Senate Probe: 'Mystery' Fees on Phone Bills Charge Billions to Consumers

Third-party billing firms are charging Americans up to $2 billion a year in "unauthorized fees" on their landline telephone bills, generating massive profits for the nation's largest telephone companies that don't do nearly enough to crack down on the practice, a Senate Commerce Committee investigation has found.

Most consumers don't even detect the charges for months or years, if at all, because they typically range from $2 to $20 on their monthly bills. But when consumers and businesses do complain to telephone companies, they often get the runaround.

"We've got a real problem here," Sen. Jay Rockefeller, D-W.Va., chairman of the Commerce panel, said Wednesday during a hearing on the issue. "We want to do the right thing and we want to protect people."

The Federal Communications Commission estimates 15 million to 20 million American households are affected each year by the fraudulent practice known as "cramming," in which billing companies add charges to phone bills for services customers didn't order, agree to or use.

The FCC announced Tuesday proposed rules that would require telephone companies to notify consumers clearly of the option to block third-party charges from their bills if the carrier offers that option. The rules also strengthen the commission's requirement that third-party charges be separated on bills from the telephone company's charges.

But trying to stop cramming is easier said than done. Most third-party vendors are illegitimate and created for the sole purpose of exploiting the practice, the report found. The vendors operate out of post office boxes, fake offices and apartments, with "presidents" that know nothing about their "companies," reads the report.

Rockefeller said that despite industry promises to end cramming years ago, hundreds of third-party billing companies have continued to charge consumers unauthorized mystery fees on their landline phone bills for services they do not want to use.

"In exchange, they reap tens of millions of dollars a year in profit. This fraud against millions of American consumers, businesses and even government agencies is utterly reprehensible," he said. "It's time for us to take a new look at this problem and find a way to solve it once and for all."

Large phone companies say they are doing everything they can to stop the practice.

"Our policy is to resolve third-party billing inquiries promptly for any customer that reports unauthorized charges, said AT&T spokesman Steven Schwadron. "We currently offer third-party bill blocking to our customers upon request, we clearly identify third-party charges in a separate section of our bills and provide contact information for customers to obtain help or manage their third-party charges."

"Verizon runs a risk of losing customers when cramming happens, and we take an aggressive stance with third-party service providers (who) include unauthorized charges on our customers' bills," said Bill Kula, a Verizon spokesman. "We take cramming very seriously, and have revoked the billing privileges of about 20 third-party service providers per year for the past several years for cramming-related reasons."

But Verizon also opposes legislation that would ban third-party billing, saying other means can be found to "ferret out illegitimate third-parties." It says customers enjoy the convenience of paying third-party charges they have accumulated with other phone services

According to the report, telephone companies over the last decade have generated more than $1 billion in revenue from the practice. AT&T, Qwest and Verizon have earned more than $650 million over the last five years through cramming.

During the same time period, more than 500,000 customers contacted these telephone companies to complain.