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How your phone company helps steal billions

Unauthorized charges are "crammed" onto phone bills, costing Americans billions of dollars a year.

By Stacy Johnson Aug 11, 2011 1:05PM

This post comes from Dan Schointuch at partner site Money Talks News.


A few days ago I called AT&T to ask about some unusual data charges on my cell bill. I'd recently loaded a beta operating system onto my phone, so the fact that more data was used than normal wasn't exactly a complete surprise. But what the customer service representative at AT&T uncovered was.


As part of my bill, I was charged $5.98 a month for subscriptions to Wheel of Fortune and Pac Man. There are only a few things wrong with that:

  • As an iPhone user, all games I purchase are sold through Apple's App Store and are not charged to my phone bill.
  • Unless I've been suffering from fugue states, I never authorized subscriptions to either game.
  • Who would ever pay for a monthly subscription to either of these stupid games?

It turns out I was the victim of "cramming."


In the 1990s, telephone companies began to allow third-party vendors access to their billing platforms. These partnerships were supposed to increase convenience for consumers by turning your phone number into a credit card. The hope was something like: You call up a pizza place, order a pizza, and the charge shows up on your phone bill at the end of the month.


By the late 1990s, this method of billing had been thoroughly abused by crooks adding unauthorized charges directly to consumers' phone bills. The abuse became so rampant that the government and telephone companies both agreed dramatic changes to the third-party billing system were needed to address the problem of cramming.


The two big players at the time were the FCC and the United States Telephone Association. Both advocated a deregulated, voluntary approach, through which telephone companies would self-regulate their third-party billing infrastructure and remove any companies that were simply scamming consumers. Congress gave them exactly what they wanted.


And so, for the past 15 years or so, telecommunications companies have been self-regulating the practice of cramming. How are they doing? Post continues after video about last month's Senate Commerce Committee report.

A Senate Commerce Committee report entitled "Unauthorized Charges on Telephone Bills" states what you probably already suspect:

Over a decade later, thousands of consumers still regularly complain to the Federal Trade Commission (FTC) and the FCC about cramming, while state and federal authorities continue to bring law enforcement actions against individuals and companies for cramming.

Theoretically, it should be simple for a telephone company to cut off billing access to crammers. After all, they must first be approved by your telephone company before they're able to add charges to your bill. So why aren't the phone companies doing anything to protect you? From the same report:

Third-party billing is a billion dollar industry. Telephone companies place approximately 300 million third-party charges on their customers' bills each year, which amount to more than $2 billion worth of third-party charges on telephone bills every year.

Three hundred million third-party charges add up when you consider that phone companies charge $1 to $2 for facilitating each one. Over the past decade, telecommunications companies have made more than $1 billion in revenue with the third-party billing system. AT&T, Qwest, and Verizon alone have earned more than $650 million since 2006.

Because telephone companies generate revenue by placing third-party charges on their customers' bills, telephone companies profit from cramming. Documents reviewed by the Committee staff show that some telephone company employees feel financial pressure to approve third-party vendors even though the companies appear to be crammers.

Think about it this way: If you were running a business that earned millions of dollars a year simply by allowing outside companies to use your system to bill customers, would you stop?


While there may be legitimate companies using the third-party system, there aren't many.  The Senate committee found almost all third-party charges had never been authorized, meaning the system is essentially in place for the sole purpose of charging you money you didn't agree to pay.

Committee staff has spoken with more than 500 individuals and business owners whose telephone bills included third-party charges. Not one person said the charges were authorized. Law enforcement agencies have reported similar findings when conducting surveys for their own cramming investigations.

And it doesn't just stop at phones. Third-party billers have crammed unauthorized charges onto everything from 911 systems to emergency phones in elevators and bank vaults. They've targeted the dead, children's hospitals, and government agencies. "Third-party vendors even crammed unauthorized charges for voice mail services onto AT&T's own telephone lines."


The U.S. Postal Service recently audited its phone bills and found almost $550,000 in unauthorized third-party charges. The U.S. Naval Station in San Diego found $11,000 worth in one quarter in 2009. And Los Angeles County found $306,000 of unauthorized charges on its AT&T landline telephone bills since November 2009.


I was able to get my crammed charges removed by the customer-service representative I spoke with, no questions asked. But many others have had a different experience. Have you found unauthorized charges on your bill that your phone company is unwilling to remove, or is incorrectly stating that it legally cannot remove? Contact the Better Business Bureau or your state's attorney general.


Cramming works because so many of us simply don't notice the unauthorized charges, or believe them to be some sort of federally mandated fee. Make sure to check your phone bill carefully every month.


On my AT&T wireless bill, third-party charges are buried under a section called "Total Credits, Adjustments & Other Charges," right next to the Regulatory Cost Recovery Charge and the Federal Universal Service Charge (my cynical view is they're buried there to make them appear more legitimate). They're listed as "Mobile Purchases & Downloads Charges."


A permanent fix to cramming

What can you do to permanently end the practice of cramming? I would say complain to your telephone company, but that doesn't seem to do any good.

While telephone companies regularly tell their regulators and the media that their cramming complaint rates are low, internal documents reviewed by Committee staff show that the companies understand cramming is a major customer service problem. The companies have received hundreds of thousands of complaints in which consumers used words like "fraud," "scam," "theft," "hoodwinked," "shocked," "disgusted," "upset," "stealing," "bad business," "taking advantage," "disappointed," and "unethical" to describe their experiences with third-party billing.

It seems telephone companies have been self-regulating their third-party billing system long enough. At best, they're terrible at it. At worst, they're knowingly aiding in the theft of billions of dollars a year from the American public.


Contact your representatives in Congress (here's a recent story that tells you how) and urge them to impose regulations on the telecommunications industry's third-party billing system. Remind them that they work for the people of the U.S. and not the telecommunications industry.


More on Money Talks News and MSN Money:

33Comments
Aug 11, 2011 5:15PM
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What they are doing is called stealing and that's a crime.  Why isn't anyone going to jail?  If I stole $50 they would put me in jail.  But they steal BILLIONS and are walking?!?! This is terribly wrong. 
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Here's the real problem: The phone companies deliberately design the phone bills to confuse the consumer, make it difficult to read. The government regulators should require the phone companies to re-create and design the monthly bill in a simplier and easy to read format. It should specifically state what the so-called various "taxes" really are for as well as the "required by the state" or "federal charges" and what they actually mean. In doing so we would be able to catch the cramming charges much easier.
Aug 11, 2011 5:38PM
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Is anyone surprised by this? It's like a catch 22: When Gov't gets out of the way and lets business police themselves, sometimes stuff like this happens. But when Gov't decides what a business can and can not do, business reduces hiring or passes the extra costs on to the consumer. The common denominator is that the consumer gets screwed.
Aug 12, 2011 12:52AM
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My brother clued me in about "cramming" by Verizon.  I checked my bill and it turns out I'd been billed $10 every month for almost three years for "Predicto: win big money!!!!".  I'd always deleted the stupid text message, but I was told I'd signed up for it.  I don't think so!  I wrote a very strongly worded letter to the CEO of Verizon, and long story short, I wound up getting a complete refund of over $300, and part of the deal was my insistence that my brother also received a complete refund.  Cramming is a slimy scam of the highest order, and wireless providers are counting on the fact that you don't carefully read your 7+ page bills every month. They say they are only a third party carrier, but PLEASE, how stupid do they think we are?? If they've agreed to put the charge on their bill, they're getting a piece of the action.  Cell phone users everywhere should absolutely put their collective foot down and revolt.  This scummy practice will go away if everyone loudly refuses to put up with it.  You don't need to be the victim of a large scale scam!!
Aug 11, 2011 4:47PM
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It's easy to detect cramming - read your phone bill carefully once, then watch from month to month that the bill doesn't change much - a few cents here or there due to the different lengths of the billing cycles.
Aug 11, 2011 5:04PM
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Fertile grounds for a CLASS ACTION LAWSUIT!  Every mobile phone provider vs the people of America.

They will change their self regulation B$ VERY FAST when wind of this catches on.

Self regulation NEVER WORKS.  It's lazy politicians.  Look at the financial industry.  Thanks to their 'self regulation' they purposely bombed the American economy and also the global economy affecting almost every other country.

Now if that isn't a statement against self regulation then I don't know what else will get politicians to get their a $$ in gear and get working.

Aug 12, 2011 9:09AM
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Lakawak (JKFAN) I am calling BS.  You signed up for something without reading the fine print and lo and behold, that fine print was that you would be charged on your phone bill.  But you can't admit your stupidity so you blame phone companies.

I worked for a phone company.  No it's not BS. 

 

 Fine print doesn't constitute a contract or any agreement.   It's fine print in order to appear to give you a contract, but if you never understood or saw such a contract it is void-- and all you have to do to prove it is to say "I never knew or heard or saw it".  Fine print is not a defense phone companies. It's the same thing as mumbling to someone.  If only one person understand a verbal agreement, it is not a legal.  Both parties must understand it.

 

Further more, most of these 3rd party companies never warn you that you are about to be charged.  My former company's policy was if someone saw it and complained we would adjust it through special computer program which adjusts it for the company too so we don't pay out to the 3rd party any part of the money.  It was a no questions asked, we just adjusted it.

 

 We would also offer to block that particular third party.   We could also blacklist all 3rd party content if the customer wanted it.  We knew (the telephone company) that the 3rd party people were often times scammers, but there was money being made.  And there are some people that actually liked some of the 3rd party crap (always surprised me).   And those people who claimed they never signed up with a 3rd party but kept calling us every month to have it adjusted, we'd adjust and but force a black list of the 3rd party because obviously this customer was scamming.

 

But that's how it works folks.

 If your bill is not a consistant amount each month something is wrong and call 611 or their toll free number.  Either you are on a bad minute plan or messaging plan or you got 3rd party subscriptions you never knew about. 

Aug 11, 2011 9:47PM
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My Verizon wireless bill was differant every month and I had an unlimited plan.  Went with metro pcs and at least there honest, my bill is $50 a month unlimited talk and text and internet.  I travel nationwide and while evryone else I worked with, 4 of us each with differant carrier,s and my verizon service was the worst.  I think we depend on our cell phones alittle to much, all ya see is people walking around staring into there palms, if aliens are looking at us we must look like a bunch of idiots lol  And if they put bigger hole,s and extentions on cell phones it will be the end of the human race.  And your an moron if you put your banking info on your phone thats not to bright.

Aug 11, 2011 9:33PM
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So why don't people come together and file a class action suit against one company at a time.  Since they are fraudulently billing that is a violation of a contract not to mention since the OIG is so big on FWA they should be investigating.  This should be an easy way for people to get out of their contracts without paying the $155-$175 cancellation/termination fee.  Or everyone should just ban the large companies and go to those smaller ones, so what if you can't always get a signal.  I have Verizon and it drops calls all the time.
Aug 11, 2011 9:45PM
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you'd be suprise how many calls i get from people who never look at their bill & finally notice charges of $9.99 from a couple of subscriptions that's been on their line for 12 months or more. beware of those websites that ask you to enter you cell number so they can send you the results of some personality quiz you took online or send you the results of who is your celebrity match. and always read the fine print of those commercials telling you to text to some number to find you Jersey Shore name or to get some freaky singing bunny. That's how they always get you!!!

You can ask your carrier to put a purchase blocker on your line to prevent subscription charges from being adde to you line. And if the rep is nice enough, they can try to go back as far as they're allowed to get that money back for you.

LOOK AT YOUR BILL PEOPLE! Personally, i sure as heck always do.

Aug 11, 2011 5:11PM
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I have been crammed twice. Apparently someone only needed my telephone number to subscribe to a call forwarding service. The problem was that I wasn't aware of the subscription and never had the information I would have needed to retrieve the calls. When I called the company that charged me(through Verizon) they said there was an incentive where if you subscribed to the service you would receive a gift card to a supermarket. I finally told Verizon to block my account from any new charges. I did get my money refunded and haven't had any new charges added to my account since the block was put in place. I have a bundled account for landline and DSL and know what my monthly bill should be. When it was higher than normal I checked the bill closely and found the unauthorized charges. Be vigilant!!

P.S. Phone companies are require to bill for third parties. Write your Congressman.

Aug 12, 2011 10:33AM
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"Remind them that they work for the people of the U.S. and not the telecommunications industry."
Yeah, I'm sure they'll try to remember that as they're counting the money and donations received from those telecommunications giants as a payoff to keep the system intact.
Aug 11, 2011 10:59PM
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I  noticed  a charge for three information calls at $1.99 each on our land-line.  I might have figured that someone in the house did it (the house was being remodeled and we had different subcontractors in and out all  the time) except this was a mountain cabin and the line had been physically disconnected during those two months while we added a second story!  The Quest rep didn't want to believe us, but then he tested the line, and son-of-a-gun -- no service!  So he credited us the $5.97.  They got us back though -- charged us $65 to reconnect the line when the work was done....
Aug 11, 2011 10:41PM
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We had Verizon and kept getting crammed by different companies we'd never heard of. We complained to Verizon and they said there was nothing that they could do and that we had probably given our phone number for something on the internet and that that was the reason why we were charged a monthly fee. I had never authorized any of the charges and in the end we paid them and dropped Verizon for telephone service. We now use MagicJack in place of our land line and cell phones. MagicJack isn't perfect but it works for us and you can't beat the price!! No more cramming!! We still have Verizon for internet and FIOS TV which we are looking to replace eventually. I just think they charge way to much for their services. $120 a month for TV and internet. Anyone know of a cheaper and reliable internet and TV service?
Aug 11, 2011 6:47PM
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and when you noticed these charges on your bill and try to get someone with your carrier to help you forget about it. It may take several calls many disconnects etc. which you better have minutes for. A golf buddy of mine is a trainer for veri&^%.and they train their people to use as many up that they can. so don't get pissed and hang up you'll have to start all over again.

Aug 11, 2011 5:37PM
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This is all a result of deregulation, and opening the telecom industry to "competition".  Your local telco is required to bill these charges and often doesn't have any control over how the charges got on the bill.  They have to follow each individual biller's process for disputes and credits.  Be diligent, always read your bill, always check out any changes to your bill as soon as possible, and document any disputes that you open.  Keep record of who, when, what number you called and follow up.

The other way you're being taken advantage of is by your local governments adding "municipal" or local taxes to your landline or wireless service.  Governments are finding it easier to tack charges onto your phone bills (making it look like the phone company has raised its rates) instead of raising real estate or sales taxes.  Some of these rates are very high, and some are supposed to be temporary, but never seem to get taken off.  So pay attention, and if you don't like it, complain to your local government.

Aug 12, 2011 2:24PM
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You can call your local phone company and ask them to block all 3rd party billing.

 

Also request a refund on all unauthorized billing - speak to a supervisor if necessary and document the date, time and person you are speaking to.

.

YJ Draiman

 

 

Aug 12, 2011 1:27PM
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Deregulation at it's finest.  Now if we could only get rid of the pesky EPA, Labor Laws, and civil litigation, America would be, well, China...
Aug 12, 2011 3:58PM
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>>"Remind [Congress persons] that they work for the people of the U.S. and not for the telecommunications industry."

 

Did anyone else ROFL on reading that?

Aug 12, 2011 1:35PM
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It was deregulated in the late 1990's, those were the Clinton years.  So once again, it is the GOP.......
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