Small Business Owners Who Got "Crammed" to Get Refunds

One hundred twenty four thousand consumers - most of them small business owners - who may have had unauthorized charges "crammed" onto their telephone bills for Internet services they never ordered or thought were free, will qualify to receive refunds under the terms of a settlement agreement between the Federal Trade Commission and U.S. Republic Communications, Inc., and its president, Gary Remy. The settlement also will bar misrepresentations about the cost and terms of Web site services and prohibit the defendants from billing consumers without authorization in the future.

According to the FTC, Remy and U.S. Republic used telemarketers to target small businesses, touting the business benefits of having a Web site and offering to design and host Web sites on a free trial basis. They claimed their service included "registering" the small businesses' Web sites with major Internet search engines to drive potential customers to the sites. The small businesses were told that they would receive paperwork about the Web site, with its Internet address, and that no charges would be incurred unless the business ordered the Web site on a permanent basis and approved future charges. But despite their claims, U.S. Republic added charges of $25 a month to the telephone bills of the small businesses, typically without sending the sample Web site design, the agency alleged. Even in cases where samples were sent, and the small businesses rejected the offer, charges were often placed on the telephone bills. The FTC alleges that the defendants used third-party authorization services who taped phone conversations in an attempt to show that small businesses agreed to sign up for the service after the free trial period. In many instances, the tapes demonstrate inadequate disclosure that small businesses' phones would be automatically billed and failed to correct the defendants' explicit or implicit representations during the telemarketing sales pitch that the service would be free. Finally, the FTC charged that Remy and U.S. Republic misrepresented that small businesses were legally obligated to pay for the services they hadn't ordered or told businesses that complained that U.S. Republic would cancel the service but couldn't provide credits for past charges. Many times the defendants continued to charge the businesses even after they had "canceled," according to the complaint.

To settle the FTC complaint, U.S. Republic will notify approximately 124,000 customers who may have incurred unauthorized telephone bill charges that they qualify for a full refund. In addition, the proposed settlement will bar false statements by U.S. Republic that they do not charge for their Web site services; that they will allow customers to review and cancel services; and that the businesses are legally bound to pay for the services they didn't order. It will also bar misrepresentations about registering Web sites with search engines. The settlement will require that the defendants have "express, verifiable authorization" before they can bill consumers - through phone bills or direct billing - for Web site services. In addition, they will be barred from selling or supplying lists of their "customers." Finally, the settlement contains record-keeping provisions to allow the FTC to monitor compliance.

The Commission vote to accept the proposed stipulated final judgment was 4-0. It was filed October 21 in the U. S. District Court for the Southern District of Texas in Houston. It is subject to court approval.

NOTE: This consent judgment is for settlement purposes only and does not constitute an admission by the defendant of a law violation. Consent judgments have the force of law when signed by the judge.

Copies of the complaint and consent are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580; 877-FTC-HELP (877-382-4357); TDD for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.

(FTC File No. 992-3161)