In a series of actions within the last five days, the FCC has focused its enforcement attention on cramming — the unauthorized placement of fees onto a consumer’s monthly phone bill by its own phone provider or an unaffiliated third party. These charges could be for telecommunications products and services but could also be for cosmetics or diet products. At an event in Washington, DC on June 20th, FCC Chairman Julius Genachowski announced the launch of a major new effort to educate consumers about cramming and plans for a proceeding that will empower consumers to better protect themselves from cramming. The FCC estimates that up to 20 million Americans may be victims of cramming each year.
In a series of Notices of Apparent Liability (NAL) released last week, the FCC issued fines between $1.5 and $4.2 million against four telephone service providers for cramming. These charges usually range from $1.99 to $19.99 per month and may go undetected for months. To reinforce its concerns about cramming, the FCC also released an Enforcement Advisory stating that “it has acted on four major investigations involving cramming” which it said is an “unjust and unreasonable” practice under Section 201(b) of the Communications Act. The Advisory also stated that the telecom providers “had apparently engaged in constructive fraudulent activity as part of a plan to place charges on consumers’ phone bills for services that the consumers neither requested nor authorized.”
According to a News Release issued last week, the four telecom providers, all headquartered in Pennsylvania, defrauded consumers by billing them for unauthorized dial-around services (a form of long distance service that allows a customer to use a different carrier than the one presubscribed to the telephone number). According to the News Release, 99.9% of the billing charges levied by the alleged violators were bogus. In one NAL, the FCC stated that one of the telecom providers billed “as many as 18,571 consumers monthly, during which time no more than 22 consumers (or 0.1 percent) ever actually used its service.”
According to the NALs, all four telecom providers employed identical Internet-only solicitation and online enrollment for services utilizing the same billing aggregator. The telecom providers practiced the same method of customer verification, which did not include sending “reply required” confirmation e-mails. When consumers later challenged the monthly charges, the telecom provider stated that as part of its customer verification process, it merely confirmed that the consumer’s name and/or address contained on the online enrollment form matched the telephone number provided on the online enrollment form, or confirmed that the IP address provided on the online enrollment form was within a 100 mile radius of the name, address and telephone number included in the online registration.
One NAL, issuing a $3,000,000 fine, alleged that the telecom provider placed unauthorized monthly charges of at least $12.95 on approximately 150,000 phone bills over the course of one year. Another NAL alleged that the telecom provider placed unauthorized monthly charges of at least $13.97 on approximately 141,000 phone bills during a 12 month period, garnering an estimated $2,000,000 in revenues. The FCC stated that such fraudulent practices were “unjust and unreasonable practices” in violation of Section 201(b) of the Communications Act of 1934.
Pursuant to Section 503 of the Communications Act, the forfeiture for cramming could be calculated as $150,000 for each violation, or each day of a continuing violation, up to a statutory maximum of $1,500,000 for a single act or failure to act by a common carrier. The Commission has not formally established forfeiture amounts for unjust and unreasonable practices, and the FCC therefore retains its discretion to issue forfeitures on a case-by-case basis. All four NALs referenced a 1998 NAL in which the FCC assessed a $40,000 penalty for each cramming violation. The FCC also indicated in each of the NALs that the penalty levied against the alleged violators should exceed the fraudulent bills in order to serve as an adequate deterrent against future similar conduct.