Cramming insights from a legal expert

Attorney skeptical of new FCC rules, says consumers also must take responsibility

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Cramming has been a hot topic this week in Washington, D.C., as both the Federal Communications Commission and a Senate panel have condemned the practice of placing unauthorized third-party charges on consumer and business phone bills.

A report from the U.S. Senate Commerce, Science and Transportation Committee estimates that cramming costs phone customers $2 billion a year.

The FCC estimates that cramming charges appear on the phone bills of 15 million to 20 million U.S. consumers annually. On Tuesday the commission proposed new rules aimed at making it harder for crammers and carriers -- which get paid fees for the third-party charges placed on customers' bills -- to benefit from this illegal act.

(Also see: How come no one goes to jail for 'cramming'?)

Will any of this matter? I'm pretty skeptical, but in the course of researching the sleazy art of cramming I stumbled across the website of The Kelly Law Firm, a practice founded by Aaron M. Kelly, an attorney specializing in Internet, business and mobile law.

In addition to his current practice, Kelly worked for the Michigan Attorney General's Office when it negotiated "several multimillion-dollar settlements" against carriers engaged in the practice of "slamming" (cramming's charming predecessor), in which a customer's telephone service is changed without their permission or knowledge.

Kelly was kind enough to answer, via email, several questions. Here's the exchange below. It's interesting reading.

Are the laws against cramming civil or criminal?

Kelly: I believe nearly all of the 50 states have some sort of law against cramming. That being said, the laws against phone cramming are both civil and criminal. At its most basic level, phone cramming is fraud, civilly and criminal. That means in some states a company accused of cramming can be both sued (or possibly on the federal side by the FTC on behalf of victims), as well as charged by a law enforcement agency and prosecuted by the FTC.

This was reinforced in the 2010 federal case, Moore, et al. v. Verizon Communications, Inc., et al., in which the court ruled that trial courts have concurrent jurisdiction over cramming lawsuits even if the FTC has commenced an action over it. In other words, more than one case can be brought against the crammer.

If there are criminal laws against cramming, shouldn't an agency like the FBI also be involved in investigating and prosecuting?

Kelly: Really, any police agency which has jurisdiction should investigate cramming. However, in response to your specific question about the FBI, I did do a quick search and found that there’s at least one report about the FBI being involved in investigating.

The thing about phone cramming is that since it involves telephones and consumers, it also makes sense for the FCC and the FTC, as well as state attorneys general to get involved. A number of agencies, both police and civilian, have a beef with cramming. Depending on much attention a particular case is getting, a person may face the ire of all of the above agencies and even criminal investigations for wire fraud, mail fraud, etc. In addition, there can even be allegations of violations of the Racketeer Influenced Corrupt Organizations Act ("RICO") or even breaches of contract.

Has anyone ever gone to jail for cramming?

Kelly: Yes. A guy in Florida who was already in prison decided it would be a good idea to orchestrate a cramming fraud from behind bars. He was sentenced to another 21 years in prison after he was convicted.

If it seems that crammers aren’t getting as tough a treatment as they deserve, remember that in many cases, it may be difficult to prove who was actually the orchestrator and had knowledge that the scheme was a cramming operation. A lot of cases (often brought by the FTC) end in a settlement where a permanent injunction is issued against the responsible corporation and all of its assets are seized in an effort to somewhat compensate the consumers. The guy in Florida was apparently an easy target for prosecution, as he got both prison time and an FTC settlement that seized his assets.

What do you think of the FCC's new efforts to reduce cramming? it seems that if the only penalty is a hefty fine, that's not enough to halt the practice. For many companies, fines and penalties are just a cost of doing business.

Kelly: I’m completely in favor of punishing fraud artists, and there are already plenty of laws against fraud to cover that, both at the state and federal level. People have been convicted and sentenced to prison for fraud. However, I'm not convinced that the FCC"s new rules are enough. The problem with any new "rule" or "regulation" is enforcement, both on the part of the agency and on the party of the party who the rule is being enforced against. For those that are benefiting from fraudulent cramming, the passing of these rules probably won't do much as the fraudsters will continue their deceptive practices.

That being said there are two things that could be implemented (although not easily): 1) allowing customers to block all third-party charges; 2) requiring that all third-party charges be in an entirely separate section of the consumers bill.

Beyond those two things, my problem with the FCC's actions are twofold. Firstly, it’s not the government’s job to micromanage people’s phone billing. People need to take some responsibility for their own bills. There’s a reason that phone companies are already required to provide a broken down bill to customers: The customer is supposed to read it so they can check for unauthorized charges! That’s exactly how the current cramming cases have started, too. Responsible people check their bill and realize something’s not right, so they report it. And there is a reason why cramming will continue -- people don't take the time to read their bills anymore. Most consumers, like myself, choose paperless billing, and thus do not take the time to read it thoroughly to check for charges. This needs to change.

Secondly, even if it were the government’s job to hold our hands, I still don’t like the blanket assault on third-party billing. Although there are a lot of scams out around, there are some third parties that provide legitimate services. (donations to Haiti relief fund, signing up for sports scores, etc). Again, many of the fraudulent services come about because people will agree to receiving a service without reading the contract, and then complain later. They need to read the contract they’re agreeing to.

Obviously, the definition of “cramming” being a fraudulent one, I’m not saying that cramming is a consumer’s fault, but third-party billers in general are going to be affected by these regulations, and a lot of complaints about so-called “cramming” are actually just complaints by customers who didn’t read an agreement before they signed up for a service.

But again, I'm all for throwing the book at the people who have been found guilty of cramming and allowing consumers to sue for restitution. I completely agree with you 100% that if the penalty is a fine, it won't change must. If you look at any of the enforcement actions, both by the government and individual consumers, the amount that is paid out pales in comparison to how much they made.

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