Crime doesn’t pay? It does if you’re a phone crammer

During a yearlong investigation of “cramming”—the practice of sticking unauthorized third-party charges onto telephone bills for dubious “services”—a Senate Commerce Committee investigator was told repeatedly that customers wanted services like online games and $14.95/month voicemail. He was skeptical, suspecting that most such “services” were never used. To find out, he did an experiment and signed up for a $14.95 /month “casual online gaming” service that had made more than a million dollars from its 20,000 enrolled customers. How many of them had ever played the casual online games for which they were paying, through their phone bill, every month?

The result was damning. From the official investigative report, just out from the Senate:

Committee staff had noticed that few, if any, “customers” appeared to be using its online gaming website, games.ezphonebill.com. Before Committee counsel accessed the website, the front page listed “No scores logged yet!” for its “All Time Top Scores,” even though it had enrolled more than 20,000 telephone customers in the service and generated almost $1 million dollars by charging those customers $14.95 per month.

After Committee counsel logged in to the website and tested two games, his personal e-mail address was immediately listed under the “All Time Top Scores” on the main page. He was listed with the “All Time Top Scores,” even though he merely opened two games, clicked a few buttons, and exited. Upon further investigation, Committee staff learned that the exact same games could be accessed for free at another website, www.skillpod.com. The games available on this website were not just similar to those on EZPhoneBill‘s website. They were the exact same games with the same graphics. It appears EZPhoneBill has charged thousands of telephone customers for “casual online gaming services” they are not using and that can be accessed for free on another website.

Committee staff then obtained lists of “customers” from several of the main cramming suspects and called 1,700 of them; 500 answered and were willing to talk. Not surprisingly, they all said the same thing. “Not a single individual or business owner reported that they had authorized the third-party vendors‘ charges on their telephone bills,” said the committee report.

“I guess I am like the CEO, but I‘m not in the everyday part of it.”

Companies like Total Protection Plus claimed to offer “electronic fax capabilities with online data back-up voice messaging with ID theft protection, and stand-alone voicemail access,” and to offer it only to home users. But after obtaining a list of the company’s “customers,” the committee staff noted that it was rife with businesses.

“Committee staff called dozens of the numbers and discovered that they belonged to government agencies and businesses,” said the report. “For example, some of the numbers belonged to a Taco Bell, a Wal-Mart, a Publix grocery store, the Broward County Sheriff‘s Office, an emergency room, a Capital One bank, the Jacksonville Aviation Authority, a juvenile detention center, Prince George‘s County Community Center, and the West Virginia Department of Highways.”

The dodgy behavior in the third-party phone billing industry is so prevalent that investigators repeatedly found company “presidents” who knew nothing about their “businesses” and who appeared to be mere fronts. 

“The president of GreenTreeData acknowledged that she did not use any of her own money to start the company and that, aside from signing paperwork, she had no involvement with the company, except to ‘receive a check every month,’” said the report. “She was not aware that GreenTreeData had received cramming complaints or that telephone companies had suspended it from third-party billing for excessive cramming complaints. The president of LaurenTel told Committee staff that, ‘I guess I am like the CEO, but I‘m not in the everyday part of it.’ She was barely able to describe the services that LaurenTel offered… Committee staff also spoke to the ‘president’ of Xoom Telecommunications… The ‘president’ admitted to Committee staff that she knew nothing about the day to day operations of the company and that she was president because ‘a friend said I could become president of a company.’”

The cost of cramming

Such depressing stories have been part of the US telecoms landscape since the 1990s, when phone companies were allowed to place third-party charges on phone bills, turning them into something like credit cards. This never took off for general payments, but it did quickly become a huge boon to scammers. Mystery charges began appearing on phone bills and a decade’s worth of voluntary industry regulation wasn’t ever able to eradicate them (though it did make a dent around 2000, before cramming flared up again).

Telemarketers tried to badger them into accepting the service or saying the answer ‘yes’ to a question even if the true answer was ‘no.’

The practice can generate huge payouts. In a 2010 lawsuit brought by the Federal Trade Commission, two brothers accused of cramming made $19 million over five years and outsourced all the actual work to call centers in Asia. When a federal judge forced them to send letters to 10,924 “customers” asking if they wanted the service they had been signed up for, only 27 said yes—0.25 percent. The rest had been billed without their knowledge.

How? The scams are legion, even when billing aggregators require “voice verification” to root out fraud. These particular crammers told customers that they were calling about “updating” a Yellow Pages listing; many of those who responded seemed to believe they were correcting typos, updating business hours, etc., not buying any new service. But, when the third-party verifier joined the call and the person said “yes” in answer to some question about the listing, they were verified as a sale and billing began. Court documents indicated that “Inc21 telemarketers tried to badger them into accepting the service or saying the answer ‘yes’ to a question even if the true answer was ‘no.’” (The brothers claimed they were being scammed by their own call centers; the judge thought this was laughable.)

Cramming could be crammed. Phone companies are under no obligation to pass these charges along, and they can stop working with any third-party biller they wish; many of the payment processors have racked up mountains of complaints. Given that such charges are so often fraudulent, why don’t the phone companies cut them off? Committee investigators suggest it’s because the legitimate operators like AT&T and Verizon benefit from the scams.

In the last 10 years, telephone companies have made more than a billion dollars from third-party charges, usually by charging a dollar or two to the billing companies for each item. The investigation dug up e-mails in which employees admitted that they felt pressure not to cut off billing companies.

Evidence reviewed by Committee staff shows that telephone company employees understood that third-party billing was a valuable source of revenue for their companies. While allowing third-party vendors to access their telephone bills exposed their customers to cramming, it was also profitable business line for the companies.

In November 2008, for example, a Verizon employee forwarded a cramming complaint to a colleague and stated, “[h]ere is an example where B&C [billings & collections] is causing problems here—why do we let this ESBI—and there have been many complaints on this provider, do business with us?” He asked, “[w]hy can‘t we just shut this off and let these carriers go elsewhere—ie use a credit card for their services and get out of this business?” As the colleague forwarded the e-mail to the Verizon employee who handled complaints he noted, “I did not respond…since…I’m confident he already understands that B&C is a revenue generating product with excellent margins (ROI) [return on investment] for Verizon…

A Director for AT&T Billing & Collection replied, “I know however we are pushed to bring in revenue and we can’t if we deny new customers. The only thing we can do is try to get as much protection as possible and go from there.”

The report notes that, “unless additional protections are put in place, millions of telephone customers will likely continue to face billions of dollars of unauthorized charges.” The Senate is holding hearings this week on the issue, and the FCC last month launched a new crackdown on cramming. Many of the new suggestions ask phone companies to better scrutinize the billers they allow on their systems.