By Bob Plunkett…

Last Month, the U.S. Postal Service found it had been charged $550,000 in unauthorized telephone charges so far this year. It hired an auditor to examine its bills. The audit uncovered two problems – illegal charges had been going on for nearly two decades and the Postal Service never bothered to review its bills so it was partly responsible for being ripped-off.

Apparently, nobody else reviews their bills either. The list of victims includes Starbucks, Walmart, the Washington Post, the Department of Veterans Affairs, the Chamber of Commerce, Colorado State University- and AT&T. And let’s not forget millions of consumers over the past 25 years. Facing those kinds of numbers, the Senate Commerce Committee launched an investigation.

What it found is the same thing it found 10 years ago, and another decade before that: the practice is known as “cramming.” It’s an offshoot telemarketing which allows companies to market and sell their products and services over the phone and make the phone company collect the bill in its regular monthly bill. Cramming happens when these companies charge you for products you never ordered. The charges are usually $2 here, or $4 there, but they add up. The practice is stealing about $2 billion a year. And nobody seems to care.

No one cared when the Consumer Federation railed about it in 2002. Or when
Consumer Reports wrote about it in 1994. Or when the Public Service started receiving complaints in 1988.

Consumers have to protect themselves. The loophole in logic here is that there are so many telephone customers, the phone companies only have to take a little money once in a while. It’s like getting bit by a mosquito five times over the summer. You hardly notice and certainly don’t do much about it.

The telephone companies don’t pay much attention either. Last year, they handled roughly 300 million third-party charges and put them on customer bills without verifying whether or not they were legitimate. The phone companies might have made a profit, pretty much by accident… they weren’t even trying. The phone companies make so much with their regular business, cramming fees are incidental. It adds up to the ultimate case of “asleep at the switch” – by regulators, the phone companies and consumers.

Most third party charges are minor annoyances – like a horoscopes, diet plans or web hosting services for a nominal amout. It usually takes a few months to spot the charge and by then previous charges have already been collected. The Senate Committee found it takes about three months of hounding the phone companies before consumers get any sense of satisfaction. Wait another month or two and consumers get the fee refunded from the last month’s bill, have the fee removed from the current bill and hopefully have the fee removed from future bills. But earlier fees are not refunded.

Many consumer groups complain that phone company representatives often fail to follow through when consumers complain. Senate Commerce Committee Chairman John Rockefeller IV pointed out that “consumers go through agony trying to figure out their bill and often get lost and give up.” Rockefeller faults the telecommunications industry for falling short on its promise – made a decade ago – to fix the problem by imposing voluntary guidelines. So now the committee wants the Federal Communications Commission (FCC) to alert consumers to the illegal practice.

Ironically, it was the FCC which created the problem 25 years ago. When the Communications Act of 1984 broke apart the old Bell Telephone System, third party companies were allowed to rent space on the system to create new businesses, like burglar alarm systems and competitive long distance services. The FCC decided it would be in the consumers’ interest to have all the services on one bill – the primary phone bill. That forced the telephone company into the role of bill collector which, it warned from the start, it wouldn’t be able to police.

“Third-party billing had its genesis in a well-intentioned pro-consumer initiative by the federal government,” said Walter McCormick, president of US Telecom. “The convenience of having all telecommunications-related services incorporated into a single bill was believed to be a pro-competition, pro-consumer requirement.”

For the past year, AT&T boosted its policing efforts and cut cramming by better than 80%. But that effort was extremely expensive and becoming counter-productive since scam artists learned to bypass the effort by using more sophisticated technology.

Illinois Attorney General Lisa Madigan is now calling for a complete ban of third-party billing on telephone bills. “From the beginning, third-party billing on phone bills has been an open invitation for fraud and deceit,” she told the committee.

At the moment, FCC is drafting a rule to increase disclosure of mystery fees and advise customers how to block the fees, segregate third-party charges to one section of the bill and file a complaint. The bottom line however, is that it is still up to individual consumers to do all the work to protect themselves.