GAO

United States General Accounting Office

Report to the Chairman, Committee on

Small Business, U.S. Senate

January 2000 TELECOMMUNICATIONS

Update on State-Level

Cramming Complaints

and Enforcement

Actions

GAO/RCED-00-68

Page 1 GAO/RCED-00-68 State-Level Cramming Complaints

United States General Accounting Office

Washington, D.C. 20548

Resources, Community, and Economic

Development Division

B-284409 Letr

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

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).
B-284409

Page 2 GAO/RCED-00-68 State-Level Cramming Complaints

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.

Results in Brief 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.
B-284409

Page 3 GAO/RCED-00-68 State-Level Cramming Complaints

Background 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.
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Page 4 GAO/RCED-00-68 State-Level Cramming Complaints

1999 Trends in

Cramming Complaints

Vary at the State Level

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.
B-284409

Page 5 GAO/RCED-00-68 State-Level Cramming Complaints

Table 1: State Public Utilities Commissions' Reported Trends for Cramming

Complaints During 1999

State

Fewer complaints

than in 1998

More complaints

than in 1998

Complaint level

about the same as

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

Continued
B-284409

Page 6 GAO/RCED-00-68 State-Level Cramming Complaints

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

State

Fewer complaints

than in 1998

More complaints

than in 1998

Complaint level

about the same as

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

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.

Continued from Previous Page
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Page 7 GAO/RCED-00-68 State-Level Cramming Complaints

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.

States Have Provided

Additional Protections

for Consumers

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

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.
B-284409

Page 8 GAO/RCED-00-68 State-Level Cramming Complaints

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.

States Have Taken

Additional

Enforcement Actions

Against Cramming

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.

6

California, Florida, Georgia, Idaho, Illinois, Kentucky, Missouri, New York, North Carolina, Oregon,

Pennsylvania, Rhode Island, South Dakota, Tennessee, Virginia, and Wisconsin.
B-284409

Page 9 GAO/RCED-00-68 State-Level Cramming Complaints

Table 2: Completed and Pending Enforcement Actions Taken by State Public Utilities

Commissions and State Attorneys General, January Through November 1999

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.

Scope and

Methodology

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

State

Number of

completed

enforcement

actions

Amount of restitution

and fines resulting

from completed

actions

Number of pending

enforcement actions

initiated during 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
B-284409

Page 10 GAO/RCED-00-68 State-Level Cramming Complaints

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
B-284409

Page 11 GAO/RCED-00-68 State-Level Cramming Complaints
Page 12 GAO/RCED-00-68 State-Level Cramming Complaints

Appendix I

GAO Contact and Staff Acknowledgments ApendxiI

GAO Contact John P. Finedore (202) 512-6248

Acknowledgments Other key contributors to this report are Faye Morrison, Terri Russell,

James Sweetman, and Ed Warner.

(385837) Letr
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Appendix I

GAO Contact and Staff Acknowledgments

Page 14 GAO/RCED-00-68 State-Level Cramming Complaints

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