Defendants Agree to Pay $13 Million in Consumer Redress To Settle FTC Charges about Deceptive Billing Practices

Four corporate defendants in a case filed by the Federal Trade Commission in April have agreed to pay up to $13 million in consumer redress to settle charges that they deceptively billed consumers for calls to toll-free 800 numbers. Under the terms of a stipulated final judgment filed in U.S. District Court on December 8, the companies likely will pay $4 million in redress and forgive another $9 million in charges to consumers.

"Today's unprecedented settlement should serve as notice to others that the Commission takes seriously its obligation to protect consumers from deceptive billing practices," said Jodie Bernstein, Director of the FTC's Bureau of Consumer Protection.

Growing use of the telephone to deliver and charge for "audiotext" -- telephone-based audio information or entertainment -- and other non-traditional services, especially through 800 and other toll-free numbers, has led to an increase in consumer complaints about unfair and deceptive billing practices, the agency said. 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.

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 named Frank Montelione, Russel Leventhal, Stuart Leventhal, and John O. Cooper as individual defendants.

In June, the four Los Angeles-based corporate defendants, and their owners and operators, negotiated a temporary agreement that required, among other things, that the companies stop billing consumers for their 800-number-based audiotext services on the basis of "ANI" (automatic number identification). Similar to "Caller ID," ANI enabled the defendants to identify the telephone number from which an incoming call was placed; 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 addressed the Commission's allegation that consumers who never purchased the defendants' 800-number-based services had been subjected to the defendants' efforts to bill and collect for them.

Under the terms of the stipulated final order, the companies will be required to identify and offer refunds to consumers who, after December 31, 1995, complained to the companies, and were billed on the basis of ANI, billed for services accessed by a minor, sent to collections, or re-billed for services charged to a credit card after successfully disputing the charge with their credit card company.

In addition, the companies agreed to no longer misrepresent that consumers are obligated to pay for 800-number services they neither purchased nor authorized, and not to misrepresent that consumers are obligated to pay for any 800-number service simply because the service was accessed from that consumer's telephone.

Also, the companies agreed to include in any audiotext messages referring consumers to an international telephone number either the cost of the call, if known, or to identify the country and refer the consumer to his long distance carrier for information about the cost of the call.

Finally, the companies agreed to provide the preamble message required by the 900-Number Rule. This message, which must precede the billing of all 900 numbers, provides information about the cost of the call, tells the caller when charges for the call will begin, and gives the caller an opportunity to hang-up before incurring those charges.

Qualified consumers should receive refund notices from the companies in about five months. If consumers believe they are entitled to a refund, but have not heard from the companies by June 1999, they should call the FTC's Consumer Response Center at 202-326-2041 for more information about submitting claims.

The Commission vote to approve the stipulated final judgment was 4-0. It was filed in U.S. District Court for the Central District of California in Los Angeles on December 8, 1998.

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

Copies of the complaint, stipulated final judgment and consumer education material about 800 and 900 numbers 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; 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.

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