Cramming: How Your Phone Company Helps Steal Billions

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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 reoccurring subscriptions to Wheel of Fortune and Pac Man. There are only a few things wrong with that…

  1. As an iPhone user, all games I purchase are sold through Apple’s App Store and are not charged to my phone bill.
  2. Unless I’ve been suffering from fugue states, I never authorized subscriptions to either game.
  3. Who would ever pay for a monthly subscription to Pac Man or Wheel of Fortune?

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.

Within just a few years, by the late 1990s, this method of billing had been thoroughly abused by crooks who began 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? A 2011 Senate Commerce Committee report titled “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?

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 rake in $1 to $2 for facilitating each. 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 crammers will target anyone, anywhere. Third-party billers have added 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, and “Third-party vendors even crammed unauthorized charges for voice mail services onto AT&T’s own telephone lines.”

The United States Post Office recently audited its phone bills and found almost $550,000 in unauthorized third-party charges. The United States Naval Station in San Diego, Calif., 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. If you’ve found unauthorized charges on your bill that your phone company is unwilling to remove, or is incorrectly stating that they legally cannot remove, let us know by posting in the comments below. Then 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. They’re not. 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 (I suspect, to make them appear more legitimate). They’re listed as “Mobile Purchases & Downloads Charges.”

A permanent fix to cramming

So 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 facilitating 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 United States and not the telco industry.

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Comments & discussion

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  • http://renewableenergy2.com YJ Draiman

    Unauthorized Charges on Your Local Phone – Utility Bill? R2
    FCC fines Verizon over ‘mystery’ fees $25 million and $52 million in refunds – 10/28/2010
     
    How to Find Them, Eliminate Them & Get Your Money Back!
    If your business still gets its phone service through the old “AT&T and Verizon, etc” local phone company (as opposed to one of the newer competitive phone providers) then you need to double check your phone bill each and every month for charges you did not authorize. You may not know it but the local phone company allows other companies to bill you through your local phone bill. And while the local phone company allows other businesses to bill you through your local phone bill, the local phone company does not verify that the charges being billed to you by the other company are valid. When these unauthorized charges fraudulently appear on your phone bill it’s called “cramming”. Unfortunately you as the business owner or manager are the only one that can spot the unauthorized charges and if you don’t comb over your bill every month to spot these unauthorized charges – you’ll pay for them.
    Customers get crammed when a dishonest company puts charges on their phone bill (landline or wireless) for services that were not wanted or authorized.
    Why does the local phone company allow other companies to pass charges onto your phone bill? “Third-party billing” is supposedly a great convenience in that you only have to pay one bill instead of separate bills for obvious authorized phone related charges like yellow-page advertising in the “real yellow pages”, 411 information calls and long-distance calls from your chosen long distance carrier. Over the years though, some less-than-scrupulous companies have realized that most businesses rarely scrutinize their local-phone bills. To take advantage of this, these companies have come up with elaborate schemes to place unauthorized charges on your phone bill that you’ll end up paying for without even thinking. Unauthorized charges you can end up paying for include charges for unwanted (and unused) email accounts, web sites, directory information calls, directory advertising in obscure publications, voice mail accounts and other services.
    In theory, before these charges can be placed on your phone bill, the company that is originating the third-party billed charges is supposed to have a verification of the order like a voice recording. In reality though, all the company needs to do to initiate the charge is submit your name and phone number to the billing entity. The verifications are only required to be produced if a complaint is filed.
    To prevent these charges from appearing on you business phone bill it’s helpful to understand the four parties that make unauthorized third party phone charges a costly reality. Party number one is any employee who can answer your business phones. The  un-authorized charge is rarely random and it usually happens after one of your company employees gets a telemarketing call. Employees should be instructed to document and report any overly aggressive telemarketing calls they receive. Party number two is the telemarketing company that originates the unauthorized charges by trying to get your employee to accept some service for which you’ll be billed through your local phone bill. Party number three is the third-party billing company that has billing agreements with your local phone company. The name of the third-party billing is the one that is prominently displayed on your phone bill. After the third-party billing company’s name is the name of the company that is originating the unwanted charges. Party number four is your “former Ma Bell” local phone company that collects the unwanted charges (keeps a share for “Ma”) and then passes the rest to the third-party billing company (who keeps a big share) and then passes the balance on to the company that initiated the unwanted charge.
    Third-party charges on U.S. consumer and business telephone bills, most of them unauthorized by the customer, amount to US $2 billion a year, according to a new report from a U.S. Senate committee.
    Unauthorized third-party charges on telephone bills, often called cramming, cost one national retail chain $550,000 over the last decade, not including the $400,000 the company spent to fight the mystery charges, said the report, resulting from a year-long investigation by the Senate Commerce, Science and Transportation Committee.
    Telephone carriers have made more than $1 billion[b] in revenue from third-party charges in the past decade, said Senator John “Jay” Rockefeller, a West Virginia Democrat and committee chairman. Carriers get a fee for placing third-party charges on bills, according to the report.
    The best way for consumers to protect themselves is to call their local phone company and request that it shut off third-party billing services — many will, for free.  Consumers who’ve been crammed and scammed should call their local phone company and insist on a refund; they should also file a complaint with their state attorney general’s office and the FTC. But most important: Scan those phone bills every month for surprise charges and unwanted services. They’re easy to miss.
    **Following are some of the top third-party billing names and unauthorized charge originators you’ll find on your phone bill. If you see these names on your phone bill you’ll want to call the toll free number listed next to the charge to confirm it’s a charge that’s been properly authorized to be placed on your bill. Following are actual examples that we’ve recently found while auditing business phone bills.
    We recommend customers should review any utility bills issued by deregulated utility companies. (In most instances today, consumers are paying higher charges to the deregulated gas and electric supply companies).
    All Utility – Energy, gas, electric and water bills should be reviewed for proper reading and tariff.
    If you suspect that you have been overcharged ask for detailed explanation and or file a complaint with your State Utility Commission.
    YJ Draiman for Mayor of LA
    Renewableenergy2@msn.com

  • Anonymous

    I ordered home phone w/long distance for $35.00 a month plus tax. My first bill was for $120 which included $20.00 for my computer line. The price was too much so I cancelled after 29 days. The charge for the 29 days plus 10 days  maintenace and activation was $65.25 which seemed excessive. I contacted ATT on 8/11/2011 asking ATT to explain or itemize the charges. I spoke to 3 different people, calling three times on the phone plus a chat w/ATT on the computer. Noone would or could, tell me what the charges were for. I was on hold or talking and chatting from 1pm until 5pm without getting an explanation. My question is, how can ATT bill me for $65.00 if they don’t know what the charges are for, which was their basic reply. My basic response was to ask, how do you know that I owe you $65.25, if you can’t explain the charges to me? The three reps on the phone just hung up on me. One said they would get a supervisor that I requested. Another said a supervisor would call me back the next day. And, of course noone called. That my friends is AT&T customer service. Just hang up on the caller!