Before the

Federal Communications Commission

Washington, D.C. 20554

In the Matter of

Consumer Information and Disclosure

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Empowering Consumers to Prevent and CO Docket No. 11-116

Detect Biling for Unauthorized Charges

("Craming")

CO Docket No. 09-158

Truth-in-Biling and Billing Format CC Docket No. 98-170

COMMENT OF THE

FEDERA TRADE COMMISSION

I. Introduction

The Federal Trade Commission ("FTC") is an independent administrative agency

charged with promoting consumer protection, competition, and the efficient fuctioning of the

marketplace. The keystone of the FTC's law enforcement mission is Section 5 of the FTC Act,

which prohibits "unair or deceptive acts or practices in or affecting commerce." The scope of

Section 5 encompasses a wide range of business practicesf including advertising, marketing,

biling, and collection. Section 5 also authorizes the FTC to challenge "unair methods of

competition" as well as violations of other antitrst laws.

For more than fifteen years, the FTC has engaged in a sustained campaign to attack and

prevent the placement of unauthorized charges on telephone bils, a practice known as

"cramming." Working with federal and state law enforcement parners, the FTC has brought

more than 25 enforcement actions to halt craming and provide redress to its victims, conducted

consumer and business education and outreach programs to raise awareness of the problem, and

worked with the telecommunications industry to prevent and detect craming. The FTC's

enforcement cases, brought against cramers and the biling aggregators that facilitated the

placement of unauthorized charges on consumers' bils, have resulted in stringent cour orders

and obtained tens of milions of dollars in consumer redress and refuded charges.

The FTC appreciates this opportunty to comment on the Federal Communications

Commission's ("FCC") Notice of Proposed Rulemaking ("NPRM") concerning craming, 

1 and

commends the FCC for its ongoing efforts to reduce craming. The FCC's proposed rules

attempt to limit craming, in part, through improved telephone biling statement disclosures, an

approach advocated by the FTC in its 2009 Comment filed in response to the FCC's Notice of

i Empowering Consumers To Prevent and Detect Biling for Unauthorized Charges ("Cramming"); Consumer

Information and Disclosure; Truth-in-Biling and Biling Format, 76 FR 52625 (Aug. 23,2011).
Inquiry. However, since fiing its 2009 Comment, a comprehensive investigation and

subsequent report by the Senate Committee on Commerce, Science, and Transportation ("Senate

Staff Report"),2 a public workshop on craming held by the FTC on May 11, 2011 ("Craming

Foru"),3 and additional law enforcement experience 4 have made it clear to the Commission that

even improved telephone bill disclosures are unlikely to prevent the millons of dollars of

consumer injur caused by craming.5 To effectively tackle the craming problem - which

causes har to an estimated 15-20 milion American households each year6 - the FTC therefore

respectfully urges the FCC to ban or require default blocking of some or all thrd-pary biling. 7

2 Staff Report, Senate Committee on Commerce, Science, and Transportation, Unauthorized Charges on Telephone

Bils (July 12,2011) available at

htt://commerce.senate. gov/pub lic/index.cfm ?p=Reports&ContentRecord id=ea1 01 f2 8 -4df5-4a3 f-a63cOeca043789be&ContentType id=6a6fef64- 34 fl-434 8-b965-ec03 a 1 dcadfe&Group id=a89bOb93 -3 242-4d2a-82da5e916a62b6a9.

3 The FTC convened the Cramming Foru to identify creative solutions to the craming problem. The FTC also

solicited written comments from the public to supplement the Craming Foru discussion. A transcript ofthe

proceedings ("Cramming Foru Transcript") and access to the comments are available at

htt://www.ftc. gov/bcp/workshops/cramming.

4 There have been numerous federal and state cramming enforcement actions since the FTC's 2009 comment. See,

e.g., FTC v. Inc2l.com, 688 F. Supp. 2d 927 and 745 F. Supp. 2d 975 (N.D. CaL. 2010); Main Street Tel. Co., Notice

of Apparent Liability for Forfeitue, FCC 11-89,1(16 (reI. June 16,2011); In the Matter ofCheap2Dial Telephone,

LLC, FCC 11-90, 1(18 (reI. June 16, 2011); State of Kansas ex reI. v. Email Discount Network, LLC, 10C582 (Kan.

3rd District Cour, Shawnee County 2010); State of Kansas ex reI. v. Voicemail Direct USA, LLC, LOC581 (Kan. 3rd

District Cour, Shawnee County 2010); State of Nevada, Offce of the Attorney General, ex reI. v. The Payment

People, Inc., 09C4311O (Nev. 1st Judicial District 2009).

5 The provisions of the FCC's proposed rules discussed in this Comment - those concerning disclosure ofthe option

to block third-par charges and the listing of third-par charges in separate sections - apply solely to landline bils.

However, the FCC also requests comment on whether the proposed rules should extend to mobile phone bils.

While the FTC has not examined the application ofthe FCC's proposed rules in the mobile phone context, the

Commission, as a general matter, supports efforts to provide clear disclosures to consumers. That said, with respect

to craming, the FTC's law enforcement experience lies predominantly in the area oflandline bils, which are the

subject of the majority of consumer cramming complaints the FTC receives. Additionally, the technologies inerent

to the mobile platform and other considerations may require a different analysis than that applied to landline thirdpar biling. AccordiIgly, the FTC limits its Comment to landline cramming. As consumers' uses of mobile

telephones, and in paricular mobile payments, grows, the FTC and FCC should vigilantly monitor cramming

complaints, scrutinize industr anti-craming measures, and work with state law enforcement to determine whether

fuher action is required. Such monitoring of mobile cramming complaints would be enhanced by the FTC's

recommendation to include the complaints in the Consumer Sentinel database. See Section V, Law Enforcement

and Regulators Should Submit Complaints to Consumer SentineL.

6 FCC Infographic on Cramming (Cramming Infographic), available at

htt://transition.fcc. gov / cgb/ cramming graphic. jpg.

7 Commissioner Rosch dissents from this comment to the extent that it recommends that the FCC "ban" third-part

biling on landline telephone bils. Commissioner Rosch believes that the recommendation to require default

blocking of some or all third-par biling, which would require cariers to block third-par biling unless and until a

subscriber affirmatively authorizes such charges, is preferable. Default blocking of some or all third-par biling

would be less restrctive than a complete ban, yet would be completely effective in addressing the cramming

problem. In contrast to an across-the-board ban, it would allow for more flexibility, both for businesses and

consumers. Not only would it give innovative (and legitimate) businesses the option to get consumer buy-in for

third-par biling in appropriate circumstances, it would also allow informed consumers to choose this option if

2
Section II ofthis Comment describes the abuse of the thrd-pary telephone biling system

and scarcity of evidence of legitimate users. Section III explains that consumers are not likely to

notice disclosures concernng third-par biling or the possible option to opt out. Section IV

contains the FTC's recommendation, based on the important considerations in Sections II and

III, that the FCC ban or require default blocking of some or all third-part billing. Section V of

this Comment responds to the FCC's request for input concernng the sharing of craming

complaints by state and federal regulatory and enforcement authorities.

Because abuse of the third-pary biling system is prevalent and evidence of legitimate

uses of the system are scarce, and because the proposed improved disclosures are unikely to

address craming effectively, the FTC respectfully requests that the FCC ban or require default

blockig of some or all third-par biling. Also, because of the scope of the craming problem

and the large number of regulatory and enforcement agencies charged with addressing the

problem, the FTC recommends that state and federal agencies use the Consumer Sentinel

Network ("Consumer Sentinel") as a central repository and shared database for craming

complaints lodged by consumers and businesses.

II. Background

A. Abuse ofthe Third-Pary Biling System is Widespread.

The evidence gathered by the staff of the Senate Commerce Committee in its craming

investigation demonstrated the pervasive natue of the craming problem on the thid-pary

telephone biling platform. The Committee sought inormation from seven telephone biling

auditing companes in the United States. These companes audit the telephone bils of their

clients to discover and dispute unauthorized charges. Information provided by the auditing

companies showed that "almost all of the third-pary charges they identified on their clients' bils

- more than 300,000 - were not authorized by their clients."g Committee staff also contacted a

random sample of more than 500 telephone customers who had been charged by certain thirdpart merchants to interview them about their experiences with the merchants. "Not a single

individual or business owner reported that they had authorized the third-par vendors' charges

on their telephone bils.,,9

B. There is a Scarcity of Evidence of Legitimate Use of Third-Pary Biling.

To date, FTC staff has been able to identify very few legitimate uses ofthird-pary

telephone billng. At the FTC's Cramming Foru, no third-pary merchants presented data

they so desired. Furhermore, as discussed in footnote 5, developments with respect to third-par biling in the

mobile telephone context are stil evolving. To the extent that the mobile marketplace is able to address consumer

protection issues related to third-part biling, these developments may also be applicable to landline third-par

biling.

8 Senate Staff Report, supra note 2, at 21.

9 !d. at 29.

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showing the legitimacy of their charges or the necessity of having charges placed on a telephone

bil. Representatives of the telephone industry provided only two examples oflegitimate thirdpar merchants.10 Nor did any third-pary merchants submit comments advocating for the

importance ofthis biling platform, despite the FTC's call for comments from interested paries.

The silence of merchants who use third-pary telephone billing calls into question the extent of

legitimate third-pary biling.

This experience is consistent with the Senate Commerce Committee staff s findings and

the FCC's own data. During its exhaustive investigation of craming, the Commerce

Committee staff was unable to identify a legitimate use of the platform and instead found that

many third-pary vendors were ilegitimate and created solely to exploit third-pary biling. 

1 1

Furhermore, the FCC's own data suggests that cramers are the prime users ofthird-pary

biling; an FCC investigation discovered that only 20 of 17,384 consumers actually used the

third-pary service for which they were charged. That figure equates to a 0.1 % usage rate. 

12

III. Disclosures are Unlikely to be Noticed and Wil Not Solve the Cramming

Problem.

The FCC's proposed rules would require carers that offer the option of blocking thirdpary charges at the consumer's request to provide clear and conspicuous notice of the option at

the point of sale, on each telephone bil, and on each carier's web site. Some carers,

paricularly large carers (e.g., AT&T and Verizon), curently offer third-par billng blocks

voluntarly, but nothing in the proposed rue would require them to continue to offer this service.

Moreover, some smaller telecommuncations companies do not give subscribers an option to

block third-pary charges. The NPRM requests comment on whether the proposed rules should

be modified to require all cariers to offer the option of third-pary biling blocks. As explained

below, even if all cariers were required to offer the option to block third-part biling, it is

unikely that this would result in a substantial reduction in craming practices, or consumer

injur caused by such practices.

The proposed disclosure of consumers' option to block third-pary biling is unlikely to

be effective because consumers are frequently unaware of the potential for third paries to place

charges on their telephone bils, and thus are unikely to look for and comprehend the

significance of the disclosed information. For this reason, even if the charges are placed in a

separate billing section, as proposed in the FCC rulemaking, it is unlikely to result in a

significant decrease in craming. Moreover, because craming charges are often for small

io The two examples offered were America Online and an entity called "Lizard Games." Other unspecified

broadband and Internet services were also mentioned. See Cramming Foru Transcript, supra note 3, at 96-97

(Don Teague and Kent Wardin); ILD Teleservices, Comment No. 00022, supra note 3.

II See Senate Staff Report, supra note 2.

ii Cramming Infographic, supra note 6.

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amounts, consumers are unlikely to be alerted to the risk of craming when they see the total

amount due on their bils. 

13 And, with the increased use of automatic bil payment programs, it

is likely that many consumers pay their telephone bils without ever checking the details of the

charges appearng in a multi-page bil.14

Two recent FTC enforcement actions against fraudulent cramers demonstrate the

limitations ofthe FCC's proposal. In both Nationwide Connections and ¡nc2l, third-pary

charges were placed on a separate page at the end of a consumer's telephone bil. In Nationwide

Connections, a convicted felon who ran a craming operation from his jail cell, placed milions

of fabricated collect-call charges on consumers' telephone bils through the third-pary biling

platform. Although the bogus charges were placed on a separate bil page, the cramers and

biling companies stil managed to collect more than $34 milion from consumers for those

charges. 

15 In ¡nc2l, a marketing research expert conducted a surey of customers who had been

charged on a separate page on their telephone bils for the defendants' products and services. Of

the more than one thousand customers sureyed, only 5 percent were aware that they had been

biled for the defendants' products and services and 97 percent said they had never agreed to

purchase the defendants' productS.16 In finding that the consumers in that case could not

reasonably avoid the cramed charges, the cour reasoned that "given the evidence that nearly

97 percent of defendants' 'customers' never agreed to purchase defendants' products in the first

place, it follows that these 'customers' had no reason to scrutinze their telephone bils for

defendants' fraudulent charges.,,17

iv. The FCC Should Ban or Require Default Blocking of Some or All Third-Part

Biling.

The FTC respectfully requests that the FCC ban or require default blocking of some or all

third-pary biling. 

18 Neither approach would depend on consumers taing affirmative action to

prevent injury from a form of biling many consumers are not aware of and routinely fail to

notice even as it is occuring, and even if it is disclosed on a biling statement.

Third-pary biling on phone bills has become almost solely a vehicle for defrauding

consumers and businesses. Accordingly, the first approach would ban third-pary biling on

13 See, e.g., Inc2l, 745 F. Supp. 2d at 1004 ("losses incured by individual customers (were) relatively small"); FTC

v. Nationwide Connections, Inc., No. 06-80180 (S.D. Fla. fied Feb. 27, 2006) (charges were between $5 and $8);

Cramming Infographic, supra note 6 (charges from a single vendor per month can range from $1.99 to $19.99).

14 See Craming Forum Transcript, supra note 3, at 209-10.

15 Nationwide Connections, No. 06-80180.

16 Inc2l, 745 F. Supp.2d at 1001 (granting the FTC's motion for summary judgment).

17id. at 1004.

18 See supra note 7.

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telephone bils. Such a ban could apply to all third-par biling or provide exceptions for

demonstrated legitimate uses of third-pary telephone biling.19

The second, alternative approach would require that all carers block third-par charges

on subscribers' bils until a subscriber affirmatively authorizes such charges.2o If the subscriber

wished to have third-part goods or services biled on the account, he or she would specifically

authorize the telephone company to lift the block - either to allow all third-pary biling or to

authorize biling from specific merchants. Under this approach, consumers would not have the

burden of discovering the need for and the existence of a third-pary biling block option.

Instead, the block would be in place automatically, and specific subscriber consent would be

required to lift it. Ths approach would allow any legitimate users ofthe third-pary telephone

biling platform to obtain the informed consent of consumers to be charged for their goods and

services?l

v. Law Enforcement and Regulators Should Submit Complaints to Consumer

SentineL.

The FCC requested input concernng the sharing of craming complaints by state and

federal regulatory and enforcement authorities. Multiple state and federal agencies regulate or

bring enforcement actions against cramers. To ensure the most efficient deployment of

resources, state and federal regulators and enforcement authorities must readily share their

craming complaints. The FTC invites the FCC and state regulators to submit all craming

complaints relating to both landline and mobile bils to Consumer Sentinel and to actively search

Consumer Sentinel for craming complaints?2 Consumer Sentinel provides a secure vehicle

where complaints can be shared among law enforcement, ensuring that complaints filed with one

agency are quickly made available to all Consumer Sentinel members.23 Consumer Sentinel

already contains complaints filed directly with the FTC, along with complaints submitted by

19 An example of 

this approach is the law baning third-par telephone biling enacted by the state of Vermont this

year. 9 V.S.A. § 2466, available at

htt://www.leg.state.vt.us/statutes/fullsection.cfm?Title=09&Chapter=063&Section=02466. The Vermont law,

excepts three specific categories of third-par biling from the prohibition: (A) biling for goods or services subject

to the jurisdiction of the state public service board; (B) biling for direct dial or dial around services initiated from

the consumer's telephone; and (C) operator-assisted telephone calls, collect calls, or telephone services provided to

facilitate communication to or from correctional center inmates. 9 V.S.A. § 2466(f)(1). As par of consideration of

a third-par biling ban, the FCC could seek comments from industr and other interested paries regarding specific

categories of third-par biling for which an exemption from such a ban might be waranted.

20 The NPRM asks for comments concerning "the impact, both positive and negative, that prohibiting third-par

charges on wire line telephone bils, unless the subscriber opts in, may have on wire line companies, subscribers, and

third paries." NPRM, supra note 1, at 52626.

21 Consumers who do opt in to allow certain third-par charges would likely benefit from improved biling

disclosures such as those proposed by the FCC.

22 Currently, the FCC has access to view complaints in Consumer Sentinel, but it does not contribute to Consumer

Sentinel the cramming complaints it receives from consumers.

23 Information regarding Consumer Sentinel is available at http://www.ftc.gov/sentinel/factsheet.pdf.

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most Better Business Bureaus, the US Postal Inspection Service, and numerous other

contributors. The FTC is willng to work with other recipients of craming complaints to enable

them to contribute their complaint data.

VI. Conclusion

F or over 15 years the FTC, along with its federal and state law enforcement parners, has

worked to prevent the placement of unauthorized third-par charges on consumers' bills, a

practice that has caused millions of dollars in consumer injur. Through its rulemakng, the FCC

has the opportty to reduce substantially a costly and pervasive form of consumer fraud. The

FTC respectfully requests that the FCC ban or require default blocking of some or all third-pary

biling through telephone bils. Also, because effective action against cramers requires

cooperation among law enforcers at all levels, the FTC welcomes and encourages federal and

state regulators and enforcement agencies to contribute craming complaints to Consumer

Sentinel and to utilize Consumer Sentinel data to identify and develop cases against cramers.

By Direction of the Commission.

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