Studies show unauthorized phone charges cost Americans US$2 billion a year

A key U.S. Senate chairman said they need to pass legislation to shield customers from unauthorized third-party charges on their phone bills because U.S. telecom companies has failed to stop the practice.

Sen. Jay Rockefeller of West Virginia said a one-year research by the Commerce, Science and Transportation Committee indicated that about US$2 billion a year in unknown fees show up on the landline phone bills of Americans, a problem known as cramming.

In a Wednesday Senate hearing, Rockefeller asked an industry representative why big companies like AT&T have not stopped unauthorized third-party charges from going onto their customers' phone bills.

Walter McCormick, president and CEO of the U.S. Telecom Association replied, "The telephone industry has taken significant steps and even the report also indicates that there has been improvement, but it remains a very significant and very pervasive problem."

The study also said that phone companies such as AT&T, Verizon and Qwest do not have means to determine if the charges were authorized by their customers.

The third-party billing system resulted from AT&T’s divestiture when the Federal Communications Commission (FCC) required companies to bill and collect for companies that provided specialized phone services, McCormick said. However, it's no longer legally required, but many people prefer the single invoice system, he added.

The Commerce Committee's report stated phone companies receive a small fee around a dollar for including charges from third-party vendors to appear on their bills. But due to the large number of customers the charges eventually pile up. AT&T, Verizon and Qwest made US$650 million during the past five years, according to the special report.

David Spofford, founder of a communications expense management company called Xigo, also testified before the Commerce Committee. He said they reviewed three years' worth of bills for about 200 clients and it showed 40,000 instances of cramming.

The average charge was $18 a month, he said. The problem here, he said, many businesses would not bother to use resources necessary to find the unauthorized charges and stop them.

His company has identified several big third-party billing consolidators, Spofford added, but they bill under about 600 different names, which he believes was a way to avoid detection. According to Spofford, the descriptions for the phone services include voicemail, directory services and web hosting. He said most of the cases the services had not been authorized and the customers were not really receiving the services.

Sen. Claire McCaskill of Missouri was shocked to learn companies can bill to a phone number without proving they have authorization from the account holder.

McCaskill suggested phone companies should follow the example of credit card companies and add identifying PIN numbers to all customer accounts. McCormick, the industry representative, said he would discuss the PIN idea with members of his telecom association.

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