FTC Obtains Stipulated Preliminary Injunction in Cramming Case

A federal judge has granted a stipulated preliminary injunction in the Federal Trade Commission's first case alleging "cramming" -- the practice of charging consumers on their actual phone bills or on look-alike bills for services they have not purchased.

The FTC, four Los Angeles-based corporate defendants, and their owners and operators negotiated a temporary agreement that will require, among other things, that the companies stop billing consumers for their 800-number-based audio entertainment or information services on the basis of "ANI" (automatic number identification). Similar to "Caller ID," ANI enabled the defendants to identify the telephone number of an incoming call; however, ANI can neither identify the caller nor can it ensure that the caller is the person responsible for that telephone line. The stipulated agreement not to bill on the basis of ANI addresses the Commission's allegation that consumers who never purchased the defendants' 800-number-based services were subjected to the defendants' efforts to bill and collect for them.

The case against Allstate Communications, Inc. (ACI), Interactive Audiotext Services, Inc. (IAS), American Billing & Collection, doing business as ABC Services, and U.S. Interstate Distributing, Inc. (USID) was announced on April 22, 1998. In addition to the companies, the complaint names as defendants Frank Montelione, Russel Leventhal, Stuart Leventhal, and John O. Cooper.

When the case was filed, Jodie Bernstein, Director of the FTC's Bureau of Consumer Protection, noted, "In the information age, consumers increasingly rely on the telephone, not just for communication, but as a medium of electronic commerce. The Commission's case today sends a strong message to those who would use the telephone and telephone billing to victimize consumers."

Increasingly, the telephone is being used to deliver and charge for services other than those provided by traditional local or long distance telephone carriers, said the FTC. Included among these non-traditional services are telephone-based audio information or entertainment programs such as horoscopes, sports information, and "adult" chat lines -- known in the telecommunications industry as "audiotext" services. A special dialing pattern -- 900 numbers -- is reserved for such services, and the FTC's 900-Number Rule sets out requirements for businesses that offer services using 900 numbers and offers protection for consumers who dial 900 numbers. However, some audiotext services are accessible to consumers by dialing an 800 number. Generally, it is unlawful to charge for an audiotext service accessed by dialing an 800 or other toll-free number, unless the caller uses a credit card to pay for the service or has previously entered into a "presubscription" agreement with the service provider to be billed for the service. Growing use of the telephone to deliver and charge for audiotext and other non-traditional services, especially through 800 and other toll-free numbers, also has led to an increase in consumer complaints about unfair and deceptive billing practices, the agency said.

The stipulated preliminary injunction, which was granted by U.S. District Judge Consuelo B. Marshall on June 17, addresses some of the practices alleged in the FTC's complaint. For example, the injunction will prevent the defendants from:

• billing or collecting from minors;
• making false representations that a consumer is obligated to pay for any service that the consumer did not purchase, or is obligated to pay because the service was accessed from that consumer's telephone; and
• making false representations that the consumer has authorized a purchase.

The complaint also alleges that the defendants have violated the FTC's 900-Number Rule, which prohibits charging for audiotext services accessed through a call to an 800 number unless the caller, in advance of calling for the services, has entered into a valid presubscription contract with the company. The stipulated preliminary injunction will require the defendants to:

• disclose in their telephone solicitation message the cost of their pay-per-call services;
• stop connecting callers to an audiotext service accessed by dialing a 900 number without providing the required preamble message that includes disclosures about the cost of the service, the fact that the caller can hang up within three seconds of a signal and avoid incurring charges, and other material information; and
• stop referring callers to international telephone numbers without disclosing the cost of the call, if known.

In another development in this lawsuit, the FTC also filed an amendment to its original complaint adding Allstate Communications, Inc. as an additional defendant. According to the agency, Allstate is the parent company of the defendant corporations.

The Commission vote to approve the filing of an amended complaint was 4-0. The amended complaint was filed on May 28 in the U.S. District Court for the Central District of California.

Consumers with questions about cramming can call the FTC's Cramming Information Line at 202-326-3134.

NOTE: The Commission files a complaint when it has "reason to believe" that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the defendant has actually violated the law. The case will be decided by the court.

Copies of the complaint and consumer education material about 800 and 900 numbers, including a new consumer brochure titled "Cramming: Mystery Phone Charges," are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-FTC-HELP (202-382-4357); 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.

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(FTC File No. X980057)
(Civil Action No. 98-3049CBM)