Companies to Pay $735,000 for Allegedly Charging Consumers Who Misdialed Toll-free Numbers

The Federal Trade Commission today announced federal court settlements with three defendants who allegedly charged more than one million consumers without their consent for directory information services after the callers misdialed various toll-free numbers. According to the Commission's complaint against Florida-based 800 Connect, Inc. (800 Connect), its owner and president David Stein, and its billing aggregator ILD Telecommunications, Inc. (ILD), the defendants violated the toll-free provisions of the FTC's Pay-Per-Call Rule and the FTC Act through a range of unfair and deceptive acts and practices. Under the terms of the settlements, 800 Connect and Stein will pay $60,000 in redress or disgorgement, while ILD will pay $675,000 in redress or disgorgement.

"These firms used a toll-free number to bill consumers without their consent," said Howard Beales, Director of the FTC's Bureau of Consumer Protection. "That's a violation of federal law. For a company to charge you for a call to an 800 or 888 phone number, you must agree in advance to be billed. Consumers should check their phone bill carefully each month and dispute any unauthorized charges."

According to the FTC's complaint, 800 Connect, based in Sarasota, allegedly sold information services to consumers who incorrectly dialed toll-free numbers for various legitimate companies, including Federal Express and Sovereign Bank. Consumers reached 800 Connect, which answered lines associated with telephone numbers that were close, but not identical to the other companies' toll-free lines. The FTC alleged that a pre-recorded message informed consumers that they could still receive the correct number. Consumers had three options. They could: 1) "press one, now" for the correct number, with no disclosure that the defendants would bill the line subscriber either $1.99 or $2.99; 2) wait to "press one," continue listening to the pre-recorded message, and eventually be informed about the $1.99 or $2.99 charge (they could then hang up, allegedly before charges were incurred); or 3) neither "press one" nor hang up after hearing the cost disclosure, in which case they received the correct number and were billed the $1.99 or $2.99 per call.

Charges for 800 Connect's services typically appeared on the line subscriber's phone bill on a separate page titled "ILD Teleservices, Inc." The subscriber's local phone company inserted the page into their telephone bill, with the charges usually identified as being on behalf of "800 Connect" or "Call Connect."

According to the Commission's complaint, 800 Connect violated the toll-free provisions of the Pay-Per-Call Rule by using toll-free numbers in a way that resulted in charges to the calling party. In addition, the FTC contends that ILD violated the Rule's billing and collection provisions by failing to comply with its dispute resolution requirements. Specifically, the complaint alleges ILD failed to recognize that under the Rule, "a reflection on a billing statement of a telephone-billed purchase for a call made to an 800 or other toll-free number" is a billing error that the biller must forgive. While ILD received many complaints about 800 Connect's services, it allegedly forgave the charges of less than half of the consumers who complained, thus repeatedly and routinely violating the Rule, according to the FTC.

The FTC also alleges that, in violation of the FTC Act, the defendants deceptively represented that line subscribers were legally obligated to pay the defendants for services provided over a toll-free numbers. In fact, when a line subscriber has not previously entered into an agreement to pay for information services provided over a toll-free line, the line subscriber has no legal obligation to pay for such services. Indeed, the defendants made no attempt to enter into any agreements with line subscribers to be billed for the information services 800 Connect provided.

Finally, the FTC's complaint contends line subscribers could not reasonably avoid the defendants' billing and collection efforts because a line subscriber cannot reasonably anticipate or prevent charges incurred through use of his or her telephone line to a toll-free number. As these consumers could not avoid receiving, and being billed for, 800 Connect's services, the Commission alleges that the defendants' business practices were unfair and violated the FTC Act.

Under the terms of the settlement with 800 Connect and Stein, those defendants will pay $60,000, as well as any additional money they receive as a result of their unlawful activities. They are also enjoined from engaging in future violations of the FTC Act or the Pay-Per-Call Rule. The proposed order as to these defendants also contains compliance and monitoring provisions to ensure the defendants comply with its terms, as well as a record-keeping and order distribution requirement. The settlement with ILD also contains injunctive relief to ensure such behavior does not recur. It also requires ILD to provide refunds to nearly 60,000 consumers ILD billed for 800 Connect's services who previously inquired or complained to ILD about the charges and did not receive a credit. Finally, it requires ILD to pay $675,000 to the Commission as redress or disgorgement.

The Commission vote authorizing staff to file the stipulated final judgments was 5-0. The stipulated final judgments were filed in the United States District Court for the Southern District of Florida on February 3, 2003 and are subject to court approval. The Commission would like to thank the Office of the Connecticut Attorney General for its assistance in this investigation.

NOTE: Stipulated final judgments are for settlement purposes only and does not constitute an admission by the defendants of a law violation. Stipulated judgments have the force of law when signed by the judge.

Copies of the documents mentioned in this release 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. The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop and avoid them. To file a complaint, or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the complaint form at http://www.ftc.gov.

The FTC enters Internet, telemarketing, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies worldwide.