Telecommunications: State and Federal Actions to Curb Slamming and
Cramming (Letter Report, 07/27/1999, GAO/RCED-99-193).

Pursuant to a congressional request, GAO reviewed federal and state
efforts to prevent telephone slamming, which involves switching a
consumer's telephone service from one telephone company to another, and
cramming, which involves placing unauthorized charges on a consumer's
telephone bill for services and products, focusing on the: (1) number of
complaints about slamming and cramming received by state and federal
authorities; (2) types of protections implemented by state and federal
authorities to increase consumers' ability to protect themselves against
slamming and cramming; and (3) state and federal enforcement actions
taken against slamming and cramming violations since 1996, including the
names of the companies or individuals most frequently subject to such
actions.

GAO noted that: (1) slamming continues to be a significant problem for
consumers; (2) from 1996 through 1998, state public utilities
commissions saw the number of complaints about this abuse rise from
20,741 to 39,688, and federal authorities saw the number of complaints
rise from 12,795 to 20,154; (3) in addition, cramming has emerged as a
new problem; (4) complaints to state authorities rose sharply from about
800 in 1996 to nearly 20,000 in 1998; (5) in 1998, complaints about
cramming became the fourth most common type of written complaint
received by the Federal Communications Commission (FCC) and the second
most common type of complaint received by the Federal Trade Commission
(FTC); (6) to help protect consumers against slamming and cramming, most
state public utilities commissions: (a) require telephone companies to
obtain oral or written authorization from consumers before making
changes to their service; (b) have procedures for resolving consumers'
complaints; and (c) provide consumers with information on ways to
prevent telephone slamming and cramming; (7) at the federal level, FCC
adopted new rules against slamming in December 1998 that strengthen
procedures for verifying changes in service and absolve consumers of
liability, within certain limits, for charges by unauthorized companies;
(8) to protect consumers against cramming, FCC adopted new rules in
April 1999 requiring telephone companies to format their bills so that
consumers can more easily identify any unauthorized charges; (9) in
October 1998, FTC proposed rules addressing cramming that would require
a consumer's express authorization before charges other than for local
or long-distance calling could be placed on the consumer's telephone
bill and would allow the consumer to dispute any unauthorized charges;
(10) these proposed FTC rules could be final before the end of 1999;
(11) state commissions were able to resolve through informal action
nearly 60 percent of the slamming complaints they received in calendar
year 1998; (12) since April 1998, FTC has taken seven enforcement
actions against cramming that have resulted in injunctions and
restraining orders; and (13) two of these companies have agreed to final
stipulated court orders providing consumers with $53 million in credits
and restitution and have agreed to modify their business practices.

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

 REPORTNUM:  RCED-99-193
     TITLE:  Telecommunications: State and Federal Actions to Curb
	     Slamming and Cramming
      DATE:  07/27/1999
   SUBJECT:  Telecommunication industry
	     Consumer protection
	     Fines (penalties)
	     Fraud
	     Telephone

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rc99193 GAO United States General Accounting Office

Report to the Chairman, Permanent Subcommittee on Investigations,
Committee on Governmental Affairs, U. S. Senate

July 1999 TELECOMMUNICATIONS State and Federal Actions to Curb
Slamming and Cramming

GAO/RCED-99-193

  GAO/RCED-99-193

Page 1 GAO/RCED-99-193 Telephone Slamming and Cramming United
States General Accounting Office

Washington, D. C. 20548 Resources, Community, and Economic
Development Division

B-281703 Letter July 27, 1999 The Honorable Susan M. Collins
Chairman, Permanent Subcommittee on Investigations Committee on
Governmental Affairs United States Senate

Dear Madam Chairman: Two types of abuses involving telephone
services have become prevalent nationwide. The first, called
slamming, involves switching a consumer's telephone service from
one telephone company to another without the consumer's
authorization. The second, called cramming, involves placing
unauthorized charges on a consumer's telephone bill for services
and products. Both state and federal agencies are responsible for
protecting consumers from these abuses and taking regulatory and
legal enforcement actions against their perpetrators. At the state
level, public utilities commissions are responsible for regulating
intrastate telephone services and resolving consumers' complaints,
while the attorneys general are

responsible for resolving consumers' complaints about unfair and
deceptive marketing practices. At the federal level, the Federal
Communications Commission (FCC) is responsible for protecting
consumers against slamming, while both FCC and the Federal Trade
Commission (FTC) are involved in protecting consumers against
cramming. Under these separate statutory schemes, FCC's authority
is focused on preventing cramming by common carriers (telephone
companies), while FTC's authority is focused on preventing
cramming by companies that are not common carriers, such as
vendors that use

telephone bills to charge for their services. The Congress has, in
some limited circumstances, granted FTC concurrent authority with
FCC to establish rules concerning certain areas of telephone
billing and collection. You asked us to report on the scope of
these problems and on state and federal actions taken to combat
them. Specifically, you asked us to describe the (1) number of
complaints about slamming and cramming received by state and
federal authorities, (2) types of protections

implemented by state and federal authorities to increase
consumers' ability to protect themselves against slamming and
cramming, and (3) state and federal enforcement actions taken
against slamming and cramming

violations since 1996, including the names of the companies or
individuals Let t er

B-281703 Page 2 GAO/RCED-99-193 Telephone Slamming and Cramming

most frequently subject to such actions. To address these issues,
we surveyed the public utilities commissions of all 50 states and
the District of Columbia and assisted the National Association of
Attorneys General in surveying each state's office of attorney
general and the District's corporate counsel. In addition, we met
with FCC and FTC officials to gather information on the
enforcement actions they have taken against companies engaged in
slamming and cramming. We also discussed recent regulatory
initiatives by FCC and FTC to combat these abuses and improve
their

ability to take enforcement action. Results in Brief Slamming
continues to be a significant problem for consumers. From 1996

through 1998, state public utilities commissions saw the number of
complaints about this abuse rise from 20,741 to 39,688 (a 91-
percent increase), and federal authorities saw the number of
complaints rise from 12,795 to 20,154 (a 57- percent increase). In
addition, cramming has emerged as a new problem. Complaints to
state authorities rose sharply from about 800 in 1996 to nearly
20, 000 in 1998. In 1998, complaints about cramming became the
fourth most common type of written complaint received by FCC and
the second most common type of complaint received by FTC. To help
protect consumers against slamming and cramming, most state public
utilities commissions (1) require telephone companies to obtain
oral or written authorization from consumers before making changes
to their

service, (2) have procedures for resolving consumers' complaints,
and (3) provide consumers with information on ways to prevent
telephone slamming and cramming. At the federal level, FCC adopted
new rules

against slamming in December 1998 that strengthen procedures for
verifying changes in service and absolve consumers of liability,
within certain limits, for charges by unauthorized companies.
However, the Court of Appeals for the District of Columbia has
delayed the implementation of these liability provisions at the
request of several long- distance companies, which have proposed
the establishment of a neutral third- party administrator to
implement the liability rules. To protect consumers against
cramming, FCC adopted new rules in April 1999 requiring

telephone companies to format their bills so that consumers can
more easily identify any unauthorized charges. In October 1998,
FTC proposed rules addressing cramming that would, among other
things, require a

consumer's express authorization before charges other than for
local or long- distance calling could be placed on the consumer's
telephone bill and Let t er

B-281703 Page 3 GAO/RCED-99-193 Telephone Slamming and Cramming

would allow the consumer to dispute any unauthorized charges.
These proposed FTC rules could be final before the end of 1999.
State commissions were able to resolve through informal action
nearly 60 percent of the slamming complaints they received in
calendar year 1998. In addition, from 1996 through 1998, the
public utilities commissions and attorneys general in 35 states
reported completing 219 formal enforcement

actions against companies or individuals for telephone slamming
and cramming violations. As a result of these state actions, which
affected at least 397, 765 consumers, violators were ordered to
pay at least $27 million in restitution and penalties. The state
public utilities commissions also reported initiating over 3,900
enforcement actions for slamming and cramming that had not been
finalized as of early 1999. At the federal level, FCC has ordered
23 companies and individuals to pay $17.1 million in civil

monetary penalties (forfeitures) for telephone slamming violations
since it took its first enforcement action for slamming in 1994.
One slamming case also involved cramming. To date, FCC has
collected $2.6 million of these forfeitures in 12 of these
actions. Since April 1998, FTC has taken seven enforcement actions
against cramming that have resulted in injunctions and restraining
orders. Two of these companies have agreed to final stipulated
court orders providing consumers with $53 million in credits and
restitution and have agreed to modify their business practices.
Background Slamming, which began to emerge in the mid- 1980s, is
the switching of a

consumer's telephone company without his or her knowledge or
consent. Consumers have the right to use any telephone company
they have available to them and to change telephone companies
whenever they wish. Under the Communications Act of 1934, as
amended, it is unlawful to switch a consumer's preferred telephone
company without his or her express consent. 1 Nevertheless, some
telephone companies or their

marketing agents have used deceptive contests, surveys, and
telemarketing to lure consumers into switching to their service.
For instance, a person filling out a form for a contest drawing
may not notice that it contains fine print authorizing a switch in
telephone service. Long- distance providers, or 1 47 U. S. C. 258.

B-281703 Page 4 GAO/RCED-99-193 Telephone Slamming and Cramming

telemarketers acting on their behalf, may also falsify records to
make it appear that consumers have agreed verbally or in writing
to a switch. 2

Cramming, a more recent problem, is the placing of unauthorized,
misleading, or deceptive charges on a consumer's telephone bill
for services and products. Cramming can include unauthorized
charges for services offered by the consumer's own telephone
company, such as call messaging, or charges for services from
other businesses or vendors selling their services. Some of these
vendors, known as information providers,

provide recorded or live information and entertainment, such as
stock market, sport, and product information, as well as adult
services, chat lines, and psychic advice. Consumers generally call
an advertised telephone number to receive the information or
service. Some information providers have levied hidden or
deceptive charges, even recurring monthly

charges, that consumers did not know about and did not authorize.
Typically, an information provider will use the services of a
larger company, called a billing aggregator, that bundles the
billing information from many separate vendors and contracts with
telephone companies to have the charges included on consumers'
telephone bills. The format of telephone bills can make it hard
for consumers to recognize that they have been slammed or crammed,
especially when charges for these services are listed on their
bills in vague terms, such as monthly fee, service fee, mail
server, or membership. The bills may not even clearly identify the
entities charging for these services, making it difficult for
consumers to contact them directly to have the charge explained or
removed.

Consumers who are the victims of slamming or 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's office. These two

bodies may attempt to resolve the complaint informally, or they
may take formal regulatory or legal action, as authorized by state
statute, against the offending companies. In addition, consumers
can send complaints about slamming and cramming to both FCC and
FTC. Each complaint that FCC receives is sent to the

2 This type of fraud is discussed in our earlier report
Telecommunications: Telephone Slamming and Its Harmful Effects
(GAO/OSI-98-10, Apr. 21, 1998).

B-281703 Page 5 GAO/RCED-99-193 Telephone Slamming and Cramming

appropriate company. The company, in turn, sends its response to
the complaint to both FCC and the affected consumer. On the basis
of these complaints, FCC investigates patterns of slamming and
cramming and takes enforcement action when appropriate. FTC uses
the cramming complaints it receives, along with complaint data
provided by state- level sources and other contributors to its
complaint database, to take law enforcement action against
individuals and companies engaged in this abuse. FCC shares
cramming complaints with FTC, and FTC, in turn, shares slamming
complaints it receives with FCC. As discussed below, both FCC and
FTC are currently taking additional steps to strengthen their

ability to combat slamming and cramming. Increases in Slamming and
Cramming Complaints to State and Federal Authorities

As indicated in table 1, state public utilities commissions and
federal agencies reported overall increases in slamming and
cramming complaints from 1996 through 1998. The total number of
slamming complaints received at the state level rose from 20, 741
to 39,688 (a 91- percent increase), while the number of written
complaints received by FCC rose from 12,795 to 20,154 (a 57-
percent increase). 3 Although FCC saw a small decrease in slamming
complaints from 1997 through 1998, the number was still
considerably higher in 1998 than in 1996. During the same period,
the

number of cramming complaints received by state and federal
agencies increased dramatically. In 1997, public utilities
commissions in 16 states received 1,188 cramming complaints. By
the end of 1998, however, the commissions in 36 states had
received 19,543 complaints. The situation is similar at the
federal level. FCC and FTC saw cramming emerge as a major problem
in 1998, as the number of cramming complaints to both agencies
sharply increased from 1997 to 1998. In 1998, cramming became the
fourth most common cause of written complaints received by FCC and
the second most common cause of complaints received by FTC. 4

3 Nine state public utilities commissions reported that they did
not have records that tracked the complaints they received about
slamming and cramming. These states are Alaska, Arkansas,
Colorado, Delaware, Hawaii, Indiana, Louisiana, Rhode Island, and
South Carolina. 4 The data in table 1 have some important
qualifications. The complaint numbers do not equate to verified
slamming and cramming incidents, since a complaint could prove
upon investigation to be unwarranted. For example, a customer
might misinterpret a legitimate service charge and mistakenly
complain about being slammed or crammed. Furthermore, adding state
and federal complaint numbers together would result in some
double- counting because consumers can complain to both state and
federal authorities about a single slamming or cramming incident.

B-281703 Page 6 GAO/RCED-99-193 Telephone Slamming and Cramming

Table 1: Number of Telephone Slamming and Cramming Complaints
Reported to State Public Utilities Commissions, FCC, and FTC for
Calendar Years 1996- 98

a A consumer may call FCC's National Call Center with either an
inquiry or a complaint. While FCC keeps track of inquiries and
complaints received by the Call Center for trend and analytical
purposes, it did not, until recently, take action until a consumer
had submitted a written complaint, accompanied by bills and any
other supporting documentation. These FCC numbers reflect written
complaints only. b The numbers for FTC include complaints received
by mail, telephone, and the Internet. FTC also receives slamming
complaints, which it shares with FCC. Sources: State public
utilities commissions' responses to GAO's survey and data from FCC
and FTC.

The numbers in table 1 do not capture complaints about slamming
and cramming that consumers tried to resolve by dealing directly
with their telephone company without filing a complaint with state
or federal authorities. Regional Bell operating companies reported
to us that altogether they received well over 1 million unverified
complaints in 1998

about long- distance and toll- service slamming. 5 Data from two
of the companies indicated that the number of complaints was
declining. Major long- distance companies reported a far smaller
number of unverified complaints against them during 1998, though
data associated with their resellers were not always included. 6
Most of the long- distance companies indicated that the number of
unverified slamming complaints against them had increased to some
degree from 1996 to 1998. We were also able to obtain some data
from the regional Bell operating companies and two long- distance
companies on the number of cramming

Slamming Cramming Calendar years

Complaints received by state

public utilities commissions

Written complaints

received by FCC a

Complaints received by state

public utilities commissions

Written complaints

received by FCC a

Complaints received

by FTC b

1996 20,741 12,795 852 0 221 1997 25,809 20,475 1,188 0 3, 173
1998 39,688 20,154 19,543 4,558 9, 827

5 The companies we contacted consider the slamming and cramming
data provided to us to be proprietary. To protect the
confidentiality of the data, we agreed to report only cumulative
totals for all companies. The regional companies included
Ameritech, Bell Atlantic, BellSouth, SBC Telecommunications, and
US WEST. The long- distance companies included AT& T, MCI
WorldCom, and Sprint. We also obtained data from GTE. We did not
attempt to gather data from hundreds of smaller local and long-
distance service providers.

6 A reseller is a telephone service provider that does not own
transmission facilities but obtains communications services from
another telephone company for resale to the public for profit.

B-281703 Page 7 GAO/RCED-99-193 Telephone Slamming and Cramming

complaints they received in 1998. While no regional company had
cramming data that covered all of 1998, four of them reported a
combined total of under 160,000 unverified cramming complaints for
part of the year, with one company showing a steady decline in
complaints. A fifth regional company reported a substantially
higher number of unverified complaints for the last 9 months of
1998, but with a generally downward trend. Two

long- distance companies reported a combined total of fewer than
1,000 unverified complaints; the others reported having no data on
cramming complaints.

Consumer Protections Against Slamming and Cramming Both the states
and the federal government have taken action to help protect
consumers against slamming and cramming. All states reported
implementing some consumer protections against slamming, and 40
states reported having some protections against the newer problem
of cramming. Many states are also making efforts to alert
consumers to slamming and cramming and to provide guidance on
dealing with these abuses. At the federal level, FCC recently
adopted new regulations against slamming designed to take the
profit out of it. To combat cramming, FCC adopted new regulations
( Truth- in- Billing) in April 1999 that require telephone

bills to clearly identify all charges and highlight any changes in
service so that consumers can more easily spot unauthorized
charges. FTC also has proposed regulatory changes that would
address cramming by, among other things, requiring a consumer's
express authorization to charge for services other than local or
long- distance calling, enhancing the consumer's right to dispute
unauthorized charges, and imposing liability on those

engaged in cramming. State- Level Consumer Protections Against
Slamming and Cramming

All state public utilities commissions reported initiating a
variety of actions, requirements, and services designed to help
protect consumers against telephone slamming. The most widely
reported action is allowing telephone companies to offer consumers
the option of freezing their long- distance service provider often
referred to as a primary interexchange carrier (PIC) freeze. If a
consumer asks the local telephone company to place a freeze on his
or her account, the telephone service

provider may not be switched unless the consumer expressly agrees
to lift the freeze. Other protections include  requiring a
consumer's local telephone company to have an independent third
party verify the consumer's oral authorization to switch to a new
telephone service provider;

B-281703 Page 8 GAO/RCED-99-193 Telephone Slamming and Cramming

 requiring a consumer's local telephone company to obtain from a
new telephone service provider a form or letter of agency
indicating in writing that the consumer is authorizing a switch;
requiring telephone companies to provide consumers with a toll-
free complaint number;  providing a Web site, educational
brochures, and public service announcements with information on
preventing telephone slamming; and  referring complaints to FCC.
In addition, all of the state commissions had procedures in place
for handling consumers' complaints about slamming. The commissions
either resolved a complaint by contacting the consumer and/ or the
company named in the complaint or referred the complaint to the
state attorney general. In 1998, the commissions informally
resolved nearly 60 percent of

the 39, 688 slamming complaints they received by reaching a
settlement between the consumer and the telephone company, without
further investigation or administrative hearings. For example,
Maryland's Public Service Commission reported that in 1998 it
received 259 slamming complaints. The Commission resolved all of
them informally and helped consumers obtain approximately $19,000
in refunds stemming from these complaints.

Forty- one state public utilities commissions reported initiating
some actions to help prevent telephone cramming. 7 These actions
included providing consumers with educational brochures and
information on Internet sites and establishing procedures for
handling cramming complaints. Some state commissions reported that
they refer cramming complaints to FCC. In addition, a few state
commissions reported taking additional actions to increase their
ability to protect consumers against cramming. For example, during
1998, Illinois passed legislation that, in part, enhanced the
enforcement actions the Illinois Commerce

Commission can take to protect customers against cramming.
Specifically, the legislation gave the Commission the authority to
fine an offending company up to $1, 000 for each repeated and
intentional cramming violation as well as revoke the company's
certificate to provide service in the state. In addition, the
Tennessee Regulatory Authority implemented new 7 The public
utilities commissions in Alaska, Colorado, the District of
Columbia, Iowa, Kentucky, Louisiana, Nebraska, New Hampshire, New
Jersey, and New Mexico reported initiating no actions to help
prevent telephone cramming.

B-281703 Page 9 GAO/RCED-99-193 Telephone Slamming and Cramming

regulations in 1998 against cramming that require the prior
consent of an authorized individual before charges for additional
services can be placed on the individual's telephone bill. The
Authority can assess a maximum fine of $100 per day, per offense,
against a company engaging in cramming. The California Public
Utilities Commission and the Indiana Utility

Regulatory Commission also recently implemented rules detailing
the types of information required before charges for other
services can be added to a consumer's telephone bill.

Federal Consumer Protections Against Slamming and Cramming Both
FCC and FTC have undertaken rulemakings to provide greater

protection against slamming and cramming. They have also increased
their consumer education efforts and are making it easier for
consumers to file complaints about these abuses.

New Regulations Against Slamming FCC has taken several steps to
deter slamming since the advent of competition in long- distance
service during the mid- 1980s. For example, beginning in 1992, FCC
established verification procedures for

long- distance service change- orders generated by telemarketing.
When slamming persisted, FCC adopted additional rules in 1995
prohibiting the potentially deceptive and confusing practice of
combining long- distance service change authorizations ( letters
of agency) with promotional materials, such as sweepstakes entry
forms, in the same document. The

1995 rules also require that letters of agency be written in
clear, unambiguous language. The enactment of the
Telecommunications Act of 1996, which included a provision
prohibiting slamming and imposing liability on carriers engaging
in this abuse, led FCC to reexamine its rules against slamming.
Recognizing that its past actions were not sufficient to stop
slamming, FCC adopted new rules in December 1998 aimed at, among
other things, taking the profit out of slamming and ensuring that
customers do not have to pay for services that they did not
authorize. 8 The new rules have several key features. The scope of
the rules takes into

account that slamming is no longer limited to long- distance
service but can also occur with in- state toll service and local
service as these markets become open to competition. FCC therefore
explicitly extended its new rules to encompass (with limited
exceptions) all telephone companies in connection with changes in
all telecommunications services, not just 8 Implementation of the
Subscriber Carrier Selection Changes Provisions of the
Telecommunications Act of 1996, CC Docket No. 94- 129, FCC 98- 334
(rel. Dec. 22, 1998) ( Second Order).

B-281703 Page 10 GAO/RCED-99-193 Telephone Slamming and Cramming

long- distance service. The rules also tighten the methods that
telephone companies use to verify that changes have been
authorized by consumers, including eliminating the welcome
package, a verification option that

FCC has found to be ineffective. 9 In addition, the rules clarify
the method by which consumers can order a freeze on changes to
their existing telephone service in order to prevent any
unauthorized switches. These verification rules became effective
on April 27, 1999.

Another key element of the new rules governs consumers' liability
for charges made by unauthorized telephone companies. The new
rules would absolve consumers of liability for any charges imposed
by an unauthorized telephone company for up to 30 days. If a
consumer has already paid the unauthorized company for calls made
within 30 days of being slammed, the unauthorized company would
have to remit such payments to the consumer's authorized company,
which would then provide the consumer

with a refund for any amounts paid in excess of the authorized
company's rates. The unauthorized company would also pay the
authorized company for any expenses incurred in restoring the
consumer's service or collecting charges from the unauthorized
company. Unlike the verification rules, these liability rules have
not been implemented because of court action. FCC recognized that
some

telephone companies desired to establish an independent third-
party administrator, funded by participating telephone companies,
to discharge their obligations under the new rules for resolving
slamming disputes among themselves and consumers, including making
adjustments to consumers' telephone bills. FCC therefore delayed
the implementation of its new liability rules until May 17, 1999
(90 days after the Second Order was published in the Federal
Register). According to FCC, the delay was designed to give the
companies time to develop and implement a

third- party administrator mechanism and file waiver requests. On
March 30, 1999, several long- distance companies submitted a
proposal for a third- party administrator. They estimated that
they would need at least 6 months to implement the proposal after
FCC approved it and therefore asked FCC to delay the
implementation of the new liability provisions until that time. In
April, FCC asked for public comments on the proposal with a view
to reaching a decision by summer 1999 but decided not to further

9 The welcome package was an information package mailed to a
consumer after he or she agreed to change telephone companies. It
included a prepaid postcard that the consumer could use to deny,
cancel, or confirm the change order.

B-281703 Page 11 GAO/RCED-99-193 Telephone Slamming and Cramming

delay its implementation of the liability provisions. Several
long- distance companies successfully petitioned the U. S. Court
of Appeals for the District of Columbia Circuit to order a stay on
FCC's implementation of the new liability rules. The stay, granted
on May 18, 1999, is for an indefinite period. As yet, it is not
clear when this issue will be resolved.

Additional antislamming steps are being considered by FCC. In its
new rules, FCC asked for public comment on several actions that
could lead to further rulemaking, including  allowing both the
authorized telephone company and the consumer to recover any
charges the consumer paid to the unauthorized telephone

company,  registering new companies entering the
telecommunications market to determine whether they have a history
of fraudulent activities,

 assigning identifying codes to all telephone companies to make it
easier to determine which ones are committing slamming violations,
and  requiring telephone companies to report to FCC the number of

slamming complaints they receive to help FCC take quicker action
against companies with high complaint rates. When we concluded our
review in June 1999, no additional rules pertaining to these
issues had been adopted. Several companies have filed petitions
with FCC to reconsider the Second Order.

New Regulations Against Cramming New federal actions to combat
cramming are being taken by both FCC and FTC. According to FCC,
over 60,000 consumers made inquiries at the

agency in 1998 about the confusing format of their telephone
bills. FCC believes that this confusion is contributing to the
rise in cramming because consumers are having difficulty detecting
unauthorized charges. On April 15, 1999, FCC adopted its Truth-
in- Billing order, which establishes principles and guidelines to
make telephone bills easier for customers to understand. 10 The
new rules, which FTC commented on and supports, require that
telephone bills (1) clearly identify who is responsible for each
charge, (2) contain full and nonmisleading descriptions of the
services

being billed, and (3) provide telephone numbers for consumers to
call for more information about specific charges on their bills.
In addition, any changes in the telephone service provider whether
local or long- distance must be highlighted, along with the name
of the new 10 Truth- in- Billing and Billing Format, CC Docket No.
98- 170, FCC 99- 72 (rel. May 11, 1999).

B-281703 Page 12 GAO/RCED-99-193 Telephone Slamming and Cramming

company, when this information first appears on the bill. These
changes should also make it easier for consumers to detect
slamming, since a change in the telephone service provider would
also be highlighted on the bill. FTC is proposing direct action to
combat cramming. Under the proposed revision to its Pay- per- Call
rule, FTC has suggested a fourfold approach to the problem of
cramming. 11 First, a consumer's express authorization generally
would be required for purchases unrelated to local or long-
distance telephone service that are billed to the consumer's
telephone account. Second, a vendor would be prohibited from
placing monthly or

other recurring charges for pay- per- call service on a telephone
bill without prior agreement with the customer billed for the
service. Third, consumers would have the legal right to dispute
unauthorized charges crammed onto their telephone bills and to
have these charges removed. Finally, dispute resolution
protections would be provided for all transactions that resulted
in the placement of nontoll charges on a customer's telephone
bill. Violators would be liable for civil penalties, currently
$11,000 per violation. FTC officials expect to issue a final rule
before the end of 1999.

Complaint Reporting and Education Initiatives

FCC and FTC are augmenting their regulatory efforts with expanded
consumer outreach and education, which they believe are key
elements in combating slamming and cramming. FCC is making it
easier for consumers to submit complaints about slamming and
cramming. In the past, FCC required consumers to submit complaints
in writing before it took action on them. Since January 1999,
consumers have been able to file complaints electronically via
FCC's Internet Web site. And in June 1999, operators at FCC's
National Call Center started taking consumers' complaints over the

telephone and electronically submitting them for action directly
to FCC's Common Carrier Bureau. In response to each complaint, the
Bureau electronically issues an Official Notice of Informal
Complaint to all companies identified in the complaint. 12 A
served company has 30 days to 11 Under the authority of the
Telephone Disclosure and Dispute Resolution Act of 1992, FTC
adopted its Pay- per- Call rule to curtail the unfair and
deceptive practices engaged in by some pay- per- call businesses.
16 C. F. R. part 308. At that time, pay- per- call services were
generally provided via 900

numbers that were billed directly to a consumer's local telephone
company. Since then, telephone- billed purchases have expanded
beyond simply 900 numbers. The Telecommunications Act of 1996
authorized FTC, through its rule, to extend the definition of the
term pay- per- call service. On Oct. 30, 1998, FTC published a
notice of proposed rulemaking to revise the rule. 63 Fed. Reg.
58524. Part of this revision focuses on cramming. 12 The issuance
of a notice of informal complaint does not necessarily indicate
wrongdoing by the served company.

B-281703 Page 13 GAO/RCED-99-193 Telephone Slamming and Cramming

respond to FCC. FCC is also automating some of its old manual
processes for handling consumers' complaints in order to shorten
its response time. With the help of this new system and additional
staff, FCC hopes that its April 1999 backlog of 10,733 written
complaints about slamming will be eliminated by the end of this
year. In addition, FCC is bolstering its

customer education efforts by making information on slamming and
cramming available on its public Internet Web site. FCC is also
proposing to establish a centralized Public Information Bureau to
be more responsive to consumers' concerns and requests for
information. FTC has expanded its efforts to educate consumers
about telephone billing abuses by creating a Web page on cramming
and has formed a telecommunications working group to develop
consumer education publications. These materials emphasize that a
consumer does not owe for unauthorized (crammed) services just
because the call for the service may have been placed from his or
her home. In 1999, FTC added a toll- free number for consumers to
call with complaints about cramming and other abuses and to obtain
information on how to avoid such problems. FTC's database system,
called the Consumer Sentinel, also contains details on over
180,000 complaints from consumers on all topics, including
complaint data provided by sources such as Better Business
bureaus, state attorneys

general, the National Fraud Information Center, Phone Busters, and
private companies. FTC uses the database to develop enforcement
strategies against companies engaged in abusive trade practices,
including cramming. 13

State and Federal Enforcement Actions Against Slamming and
Cramming Both state and federal enforcement actions against
companies engaged in slamming and cramming have resulted in
financial penalties, restitution, and discontinued operations. At
both the state and federal levels, the bulk of actions from 1996
through 1998 were for slamming violations.

State Enforcement Actions As a whole, the states have successfully
completed a large number of enforcement actions against slamming
and cramming that have resulted in substantial fines and other
penalties. For 1996 through 1998, the public 13 Over 170 law
enforcement agencies in the United States and Canada also have
access to this database to assist them in their own consumer
protection efforts.

B-281703 Page 14 GAO/RCED-99-193 Telephone Slamming and Cramming

utilities commissions and offices of attorney general in 35 states
reported completing a total of 219 enforcement actions against
companies that engaged in slamming or cramming. 14 In each of
these cases, the public utilities commission and/ or office of
attorney general participated in a

formal hearing against the company that resulted in a final
disposition or resolution of the case. Appendix I provides more
detailed information about each state's completed enforcement
actions. Of the 219 completed state enforcement actions, 194 were
against companies or individuals involved in slamming, while 25
were against companies or individuals involved in cramming. In
most of these actions, the company or individual was ordered to
resolve the complaint by providing the consumer with some
restitution, paying a penalty, or providing an assurance that the
slamming or cramming would stop. In 30 of the 219 enforcement
actions, the state public utilities commission and/ or attorney
general issued a cease- and- desist order or suspended or revoked

the company's authority to do business in the state. As shown in
table 2, the states ordered companies to pay at least $13.4
million in customer restitution 15 and $14.1 million in penalties
and fines. 16 These completed enforcement actions affected at
least 397,765 consumers. These totals, however, understate the
actual outcomes of these actions

because the state public utilities commissions and attorneys
general did not always include in their survey responses the
number of consumers affected or the amount of customer restitution
and penalties involved. 14 Oregon's Office of Attorney General
reported completing one enforcement action that involved both
slamming and cramming violations. For the purpose of this report,
this enforcement action was counted as a slamming violation. 15
Customer restitution can include a complete or partial refund of a
consumer's long- distance charges and of the fees charged to
switch the consumer back to his or her authorized long- distance
provider. 16 Penalties and fines include charges to cover the
costs of court proceedings and investigations. In some cases, the
penalties and fines were used to cover the costs of consumer
education campaigns.

B-281703 Page 15 GAO/RCED-99-193 Telephone Slamming and Cramming

Table 2: Completed Enforcement Actions Taken by State Public
Utilities Commissions and State Attorneys General fo rSlamming and
Cramming Violations, 1996- 98

a The survey responses did not include the number of customers
affected in 86 of the 219 reported enforcement actions. b The
survey responses did not include the amount of customer
restitution ordered to be paid in 77 of the 219 reported
enforcement actions. c The survey responses did not include the
amount of penalties ordered to be paid in 34 of the 219

reported enforcement actions. Sources: State public utilities
commissions' responses to GAO's survey and responses of state
attorneys general to a survey from the National Association of
Attorneys General.

Fourteen state public utilities commissions reported initiating a
substantial number of enforcement actions during calendar years
1996 through 1998 that had not been finalized as of early 1999. 17
Specifically, over 3,900 enforcement actions were initiated
against companies or individuals engaged in slamming or cramming.
The state attorneys general were not asked to provide information
on pending enforcement actions. The

attorneys general in 10 states, however, reported that 20 slamming
and 17 cramming enforcement actions were pending resolution. 18

Public utilities commissions Attorneys general Slamming Cramming
Slamming Cramming

Number of completed enforcement actions reported

99 6 95 19 Number of customers affected a 345,420 30,003 10,216
12, 126

Amount of penalties and fines b $7,324,987 $1,016,000 $4,932,587
$827, 350

Amount of customer restitution c $5,625,564 $500,808 $6,045,511
$1,192, 400

17 The state public utilities commissions in Alabama, Connecticut,
Florida, Georgia, Louisiana, Maine, Mississippi, Missouri, New
York, Pennsylvania, Tennessee, Texas, Vermont, and West Virginia
reported the pending enforcement actions. 18 The state attorneys
general in Arkansas, Arizona, Connecticut, Illinois, Missouri, New
Jersey, Ohio, Pennsylvania, Vermont, and Wisconsin reported the
pending enforcement actions. Illinois' Office of Attorney General
reported the largest number of enforcement actions pending
resolution 11

slamming actions and 10 cramming actions.

B-281703 Page 16 GAO/RCED-99-193 Telephone Slamming and Cramming

Federal Enforcement Actions FCC and FTC operate under different
statutory schemes and generally have

different remedies available. 19 However, both of these agencies
maintain that strong enforcement actions are necessary to send a
clear message to the industry that slamming and cramming will not
be tolerated. As a regulatory agency, FCC has several tools for
achieving its enforcement goals. These include administrative
remedies, such as revoking a

company's operating authority, issuing a cease and desist order,
and assessing a civil monetary penalty (forfeiture). As a law
enforcement agency, FTC pursues cramming in federal district
courts, seeking temporary and permanent injunctive relief, and,
ultimately, restitution to affected customers. FTC can also take
administrative enforcement action, such as convening a trial
before an administrative law judge. From its first slamming
enforcement action in 1994 through the end of 1998, FCC took 23
enforcement actions against slamming, resulting in a

total of $17.1 million in proposed forfeitures. 20 As of June
1999, FCC had collected $2.6 million of the proposed forfeitures
in 12 of these actions. Companies in four actions filed for
bankruptcy, and five others are now in settlement negotiations
with FCC. Settlement agreements generally include both a payment
and consumer protections. In addition, in 1996 and 1997, FCC took
two actions against one individual, Daniel Fletcher, for $5.8

million in forfeitures for slamming activities by eight of the
companies that he apparently owned and operated. When he did not
pay the $5.8 million in forfeitures, FCC in 1998 referred the
cases against him to the Department

of Justice for collection under the Communications Act. FCC also
revoked the operating authority of the eight companies to ensure
that none of them could resume operations and once again engage in
slamming. Appendix II provides additional details on all 23 FCC
actions.

19 Under the Communications Act of 1934, as amended, FCC has
explicit statutory authority over slamming and general authority
to prohibit carriers that provide interstate services (telephone
companies) from engaging in unjust and unreasonable practices,
such as cramming. 47 U. S. C. 258; 47

U. S. C. 201( b). FTC, under the Federal Trade Commission Act, as
amended, has the authority to pursue law enforcement actions
against unfair and deceptive acts or practices. 15 U. S. C. 45(
a). Common carriers (telephone companies) subject to the
Communications Act of 1934, as amended, are exempt

from FTC's statutory mandate under the Federal Trade Commission
Act. 15 U. S. C. 45( a)( 2). FTC has taken the position that the
statutory common- carrier exemption does not shield the non-
common- carrier activities of an entity that may otherwise engage
in some common- carrier activities under another statute.

20 One of these actions, against Long Distance Direct, Inc., was
for both slamming and cramming violations.

B-281703 Page 17 GAO/RCED-99-193 Telephone Slamming and Cramming

According to FCC officials, prior to 1998, FCC's enforcement
actions initiated against companies with slamming violations
usually resulted in assessments of $80,000 or less. And most of
these actions resulted in even smaller settlement amounts. Two
exceptions were actions against Cherry Communications and Operator
Communications, taken in 1994 and 1995, respectively; both
companies paid $500,000 each. During 1998, FCC consistently
assessed amounts greater than $1 million for slamming violations.
The five actions that it initiated in 1998 resulted in $7, 920,000
in proposed forfeitures. FCC officials stated that the forfeiture
amounts were increased in 1998 so that companies would not view
them simply as a cost of doing business. The officials noted that
although companies paid smaller forfeitures in the past, they did
not necessarily change their

business practices to conform to FCC's regulations. FCC's goal in
imposing the higher amounts is to send a message to the industry
that slamming will not be tolerated. It is not yet clear how much
of the higher forfeitures will ultimately be paid. As of May 1999,
none of the companies involved in the 1998 enforcement actions had
settled with FCC or made any payments.

In addition, the FCC Chairman has proposed consolidating the
agency's enforcement functions into an enforcement bureau.
According to FCC, a centralized bureau would be more efficient in
conducting investigations and enforcement actions in light of the
proliferation in the types and number of telecommunications
services. FCC hopes to have the new bureau operational in fiscal
year 2000.

As a result of FTC's efforts to combat cramming, seven cases have
been brought to court since April 1998. 21 These cases involve 36
defendants (16 companies and 20 individuals), including billing
aggregators and vendors. In six cases, FTC has sought and
successfully obtained preliminary or permanent injunctions and
temporary restraining orders to stop these companies' cramming
activities. In addition, FTC is seeking restitution for the
unauthorized charges that these companies collected from
consumers. According to FTC officials, these unauthorized charges
range from $4. 7 million in one case to almost $40 million in
another case. Of the seven cases brought to district court, one
has resulted in approximately $13 million in consumer restitution
and compliance provisions, including a 3- year record- keeping
requirement for 21 FTC's report Fighting Consumer Fraud: The Case
Against Cramming (June 1999) discusses FTC's enforcement actions
against cramming in detail.

B-281703 Page 18 GAO/RCED-99-193 Telephone Slamming and Cramming

the company. The parties in another case have agreed to $39.7
million in consumer restitution and changes in their business
practices. The other five cases were still in various stages of
discovery and negotiation as of June 1999. Additional details on
these cases are found in appendix II.

Officials at both FCC and FTC told us that they have several
additional investigations in progress, including one joint
investigation. They expect to take more enforcement actions
against slamming and cramming before the

end of this year. Companies With the Highest Number of State and
Federal Enforcement Actions

Several companies listed in appendix II have been the subject of
enforcement actions by several states and the federal government.
Table 3 lists 14 companies that have been subject to four or more
state enforcement actions for slamming. 22 Eight of these 14
companies have also been subject to enforcement actions by FCC.

22 These state enforcement actions include reported actions that
have both been resolved and are pending final resolution.

B-281703 Page 19 GAO/RCED-99-193 Telephone Slamming and Cramming

Table 3: Companies Subject to the Highest Number of State a
ndFederal Enforcement Actions for Slamming, Calen d arYears 1996-
98

a No federal action taken.

Name of company States that took action Total number

of consumers affected at the state level

Total restitution and penalties

ordered by states

Federal agency that

took action Total federal

forfeitures/ payments

made by company

Minimum Rate Pricing, Inc. 22 states: AL, AR, AZ, GA, IA, ID, KS,
MI, MN, MS, NC, NJ, NY, OH, OR, PA, RI, SC, VA, VT, WA, WI 1, 202
$812,802 FCC $1.2 million

Business Discount Plan, Inc. 16 states: AL, AR,

CT, FL, GA, ID, IL, MO, MS, NC, NJ, NY, OK, OR, PA, VT

1, 354 $283,040 FCC $2.4 million b EqualNet Corp. 11 states: AR,
AZ, CA, ID, KS, MI, NC,

NJ, OR, TN, WI 1, 596 $210,816 a a

Heartline Communications, Inc. 8 states: AZ, CA, FL, IL, LA, NJ,
NY, TN, TX

32, 696 $1,087,500 FCC $200,000 c National Accounts, Inc. 7
states: ID, IL, KS, MI, NJ, TN, WI 61 $429,000 a a MCI 7 states:
FL, NC, NY, OR, SD, TX, VT 754 $1,727,872 FCC $30,000 Winstar
Gateway Network, Inc. 6 states: CA, ID, IL,

NJ, TN, WI 13, 030 $148,000 FCC $80,000 AT& T 6 states: CT, FL,
NC, NY, OK, TX 1, 004 $331,510 FCC $30,000

Least Cost Routing, Inc. 5 states: FL, ID, IL, LA, OR 252 $235,000
a a Long Distance Services, Inc. 5 states: AL, FL, GA, MI, NY 1,
435 $16,000 FCC $80, 000 b

The Furst Group, Inc. 5 states: CA, FL, KS, NJ, OR 197 $152,500 a
a Axces, Inc. 4 states: IL, MO, OK,

TX 88 $115,500 a a Communications Telesystems International, Inc.

4 states: AZ, IL, NM, TX 208 $1,997,281 a a Phone Calls, Inc. 4
states: FL, LA, NY, SC 665 $861,000 FCC $1,793,900 b, d

(notes continued) )

B-281703 Page 20 GAO/RCED-99-193 Telephone Slamming and Cramming

b This is a proposed forfeiture amount. c FCC is planning to
rescind this forfeiture because Heartline filed Chapter 7
bankruptcy before reaching an agreement with FCC. d FCC proposed
this forfeiture amount against Phone Calls as part of the
enforcement action it took against eight companies owned by Daniel
Fletcher.

Sources: Surveys of state public utilities commissions and state
attorneys general and data from FCC.

As for cramming, the survey results indicated that two companies,
Veterans of America Association, Ltd., and Coral Communications,
Inc., were the subject of enforcement actions for cramming by four
or more states during calendar years 1996 through 1998. The states
that took actions against these companies were Florida, Idaho,
Illinois, Missouri, New Jersey, New York, Oregon, and
Pennsylvania. These actions affected 136 customers and resulted in
$106,600 in restitution and penalties. FTC also took action
against Veterans of America Association, Ltd., and is currently
seeking $4.7 million in customer restitution. Both FCC and FTC
officials told us that they are working with their state
counterparts to efficiently combat slamming and cramming. To
achieve this goal, the two agencies share complaint data with each
other and the states. FCC and the National Association of
Regulatory Utility

Commissioners are also working to coordinate their enforcement
actions and jointly disseminate educational materials on
telecommunications issues affecting consumers. Both FCC and FTC
officials told us that they regularly participate in conference
calls with representatives of the state

public utilities commissions and offices of attorney general,
respectively, to discuss telecommunications issues, including
slamming and cramming. FCC and FTC officials also told us that
they are working with members of the telecommunications industry
to curb these abuses. For example, in May 1998, FCC sponsored a
workshop, attended by representatives of the telephone industry,
to develop a set of guidelines on best practices in

combating cramming that individual companies could implement
independently. These best practices cover issues such as screening
products and service providers to identify programs that may be
deceptive or misleading, establishing procedures for verifying
that charges have been authorized by the consumer, and
establishing a dispute resolution process. Several major local and
long- distance telephone companies provided us with examples of
actions they are taking to curb slamming and cramming, which are
listed in appendix III. In addition, FTC has sponsored public
workshops with telecommunications representatives, consumer
groups, FCC officials, the National Association of Attorneys
General, and others to address cramming and provide additional
consumer education.

B-281703 Page 21 GAO/RCED-99-193 Telephone Slamming and Cramming

Scope and Methodology

To determine the states' actions to combat telephone slamming and
cramming, we administered a survey to the public utilities
commissions in the 50 states and the District of Columbia. This
survey collected

information on the types of consumer protections offered by the
states, the number of slamming and cramming complaints received,
and details on each of the formal enforcement actions taken by the
commissions from 1996 through 1998. The National Association of
Attorneys General

collected similar information about formal enforcement actions
taken by each state's attorney general. We assisted in collecting
this information. In addition, we reviewed relevant FCC and FTC
documents and met with officials of these agencies to discuss
their efforts in developing regulations to combat slamming and
cramming and their enforcement actions against those engaging in
these abuses. We also contacted regional Bell operating companies
and major long- distance companies for data on slamming and
cramming complaints and descriptions of their initiatives to curb
slamming and cramming. We performed our review from December 1998
through June 1999 in accordance with generally accepted government
auditing standards.

Agency Comments We provided a draft of this report to the Federal
Communications Commission and the Federal Trade Commission for
their comment and subsequently met with officials from FCC's
Enforcement Bureau and FTC's Bureau of Consumer Protection. Both
agencies concurred with our

findings and provided several points of clarification, which we
have incorporated into our final report.

As agreed with your office, unless you publicly announce the
contents of this report earlier, we plan no further distribution
until 30 days after the date of this letter. We will then send
copies 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.

B-281703 Page 22 GAO/RCED-99-193 Telephone Slamming and Cramming

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

Sincerely yours, Judy A. England- Joseph Director, Housing and
Community

Development Issues

Page 23 GAO/RCED-99-193 Telephone Slamming and Cramming

Page 24 GAO/RCED-99-193 Telephone Slamming and Cramming

Contents Letter 1 Appendix I Completed Enforcement Actions
Reported by the States, Calendar Years 1996- 98

26 Appendix II Federal Enforcement Actions Against Slamming and
Cramming

29 FCC's Enforcement Actions 29 FTC's Enforcement Actions 32

Appendix III Telephone Company Initiatives to Curb Slamming and
Cramming

36 Examples of Antislamming Initiatives 36 Examples of
Anticramming Initiatives 36

Appendix IV GAO Contact and Staff Acknowledgements

38 Tables Table 1: Number of Telephone Slamming and Cramming

Complaints Reported to State Public Utilities Commissions, FCC,
and FTC for Calendar Years 1996- 98 6 Table 2: Completed
Enforcement Actions Taken by State Public

Utilities Commissions and State Attorneys General for Slamming and
Cramming Violations, 1996- 98 15

Contents Page 25 GAO/RCED-99-193 Telephone Slamming and Cramming

Table 3: Companies Subject to the Highest Number of State and
Federal Enforcement Actions for Slamming, Calendar Years 1996- 98
19 Table I. 1: Completed Enforcement Actions Reported by State

Public Utilities Commissions and Offices of Attorney General for
Telephone Slamming and Cramming, Calendar Years 1996- 98 27 Table
II. 1: FCC's Enforcement Actions for Slamming Violations,

as of June 1999 30 Table II. 2: FTC's Publicly Filed Cramming
Cases, as of June 1999 34

Abbreviations

DOJ Department of Justice FCC Federal Communications Commission
FTC Federal Trade Commission NAL notice of apparent liability PIC
primary interexchange carrier TDDRA Telephone Disclosure and
Dispute Resolution

Page 26 GAO/RCED-99-193 Telephone Slamming and Cramming

Appendix I Completed Enforcement Actions Reported by the States,
Calendar Years 1996- 98 Appendi x I

All of the public utilities commissions and offices of attorney
general in the 50 states and the District of Columbia responded to
our request for detailed information on the number of slamming and
cramming enforcement actions that had reached a final resolution
for calendar years 1996- 98. This information included the number
of consumers affected by the enforcement actions as well as the
amount of customer restitution and penalties ordered to be paid.
In some cases, the survey respondents were unable to provide all
of the information. Table I provides a summary of the information
provided on a state- by- state basis. In the table's column
headings, slamming is designated with an S and cramming with a C.

Appendix I Completed Enforcement Actions Reported by the States,
Calendar Years 1996- 98

Page 27 GAO/RCED-99-193 Telephone Slamming and Cramming

Table I. 1: Completed Enforcement Actions Reported by State Public
Utilities Commissions and Offices of Attorney Genera lfor
Telephone Slamming and Cramming, Calendar Years 1996- 98 State

Number of completed enforcement actions Number of customers
affected Total amount of customer restitution reported Total
amount of penalties reported S C S C S C S C

Alabama 6 a 1,705 c $57,450 d Alaska a a Arizona 5 a 330 $402, 306
c 303,058 d Arkansas 4 a 7,190 205,631 California 19 2 336, 123 b
30,000 b 8,078, 426 c $650,000 5,205,442 $25,000 Colorado a a
Connecticut 1 a 5 c 50,000 Delaware a a District of Columbia a a
Florida 23 3 2,552 2 18,694 579 2,056,000 21,000 Georgia 4 1 408 b
c Hawaii a a Idaho 7 1 285 b 5 c c 362, 000 d 1,500 Illinois 7 1
566 57 c 5,000 365, 000 d 20,000 Indiana a a Iowa 1 a 98 c 52, 631
d Kansas 9 a 192 c 191, 058 d Kentucky 2 1 1 817 4,000 2, 000
Louisiana 6 a b 93,500 Maine a a Maryland a a Massachusetts a a
Michigan 4 a 94 c 128, 058 d Minnesota 4 a 7,906 195,633 c 432,000
Mississippi 1 a b 50,000 Missouri 1 2 b b c c d d Montana a a
Nebraska a a Nevada a a New Hampshire a a

Appendix I Completed Enforcement Actions Reported by the States,
Calendar Years 1996- 98

Page 28 GAO/RCED-99-193 Telephone Slamming and Cramming

a No completed enforcement actions were reported. b The number of
customers affected was not provided in at least one of the
reported actions. c Restitution was ordered to be paid in at least
one of the reported actions, but the specific amount was not
provided. d A penalty was ordered to be paid in at least one of
the reported actions, but the specific amount was not provided.

Sources: Responses of state public utilities commissions to GAO's
survey and of state offices of attorney general to a survey by the
National Association of Attorneys General.

State Number of completed enforcement actions Number of customers

affected Total amount of customer restitution reported Total
amount of penalties reported S C S C S C S C

New Jersey 7 a b c $535, 927 d New Mexico 1 a b $308,140 95,000
New York 17 3 3, 600 172 300,000 c $67,000 c 116, 350 d $129,000
North Carolina 11 1 110 b b c c 53, 167 d 273,000 North Dakota a a
Ohio 2 a b c 57, 631 d Oklahoma 6 a 19 34,000 Oregon 14 3 b b
185,500 14,350 Pennsylvania 3 2 94 b b c c 117, 600 d 1,002,500
Rhode Island 1 1 23 14 723 400 52,631 35,000 South Carolina 3 a
168 South Dakota 4 1 1,056 1 63,444 229 Tennessee 3 1 7 b 11,878 c
c 95, 427 d 280,000 Texas 8 a 129 b 1,000,000 883,000 Utah a a
Vermont 2 a 50 b 1,292,400 c 185,000 Virginia 1 1 b b c 435,000
52, 631 d 15,000 Washington 1 a 115 52,632 West Virginia 1 a b
3,302 39,248 Wisconsin 5 1 b b c 40,000 146,000 25,000 Wyoming a a

Total 194 25 355,636 42,129 $11,671,075 $1, 693,208 $12,257,572
$1,843,350

Page 29 GAO/RCED-99-193 Telephone Slamming and Cramming

Appendix II Federal Enforcement Actions Against Slamming and
Cramming Appe ndi x I I

This appendix contains information on 23 enforcement actions taken
by the Federal Communications Commission (FCC) against companies
for slamming violations and 7 court cases filed by the Federal
Trade Commission (FTC) against companies and individuals for
cramming violations.

FCC's Enforcement Actions

FCC relies on several enforcement mechanisms to deal with slamming
and cramming by some telephone companies. Civil monetary penalties
(forfeitures) are used to cause offending companies to change
their business practices. In 1998, FCC began consistently
proposing higher penalties so that companies could not treat them
simply as a cost of doing business. Often, after FCC issues a
proposed forfeiture through a notice of apparent liability (NAL)
the telephone company will offer to discuss a settlement. If a
settlement can be reached, FCC will enter into a consent decree
with the company that generally includes a voluntary payment to
the U. S. Treasury and consumer protections. In two slamming
cases, FCC entered into a consent decree before issuing an NAL.
When a settlement

cannot be reached and a payment is not made, FCC will issue a
final forfeiture order canceling or reducing the penalty or
requiring that it be paid. If a payment is not made after this
order is issued, collection is turned over to the Department of
Justice (DOJ). 1

FCC can also revoke a company's or an individual's operating
authority, as it did this with several companies engaged in
slamming that were apparently owned and operated by an individual
named Daniel Fletcher. Table II. 1 provides details on all of the
enforcement actions that FCC took against specific companies for
slamming violations from its first such action in 1994 through
1998.

1 DOJ's collection action will not involve a review of the
validity and appropriateness of the final FCC order if the
forfeiture was assessed after a full evidentiary hearing.

Appendix II Federal Enforcement Actions Against Slamming and
Cramming

Page 30 GAO/RCED-99-193 Telephone Slamming and Cramming

Table II. 1: FCC's Enforcement Actions for Slamming Violations, as
of June 1999 Company Date of action

Amount of proposed

forfeiture Resolution Current status

1. Cherry Communications, Inc. Investigation began in 1/ 93.

Consent decree adopted 4/ 15/ 94.

a $500,000 payment; changes in business practices.

Payment of $500,000; case is closed. 2. Operator Communications,
Inc., doing business as Oncor Communications, Inc.

NAL adopted 3/ 29/ 95. Consent decree adopted 9/ 20/ 95.

$1, 410,000 $500,000 payment; changes in business practices.

Payment of $500,000; case is closed. 3. Excel Telecommunications,
Inc. NAL adopted 8/ 18/ 95.

Notice of forfeiture adopted 6/ 20/ 96. $80,000 FCC denied Excel's
9/ 6/ 95 petition for reduction of forfeiture amount.

Forfeiture of $80, 000 paid.

4. Interstate Savings, Inc. d/ b/ a ISI Telecommunications NAL
adopted 8/ 18/ 95.

Order to rescind NAL adopted 3/ 10/ 97.

$40,000 FCC rescinded enforcement action after company filed for
bankruptcy.

Closed. 5. LCI International Worldwide Telecommunications (LCI)
NAL adopted 9/ 15/ 95.

Consent decree adopted 8/ 22/ 97.

$40,000 $15,000 payment; changes in business practices. $15,000
paid 8/ 97.

6. TELCAM, Telecommunications Company of the Americas, Inc. NAL
adopted 10/ 6/ 95.

Consent decree adopted 2/ 13/ 98.

$40,000 $15,000 payment; changes in business practices. $15,000
paid 2/ 98.

7. Matrix Telecom, Inc. NAL adopted 12/ 4/ 95. Consent decree
adopted 12/ 12/ 96.

$40,000 $30,000 payment; changes in business practices. $30,000
paid 12/ 96.

8. MCI Telecommunications Corp. NAL adopted 1/ 19/ 96. Consent
decree adopted 5/ 24/ 96. $80,000 $30,000 payment; changes

in business practices. $30,000 paid 6/ 96. 9. Home Owners Long
Distance, Inc. (HOLD) NAL adopted 1/ 19/ 96.

Consent decree adopted 3/ 20/ 97.

$80,000 $30,000 payment; changes in business practices. $30,000
paid 3/ 97.

10. AT& T Corporation NAL adopted 1/ 19/ 96. Consent decree
adopted 11/ 27/ 96.

$40,000 $30,000 payment; changes in marketing and business
practices.

$30,000 paid 12/ 96.

Appendix II Federal Enforcement Actions Against Slamming and
Cramming

Page 31 GAO/RCED-99-193 Telephone Slamming and Cramming

Company Date of action Amount of

proposed forfeiture Resolution Current status

11. Nationwide Long Distance, Inc. NAL adopted 1/ 19/ 96. Consent
decree adopted 1/ 2/ 97.

$80,000 $30,000 payment; changes in business practices. Payment
referred to DOJ

for collection; company is in Chapter 7 bankruptcy. 12. Target
Telecom, Inc. NAL adopted 1/ 19/ 96.

Order of forfeiture adopted 2/ 24/ 98. $40,000 FCC denied Target's
response that forfeiture

should not be imposed or amount should be reduced. $40,000 paid 2/
98.

13. Winstar Gateway Network, Inc. Investigation initiated in June
1996. Consent decree adopted 11/ 27/ 96.

a $80,000 payment; changes in business practices and consumer
redress.

$80,000 paid 12/ 96. 14. Heartline Communications, Inc. NAL
adopted 6/ 20/ 96. $200,000 FCC is rescinding

because Heartline filed Chapter 7 bankruptcy before reaching an
agreement with FCC.

15. Long Distance Services, Inc. (LDS, Inc.) NAL adopted 12/ 12/
96. Order of forfeiture adopted 2/ 24/ 98.

$80,000 FCC denied LDS' petition for a reduction of the
forfeiture. Referred to DOJ for forfeiture payment as a

Chapter 11 bankruptcy case.

16. Long Distance Services, Inc. (LDSI) (A Fletcher company)

NAL adopted 12/ 12/ 96. Order of forfeiture adopted 5/ 7/ 97.

$80,000 LDSI never responded to this enforcement action. Referred
to DOJ for collection. 17. CCN, Inc.; Church Discount Group, Inc.;
Discount Calling Card, Inc.; Donation Long Distance, Inc.; Long
Distance Services, Inc.; Monthly Discounts, Inc.; Monthly Phone
Services, Inc.; and Phone Calls, Inc. (aka Fletcher Companies)

Order to show cause and notice of opportunity for hearing to
determine revocation of operating

authority adopted 6/ 12/ 97. Order to revoke operating authority
adopted 4/ 21/ 98.

$5, 681,500 (total for all

eight companies).

Fletcher never responded to this enforcement action. Referred to
DOJ for collection.

18. Minimum Rate Pricing, Inc. (MRP) NAL adopted 10/ 31/ 97.
Consent decree adopted 12/ 16/ 98.

$80,000 initially; increased to

$1. 2 million as result of

other slamming

violations .

$1.2 million payment; changes in business practices.

MRP is currently paying $1. 2 million in installments.

Appendix II Federal Enforcement Actions Against Slamming and
Cramming

Page 32 GAO/RCED-99-193 Telephone Slamming and Cramming

a FCC did not issue NALs for these companies. Instead, FCC
directly entered into consent decree negotiations with these
companies. b The NAL for Long Distance Direct, Inc., was also for
cramming violations. All other NALs were only for

slamming violations. Source: FCC. FTC's Enforcement

Actions FTC protects consumers by taking law enforcement actions
against unfair or deceptive acts or practices. 2 According toFTC
officials, the Telephone Disclosure and Dispute Resolution Act
(TDDRA) of 1992, as amended, gives FTC the authority to regulate
all telephone- billed purchases that are distinct from charges for
the transmission of local or long- distance

telephone calls. 3 FTC seeks and obtains temporary restraining
orders, preliminary injunctions, permanent injunctions, and other
equitable relief, Company Date of action Amount of

proposed forfeiture Resolution Current status

19. All American Telephone Company, Inc. (AAT) NAL adopted 7/ 6/
98. $1, 040,000 Company has filed a

response with FCC; resolution not yet determined.

Open. U. S. Attorney's Office has asked FCC to stay its
proceedings. With FCC's cooperation, federal search warrants were
issued to AAT. 20. Amer- I- Net Services Corporation NAL adopted
10/ 26/ 98. $1,360,000 Company has filed

response with FCC; settlement currently under discussion. Open.

21. Brittan Communications International Corp. NAL adopted 10/ 29/
98. $1,120,000 Company has filed

response with FCC; resolution not yet determined.

Open. 22. Business Discount Plan, Inc. (BDP) Prior to 1/ 95, was
knownas Trans National Telephone, Inc. (incorp. in 8/ 92).

NAL adopted 12/ 16/ 98. $2,400,000 Company has filed response with
FCC; resolution not yet

determined. Open.

23. Long Distance Direct, Inc. (LDDI) (A subsidiary of Long
Distance Direct Holdings)

NAL adopted 12/ 16/ 98. b $2, 000,000 LDDI has filed a response;
settlement currently under discussion. Open.

2 Common carriers (i. e., telephone companies) subject to the
Communications Act of 1934, as amended, are exempt from FTC's
statutory mandate under the Federal Trade Commission Act. 15 U. S.
C. 45( a)( 2). FTC has taken the position that the statutory
common- carrier exemption does not shield the non- common- carrier
activities of an entity that may otherwise engage in some common-
carrier activities under another statute.

Appendix II Federal Enforcement Actions Against Slamming and
Cramming

Page 33 GAO/RCED-99-193 Telephone Slamming and Cramming

such as the appointment of receivers, to halt unfair or deceptive
practices and to reserve the offending companies' assets for
consumer restitution.

Between April 1998 and June 1999, FTC filed seven cases against 16
companies and 20 individuals for cramming violations. In some
instances, FTC entered into court- approved settlements with the
company. Table II. 2

provides details on the publicly filed enforcement actions that
FTC took during this period. 3 Under TDDRA, the term telephone-
billed purchase includes any purchase that is completed solely as
a consequence of the completion of a telephone call, or subsequent
dialing or comparable action of the caller. The term specifically
excludes all local exchange or interexchange telephone service.

Appendix II Federal Enforcement Actions Against Slamming and
Cramming

Page 34 GAO/RCED-99-193 Telephone Slamming and Cramming

Table II. 2: FTC's Publicly Filed Cramming Cases, as of June 1999
Company Date of action Amount of suspect billing Status Comment/
additional information

Interactive Audiotext Services, Inc. Includes American Billing and
Collection Services; U. S. Interstate Distributing, Inc.; Allstate
Communications (parent company).

4/ 22/ 98, in U. S. District Court for the Central District of
California; amended filing on 5/ 28/ 98.

$13 million Permanent injunction; $13 million in restitution to
consumers.

Settlement entered as final order; redress phase under way and
changes required in business practices.

International Telemedia Associates, Inc. (ITA); and Online
Consulting Group (vendor for ITA). 7/ 10/ 98, in U. S. District
Court for the Northern

District of Georgia. $17.1 million Temporary restraining order
with freezing of Online's assets and

preliminary injunction; receiver appointed to manage Online.
Trustee appointed for ITA

by a bankruptcy court; ITA closed down and its business affairs
being wound up by the trustee. Online being closed by

receiver after receiver decided it could not be run as lawful
business. Hold Billing Services, Ltd.; HBS, Inc.; Avery
Communications (all closely related companies

that are aggregators); and Veterans of America Association, Ltd.
(VOAA) (vendor).

7/ 16/ 98, in U. S. District Court for the Western District of
Texas.

$4. 7 million Preliminary injunction on 8/ 24/ 98. Settlement
negotiations ongoing. VOAA's business closed and negotiations with
VOAA and principals ongoing.

Communications Concepts and Investments, Inc. d/ b/ a Crown
Communications &

Crown Communications Two, Inc.; and Global Collections, Inc.
(Crown's in- house collection agency).

12/ 22/ 98, in U. S. District Court for the Southern District of
Florida.

Not yet determined; formal discovery under way.

Not yet determined. Formal discovery and negotiations under way.

Shared Network Services, LLC, doing business as Shared Network
Services and 1 st Page

6/ 7/ 99 in U. S. District Court for the Eastern District of
California.

Not yet determined. Stipulated preliminary injunction; discovery
under way. Resolution not yet

determined. Wazzu Corporation 6/ 7/ 99 in U. S. District Court for
the Central

District of California. Not yet determined. Temporary restraining
order; discovery under way.

Resolution not yet determined.

Let t e r

Appendix II Federal Enforcement Actions Against Slamming and
Cramming

Page 35 GAO/RCED-99-193 Telephone Slamming and Cramming

Source: FTC.

Company Date of action Amount of suspect billing Status Comment/
additional information

American Telnet, Inc. 6/ 8/ 99, in U. S. District Court for the
Southern District of Florida.

$39.7 million Permanent injunction; complaint and consent filed
together, awaiting entry by court.

$39.7 million in forgiven charges and redress to consumers agreed
to by parties; changes to business practices required.

Page 36 GAO/RCED-99-193 Telephone Slamming and Cramming

Appendix III Telephone Company Initiatives to Curb Slamming and
Cramming Appendi x I I I

Several major local and long- distance companies provided us with
information on initiatives they have undertaken in response to the
problems of slamming and cramming. The two following lists are not
a complete inventory of the industry's initiatives, nor we did
attempt to

assess their effectiveness. They do, however, give some indication
of the range of actions that telephone companies are taking to
curb these abuses.

Examples of Antislamming Initiatives  Using brochures, press
releases, and Web sites to educate consumers on what constitutes
slamming, what their rights are, and what steps they can take if
they have been slammed.

 Suspending the use of outside sales agents for certain marketing
efforts that have resulted in an unacceptable level of complaints
about slamming.  Allowing customers to block changes to their
telephone accounts.  Using automatically dialed, prerecorded calls
to notify customers when

their service provider is changed.  Providing toll- free numbers
for customers to call to resolve complaints about slamming.
Charging the company's resellers for the cost of handling slamming
incidents that they caused. 1 Examples of Anticramming Initiatives

 Using brochures, press releases, and Web sites to educate
customers on what constitutes cramming, what their rights are, and
what steps they can take if they have been victims of cramming.
Limiting billing to vendors engaged in telecommunications- related
services.

 Eliminating billing for certain products and services susceptible
to abuse by third- party service providers, such as prepaid
calling cards and debit cards.

 Eliminating billing for recurring monthly service charges
associated with pay- per- call 900 number services or charges for
services accessed via 800 and 888 numbers, which are widely
associated in the public's mind with toll- free calling.  Refusing
to bill on behalf of programs that use sweepstakes or check

box methods to sign up customers. 1 A reseller is a telephone
service provider that does not own transmission facilities but
obtains communications services from another telephone company for
resale to the public for profit.

Appendix III Telephone Company Initiatives to Curb Slamming and
Cramming

Page 37 GAO/RCED-99-193 Telephone Slamming and Cramming

 Requiring information providers to provide clearer billing
descriptions, toll- free numbers for complaints, and procedures
for handling complaints.  Requiring information providers to
provide a notarized affidavit attesting to the validity of their
descriptions and billings; requiring billing aggregators that
submit bills on behalf of third- party service providers to sign
an affidavit certifying that the third- party charges were

authorized by the customer.  Requiring information providers to
block further charges to a consumer's account if requested by the
consumer.

 Discontinuing billing for information providers who generate too
many complaints from customers about cramming.  Providing
customers with the option of blocking the inclusion of
miscellaneous changes on their telephone bills.

Page 38 GAO/RCED-99-193 Telephone Slamming and Cramming

Appendix IV GAO Contact and Staff Acknowledgements Appendi x I V

GAO Contact John P. Finedore, (202) 512- 6248 Acknowledgements
Other key contributors to this report are Martha Chow, Alice
Feldesman, Mitchell Karpman, Teresa R. Russell, Michael R. Volpe,
and Mindi

Weisenbloom.

(385784) Let t e r

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