NBC senior investigative correspondent Lisa Myers reports that many third-party companies are burying hidden charges on phone bills -- a practice called "cramming" -- and major phone providers are allowing it to happen.
Mysterious fees and services crammed onto phone bills are a “nationwide epidemic” for U.S. consumers, but a reliable source of revenue for some of America's biggest telecommunications companies, a year-long congressional investigation has found.
A report issued Wednesday by Sen. John Rockefeller, D-W.Va., says that three firms -- Verizon, AT&T and CenturyLink/Quest -- earned $650 million as their cut of cramming charges levied by third-parties since 2006.
Cramming charges -- such as unwanted $10-per-month voicemail or Web design services -- have been frustrating phone customers for more than 15 years, thanks in part to ill-considered rules designed to enhance competition in local phone markets. Consumers often don't spot the small monthly fees, but even when they do getting refunds can be a nightmare: The telephone provider that sends the bills often refuses to issue refunds, instead referring consumers to the third-party firms, which are often unresponsive. The Federal Communications Commission estimates that 15 million to 20 million consumers are crammed every year. Rockefeller’s report says cramming could cost U.S. consumers $2 billion annually.
Congress has been unable to fix the problem for more than a decade.
"I think it's embarrassing for the Congress ... but they're big companies. They don't have to make money that way," Rockefeller told NBC News in advance of a hearing on cramming Wednesday. "I think it's reprehensible and … shameful behavior. And don't tell me they don't know about it. They have to know about it."
Crammers are so bold that they have jammed unauthorized charges onto dead people's phone bills, government agencies' telephone lines -- even onto lines owned by AT&T.
"Committee staff has found hundreds of egregious examples of cramming," the report said. "Third-party vendors have enrolled deceased persons in their so-called services and charged family members' telephone bills for it. They have charged telephone lines dedicated to fire alarms, security systems, bank vaults, elevators and 911 systems. Senior citizens' telephones have been enrolled in web-hosting services, even though they have never used. A children‘s hospital was charged for a celebrity tracker e-mail service that provided daily celebrity news feeds, photos, and videos. A national bank‘s telephone lines were charged for credit protection plans."
Perhaps nothing illustrates how out of control cramming has become as well as AT&T's own victimization.
"Committee staff confirmed that third-party vendors associated with one hub company crammed at least 80 of AT&T‘s own telephone lines with charges for services such as voicemail, sometimes for periods as long as 18 months," the report said.
During the hearing by the Senate Commerce Committee, Rockefeller called on Congress to take action against what he called "a scam that has cost telephone customers billions of dollars."
"It’s time for us to take a new look at this problem and find a way to solve it once and for all," he said. "We’ve let the crammers get away with these abuses for far too long. There’s also a cost of cramming that is harder to put a dollar figure on – the countless frustrating hours that families and businesses spend trying to get these charges taken off their phone bills."
Cramming complaints have piled into state consumer offices, the Federal Trade Commission and the FCC since at least 1995, but neither Congress nor the phone companies that collect the money have been able to slow the problem or find the companies behind it.
NBC's Lisa Myers did, however. In an investigative report that aired Wednesday on TODAY, Myers located one company that acts as a clearinghouse for cramming; tracked down dozens of other firms that hide behind the same P.O. boxes; and found that hundreds of firms that have "D" of "F" ratings with the Better Business Bureau. Myers also had no trouble finding consumers hit with outlandish cramming charges on their phone bills: $14.95 for ID theft monitoring; $16 a month for a fax service; $40 a month for voicemail.
"Why are they in business? Probably because they're scamming and cramming and making money off of innocent people," Rockefeller said. "I'm shocked. I'm angry. I'm frustrated that nobody's been able to stop it."
The heat is getting turned up on cramming recently, however. On Tuesday, the FCC proposed new rules that would require more obvious disclosures by third parties on phone bills.
Illinois Attorney General Lisa Madigan wants to go much farther, however, and is calling for an outright ban on third-party billing on phone bills.
"Simply put, these deceptive and sometimes fraudulent solicitations for products that no one wants or agreed to buy have persisted for at least 15 years and show no signs of disappearing," she said. “It is time to put an end to third-party billing on telephone bills by banning them.”
Under current rules, providers are forced to give third-party firms the chance to market services like toll-free numbers or website hosting using the providers' equipment and billing services through an arrangement that has its origins in the original breakup of AT&T’s telephone monopoly. But it's too easy for third parties to attach unwanted items to consumers' bills -- previous investigations have found firms frequently trick consumers into signing up using sweepstakes entries or cashing small checks that also serve as authorization forms. In other cases, the third-party firms simply lie about getting authorization, a scam called “phantom billing.”
While crammers collect billions of dollars, telecom firms get a percentage of each payment for passing along the charge. Rockefeller said that added up to $650 million for the three big firms in the last five years. Rockefeller’s report says Verizon, for example, collects $1 to $2 per charge.
“It's something the phone companies do know. And they can't not know it -- because -- it's bringing in a lot of money to them,” he said. And it’s bringing them a lot of complaints. The report says more than 500,000 customers have contacted AT&T, CenturyLink/Qwest, and Verizon to complain about cramming in the past five years.
The report also claims that phone companies put pressure on employees to grant shady third-parties access to consumers' accounts for billing purposes.
"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," it says.
Both Verizon and CenturyLink told NBC News that they do not tolerate cramming, and that they carefully scrutinize outside companies and respond to complaints. Both declined on-camera interviews. AT&T had no comment.
Walter McCormick, CEO of U.S. Telecom Association, said at Wednesday's hearing that telephone firms have made strides while clamping down on bogus third-party charges, and said many consumers find third-party billing to be covenient. He tried to deflect accusations that telecommunication companies use cramming to bolster their bottom lines by saying that third-party billing revenues represent just "one-tenth of one percent" of telecom firm revenue. But he acknowledged that unauthorized charges are a "continuing problem."
"We pledge our industry's good faith and our committment to work with you," on solutions, he said.
Madigan said the first complaints about cramming showed up in her office in 1996. At the time, products such as prepaid calling cards, voice mail service, credit repair services, cell phone warranties, local singles matching services, Web page design, and toll-free numbers were most frequently crammed, she said. More recently, the scams have evolved to include credit repair, identity theft prevention and monitoring, business advice, online photo storage, roadside assistance, online yellow pages listings, and many other services.
They have a common denominator: Consumers pay for them, sometimes for years, but don't want them or use them.
"These low usage rates, less than 1 percent, indicate that consumers did not knowingly sign up for them," she said. "In one case I brought, the vendor had billed over 9,800 Illinois consumers for credit repair services. Although the credit repair services were designed for individuals, the billed consumers include a county coroner’s office, a Steak N Shake restaurant and a public library dial-a-story telephone line."
Many consumers don't understand that their telephone number can be used "just like a credit card," she said.
The deception has evolved since the arrival of the “Do Not Call” list in 2003, she said, with more consumers tricked into third-party telephone services via online Web pages.
Both Madigan and Rockefeller say that telecommunications industry groups, in response to an initial wave of complaints in the late 1990s, promised to clean up cramming through self-regulation -- and failed.
"They originally came up to us and said, 'Look, we understand this is a problem. We don't want to treat our consumers this way, so we want do it on a voluntary basis,” Rockefeller said. “Don't mandate us to do it because...' Then they made a very good case. Stupidly -- we went along with that."
RED TAPE WRESTLING TIPS
Rockefeller says he plans to introduce legislation that would make cramming explicitly illegal, but that kind of consumer protection is still in the future.
In the meantime, 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.
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Read statements to NBC News from Verizon, CenturyLink and daData in response to the report about unauthorized charges appearing on phone customers’ bills, a practice called “cramming.”