FCC takes up arms against "mystery fees"

Frederick Joyce, Venable LLP

Frederick Joyce, Venable LLP

There is an old proverb that goes "one man's meat is another man's poison." It's entirely possible that certain federal regulators are unfamiliar with that adage. While many consumers, businesses and even charitable organizations have embraced the practice of billing a consumer's telephone account for various products and services, the Federal Communications Commission has apparently found many aspects of this growing form of payments to be distasteful.     

In a Notice issued following a year's worth of studies, the FCC initiated a rulemaking proceeding aimed at protecting consumers from so-called "mystery fees" and "cramming" practices, involving the placement of unauthorized charges on a customer's monthly telephone bill.  For now, the FCC is soliciting comments on several proposed regulations; however, given its finding that "cramming is a significant and ongoing problem that has affected consumers for over a decade," the agency seems predisposed to take some form of regulatory action in the near future. 

"Cramming" or merely convenient?

Any business practice tagged with the name "cramming" is bound to be the subject of adverse governmental scrutiny.  The FCC's recent rulemaking proceeding is simply the latest of many investigations of unauthorized telephone charges that have been initiated by various members of Congress, the Federal Trade Commission and state and local consumer agencies.

While the FCC's rulemaking focuses on unauthorized charges, the practice of using a telephone bill to pay for a variety of good and services not offered by the phone company ("billing on behalf of others" with the maladroit acronym, "BOBO") has been around for some time and has been enthusiastically embraced by many consumers.  Indeed, a U.S. Senate Commerce Committee report cited by the FCC explains how some consumers may elect to use their telephone accounts "like a credit card or debit card account."1

A telephone company must first allow vendors to place charges for vendor products and services on the telephone company's bill.  That authorization may take place directly, or indirectly through the use of so-called "aggregators."  An approved vendor can accept a consumer's telephone number as a means of payment and can place a charge for a product on the consumer's telephone bill.  This typically voluntary, consumer-initiated form of payment transaction becomes an illegal "cramming" transaction when the third party charge is not authorized by the customer.

Billing and blocking recommendations

The FCC has tentatively recommended that wireline telephone companies should notify their subscribers "clearly and conspicuously" at the point of sale, on each bill, and on their websites of the customer's option to block third-party charges from their telephone bills, if the carrier offers that option.  Also, third-party charges would have to be conspicuously itemized and labeled on telephone company bills.

In addition, if the FCC's proposed regulations are adopted, both wireline and wireless service providers would have to include on all telephone bills and on their websites a notice that consumers may file complaints with the FCC.  Service providers would also have to provide FCC contact information on their bills to assist consumers in filing agency complaints.

A growing concern for consumers?


...only 5 percent of consumers who were affected by a particular cramming company were even aware of the unauthorized charges on their telephone bill.

The proposed rules would strengthen the FCC's existing Truth-in-Billing rules, which were adopted in 1999 and amended in 2005.  The FCC contends that despite those rules, and despite voluntary industry practices aimed at protecting consumers from improper billing practices, the "substantial volume" of cramming complaints filed with the FCC, the Federal Trade Commission and state and local consumer protection agencies, shows that these measures are not working.  The FCC stated that its agency and the FTC have determined that "even small unauthorized charges can result in tens of millions [of] dollars in total costs to consumers" and that often these unauthorized charges are not detected by consumers. 

The FCC cited an FTC commissioned survey that concluded that only 5 percent of consumers who were affected by a particular cramming company were even aware of the unauthorized charges on their telephone bill.  The FCC estimated that 15 to 20 million U.S. households a year potentially have "mystery fees" on their monthly wireline phone bills. The FCC contends that its proposed rules would help consumers detect cramming by highlighting third-party charges on their bills, prevent cramming by promoting blocking options where they are available, and encourage consumers to file complaints with the FCC if necessary.

Assuming the problem of unauthorized charges is as pervasive as the FCC says it is, it's a fair question as to how an agency of only 1,900 employees, the majority of whom are not involved in enforcement of the agency's regulations, will manage to police these practices should the FCC take on this responsibility.  And, given that many of the vendors who are responsible for these charges are not even known to the telephone companies, it may be that even those phone companies who loathe the very idea of additional billing regulations would benefit from having the FCC assume responsibility for handling all complaints about unauthorized charges.

More aggressive regulatory measures pondered

The FCC has sought comment on several other measures that, according to the agency, "could help consumers detect, rectify, and prevent cramming," such as requiring phone companies to allow their customers the option to "block" third-party charges, or prohibiting carriers from assessing an additional fee for blocking services.  The FCC has also put forward the possibility of prohibiting third-party charges on telephone bills altogether.  That proposal was credited to a state utility commission that recommended the idea in comments filed in an earlier FCC proceeding. 

The FCC's Notice also sought comments on whether telephone companies should be required to provide "accurate contact information" for third-party vendors on the customer's telephone bills and screen third parties for prior legal violations.  The FCC wants to know whether any or all of these proposed regulations should also apply to wireless service providers and to providers of interconnected Voice-over-Internet-Protocol (VoIP) services. 

But, is it legal? (The proposed regulation, that is)

...the FCC has solicited comment as to whether it has legal authority to adopt any or all of its proposed anti-cramming regulations under the Communications Act.

The FCC acknowledges that its proposed rules go further than the type of consumer protection requirements that can already be found in its Truth in Billing regulations.  Consequently, the FCC has solicited comment as to whether it has legal authority to adopt any or all of its proposed anti-cramming regulations under the Communications Act.

In addition, given that these regulations would, in just about any variation put forth by the agency, constitute a regulation of commercial speech, the FCC has asked for comment on whether its proposed rules and regulations "are consistent with ... First Amendment considerations."  With corporations in ascendancy as "citizens" under recent Supreme Court jurisprudence, and given the FCC's recent track record on First Amendment issues, the question of whether these proposed regulations would pass Constitutional muster may be of more than academic interest to the many entities that participate in third party billing.

The FCC's Truth in Billing regulations spent a fair amount of time in court when they were first proposed some years ago.  Various phone companies raised First Amendment and other objections to the regulations; consumer groups opposed the FCC's attempt to occupy the regulatory field to the exclusion of state enforcement of consumer rights.  The litigation subsided only after the Supreme Court refused in 2006 to set aside the 11th Circuit's decision in National Association of State Utility Consumer Advocates v. F.C.C., which uphold the substance of the regulations but not the exclusion of state enforcement rights.

The FCC may also recall that its attempt to regulate Customer Propriety Network Information was successfully challenged by telephone companies on First Amendment grounds.  In 1999, in the case of U.S. West. v. FCC, the U.S. Court of Appeals for the Tenth Circuit struck down FCC regulations which would have required telecommunications carriers to obtain customer consent before they could use their customers' phone records and personal information for marketing purposes.  The Circuit Court found that the FCC's regulations violated telecommunications carriers' rights of commercial free speech under the First Amendment.

Next steps

The FCC is soliciting comments from the public with respect to its anti-cramming proposals.  The deadline for filing comments will be 60 days after the FCC's Notice has been published in the Federal Register, something that has not happened as of this writing.  Reply comments will be due 30 days later.

In a proceeding of such obvious importance to so many different commercial and consumer groups, and given the Constitutional implications of its actions, one would expect that the FCC will take due consideration of the comments filed before reaching any final conclusions.  But, whether the agency can be persuaded to acquire an appetite for third party billing remains to be seen.

Rick Joyce focuses on telecommunications law, and is chair of Venable's Communications Group. His practice includes a special emphasis on wireless communications, Internet-based communications technologies, mobile marketing and emerging communications technologies. Mr. Joyce has extensive experience with electronic privacy law, mobile finance/mobile banking and social media law. He can be reached at [email protected].