FTC Targets "Web Site Cramming"

Consumer complaints about "cramming" - unauthorized charges on telephone bills - are rising dramatically according to Federal Trade Commission testimony delivered to the Senate Committee on Small Business today. "In 1996, the Commission received 21 cramming complaints; by 1998, this number had grown to 9,827," said Jodie Bernstein, Director of the FTC's Bureau of Consumer Protection.

"Web site cramming - unauthorized phone bill charges for developing or hosting a Web site -- is an increasingly serious problem for small businesses moving online," Bernstein said. "Prior to July 1998, the FTC had received virtually no complaints identifiable as Web site cramming; however, by March 1999, we had received over 400 such complaints."

The testimony notes that in response to the increase in cramming complaints, the Commission joined with state Attorneys General and offices of Consumer Affairs to step up law enforcement activities targeting crammers. "The FTC filed its first cramming case in April 1998 and has since pursued a total of nine federal court actions against 45 defendants, including those allegedly engaged in Web site cramming." In one of its largest actions, the FTC obtained $39 million in credits or refunds for cramming victims, the testimony says.

"In a typical complaint, the small business learned of an unauthorized charge on its phone bill for 'free' Web site services. These businesses were often contacted by a telemarketer touting the benefits of doing business on the Internet and offering to design and host a Web site for a 'free' 30-day trial. Some businesses were told they would not be billed until after the trial period had elapsed. Others were told they were under 'no obligation.' . . . Still other businesses refused to accept the free offer.

. . . In all cases, these small businesses were charged during or after their 'free' trial period, even if they had declined the trial offer or canceled within 30 days," the testimony says.

In one case, Bernstein said the FTC presented evidence that of the ". . .customers that staff had contacted, over 90 percent did not know they would incur any cost and nearly 75 percent did not even know that defendants had set up a Web site for them."

The largest action against Web site cramming is being announced today, the testimony says, in a settlement with U.S. Republic Communications, Inc. The settlement will require U.S. Republic to offer refunds to as many as 124,000 small businesses and organizations.

"The Commission recognizes that the practice of Web site cramming causes significant harm to small businesses across the country," the testimony says. "The Commission will continue to use a variety of tactics to attack this problem: providing education to small businesses whenever possible and pursuing enforcement actions against law violators whenever necessary."

The Commission vote to approve the testimony was 4-0.

Copies of the Commission testimony 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.