorable Christopher Bond
Chairman, Committee on Small Business
United States Senate

Dear Mr. Chairman:

On October 25, 1999, we testified before your Committee and provided an
overview of cramming−the inclusion of unauthorized, misleading, or
deceptive charges in a consumer's telephone bill.1 Telephone companies can
cram consumers by adding unauthorized charges for telephone-related
services, such as call messaging. Cramming can also involve third-party
vendors who offer products and services that are unrelated to telephone
services, such as live or recorded information about the stock market,
sports, or products; chat lines and dating services; club memberships; and
Internet Web page design. Consumers who believe that they have been victims
of cramming can report incidents to their telephone company, the Federal
Communications Commission (FCC), the Federal Trade Commission (FTC), their
state public utilities commission, and/or their state attorney general.

There is no central source for the number of cramming incidents nationwide.
For our July 1999 report on this issue to the Chairman of the Senate
Permanent Subcommittee on Investigations, we obtained cramming complaint and
enforcement data from FCC, FTC, state public utilities commissions, and
state attorneys general.2 The data from these sources showed a dramatic
increase in cramming complaints from 1996 through 1998. For the October
hearing, we contacted these federal and state agencies again to (1)
determine whether they were seeing an increase or decrease in cramming
complaints during 1999, (2) learn whether they were taking additional
actions to protect consumers from cramming, and (3) obtain updated
information about their enforcement actions against crammers during 1999. By
the time of the hearing, FCC, FTC, 38 state public utilities commissions,
and 11 offices of attorney general had responded with data for 1999. At your
request, we continued our follow-up efforts after the hearing with the
states that had not yet responded to us. By December 1999, we had obtained
updates from the remaining states and the District of Columbia. This report
supplements our testimony by providing information on cramming for all 50
states and the District of Columbia.

FCC and FTC reported declines in cramming complaints for the first 9 months
of 1999 compared with the same period in 1998. However, the situation at the
state level was mixed: 22 states and the District of Columbia reported
declines in cramming complaints, 15 states reported increases, and 11
reported no change. (Two other state commissions reported that they do not
collect data on cramming complaints.) In addition, 30 state public utilities
commissions and 27 state attorneys general told us that among the cramming
complaints they received for 1999, some were from small businesses alleging
unauthorized charges for services such as Web page design and other Internet
services.

The states are continuing their efforts to combat this abuse. By the end of
1998, most states had made information available to consumers on ways to
prevent cramming and had established administrative procedures for resolving
complaints about telephone billing. Also, a few state commissions had
obtained additional statutory and regulatory authority to levy monetary
penalties against offending companies. Between January and November 1999, 26
states either adopted or proposed additional statutes and regulations on
cramming requiring, for example, that consumers' telephone bills clearly
identify charges by third-party vendors.

The states are also taking additional enforcement actions against crammers.
Between 1996 and 1998, 16 states completed 25 enforcement actions against
companies and individuals engaged in cramming, resulting in over $3.5
million in restitution and fines. Another 22 state enforcement actions were
still pending at the end of 1998. From January through November 1999, 15
states completed 30 additional enforcement actions against crammers,
resulting in at least $569,500 in fines and other penalties. Another 37
state enforcement actions initiated during 1999 were still pending as of
November 1999.

Cramming is the inclusion in consumers' telephone bills of unauthorized,
misleading, or deceptive charges. Such charges can originate in a variety of
ways. For example, a consumer may call a vendor's advertised number to
receive information or a service. After obtaining the consumer's name and
telephone number, the vendor may then levy a hidden or deceptive charge,
even a recurring monthly charge, that the consumer did not know about and
did not authorize. A consumer's name and telephone number can also be
obtained through a sweepstakes entry form, which may include some obscurely
worded fine print authorizing that charges be placed on the consumer's
telephone bill. Some vendors apparently have simply lifted names and numbers
from telephone directories to charge businesses for nonexistent services. In
order to have charges placed on consumers' telephone bills, vendors
typically use the services of companies called "billing aggregators," which
bundle billing information from many vendors. Billing aggregators contract
with telephone companies to have vendors' charges included in consumers'
telephone bills.

Consumers who are victims of cramming can attempt to resolve the problem by
directly contacting the telephone company or vendor involved. They can also
file a complaint with their state public utilities commission or their state
attorney general. Public utilities commissions are responsible for
regulating intrastate telephone services and resolving consumers'
complaints, while state attorneys general are responsible for resolving
consumers' complaints about unfair and deceptive marketing practices. These
two bodies may attempt to resolve complaints informally, or they may take
formal regulatory or legal action, as authorized by state statute, against
offending companies. Consumers may also complain to FCC and FTC. FCC's
authority is focused on preventing cramming by common carriers (telephone
companies) engaged in common carrier activities, while FTC's authority is
focused on preventing cramming by companies that are not common carriers,
such as third-party vendors that charge for their services through telephone
bills.

From 1996 through 1998, the number of cramming complaints received by state
and federal agencies increased dramatically. In 1996, state public utilities
commissions received only 852 cramming complaints. By 1998, the number of
complaints had risen to 19,543. The situation was similar at the federal
level. In 1998, FCC received over 4,500 written complaints about cramming,
making it the fourth most common type of complaint. FTC received over 9,800
complaints about cramming, making it the second most common type of
complaint.

Both FCC and FTC reported to us that they were seeing downward trends in the
number of cramming complaints being reported to them for the first 9 months
of 1999, as compared with the same period for 1998. At the state level,
cramming complaint data show that while many states were seeing declines in
complaints during 1999, many others were seeing either no improvement or a
worsening of the problem.

In this connection, we obtained updates from 48 state public utilities
commissions and the District of Columbia on cramming complaints received
during 1999. (The commissions in two states, Kansas and Kentucky, responded
that they do not collect data on cramming complaints.) Since we contacted
the state commissions during the last quarter of 1999, none had data for the
entire year. We therefore requested that they compare their available
cramming complaint data for 1999 with their data for the corresponding
months in 1998 and determine whether they were experiencing an increase or a
decrease in the level of complaints. As table 1 indicates, 22 of the 48
states and the District of Columbia reported that they were receiving fewer
complaints during 1999 than they had received during a comparable period in
1998. The other states, however, did not see an improvement: 15 reported
more complaints, while 11 reported that complaints were running at about the
same level as in 1998.

State Public Utilities Commissions' Reported Trends for Cramming Complaints
During 1999

Continued

                                                        Complaint level
                   Fewer complaints   More complaints   about the same as
 State             than in 1998       than in 1998      in 1998
 Alabama
                   X

 Alaska
                                      X

 Arizona
                   X

 Arkansas
                                                        X

 California
                                      X

 Colorado
                                      X

 Connecticut
                                                        X

 Delaware
                   X

 District of
 Columbia          X

 Florida
                   X

 Georgia
                   X

 Hawaii
                                                        X

 Idaho
                   X

 Illinois
                   X

 Indiana
                   X

 Iowa
                                      X

 Kansasa

 Kentuckya

 Louisiana
                                                        X

 Maine
                                                        X

 Maryland
                   X

 Massachusetts
                                      X

 Michigan
                   X

 Minnesota
                                                        X

 Mississippi
                                                        X

 Missouri
                                      X

 Montana
                   X

 Nebraska
                                                        X

 Nevada
                   X

 New Hampshire
                                                        X

 New Jersey
                   X

 New Mexico
                                                        X

 New York
                   X

                                                        Complaint level
                   Fewer complaints   More complaints   about the same as
 State             than in 1998       than in 1998      in 1998
 North Carolina
                                      X

 North Dakota
                                      X

 Ohio
                   X

 Oklahoma
                                      X

 Oregon
                   X

 Pennsylvania
                   X

 Rhode Island
                                      X

 South Carolina
                                      X

 South Dakota
                                      X

 Tennessee
                                      X

 Texas
                   X

 Utah
                                      X

 Vermont
                   X

 Virginia
                                      X

 Washington
                                                        X

 West Virginia
                   X

 Wisconsin
                   X

 Wyoming
                   X

 Total
                   23                 15                11

a Commission reported that it does not collect data on cramming complaints.

Source: Responses of state public utilities commissions to GAO's survey.

We also asked whether small businesses were complaining about being crammed.
Thirty state public utilities commissions reported that they had received
cramming complaints from small businesses,3 and 22 of the commissions noted
that some of these complaints concerned unauthorized charges for Web page
design and/or Internet services. For example, the Montana Public Service
Commission reported that from January through September 1999, it received
complaints from small businesses against 10 different companies for the
unauthorized billing of charges on telephone bills for Web page design and
related Internet services. The commission believes that small businesses
were being targeted, since the complaints came only from small businesses
and not from residential customers.

In addition, the offices of 27 state attorneys general reported that some of
the cramming complaints they received in 1999 were from small businesses.4
Twenty-one of these offices stated that these included complaints related to
Web page design and Internet services. For example, the Office of Attorney
General in Arkansas filed a lawsuit against a company in June 1999 for
routinely billing some businesses $24.99 a month for Web page design
services that the businesses did not authorize. The attorneys general in
North Carolina and North Dakota have begun to track Internet-related
cramming as a separate category because of the large number of complaints
they are receiving about this abuse.

Our July 1999 report discussed actions taken by the states as of December
1998 to protect consumers from cramming. Forty-one states reported providing
consumers with educational brochures and information about cramming on state
Internet web sites, as well as establishing procedures for handling cramming
complaints. A few state commissions reported taking legislative or
regulatory actions to increase their ability to protect consumers against
cramming.

For our update, public utilities commissions and attorneys general in 26
states reported that between January and November 1999, they had initiated
or enacted additional statutes and regulations to further protect consumers
against cramming.5 For example, in July 1999, the New Mexico Public
Utilities Commission was granted the authority to assess an administrative
penalty of $10,000 against any company found to have engaged in cramming. In
addition, the South Dakota Public Utilities Commission recently enacted
regulations that, in part, require telecommunications companies to provide
consumers with refunds for unauthorized products or services charged to
their telephone bills. The Maine Public Utilities Commission also recently
drafted an anticramming rule that specifies registration requirements,
complaint procedures, and penalty provisions for service providers and
billing aggregators. Other states' statutes and regulations include

specifying fines for companies and individuals engaged in cramming;

requiring that telephone bills clearly identify any new charges added to
consumers' accounts, such as charges by third-party vendors;

prohibiting the disconnection of telephone services for nonpayment of
disputed charges;

requiring that telephone bills include toll-free numbers for contacting
vendors whose charges are included in the bills; and

establishing formal procedures for resolving complaints.

Our July 1999 report noted that state public utilities commissions and
attorneys general in 16 states6 completed 25 enforcement actions against
crammers from 1996 through 1998. These actions resulted in over $3.5 million
in restitution and fines. Another 22 state enforcement actions were still
pending at the end of 1998. When we contacted the states for updated
information, 19 states reported that they had completed or initiated
additional actions between January and November 1999, as shown in table 2.
Specifically, 15 states reported completing 30 additional enforcement
actions against crammers that have resulted in at least $569,000 in
penalties and fines. In addition, 15 states reported initiating 37
additional enforcement actions during 1999 that were still pending as of
November 1999.

Completed and Pending Enforcement Actions Taken by State Public Utilities
Commissions and State Attorneys General, January Through November 1999

               Number of         Amount of             Number of pending
               completed         restitution and       enforcement actions
               enforcement       fines resulting from  initiated during
 State         actions           completed actions     1999
 Arkansas
               1                 $35,000               2

 California
               a                                       5

 Florida
               1                 35,000                1

 Idaho
               2                 35,000                a

 Illinois
               5                 58,500                12

 Kansas
               1                 35,000                a

 Michigan
               1                 35,000                1

 Minnesota
               a                                       2

 Mississippi
               a                                       2

 Missouri
               1                 35,000                1

 New Jersey
               1                 35,000                1

 North
 Carolina      1                 35,000                2

 Ohio
               a                                       3

 Oregon
               9                 91,000                1

 Pennsylvania
               1                 35,000                1

 Rhode Island
               1                 35,000                a

 Tennessee
               1                 35,000                2

 Texas
               1                 35,000                a

 Wisconsin
               3                 b                     1

 Total
               30                $569,500              37

a None reported to GAO by the state.

b No amount reported to GAO by the state.

Source: Responses of state public utilities commissions and state attorneys
general to GAO's survey and responses of state attorneys general to a survey
by the National Association of Attorneys General.

We conducted our work from October 1999 through December 1999 in accordance
with generally accepted government auditing standards. To obtain data on
1999 cramming complaints, consumer protection efforts, and enforcement
actions, we contacted the public utilities commissions and the offices of
attorney general in all 50 states and the District of Columbia. We also
obtained updated information on completed and pending enforcement actions
from the National Association of Attorneys General.

We are sending copies of this report to interested congressional committees;
the Honorable William E. Kennard, Chairman of the Federal Communications
Commission; the Honorable Robert Pitofsky, Chairman of the Federal Trade
Commission; the other commissioners of FCC and FTC; the National Association
of Regulatory Utility Commissioners; the National Association of Attorneys
General; the state public utilities commissions; and the state attorneys
general. Copies of this report will be made available to others upon
request.

If you have any questions about this report, please call me at (202)
512-7631. Key contributors to this report are listed in appendix I.

Sincerely yours,

Stanley J. Czerwinski
Associate Director, Housing, Community
Development, and Telecommunications Issues

GAO Contact and Staff Acknowledgments

John P. Finedore (202) 512-6248

Other key contributors to this report are Faye Morrison, Terri Russell,
James Sweetman, and Ed Warner.

(385837)

  

1. Telecommunications: Overview of the Cramming Problem (GAO/T-RCED-00-28,
Oct. 25, 1999).

2. Telecommunications: State and Federal Actions to Curb Slamming and
Cramming (GAO/RCED-99-193, July 27, 1999).

3. The public utilities commission in the following states reported
receiving cramming complaints from small businesses: Alabama, California,
Delaware, Florida, Hawaii, Idaho, Illinois, Kansas, Maryland, Massachusetts,
Michigan, Mississippi, Missouri, Montana, Nebraska, Nevada, New Jersey, New
York, North Carolina, North Dakota, Ohio, Rhode Island, South Carolina,
South Dakota, Tennessee, Utah, Vermont, Washington, West Virginia, and
Wisconsin.

4. The office of the attorney general in the following states reported
receiving cramming complaints from small businesses: Alabama, Alaska,
Arizona, Arkansas, California, Georgia, Illinois, Iowa, Kansas, Kentucky,
Maryland, Michigan, Minnesota, Missouri, North Carolina, North Dakota,
Nebraska, Nevada, New Mexico, New York, Ohio, Oregon, Pennsylvania,
Tennessee, Texas, Washington, and Wisconsin.

5. Alabama, California, Colorado, Florida, Iowa, Illinois, Indiana, Kansas,
Maine, Maryland, Massachusetts, Michigan, Montana, Nebraska, Nevada, New
Hampshire, New Mexico, North Dakota, Oklahoma, Pennsylvania, South Dakota,
Tennessee, Texas, Utah, Vermont, and Virginia.

6. California, Florida, Georgia, Idaho, Illinois, Kentucky, Missouri, New
York, North Carolina, Oregon, Pennsylvania, Rhode Island, South Dakota,
Tennessee, Virginia, and Wisconsin.
*** End of document. ***