Pay-per-Call Rule
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Federal Register › Vol. 63 › 63 FR 58524
Text
Part III
Federal Trade Commission
_______________________________________________________________________
16 CFR Part 308
Pay-per-Call Rule; Proposed Rule
Proposed Rules
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FEDERAL TRADE COMMISSION
16 CFR Part 308
Pay-per-Call Rule
AGENCY: Federal Trade Commission.
ACTION: Notice of proposed rulemaking.
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SUMMARY: In this document, the Federal Trade Commission (the
``Commission'' or ``FTC'') issues a Notice of Proposed Rulemaking to
amend the Commission's Trade Regulation Rule Pursuant to the Telephone
Disclosure and Dispute Resolution Act of 1992 (the ``900-Number Rule,''
``Rule,'' or ``original Rule''), 16 CFR Part 308, and requests public
comment on the proposed changes. The 900-Number Rule governs the
advertising and operation of pay-per-call services, and establishes
billing dispute procedures for those services as well as for other
telephone-billed purchases.
This document invites written comments on all issues raised by the
proposed changes and, specifically, on the questions set forth in
Section I of this Notice. This document also contains an invitation to
participate in a public workshop to be held following the close of the
comment period, to afford the Commission staff and interested parties
an opportunity to explore and discuss issues raised during the comment
period.
DATES: Written comments will be accepted until January 8, 1999.
Notification of interest in participating in the public workshop also
must be submitted on or before January 8, 1999. The public workshop
will be held on February 25 and 26, 1999, from 9:00 a.m. until 5:00
p.m.
Commission staff and interested parties
an opportunity to explore and discuss issues raised during the comment
period.
DATES: Written comments will be accepted until January 8, 1999.
Notification of interest in participating in the public workshop also
must be submitted on or before January 8, 1999. The public workshop
will be held on February 25 and 26, 1999, from 9:00 a.m. until 5:00
p.m.
ADDRESSES: Six paper copies of each written comment should be submitted
to the Office of the Secretary, Room 159, Federal Trade Commission, 6th
Street and Pennsylvania Avenue, N.W., Washington, DC 20580. To
encourage prompt and efficient review and dissemination of the comments
to the public, all comments should also be submitted, if possible, in
electronic form, on either a 5\1/4\ or a 3\1/2\ inch computer disk,
with a label on the disk stating the name of the commenter and the name
and version of the word processing program used to create the document.
(Programs based on DOS are preferred. Files from other operating
systems should be submitted in ASCII text format to be accepted.)
Individual members of the public filing comments need not submit
multiple copies or comments in electronic form. Comments should be
identified as ``Pay-Per-Call Rule Review--Comment. FTC File No.
R611016.''
Notification of interest in participating in the public workshop
should be submitted in writing, separately from written comments, to
Carole Danielson, Division of Marketing Practices, Federal Trade
Commission, 6th Street and Pennsylvania Avenue, N.W., Washington, DC
20580. The public workshop will be held at the Federal Trade
Commission, 6th Street and Pennsylvania Avenue, N.W., Washington, DC
20580.
FOR FURTHER INFORMATION CONTACT: Adam Cohn, (202) 326-3411, Marianne
Schwanke, (202) 326-3165, or Carole Danielson, (202) 326-3115, Division
of Marketing Practices, Bureau of Consumer Protection, Federal Trade
Commission, Washington, DC 20580.
SUPPLEMENTARY INFORMATION:
Section A. Background
ld at the Federal Trade
Commission, 6th Street and Pennsylvania Avenue, N.W., Washington, DC
20580.
FOR FURTHER INFORMATION CONTACT: Adam Cohn, (202) 326-3411, Marianne
Schwanke, (202) 326-3165, or Carole Danielson, (202) 326-3115, Division
of Marketing Practices, Bureau of Consumer Protection, Federal Trade
Commission, Washington, DC 20580.
SUPPLEMENTARY INFORMATION:
Section A. Background
1. Telephone Disclosure and Dispute Resolution Act of 1992 (``TDDRA'')
Congress enacted the Telephone Disclosure and Dispute Resolution
Act of 1992 (``TDDRA''), 15 U.S.C. 5701 et seq., to curtail the unfair
and deceptive practices engaged in by some pay-per-call businesses and
to encourage the growth of the legitimate pay-per-call industry.\1\
Title I of TDDRA directed the Federal Communications Commission
(``FCC'') to adopt regulations defining the obligations of common
carriers in connection with providing tariffed common carrier services
to pay-per-call services.\2\ Title I also set forth the original
definition of ``pay-per-call services,'' which limited the term to
certain specified services accessed through the use of a 900 telephone
number.\3\
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\1\ This statement summarizes Congress' findings regarding the
pay-per-call industry at the time it passed the legislation. For
greater detail concerning the problems Congress found to be
associated with pay-per-call services, see 15 U.S.C. 5701(b).
\2\ Title I is codified at 47 U.S.C. 228. The FCC published its
Notice of Proposed Rulemaking and Notice of Inquiry at 58 FR 14371
(March 17, 1993). The FCC's Rules are at 47 CFR 64.1501 et seq.
\3\ 47 U.S.C. 228(i)(1). See note 14, infra.
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gress found to be
associated with pay-per-call services, see 15 U.S.C. 5701(b).
\2\ Title I is codified at 47 U.S.C. 228. The FCC published its
Notice of Proposed Rulemaking and Notice of Inquiry at 58 FR 14371
(March 17, 1993). The FCC's Rules are at 47 CFR 64.1501 et seq.
\3\ 47 U.S.C. 228(i)(1). See note 14, infra.
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Titles II and III of TDDRA required the FTC to prescribe
regulations governing various aspects of telephone-billed purchases,
including pay-per-call services.\4\ Title II of TDDRA directed the
Commission to enact regulations governing the advertising and operation
of pay-per-call services. Among other things, TDDRA specified that
certain disclosures appear in all advertising for pay-per-call programs
and in introductory messages (``preambles'') at the start of such pay-
per-call programs. Title II also prohibited pay-per-call providers from
engaging in certain practices, such as directing their services to
children under 12 years of age, or providing pay-per-call services
through an 800 number or other toll-free number. In addition, the
statute directed pay-per-call providers to comply with any additional
standards the Commission might prescribe to prevent abusive
practices.\5\
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\4\ Title II of TDDRA is codified at 15 U.S.C. 5711-5714. Title
III of TDDRA is codified at 15 U.S.C. 5721-5724.
\5\ 15 U.S.C. 5711(a)(2)(J).
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comply with any additional
standards the Commission might prescribe to prevent abusive
practices.\5\
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\4\ Title II of TDDRA is codified at 15 U.S.C. 5711-5714. Title
III of TDDRA is codified at 15 U.S.C. 5721-5724.
\5\ 15 U.S.C. 5711(a)(2)(J).
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Title III of TDDRA required that the FTC's regulations establish
procedures for dispute resolution and for correcting billing errors in
connection with telephone-billed purchases.
Both Title II and Title III directed the Commission to include
provisions in its regulations that would prohibit acts or practices
that evade the rules or undermine the rights provided to consumers by
the statute.\6\ Notwithstanding Section 45(a)(2) of Title 15,\7\ TDDRA
granted the FTC jurisdiction over common carriers in connection with
their activities as service bureaus or pay-per-call providers, as well
as in connection with any billing and collection activities undertaken
on behalf of providers of pay-per-call services or other telephone-
billed purchases.\8\
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\6\ 15 U.S.C. 5711(a)(4) and 5721(a)(1).
\7\ Under that Section, ``common carriers subject to the Acts to
regulate commerce'' are exempted from FTC jurisdiction to prohibit
the use of ``unfair methods of competition in or affecting commerce
and unfair or deceptive acts or practices in or affecting
commerce.''
\8\ 15 U.S.C. 5711(c) and 5721(c). The term ``telephone-billed
purchase,'' as used in TDDRA, refers to a purchase of goods or
services (other than telephone toll services) that is ``completed
solely as a consequence of completion of the call or a subsequent
dialing, touch tone entry, or comparable action of the caller.'' 15
U.S.C. 5724(1). The term includes all pay-per-call services.
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chase,'' as used in TDDRA, refers to a purchase of goods or
services (other than telephone toll services) that is ``completed
solely as a consequence of completion of the call or a subsequent
dialing, touch tone entry, or comparable action of the caller.'' 15
U.S.C. 5724(1). The term includes all pay-per-call services.
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2. 900-Number Rule
On July 26, 1993, the FTC adopted its 900-Number Rule, 16 CFR Part
308; the Rule became effective on November 1, 1993.\9\ Pursuant to
TDDRA's requirements, the 900-Number Rule incorporated the definition
of ``pay-per-call services'' set out in Section 228 of the
Communications Act of 1934, thus limiting the applicability of the
advertising and operating standards of the Rule to services accessed by
dialing a 900 number.\10\ Among other provisions, the Rule requires
that advertisements for pay-per-call services contain certain
disclosures of material
information, including the cost of the call. This material information
must also be included in an introductory message (preamble) at the
beginning of any pay-per-call program where the cost of the call could
exceed two dollars. The Rule requires that anyone who calls a pay-per-
call service must be given the opportunity to hang up at the conclusion
of the preamble without incurring any charge for the call. In addition,
the Rule requires that all preambles to pay-per-call services state
that individuals under the age of 18 must have the permission of a
parent or guardian to complete the call.
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\9\ The Statement of Basis and Purpose and Final Rule were
published at 58 FR 42364 (August 9, 1993).
\10\ See note 14, infra.
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s state
that individuals under the age of 18 must have the permission of a
parent or guardian to complete the call.
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\9\ The Statement of Basis and Purpose and Final Rule were
published at 58 FR 42364 (August 9, 1993).
\10\ See note 14, infra.
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The 900-Number Rule also establishes procedures for resolving
billing disputes for telephone-billed purchases, such as pay-per-call
services.\11\ The Rule imposes certain obligations on entities that
bill and collect for telephone-billed purchases, such as investigating
and responding to billing disputes.\12\
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\11\ The term ``telephone-billed purchase'' is defined more
broadly than the term ``pay-per-call services,'' and thus includes
within its scope all pay-per-call services. See note 8, supra, and
discussion, infra, on the definition of ``telephone-billed
purchase.''
\12\ Other TDDRA protections were established by the FCC in that
agency's rules set out at 47 CFR 64.1501 et seq. Under the FCC
rules, a consumer's telephone service cannot be disconnected for
failure to pay charges for a 900-number call, and 900-number
blocking must be made available to consumers who do not wish to have
access to 900-number services from their telephone lines.
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3. Telecommunications Act of 1996 (``1996 Act'')
On February 8, 1996, the President signed into law the
Telecommunications Act of 1996 (the ``1996 Act'') \13\ to provide a
regulatory framework for telecommunications and information
technologies and services. Section 701(b) of the 1996 Act provides
that:
\13\ Pub. L. 104, 701, 110 Stat. 56 (1996) [codified at 47
U.S.C. 228 and at 15 U.S.C. 5714(1)].
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signed into law the
Telecommunications Act of 1996 (the ``1996 Act'') \13\ to provide a
regulatory framework for telecommunications and information
technologies and services. Section 701(b) of the 1996 Act provides
that:
\13\ Pub. L. 104, 701, 110 Stat. 56 (1996) [codified at 47
U.S.C. 228 and at 15 U.S.C. 5714(1)].
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Section 204 of [TDDRA] is amended to read as follows:
(1) The term `pay-per-call services' has the meaning provided in
section 228(i) of the Communications Act of 1934,\14\ except that
the [Federal Trade] Commission by rule may, notwithstanding
subparagraphs (B) and (C) of Section 228(i)(1) of such Act, extend
such definition to other similar services providing audio
information or audio entertainment if the [Federal Trade] Commission
determines that such services are susceptible to the unfair and
deceptive practices that are prohibited by the rules prescribed
pursuant to section 201(a) [of TDDRA]. [Emphasis and footnote
added.]
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\14\ Section 228(i)(1) of the Communications Act of 1934, 47
U.S.C. 228(i)(1) provides that:
The term `pay-per-call services' means any service--
(A) in which any person provides or purports to provide--
(i) audio information or audio entertainment produced or
packaged by such person;
(ii) access to simultaneous voice conversation service; or
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\14\ Section 228(i)(1) of the Communications Act of 1934, 47
U.S.C. 228(i)(1) provides that:
The term `pay-per-call services' means any service--
(A) in which any person provides or purports to provide--
(i) audio information or audio entertainment produced or
packaged by such person;
(ii) access to simultaneous voice conversation service; or
(iii) any service, including the provision of a product, the
charges for which are assessed on the basis of completion of the
call;
(B) for which the caller pays a per-call or per-time-interval
charge that is greater than, or in addition to, the charge for
transmission of the call; and
(C) which is accessed through use of a 900 telephone number or
other prefix or area code designated by the [Federal Communications]
Commission in accordance with subsection (b)(5) [47 U.S.C.
228(b)(5)].``
The 1996 Act thus authorizes the FTC, through its 900-Number Rule,
to extend the definition of the term ``pay-per-call services''--and, in
effect, the Rule's coverage--to include certain audiotext \15\ services
that may use a dialing prefix other than 900 \16\ and services for
which there is a charge that is greater than, or in addition to, the
charge for transmission of the call.\17\ If the FTC determines that
such audio information and entertainment services are susceptible to
the unfair and deceptive practices that are prohibited by its 900-
Number Rule, the FTC has the authority to define those services as
``pay-per-call services'' and require them to comply with the Rule's
provisions.
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call.\17\ If the FTC determines that
such audio information and entertainment services are susceptible to
the unfair and deceptive practices that are prohibited by its 900-
Number Rule, the FTC has the authority to define those services as
``pay-per-call services'' and require them to comply with the Rule's
provisions.
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\15\ The term ''audiotext`` describes audio information and
entertainment services offered through any dialing pattern,
including services accessed via 900 numbers as well as those
accessed through international and other non-900-number dialing
patterns.
\16\ 47 U.S.C. 228(i)(1)(C).
\17\ 47 U.S.C. 228(i)(1)(B).
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Section 701 of the 1996 Act also modified several provisions in
Title I of TDDRA, directing the FCC to amend its regulations regarding
pay-per-call services.\18\ The FCC took action to implement this
statutory mandate in July 1996.\19\ In that proceeding, the FCC also
proposed certain other modifications to its rules not expressly
mandated by statute in an attempt to reduce fraudulent practices in the
audiotext industry.
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\18\ Congress changed the definition of ''pay-per-call
services`` as it applies to the FCC's regulations under Title I of
TDDRA by deleting the exception for ''tariffed services,`` without
authorizing either the FTC or the FCC to further modify the Title I
definition in any way. The FTC's authority to change the definition
only impacts Titles II and III of TDDRA. Thus, the FTC's proposed
definition of ``pay-per-call services'' will only apply to this Rule
and not to any regulations promulgated by the FCC pursuant to Title
I of TDDRA
exception for ''tariffed services,`` without
authorizing either the FTC or the FCC to further modify the Title I
definition in any way. The FTC's authority to change the definition
only impacts Titles II and III of TDDRA. Thus, the FTC's proposed
definition of ``pay-per-call services'' will only apply to this Rule
and not to any regulations promulgated by the FCC pursuant to Title
I of TDDRA.
\19\ Policies and Rules Governing Interstate Pay-Per-Call and
Other Information Services Pursuant to the Telecommunications Act of
1996, Order and Notice of Proposed Rulemaking, CC Docket No. 96-146,
11 FCC Rcd 14738 (1996) (``FCC Pay-Per-Call Order and Notice'').
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4. Initiation of Rule Review and Request for Comment
The 900-Number Rule provides that the Commission initiate a
rulemaking review proceeding to evaluate the Rule's operation no later
than four years after its effective date of November 1, 1993.\20\ The
Commission decided to conduct this review in conjunction with a Request
for Comment to obtain information on whether, pursuant to Section 701
of the 1996 Act, the definition of ``pay-per-call services'' should be
extended to cover audiotext services that fall outside the original
definition. Thus, on March 12, 1997, the Commission published a notice
in the Federal Register seeking comment on the overall effectiveness of
the Rule and on whether the Commission should extend the definition of
``pay-per-call services'' to include a broader array of audio
information and audio entertainment services provided through the
telephone.\21\
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\20\ 16 CFR 308.9.
\21\ 62 FR 11749 (March 12, 1997).
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he Commission should extend the definition of
``pay-per-call services'' to include a broader array of audio
information and audio entertainment services provided through the
telephone.\21\
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\20\ 16 CFR 308.9.
\21\ 62 FR 11749 (March 12, 1997).
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Written and oral comment. In response to the notice, the Commission
received 34 comments from industry, law enforcement, and consumer
representatives, as well as from individual consumers.\22\ Virtually
all of the commenters praised the effectiveness of the 900-Number Rule
in combating the deceptive and unfair practices that had plagued the
900-number industry before the Rule was promulgated. They also strongly
supported the Rule's continuing role as the centerpiece in the effort
to implement TDDRA's goals of protecting consumers and promoting the
growth of the pay-per-call industry. As will be discussed in more
detail infra, a number of commenters suggested modifications they
believed would enhance the consumer protections offered by the Rule and
reduce some of the burden on industry. In addition, the majority of
commenters strongly urged the Commission to extend the Rule's
definition of ``pay-per-call services'' to cover audio information and
audio entertainment services provided by international direct dialing
and by other non-900-number dialing patterns. Many commenters also
supported additional restrictions on telephone-billed purchases that
result in monthly or other recurring charges on consumers' telephone
bills.
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\22\ A list of the commenters, and the acronyms that will be
used to identify each commenter in this notice, is appended as
Attachment A.
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ephone-billed purchases that
result in monthly or other recurring charges on consumers' telephone
bills.
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\22\ A list of the commenters, and the acronyms that will be
used to identify each commenter in this notice, is appended as
Attachment A.
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On June 19 and 20, 1997, staff of the Commission conducted a public
workshop at the Federal Trade
Commission in Washington, DC. Fourteen associations, individual
businesses, consumer organizations, and law enforcement agencies, each
with an affected interest and ability to represent others with similar
interests, were selected to engage in the roundtable discussion.\23\
The participants were encouraged to address each other's comments and
questions, and were asked to respond to questions from Commission
staff. The workshop was open to the public; oral comments from the
public were invited and several individuals spoke during the course of
the two-day workshop. The entire proceeding was transcribed and placed
on the public record.\24\ The public record to date, including the
comments that were submitted in electronic form and the workshop
transcript, has been placed on the Commission's web site on the
Internet.\25\
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\23\ The selected participants were: AT&T, FLORIDA, GORDON, ISA,
ITA, MCI, NAAG, NCL, SW, PILGRIM, PMAA, SNET, TPI, and TSIA.
Consumers Union also was selected as a participant, but was unable
to send a representative to the workshop.
\24\ References to the workshop transcript are cited as ``Tr.''
followed by the appropriate page designation. References to comments
are cited as ``[acronym of commenter] at [page number].''
\25\ The electronic portions of the public record can be found
at http://www.ftc.gov/ftc/consumer.htm
rs Union also was selected as a participant, but was unable
to send a representative to the workshop.
\24\ References to the workshop transcript are cited as ``Tr.''
followed by the appropriate page designation. References to comments
are cited as ``[acronym of commenter] at [page number].''
\25\ The electronic portions of the public record can be found
at http://www.ftc.gov/ftc/consumer.htm. The full paper record is
available in Room 130 at the Federal Trade Commission, 6th Street
and Pennsylvania Avenue, N.W., Washington, DC 20580, telephone
number: 202-FTC-HELP (202-382-4357).
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Many commenters reported that the 900-Number Rule has been
successful in reducing the abuses that led to the passage of TDDRA \26\
and that, since the 900-Number Rule became effective, consumer
confidence has increased \27\ and complaints about 900-number services
have decreased dramatically.\28\ Commenters credited the 900-Number
Rule with these positive developments.\29\ Commenters generally agreed
that the Rule has been effective yet balanced, without unnecessarily
burdening the pay-per-call industry.\30\ Recognizing that the Rule
appears to have substantially reduced the abuses that had plagued the
900-number industry, commenters uniformly believe that it is important
to retain the Rule.\31\
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s generally agreed
that the Rule has been effective yet balanced, without unnecessarily
burdening the pay-per-call industry.\30\ Recognizing that the Rule
appears to have substantially reduced the abuses that had plagued the
900-number industry, commenters uniformly believe that it is important
to retain the Rule.\31\
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\26\ AARP at 1; AT&T at 2; FLORIDA at 4; GORDON at 1; ISA at 2;
NAAG at 2; NCL at 2; PMAA at 1-2; SNET at 2-3; TPI at 2; and TSIA at
2-3.
\27\ GORDON at 1; AT&T at 2; NAAG at 2; PMAA at 1-2; TPI at 2;
TSIA at 2-3. TSIA believes that the requirements established by the
FTC in its 900-Number Rule have benefitted consumers and enhanced
the fairness and credibility of the audiotext industry. TSIA at 2-3.
\28\ AT&T at 3; TPI at 2; AMERITECH at 2; GORDON at 1; FLORIDA
at 10; SW at 4; SNET at 2-3; NAAG at 2; NCL at 2; US WEST at 4-5
(noting a ``materially significant reduction'' in 900-number
complaints).
\29\ According to one representative comment, the 900-Number
Rule can be credited with ``eradicating abuses in the pay-per-call
industry'' and helping to make 900 numbers ``a viable marketing and
promotional tool for many legitimate marketers of consumer products
and services.'' PMAA at 1-2.
\30\ See, e.g., PMAA at 1-2, 4; NCL at 2; ISA at 2.
\31\ See, e.g., FLORIDA at 4; GORDON at 1; NCL at 2; PMAA at 4.
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eradicating abuses in the pay-per-call
industry'' and helping to make 900 numbers ``a viable marketing and
promotional tool for many legitimate marketers of consumer products
and services.'' PMAA at 1-2.
\30\ See, e.g., PMAA at 1-2, 4; NCL at 2; ISA at 2.
\31\ See, e.g., FLORIDA at 4; GORDON at 1; NCL at 2; PMAA at 4.
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Despite the success of the Rule in correcting the abuses in the
900-number industry, complaints about other types of audiotext services
(accessed via dialing patterns other than 900 numbers) continue to
flood into the offices of local exchange carriers, consumer groups, and
law enforcement agencies.\32\ The majority of complaints now involve
800 numbers, international numbers, or other dialing patterns that do
not use the 900-number prefix.\33\ Many consumer and law enforcement
agencies also have been receiving complaints from consumers who have
discovered unexplained monthly recurring charges on their telephone
bills for services that were never authorized, ordered, received, or
used.\34\
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\32\ After an initial decrease in the number of pay-per-call
complaints received by such organizations after the Rule became
effective, the numbers soon began to increase. Although pay-per-call
complaints dropped to 16th place in 1994 after the Rule became
effective, by 1996 they had climbed back to 12th place. NCL at 2.
\33\ ALLIANCE at 2-3; CINCINNATI at 1; FLORIDA at 4; NAAG at 1;
NCL at 2; SW at 2; SNET at 3-4. NCL states that, in 1996, it
received three times as many complaints about 800 numbers as it did
about 900 numbers. NCL at 2.
\34\ NCL at 3-4; SW at 3; Tr. at 382, 384, 498-504.
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hey had climbed back to 12th place. NCL at 2.
\33\ ALLIANCE at 2-3; CINCINNATI at 1; FLORIDA at 4; NAAG at 1;
NCL at 2; SW at 2; SNET at 3-4. NCL states that, in 1996, it
received three times as many complaints about 800 numbers as it did
about 900 numbers. NCL at 2.
\34\ NCL at 3-4; SW at 3; Tr. at 382, 384, 498-504.
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Some commenters expressed the opinion that the effectiveness of the
900-Number Rule has led fraudulent operators to find alternate ways to
market their services in order to evade the Rule's protections.\35\
Conversely, some industry members argue that the high chargeback rates
experienced by services offered through 900 numbers have driven
providers to seek other methods of delivering their services and of
billing and collecting for them. In addition, these commenters point to
high transport rates charged by the interexchange carriers in the
United States as a reason for the development of alternate ways to
market and bill for audio information and entertainment services. Thus,
these audio information or entertainment providers allege that by using
non-900-number dialing patterns they can provide consumers with
services that are similar or comparable to those offered through 900
numbers, but cost consumers less.\36\ Consumer groups and law
enforcement responded to this argument by alleging that providers who
offer their services through dialing patterns other than the 900-number
exchange can charge less for their services precisely because the non-
900-number format enables providers to collect unauthorized and
illegitimate charges from consumers without fear of chargebacks,
because non-900 numbers do not provide the TDDRA protections to
consumers.\37\
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ialing patterns other than the 900-number
exchange can charge less for their services precisely because the non-
900-number format enables providers to collect unauthorized and
illegitimate charges from consumers without fear of chargebacks,
because non-900 numbers do not provide the TDDRA protections to
consumers.\37\
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\35\ ALLIANCE at 2-3; FLORIDA at 4; NCL at 2; NAAG at 1; SW at
2; SNET at 3-4.
\36\ TSIA at 21.
\37\ Tr. at 367-68, 372-74, 380-81, 388-460.
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5. Notice of Proposed Rulemaking
Regardless of the factors that prompt providers to use alternatives
to the 900-number dialing pattern to bill for their audiotext services,
the question is whether these alternate billing methods undermine the
rights that Congress intended for consumers to have under TDDRA. In
TDDRA, Congress provided that consumers of audio information and
entertainment services should be protected from unfair and deceptive
practices and that they should have adequate rights of redress.\38\
Congress also realized that it could not anticipate all provisions that
might be necessary to prevent abusive practices. Therefore, TDDRA gave
the Commission the flexibility to prescribe ``such additional
standards'' as may be needed ``to prevent abusive practices.'' \39\ In
addition, in both Title II (advertising and pay-per-call standards) and
Title III (billing and collection), Congress directed the Commission to
include in its Rules provisions to ``prohibit unfair or deceptive acts
or practices that evade such rules or undermine the rights provided to
customers'' by the statute.\40\
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n
addition, in both Title II (advertising and pay-per-call standards) and
Title III (billing and collection), Congress directed the Commission to
include in its Rules provisions to ``prohibit unfair or deceptive acts
or practices that evade such rules or undermine the rights provided to
customers'' by the statute.\40\
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\38\ 15 U.S.C. 5701(a)(7).
\39\ 15 U.S.C. 5711(a)(2)(J).
\40\ 15 U.S.C. 5711(a)(4) and 5721(a)(1). In Title II, Congress
specifically directs the Commission to prohibit ``alternative
billing or other procedures'' which are unfair or deceptive or
undermine the rights provided to consumers under that Title. 15
U.S.C. 5711(a)(4).
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The record developed in this matter, as well as the Commission's
law enforcement experience, leave little doubt that many important
consumer protections provided by TDDRA have been eroded. The Commission
believes that the record supports the necessity of establishing
additional standards to ensure that consumers receive the protections
and rights that TDDRA intended. Accordingly, the Commission has
determined to retain its 900-Number Rule, but proposes to revise the
Rule. The Commission believes these revisions are necessary in order to
ensure that technological innovations in the telecommunications
industry do not undermine the rights of consumers or otherwise operate
to destroy the credibility and confidence that
ections
and rights that TDDRA intended. Accordingly, the Commission has
determined to retain its 900-Number Rule, but proposes to revise the
Rule. The Commission believes these revisions are necessary in order to
ensure that technological innovations in the telecommunications
industry do not undermine the rights of consumers or otherwise operate
to destroy the credibility and confidence that
consumers and vendors have come to expect from the legitimate pay-per-
call industry.
By this document, the Commission is proposing revisions to its 900-
Number Rule. The proposed changes to the Rule are made pursuant to the
rule review requirements of the Rule,\41\ and pursuant to the authority
granted to the Commission by TDDRA to prevent abusive practices, to
prohibit practices that evade the Commission's rules or undermine the
rights of consumers, and to encourage the growth of the legitimate pay-
per-call industry.\42\ The proposed changes also are made pursuant to
the authority granted to the Commission by Section 701(b) of the
Telecommunications Act of 1996 Act to extend the definition of ``pay-
per-call services'' to cover similar audio information and
entertainment services that are susceptible to the unfair or deceptive
acts or practices prohibited by the 900-Number Rule. As discussed in
detail infra, the Commission believes the proposed modifications are
necessary to ensure that the Rule fulfills the Congressional mandate in
TDDRA that the FTC encourage the growth of the legitimate audiotext
industry, while curtailing those practices that are abusive, unfair or
deceptive, that evade the 900-Number Rule, or that undermine the rights
of consumers provided by TDDRA. The Commission believes that the
proposed modifications strike a balance between maximizing consumer
protections and minimizing the burden on the audiotext industry.
---------------------------------------------------------------------------
ailing those practices that are abusive, unfair or
deceptive, that evade the 900-Number Rule, or that undermine the rights
of consumers provided by TDDRA. The Commission believes that the
proposed modifications strike a balance between maximizing consumer
protections and minimizing the burden on the audiotext industry.
---------------------------------------------------------------------------
\41\ 16 CFR 308.9.
\42\ 15 U.S.C. 5711(a)(2)(J), 5711(a)(4), and 5721(a)(1).
---------------------------------------------------------------------------
Section B. Overview
1. Changes in the Marketplace
At the time the original Rule was promulgated, the only significant
example of a ``telephone-billed purchase'' was a purchase of audiotext
services over a 900 number. These services were (1) blockable under
Title I of TDDRA, (2) covered by the advertising restrictions and free
preamble disclosure requirements of Title II of TDDRA, and (3) fully
protected by the dispute resolution procedures of Title III of TDDRA.
In the years since promulgation of the Commission's 900-Number
Rule, the marketplace for telephone-billed purchases has changed in
several significant ways:
Proliferation of audiotext transactions that use dialing patterns
other than 900 numbers (such as international audiotext and audiotext
provided over toll-free numbers). The development of non-900-number
audiotext services raises consumer protection implications because: (1)
these transactions are not blockable in the manner contemplated by
Title I of TDDRA; (2) they are not subject to the advertising
requirements and preamble disclosure requirements provided by Title II
of TDDRA; and (3) in instances where the charge for the cost of the
information or entertainment is hidden within the cost of a toll call
(i.e., international audiotext),\43\ these transactions are not subject
to the dispute resolution mechanisms provided by Title III of TDDRA.
---------------------------------------------------------------------------
closure requirements provided by Title II
of TDDRA; and (3) in instances where the charge for the cost of the
information or entertainment is hidden within the cost of a toll call
(i.e., international audiotext),\43\ these transactions are not subject
to the dispute resolution mechanisms provided by Title III of TDDRA.
---------------------------------------------------------------------------
\43\ International audiotext services are accessed by dialing
international telephone numbers. These services are beyond the
current scope of the Rule because they are not provided over 900
numbers, and because the resulting charges are not greater than or
in addition to the charge for transmission, a requirement for pay-
per-call services contained in the TDDRA definition. 47 U.S.C.
228(i). To receive payment for their services, international
audiotext operators enter revenue-sharing arrangements with foreign
telephone companies, and thus obtain a portion of the funds paid by
callers to the telephone companies for transmission of international
calls to the audiotext services.
---------------------------------------------------------------------------
Emergence of a market for non-audiotext telephone-billed purchases
based on ANI. More recently, there has been a sharp rise in the
development of a market for non-audiotext telephone-billed purchases
that are in many cases not directly related to telecommunications
services or sold by common carriers. For example, consumers can now
purchase voice mail, Internet access, club memberships, and a host of
other services from vendors who charge the consumer's telephone bill,
often based solely on Automatic Number Identification (ANI).\44\ For
these non-audiotext transactions, the telephone is merely the
instrument of purchase, and the product or service may have little or
nothing to do with the telephone
e, consumers can now
purchase voice mail, Internet access, club memberships, and a host of
other services from vendors who charge the consumer's telephone bill,
often based solely on Automatic Number Identification (ANI).\44\ For
these non-audiotext transactions, the telephone is merely the
instrument of purchase, and the product or service may have little or
nothing to do with the telephone. Rather, the telephone becomes much
like a credit card data capture terminal, but without the security or
accompanying dispute resolution procedures and other consumer
protections afforded to consumers who make purchases with credit cards.
---------------------------------------------------------------------------
\44\ Automatic Number Identification (``ANI'') is technology
similar to ``Caller-ID'' that permits the recipient of a telephone
call to identify (or ``capture'') the telephone number from which a
call is made.
---------------------------------------------------------------------------
The use of the telephone bill to charge for services, products, and
memberships, even without the use of ANI. Consumers can sign up for a
service in person, and charge the service to a telephone number (their
own or someone else's), merely by filling in a phone number on a form.
This has resulted in two newer types of unauthorized charges: (1)
unauthorized charges billed to a telephone subscriber for a benefit
received by someone else, such as entering a sweepstakes to win a
prize; and (2) unauthorized charges to consumers who are unaware that
by filling out a form, they are deemed to have authorized a telephone-
billed purchase. These practices are a growing part of a larger problem
known as ``cramming''--the practice of placing unauthorized and
deceptive charges on consumers' telephone bills.
Emergence of a new type of service bureau providing critical
billing and collection functions
zed charges to consumers who are unaware that
by filling out a form, they are deemed to have authorized a telephone-
billed purchase. These practices are a growing part of a larger problem
known as ``cramming''--the practice of placing unauthorized and
deceptive charges on consumers' telephone bills.
Emergence of a new type of service bureau providing critical
billing and collection functions. Service bureaus now provide much more
than the access to voice storage and telephone service that they
typically provided when the original Rule was promulgated. In the
current marketplace, a key function of service bureaus is to provide a
contractual framework for billing and collection. As the recent
Commission and State cramming cases have shown, some service bureaus,
known as ``billing aggregators'' (i.e., billing clearinghouses) act as
intermediaries between vendors and the local telephone companies
(``local exchange carriers'' or ``LECs''). These service bureaus
process their client-vendors' billing data into the electronic format
required by the LEC, contract with the LECs to have their client-
vendors' charges appear on line subscribers' telephone bills, and act
as conduits to the vendor for revenues collected by the LECs from
consumers for the vendors' services. In addition, service bureaus also
commonly structure revenue-sharing arrangements with foreign telephone
companies and provide services to bill consumers by direct mail.
Increase in the level of ``chargebacks'' for 900 numbers. Audiotext
vendors report difficulty collecting valid 900-number charges from
consumers. They report that, when LECs are unsuccessful in collecting
these legitimate charges, the vendors have great difficulty in
obtaining the information they need to collect the charges on their
own.
2. Summary of Proposed Major Changes to the Rule
il.
Increase in the level of ``chargebacks'' for 900 numbers. Audiotext
vendors report difficulty collecting valid 900-number charges from
consumers. They report that, when LECs are unsuccessful in collecting
these legitimate charges, the vendors have great difficulty in
obtaining the information they need to collect the charges on their
own.
2. Summary of Proposed Major Changes to the Rule
Each of the changes in the marketplace described above has led to
the growth of deceptive and fraudulent practices in areas not
adequately addressed by the original Rule. The proposed Rule is
intended to address these deceptive or abusive practices by adapting
the Rule to respond to the changes in the marketplace in a manner
consistent with the original intent of Congress. Each of the proposed
changes is discussed in detail in this Notice. Additionally, Commission
staff has prepared an unofficial redlined version
of the proposed Rule, showing proposed additions and deletions, which
is available on the Commission's Internet site at www.ftc.gov. A
summary of the proposed major changes to the Rule is set forth below:
Coverage of Rule: The proposed revisions to the Rule would ensure
that TDDRA protections apply to the offer and sale of every audiotext
service, regardless of the dialing pattern used to access the service.
In addition, the revisions would ensure that international audiotext
services could not be offered in a manner that evades TDDRA's dispute
resolution procedures.
This would be achieved in two ways. First, the proposal would
expand the Rule's definition of ``pay-per-call services.'' Second, the
proposal would prohibit the practice of hiding the cost of an audiotext
service within a regulated toll charge for either a domestic or
international long-distance call.
These proposed revisions address abuses that have arisen in
connection with audiotext services offered through international
numbers and other non-900 dialing patterns
e's definition of ``pay-per-call services.'' Second, the
proposal would prohibit the practice of hiding the cost of an audiotext
service within a regulated toll charge for either a domestic or
international long-distance call.
These proposed revisions address abuses that have arisen in
connection with audiotext services offered through international
numbers and other non-900 dialing patterns. Chief among these abuses is
nondisclosure (or inadequate disclosure) of cost and other material
information to consumers before they incur charges for an audiotext
service. The revised Rule also would give consumers protection against
charges for audiotext services that cannot be blocked from their
telephone lines. In addition, the proposed revisions would ensure that
consumers who incur charges for an audiotext service can use TDDRA
procedures to dispute such charges, regardless of the number dialed to
access the service.
Toll-free Numbers: The original Rule prohibits charging consumers
for an audiotext service accessed by dialing an 800 or other toll-free
number, but it creates a limited exception to this prohibition where
the consumer enters into a prior agreement (a ``presubscription
agreement'') with the provider to pay for the service. The proposed
Rule tightens this exception to prohibit certain abusive practices that
have arisen in connection with billing for audiotext services accessed
by dialing toll-free numbers. These abuses include sham presubscription
agreements, and ineffective methods of preventing unauthorized access
to services under presubscription agreements. The proposed Rule would
require an audiotext provider, before permitting access to a service,
to have a contractual agreement with the party responsible for paying
for the service. The provider would be required to send that party a
written statement of all material terms and conditions of the
agreement, along with a ``personal identification number'' (``PIN'') to
prevent unauthorized access to the service
le would
require an audiotext provider, before permitting access to a service,
to have a contractual agreement with the party responsible for paying
for the service. The provider would be required to send that party a
written statement of all material terms and conditions of the
agreement, along with a ``personal identification number'' (``PIN'') to
prevent unauthorized access to the service.
Consumers cannot block calls from their lines to toll-free
telephone numbers, so they cannot block access to audiotext services
that are reached by dialing toll-free numbers. Thus, the proposed
revisions to the requirements for presubscription agreements protect
consumers from incurring charges for services they cannot block. The
proposed revisions provide this protection by requiring that a contract
exist between the provider and the person responsible for paying for
the service before the service is provided, and by requiring an
effective method to prevent unauthorized access to the contracted
service.
Finally, the proposed Rule gives consumers additional rights to
dispute charges for audiotext accessed by dialing toll-free numbers. If
consumers have not entered into a ``presubscription agreement'' that
satisfies the proposed Rule's definition of that term, but are charged
for audiotext services accessed through a toll-free number, the revised
Rule permits consumers to challenge such charges as ``billing errors,''
and the Rule's dispute resolution rights and protections would apply.
Unauthorized Charges, or ``Cramming'': Unauthorized charges that
are ``crammed'' on to consumers'' telephone bills generally are for
telephone-billed purchases that cannot be blocked by 900-number
blocking, and many of them are recurring charges. The proposed Rule
takes a four-fold approach to the problem of cramming
rs,''
and the Rule's dispute resolution rights and protections would apply.
Unauthorized Charges, or ``Cramming'': Unauthorized charges that
are ``crammed'' on to consumers'' telephone bills generally are for
telephone-billed purchases that cannot be blocked by 900-number
blocking, and many of them are recurring charges. The proposed Rule
takes a four-fold approach to the problem of cramming.
First, the proposed Rule provides that any telephone-billed
purchase, other than one that arose from a blockable (i.e., 900-number)
transaction, requires the express authorization of the person to be
billed for the purchase. The proposed Rule also prohibits vendors,
service bureaus, and billing entities from collecting or attempting to
collect for such unblockable telephone-billed purchase charges where
the vendor, service bureau, or billing entity knew or should have known
that the purchase was not authorized by the person who was the target
of the collection efforts. The revised Rule would create strong
incentives for vendors, service bureaus, and billing entities who offer
telephoned-billed transactions that cannot be blocked to ensure that
such transactions are authorized by the party who is to be billed for
them.
Second, vendors would be prohibited from causing consumers to
receive monthly or other recurring charges for pay-per-call services in
the absence of a presubscription agreement with the person to be billed
for the service. Thus, a single call to a pay-per-call service could no
longer result in a consumer being enrolled in a ``psychic club'' or
other service plan which would result in recurring fees. The vendor
would be required to get advance authorization of the person to be
billed for any pay-per-call service that resulted in recurring fees,
and would be required to send that consumer a written copy of the
agreement before any chargers could accrue.
Third, consumers would be able to dispute unauthorized charges
``crammed'' on to their phone bills and have these charges removed
g fees. The vendor
would be required to get advance authorization of the person to be
billed for any pay-per-call service that resulted in recurring fees,
and would be required to send that consumer a written copy of the
agreement before any chargers could accrue.
Third, consumers would be able to dispute unauthorized charges
``crammed'' on to their phone bills and have these charges removed.
Under the proposed Rule, when a consumer disputes a charge for a
service that cannot be blocked,45 the billing entity, in
order to sustain that charge, must provide the consumer with actual
proof that the consumer expressly authorized the transaction that
resulted in the charge. Similarly, under the proposed Rule, when a
consumer disputes a charge purportedly resulting from a presubscription
agreement, the billing entity cannot sustain the charge absent evidence
of a valid presubscription agreement with the person being billed.
Unless the billing entity provides such proof, the charge must be
forgiven. These revisions are intended to deter the current widespread
problem of cramming.
---------------------------------------------------------------------------
\45\ The proposed Rule identifies these as charges that cannot
be blocked in advance by 900-number blocking, or TDDRA blocking, as
provided by 47 U.S.C. 228(c).
---------------------------------------------------------------------------
Fourth, the proposed Rule provides dispute resolution protections
for all transactions that result in non-toll charges on a subscriber's
phone bill, even if the charges for such purchases did not result from
a telephone call and were not based on ANI capture. This would be
accomplished by expanding the definition of ``telephone-billed
purchase'' to encompass all such transactions
----------
Fourth, the proposed Rule provides dispute resolution protections
for all transactions that result in non-toll charges on a subscriber's
phone bill, even if the charges for such purchases did not result from
a telephone call and were not based on ANI capture. This would be
accomplished by expanding the definition of ``telephone-billed
purchase'' to encompass all such transactions. This revision would
ensure that a consumer who has an unauthorized charge on his or her
phone bill--regardless of whether it arose from a telephone call--would
be able to contest the charge through the Rule's dispute resolution
procedures. This revision would address the growing problem of
unauthorized charges being ``crammed'' on to a consumer's telephone
bill as a result of filling out a sweepstakes entry form or some action
other than placing a telephone call.
Liability of Billing Entities and Billing Aggregators for
Unauthorized Charges:
The proposed Rule would impose liability on billing entities and
billing aggregators for providing unscrupulous vendors the sine qua non
for cramming--access to the telephone billing and collection system.
These parties would be unable to evade responsibility under the revised
Rule for processing charges and inserting them in consumers' monthly
telephone billing statements on behalf of unscrupulous ``crammers'' and
other vendors who blatantly violate the Rule.
Holding billing aggregators responsible for their part in cramming
would be accomplished by amending the Rule's definition of ``service
bureau'' to specifically include billing aggregators. This ensures that
billing aggregators would be liable for civil penalties any time they
``knew or should have known'' that their client-vendors were in
violation of the Rule
ho blatantly violate the Rule.
Holding billing aggregators responsible for their part in cramming
would be accomplished by amending the Rule's definition of ``service
bureau'' to specifically include billing aggregators. This ensures that
billing aggregators would be liable for civil penalties any time they
``knew or should have known'' that their client-vendors were in
violation of the Rule. Billing entities' responsibilities would be
increased via a proposed provision that would hold them accountable for
billing a consumer for unblockable telephone-billed purchases when they
knew or should have known that the transaction was not authorized by
the consumer being billed.
The proposed revisions addresses the problem of billing entities
and billing aggregators knowingly profiting from, facilitating,
encouraging, and yet evading responsibility for, illegal practices such
as cramming.
Disputed Charges: The proposed Rule would ensure that any time a
consumer disputes a charge for a telephone-billed purchase, the
consumer will not be required to pay that charge until he or she is
provided with both documentary evidence of the validity of the charge
and a written explanation describing why the charge is valid.
This would be accomplished by specifically prohibiting collection
of a charge for a telephone-billed purchase that is in dispute unless
the validity of the charge has been investigated, and unless the
consumer has received an explanation and documentary evidence
supporting the charge's validity. The Rule would also be modified to
give more specific guidance as to what the requirement (present in the
current Rule) for an ``investigation'' entails
collection
of a charge for a telephone-billed purchase that is in dispute unless
the validity of the charge has been investigated, and unless the
consumer has received an explanation and documentary evidence
supporting the charge's validity. The Rule would also be modified to
give more specific guidance as to what the requirement (present in the
current Rule) for an ``investigation'' entails. To prevent ``passing
the buck'' among multiple parties involved in collecting a charge for a
telephone-billed purchase (e.g., the LEC that prepares and sends the
consumer a phone bill, the billing aggregator that forwards billing
data from the vendor to the LEC, and the vendor that handles the
transaction from which the charge arises), the proposed Rule imposes a
new requirement that these multiple parties (1) designate which of them
will bear ultimate responsibility for receiving and responding to
billing disputes, and (2) disclose that designation on the telephone
bill.
These revisions would address the problem experienced by many
consumers who attempt to dispute a charge for a telephone-billed
purchase, only to be faced with collection action by a party other than
the original billing entity, and who are passed from one billing entity
to another without ever achieving resolution of their dispute. Multiple
parties involved in billing and collection could not hand a consumer
off from one to another, but instead would be required to respond to
the consumer's dispute.
Deceptive Statements to Billing Entities Conducting Investigations:
The proposed Rule would prevent vendors, service bureaus, and providing
carriers from using deceptive tactics in attempting to sustain an
illegitimate charge for a telephone-billed purchase
ng and collection could not hand a consumer
off from one to another, but instead would be required to respond to
the consumer's dispute.
Deceptive Statements to Billing Entities Conducting Investigations:
The proposed Rule would prevent vendors, service bureaus, and providing
carriers from using deceptive tactics in attempting to sustain an
illegitimate charge for a telephone-billed purchase.
This would be accomplished by a provision in the proposed Rule that
would prohibit a vendor, service bureau, or providing carrier from
providing false or misleading information to a billing entity
conducting an investigation of a disputed charge for a telephone-billed
purchase. Thus, practices such as falsely representing to a billing
entity that a consumer called a 900 number when, in fact, the consumer
called a toll-free number, would be prohibited by the proposed Rule.
Solicitations Transmitted by Pager or Facsimile: The proposed Rule
addresses the use of pagers and facsimile machines to solicit calls to
audiotext services. These two techniques have been used deceptively in
connection with audiotext services that are accessed through numbers
other than 900 numbers and that therefore cannot be distinguished from
non-audiotext numbers. The proposed Rule would require disclosure of
cost and other material information in any facsimile-transmitted or
pager-transmitted solicitation to call a pay-per-call service.
The proposed Rule would accomplish this by adding two new
provisions, one expressly requiring the same disclosures in pager
solicitations that are required in advertisements in other media, and
another expressly requiring the same disclosures in facsimile
solicitations that are required in advertisements in other media
smitted or
pager-transmitted solicitation to call a pay-per-call service.
The proposed Rule would accomplish this by adding two new
provisions, one expressly requiring the same disclosures in pager
solicitations that are required in advertisements in other media, and
another expressly requiring the same disclosures in facsimile
solicitations that are required in advertisements in other media.
The disclosure requirement for pager solicitations of calls to pay-
per-call services will remedy the deception that occurs when a consumer
receives a pager message and reasonably assumes that an urgent business
or personal reason exists to call a number that turns out to access a
pay-per-call service. The consumer who calls such a number in response
to a page may incur charges for audiotext services without intending to
do so. This Rule modification will eliminate this problem. Similarly,
the disclosure requirements for facsimile solicitations will address
the increasing problem of consumers being urged by facsimile messages
to call numbers that turn out to be pay-per-call services, without
adequate disclosures of cost and other material information about the
advertised service.
Section C. Discussion of Proposed Revisions to the Rule
1. General Changes
Title of the Rule. The Commission proposes to change the title of
the Rule to the ``Rule Concerning Pay-Per-Call Services and Other
Telephone-Billed Purchases.'' The current title (``Trade Regulation
Rule Pursuant to the Telephone Disclosure and Dispute Resolution Act of
1992'') does not adequately describe the purpose of the Rule. The
Commission believes that it is important for the industry and consumers
to recognize that the Rule provides more than just pay-per-call service
standards. The Rule also creates a structure for resolving billing
disputes that applies to a broad array of telephone-billed purchase
transactions
losure and Dispute Resolution Act of
1992'') does not adequately describe the purpose of the Rule. The
Commission believes that it is important for the industry and consumers
to recognize that the Rule provides more than just pay-per-call service
standards. The Rule also creates a structure for resolving billing
disputes that applies to a broad array of telephone-billed purchase
transactions. The Commission believes that the title ``Rule Concerning
Pay-Per-Call Services and Other Telephone-Billed Purchases'' more
accurately describes the substance of the Rule.
Organization of the Rule. The Commission proposes to reorganize the
original Rule in several ways to make it easier to read and understand.
In the original Rule, Section 308.2 defined terms relating to the
advertising and operation of pay-per-call services, while Section 308.7
defined terms relating to the billing and collection of telephone-
billed purchases. The Commission proposes moving all of the Rule's
definitions into a single section, proposed Section 308.2.
The proposed Rule also rearranges the order of several other
provisions, and divides the Rule into four subparts in order to improve
its organization and to provide greater clarity: Subpart A, Scope and
Definitions; Subpart B, Pay-Per-Call Services; Subpart C, Pay-Per-Call
Services and Other Telephone-Billed Purchases; and Subpart D, General
Provisions. The Commission also proposes dividing Sections 308.3
(Advertising of pay-per-call services)
l other
provisions, and divides the Rule into four subparts in order to improve
its organization and to provide greater clarity: Subpart A, Scope and
Definitions; Subpart B, Pay-Per-Call Services; Subpart C, Pay-Per-Call
Services and Other Telephone-Billed Purchases; and Subpart D, General
Provisions. The Commission also proposes dividing Sections 308.3
(Advertising of pay-per-call services)
and 308.5 (Pay-per-call service standards) of the original Rule into
several smaller sections, each dealing with a discrete subject. This
approach allows provisions dealing with specific subjects (e.g.,
children's advertising or liability for refunds) to be more easily
identified within the Rule.
Global Wording Changes. The Commission decided to make several
wording changes throughout the proposed Rule to standardize the usage
of specific words and phrases, to more accurately reflect the extended
coverage of the proposed Rule, and to reflect changes in technology
since the original Rule was promulgated. Each change is discussed
below.
(1) Caller, consumer, and customer. The original Rule used three
terms to describe the individual to be protected by the Rule's
requirements--``consumer,'' ``caller,'' and ``customer.'' The
Commission proposes to change the Rule's usage of these three words. In
most cases, the word ``consumer'' has been replaced by one of the other
terms because the term ``consumer'' is not sufficiently precise to
describe the intended beneficiary of the Rule's protections. The terms
``caller'' and ``customer'' better reflect the purpose and intent of
the various provisions. For example, the proposed Rule uses the word
``caller'' in provisions that regulate preamble disclosures because the
person making the call is the beneficiary of the protections in those
sections. On the other hand, the dispute resolution provisions afford
rights to the ``customer,'' a term that includes both the caller and
the person who receives the billing statement
the various provisions. For example, the proposed Rule uses the word
``caller'' in provisions that regulate preamble disclosures because the
person making the call is the beneficiary of the protections in those
sections. On the other hand, the dispute resolution provisions afford
rights to the ``customer,'' a term that includes both the caller and
the person who receives the billing statement. In other provisions,
such as the definition of ``presubscription agreement'' or ``personal
identification number,'' the more generic term ``consumer'' has been
retained because in those instances ``caller'' or ``customer'' would be
too narrow. In some instances, the proposed Rule clarifies that the
person referred to by the Rule is the person to whom the billing
statement has been, or will be, directed.\46\
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\46\ See, e.g., Section 308.2(j)(1).
---------------------------------------------------------------------------
(2) Vendor. The term ``vendor'' in the original Rule was used in
the billing and collection section (Section 308.7 of the original Rule)
to describe a person or entity that offers goods or services through a
telephone-billed purchase. The term ``provider of pay-per-call
services'' was used in the sections of the Rule regulating advertising
and operation of pay-per-call services (Sections 308.2 through 308.6).
Even under the original Rule, a ``provider of pay-per-call services''
was a ``vendor'' because all pay-per-call services were telephone-
billed purchases. The proposed Rule simplifies the terminology by using
``vendor'' to refer to all providers of telephone-billed purchases,
including all providers of pay-per-call services.
nd operation of pay-per-call services (Sections 308.2 through 308.6).
Even under the original Rule, a ``provider of pay-per-call services''
was a ``vendor'' because all pay-per-call services were telephone-
billed purchases. The proposed Rule simplifies the terminology by using
``vendor'' to refer to all providers of telephone-billed purchases,
including all providers of pay-per-call services.
(3) Use of 888 and 877 numbers. Since the original Rule was
promulgated, the use of toll-free ``888'' and ``877'' numbers has
grown. Therefore, the proposed Rule has added ``888'' and ``877'' to
those provisions of the Rule that deal with the use of toll-free
numbers.\47\
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\47\ Proposed Sections 308.2(b)(4), 308.7(e), and 308.13 contain
those references.
---------------------------------------------------------------------------
2. Proposed Revisions to Specific Provisions
The proposed Rule makes no substantive revisions to the following
sections of the original Rule, apart from renumbering and any of the
global wording changes discussed above that might affect these
sections: 308.3(e), 308.4, 308.5(h), 308.5(k), and 308.8.\48\
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\48\ These sections of the original Rule correspond to the
following sections of the proposed Rule: Original Sec. 308.3(e) is
now proposed Sec. 308.5 (Advertising to children prohibited);
original Sec. 308.4 is now proposed Sec. 308.8 (Special rule for
infrequent publications); original Sec. 308.5(h) is now proposed
Sec. 308.11 (Prohibition on services to children); original
Sec. 308.5(k) is now proposed Sec. 308.15 (Refunds to customers);
and original Sec. 308.8 is now proposed Sec. 308.21 (Severability).
---------------------------------------------------------------------------
Subpart A--Scope and Definitions
ec. 308.8 (Special rule for
infrequent publications); original Sec. 308.5(h) is now proposed
Sec. 308.11 (Prohibition on services to children); original
Sec. 308.5(k) is now proposed Sec. 308.15 (Refunds to customers);
and original Sec. 308.8 is now proposed Sec. 308.21 (Severability).
---------------------------------------------------------------------------
Subpart A--Scope and Definitions
Section 308.1 Scope of Regulations
The proposed Rule adds a citation to the Telecommunications Act of
1996.
Section 308.2 Definitions
The definitions that formerly appeared in the billing and
collection section of the original Rule have been moved to Section
308.2 of the proposed Rule, which contains all definitions. The
definitions have been reordered alphabetically and renumbered
accordingly. The following definitions from the original Rule are
unchanged, apart from renumbering: ``bona fide educational service,''
``Commission,'' ``program-length commercial,'' ``providing carrier,''
``reasonably understandable volume,'' ``slow and deliberate manner,''
and ``sweepstakes.''
(1) Section 308.2(a)--Billing entity. The proposed Rule clarifies
that the term ``billing entity'' covers a person who transmits any
statement of debt to a customer for a telephone-billed purchase,
including, but not limited to, a telephone bill. The definition of
``billing entity'' is critical to the dispute resolution process
governed by Section 308.20 of the proposed Rule because all persons and
entities that fall within the meaning of the term ``billing entity''
will be required to comply with the steps set forth in that section.
This proposed change recognizes that multiple parties often play a role
in the billing and collection of charges for telephone-billed
purchases. The proposed modification helps preserve the consumer's
billing dispute rights in situations where a disputed charge for a
telephone-billed purchase is passed from one billing entity to another
ired to comply with the steps set forth in that section.
This proposed change recognizes that multiple parties often play a role
in the billing and collection of charges for telephone-billed
purchases. The proposed modification helps preserve the consumer's
billing dispute rights in situations where a disputed charge for a
telephone-billed purchase is passed from one billing entity to another.
Under the original Rule, this practice often allowed the consumer's
rights to be extinguished.
The revision to the definition of ``billing entity'' is designed to
cover all of the participants in the typical billing and collection
process for telephone-billed purchases. In most cases, the LEC sends
the initial billing statement to the consumer. On that billing
statement, the LEC provides the disclosures about consumers' rights and
obligations regarding billing errors, as required by original Section
308.7(n). Once a consumer disputes a charge, the other participants in
the billing and collection process (i.e., the vendor or service bureau)
may attempt to collect the disputed charge by calling the consumer and
making oral statements that the consumer has an obligation to pay.
The proposed Rule clarifies that any communication to a consumer
regarding an alleged debt will bring a person within the definition of
``billing entity,'' as long as the communication contains a statement
of debt involving a telephone-billed purchase. Thus, the proposed Rule
ensures that, where multiple entities (including LECs, vendors, service
bureaus, and third-party debt collectors) are involved in collecting a
charge for a telephone-billed purchase, each of those entities will be
considered a billing entity and therefore must afford a consumer his or
her dispute resolution rights under the Rule.
involving a telephone-billed purchase. Thus, the proposed Rule
ensures that, where multiple entities (including LECs, vendors, service
bureaus, and third-party debt collectors) are involved in collecting a
charge for a telephone-billed purchase, each of those entities will be
considered a billing entity and therefore must afford a consumer his or
her dispute resolution rights under the Rule.
(2) Section 308.2(b)--Billing error. This definition is also a key
concept underlying the dispute resolution provisions set forth in
proposed Section 308.20. Under that section, a billing entity will be
required to refund any disputed amount on a consumer's bill, once the
consumer has invoked his or her rights by submitting a ``billing error
notice,'' unless the billing entity can provide evidence to the
consumer that there was no billing error and that the disputed amount
is a legitimate debt.\49\
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\49\ If a disputed charge is found not to be a ``billing
error,'' the sole consequence is that the Rule does not require the
billing entity to refund the consumer's money. The fact that a
charge is not a ``billing error'' in no way affects any rights that
a consumer may have under State law to dispute that charge or to
receive a refund of that charge. In addition, under State law a
consumer may have rights to dispute charges that are not ``billing
errors.'' The Commission's Rule cannot by law supersede any rights a
consumer may have under State law to dispute such charges, unless
such law is inconsistent with the FTC's Rule. 15 U.S.C. 5722(a).
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efund of that charge. In addition, under State law a
consumer may have rights to dispute charges that are not ``billing
errors.'' The Commission's Rule cannot by law supersede any rights a
consumer may have under State law to dispute such charges, unless
such law is inconsistent with the FTC's Rule. 15 U.S.C. 5722(a).
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Original definition. The original Rule delineates eight different
types of billing errors. Six of these billing errors track almost
verbatim provisions in TDDRA that define the term ``billing error'' in
a similar list.\50\ A seventh billing error \51\ was added to the
statutory definition pursuant to the Commission's authority to create
additional billing errors,\52\ and in the eighth instance, the
Commission determined that the Rule should not track the statute word-
for-word. In that instance, the statute stated that a billing error
occurred when a telephone-billed purchase was not made by the customer.
By contrast, the original Rule provided that a billing error occurred
when the telephone-billed purchase was not made by the customer nor
made from the customer's telephone.\53\
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\50\ 15 U.S.C. 5724(2)(B-G).
\51\ 16 CFR 308.7(a)(2)(viii).
\52\ 15 U.S.C. 5724(2)(H).
\53\ The statute provided that a billing error occurred when
there was ``[a] reflection on a billing statement for a telephone-
billed purchase which was not made by the customer or, if made, was
not in the amount reflected on such statement.'' 15 U.S.C.
5724(2)(A). By contrast, the original Rule defined the equivalent
billing error as a ``[a] reflection on a billing statement of a
telephone-billed purchase that was not made by the customer nor made
from the telephone of the customer who was billed for the purchase
or, if made, was not in the amount reflected on such statement.'' 16
CFR 308.7(a)(2)(i) [Emphasis added]
statement.'' 15 U.S.C.
5724(2)(A). By contrast, the original Rule defined the equivalent
billing error as a ``[a] reflection on a billing statement of a
telephone-billed purchase that was not made by the customer nor made
from the telephone of the customer who was billed for the purchase
or, if made, was not in the amount reflected on such statement.'' 16
CFR 308.7(a)(2)(i) [Emphasis added].
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As a result of that modification, under the original Rule, a
consumer was not entitled to dispute a telephone-billed purchase made
from that consumer's telephone on the ground that it was unauthorized.
The Commission refined the statutory definition of ``billing error'' in
this way because, at the time the original Rule was promulgated,
virtually all ``telephone-billed purchases'' were purchases of pay-per-
call services, accessed by dialing 900 numbers. Because TDDRA mandated
that 900-number blocking be made available to consumers by common
carriers,\54\ the Commission reasoned that TDDRA empowered the consumer
to block access to pay-per-call services. The Commission therefore
believed it unnecessary to make available in the case of alleged
unauthorized telephone-billed purchases (in most cases for 900-number
services) the dispute resolution mechanisms appropriate to other kinds
of disputed charges.\55\
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\54\ 47 U.S.C. 228(c).
\55\ The fact that a consumer could not dispute these charges
under the Rule in no way affected the consumer's right under State
law to refuse to pay for a service that was not ordered.
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er kinds
of disputed charges.\55\
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\54\ 47 U.S.C. 228(c).
\55\ The fact that a consumer could not dispute these charges
under the Rule in no way affected the consumer's right under State
law to refuse to pay for a service that was not ordered.
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Changes in the marketplace. In the years since adoption of the
original Rule, the marketplace has changed. In addition to pay-per-call
services, many other goods and services are now the subject of
telephone-billed purchases. More important, billing based on ANI for
services accessed or received through dialing patterns other than 900
numbers (e.g., audiotext provided over international or toll-free
numbers) has become more widely used. These dialing patterns are not
blockable in the manner intended by TDDRA. Thus, it is clear now that
it is possible to offer telephone-billed purchases through methods that
cannot be blocked as TDDRA intended.
In addition to audiotext services, many other products and
services, including club memberships, voice mail, Internet access,
personal 800 numbers, and pagers, are now available through telephone-
billed purchases.\56\ Though some of these services are offered in a
non-deceptive manner, in many instances, consumers have been charged
for these miscellaneous services on their telephone bills even though
they had never authorized or ordered the goods or services for which
they were being charged.\57\ These unauthorized charges have been
characterized by the popular press as ``cramming.'' In theory, there is
no limit to the types of products or services that may be billed on
consumers' telephone statements.
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even though
they had never authorized or ordered the goods or services for which
they were being charged.\57\ These unauthorized charges have been
characterized by the popular press as ``cramming.'' In theory, there is
no limit to the types of products or services that may be billed on
consumers' telephone statements.
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\56\ Such services, often referred to as ``enhanced services,''
are billed on a telephone bill through the use of the 42-50-01
Exchange Message Interface (``EMI'') billing records.
\57\ FTC v. Hold Billing Services, Ltd., No. SA98CA0629 FB (W.D.
Texas, filed July 19, 1998).
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The Commission has received approximately 9,000 complaints about
cramming since October 1997. Cramming has become the fifth most common
complaint by consumers, as reflected in consumer contacts with the FTC
through its Consumer Response Center. Based on the record in this rule
review proceeding, on the consumer complaints received about this
problem, and on recent State \58\ and Commission \59\ law enforcement
experience, the Commission believes that unauthorized charges pose a
very serious threat to consumers in the telephone-billed purchase
marketplace, and thus a corresponding threat to the healthy growth of
this innovative purchasing mechanism.
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t this
problem, and on recent State \58\ and Commission \59\ law enforcement
experience, the Commission believes that unauthorized charges pose a
very serious threat to consumers in the telephone-billed purchase
marketplace, and thus a corresponding threat to the healthy growth of
this innovative purchasing mechanism.
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\58\ See, e.g., State of Wisconsin v. Telecom Operator Service
d/b/a USP&C Operator Services, No. 98 CV 2319 (Cir Ct. Milwaukee
County, filed March 27, 1998; amended complaint filed July 27, 1998)
(continuing to bill line subscribers who deny ordering services or
who request backup regarding charges); People of Illinois v. RCP
Enterprises Group, et. al., No. 98 CH 112 (Cir. Ct., 7th Jud. Cir.--
Sangamon County, filed March 19, 1998) (using \1/16\-inch print on
opposite side of sweepstakes entry form as authorization to bill
consumer for calling card services); People of Illinois v. BLJ
Communications, No. 98 CH 113 (Cir. Ct., 7th Jud. Cir.--Sangamon
County, filed March 19, 1998) (sustaining charges for unordered pre-
paid calling cards despite informing consumers that credits would be
issued); People of Illinois v. Coral Communications Inc., No. 98 CH
3526 (Cir. Ct., Ch. Div.--Cook County, filed March 1998) (using
sweepstakes entry forms as authorization to bill for pre-paid
calling cards and voice mail, and sustaining charges for unordered
pre-paid calling cards and voice mail despite informing consumers
that credits would be issued); People of Illinois v. New World
Telecommunications Inc., No. 98 CH 115 (Cir. Ct., 7th Jud. Cir.--
Sangamon County, filed March 19, 1998) (billing line subscribers for
voice mail which they did not order, and failing to provide
effective billing dispute mechanism); State of Missouri ex. rel.
Nixon v. Coral Communications Inc., No. 98 CC 716 (Cir. Ct., St
onsumers
that credits would be issued); People of Illinois v. New World
Telecommunications Inc., No. 98 CH 115 (Cir. Ct., 7th Jud. Cir.--
Sangamon County, filed March 19, 1998) (billing line subscribers for
voice mail which they did not order, and failing to provide
effective billing dispute mechanism); State of Missouri ex. rel.
Nixon v. Coral Communications Inc., No. 98 CC 716 (Cir. Ct., St.
Louis County, filed 1998) (using miniature typeface on contest entry
forms as authorization to bill for pre-paid calling cards and voice
mail, and sending follow-up miniature typeface ``junk mail''
postcards as confirmation and last chance for consumer to cancel
services).
\59\ See, e.g., FTC v. Interactive Audiotext Services, Inc., No.
98-3049 CBM (C.D. Calif., filed Apr. 22, 1998); FTC v. International
Telemedia Associates, Inc., No. 1-98-CV-1935 (N.D. Ga., filed July
10, 1998); and Hold Billing Services.
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Proposed definition. The first eight billing errors listed in
Section 308.2(b) of the proposed Rule remain virtually identical to
those in the original Rule.\60\ The proposed Rule, however, adds three
additional billing errors to make newly-emerging problems associated
with unauthorized charges subject to the Rule's dispute resolution
procedures.\61\ A discussion of these provisions follows.
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2(b) of the proposed Rule remain virtually identical to
those in the original Rule.\60\ The proposed Rule, however, adds three
additional billing errors to make newly-emerging problems associated
with unauthorized charges subject to the Rule's dispute resolution
procedures.\61\ A discussion of these provisions follows.
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\60\ The only change is that the proposed Section 308.2(b)(8)
slightly modifies the language in Section 308.7(2)(viii) of the
original Rule to more clearly convey that it is a billing error to
identify charges for telephone-billed purchases in a manner that
violates the Rule's requirements for billing statement disclosures.
\61\ Specifically, these amendments are proposed pursuant to the
Commission's authority under 15 U.S.C. 5724(2)(H) to prescribe
additional billing errors, and pursuant to its rulemaking authority
under 15 U.S.C. 5711(a), 5721(a), and 5723.
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Section 308.2(b)(9)--Charges resulting from a purported
presubscription agreement that does not meet the requirements of the
Rule. This proposed Section specifies that the term ``billing error''
includes any charge incurred pursuant to a purported presubscription
agreement that does not meet the requirements of the proposed Rule's
definition of that term.\62\ This would address a significant problem
that has surfaced since the Rule was promulgated, whereby consumers who
have never entered into a presubscription agreement with a
provider are charged for audiotext services that are, or allegedly have
been, provided pursuant to a presubscription agreement.\63\
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f that term.\62\ This would address a significant problem
that has surfaced since the Rule was promulgated, whereby consumers who
have never entered into a presubscription agreement with a
provider are charged for audiotext services that are, or allegedly have
been, provided pursuant to a presubscription agreement.\63\
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\62\ ``Presubscription agreement'' is defined in the proposed
Rule at Sec. 308.2(j).
\63\ See, e.g., Interactive Audiotext Services. See, also,
FLORIDA at 8; NCL at 4-5; NAAG at 11; Tr. at 169, 193-94.
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This situation occurs when a telephone line subscriber is billed
for charges under a presubscription agreement entered into by some
other party who dialed an 800 or other toll-free number using the
subscriber's telephone.\64\ The Commission continues to be concerned
that presubscription agreements not be mere shams to justify billing a
consumer for calls to toll-free numbers, or for services sold under an
``agreement'' that is based solely on the fact that a telephone call
was placed from that consumer's telephone (i.e., based solely on ANI
capture).\65\ The proposed new definition of presubscription agreement
is based on this concern, and the corresponding billing error contained
in Section 308.2(b)(9) provides recourse for consumers who have been
wrongly billed for telephone-billed purchases resulting from purported
presubscription agreements entered into by another party, or resulting
from purported presubscription agreements \66\ that otherwise do not
meet the requirements of the Rule.
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ined
in Section 308.2(b)(9) provides recourse for consumers who have been
wrongly billed for telephone-billed purchases resulting from purported
presubscription agreements entered into by another party, or resulting
from purported presubscription agreements \66\ that otherwise do not
meet the requirements of the Rule.
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\64\ See, e.g., Interactive Audiotext Services. In its comment,
NCL stated that most of the audiotext-related complaints they
receive involve 800 numbers. NCL at 2.
\65\ See, e.g., U.S. v. American TelNet, Inc., No. 94-2551 CIV-
NESBIT (S.D. Fla., filed Nov. 30, 1994). In that case, the
Commission obtained $2 million in redress and a civil penalty of
$500,000 against American TelNet for charging consumers for
information or entertainment services accessed by calling 800
numbers, in violation of the Rule's requirements.
\66\ For there to be a ``purported'' presubscription agreement,
the vendor need not explicitly claim that a charge is based on a
presubscription agreement. For instance, where a consumer is charged
without authorization for a service for which the proposed Rule
requires a presubscription agreement (e.g., monthly or other
recurring pay-per-call service charges), the consumer can make use
of this billing error to dispute the charge.
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is based on a
presubscription agreement. For instance, where a consumer is charged
without authorization for a service for which the proposed Rule
requires a presubscription agreement (e.g., monthly or other
recurring pay-per-call service charges), the consumer can make use
of this billing error to dispute the charge.
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Section 308.2(b)(10)--Unauthorized charges not avoidable by
blocking. Section 308.2(b)(10) of the proposed Rule would treat as a
billing error any charges on a customer's billing statement that were
``not expressly authorized by that customer'' and that were not
``blockable pursuant to 47 U.S.C. 228(c).'' \67\ This provision would
enable a consumer to dispute a charge and to receive a refund when a
charge was not authorized by that consumer, and the charge would not
have been avoided had the consumer elected TDDRA blocking. This
proposed billing error dovetails with proposed Section 308.17, which
explicitly requires the ``express authorization'' of the person to be
billed for any telephone-billed purchase that is not avoidable by TDDRA
blocking.
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\67\ Proposed Section 308.2(b)(10). Only the form of blocking
specified by Congress in TDDRA, codified at 47 U.S.C. 228(c), will
satisfy the requirements of this subsection.
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ny telephone-billed purchase that is not avoidable by TDDRA
blocking.
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\67\ Proposed Section 308.2(b)(10). Only the form of blocking
specified by Congress in TDDRA, codified at 47 U.S.C. 228(c), will
satisfy the requirements of this subsection.
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The Commission does not propose revising the definition of
``billing error'' to bring in all unauthorized telephone-billed
purchase charges. The Commission believes that this would sweep too
broadly. In many instances, consumers still have a practical, simple,
and cost-free method of avoiding a large category of unauthorized
telephone-billed purchases--namely, blocking of services accessed
through 900 numbers.\68\ Generally, where 900-number blocking would
have been effective to enable a consumer to avoid an unauthorized
charge, the Commission believes it would be an undue burden on billing
entities to require them to determine if such charges were, in fact,
authorized.\69\
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\68\ Many commenters noted that the availability of 900-number
blocking has resulted in a dramatic decrease in the number of
complaints about 900-number services. AMERITECH at 2; AT&T at 3;
FLORIDA at 10; SW at 4; SNET at 2-3; NCL at 2.
\69\ However, where a single call to a blockable 900 number
results in monthly or other recurring charges on a consumer's
telephone bill, the Commission does not believe that it would be an
undue burden for a billing entity to show proof of authorization. A
single call to a pay-per-call service is simply not enough for a
vendor, service bureau, or billing entity to assume that the
telephone subscriber has authorized his or her enrollment in a
``psychic club'' or other similar service plan
harges on a consumer's
telephone bill, the Commission does not believe that it would be an
undue burden for a billing entity to show proof of authorization. A
single call to a pay-per-call service is simply not enough for a
vendor, service bureau, or billing entity to assume that the
telephone subscriber has authorized his or her enrollment in a
``psychic club'' or other similar service plan. The Commission
proposes requiring that these charges be provided only pursuant to a
presubscription agreement that meets all of the requirements of the
proposed Rule's definition of that term. See proposed Section
308.14.
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In situations where audiotext services are offered through an
unblockable dialing pattern, however, a consumer has no means to
protect herself from being billed for charges that result from another
person accessing the service using her telephone. Many of the
commenters and workshop participants identified this as a significant
problem and a source of numerous complaints.\70\ Where TDDRA blocking
cannot effectively prevent access to telephone-billed purchasing, the
vendor, service bureau, and billing entity should have the obligation
to ensure that the line subscriber has expressly authorized the
purchase. Under these circumstances, consumers who believe that they
have been billed for an unauthorized charge should have the right to
dispute the charge under proposed Section 308.20, and to receive proof
of authorization before collection activities continue.
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\70\ FLORIDA at 8; NCL at 4-5; NAAG at 11; Tr. at 169, 193-94,
472.
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an unauthorized charge should have the right to
dispute the charge under proposed Section 308.20, and to receive proof
of authorization before collection activities continue.
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\70\ FLORIDA at 8; NCL at 4-5; NAAG at 11; Tr. at 169, 193-94,
472.
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Some commenters urged that the Commission require that all
audiotext services be provided through the 900-number dialing
platform.\71\ Instead, the Commission proposes a more flexible
approach--specifying that it is a billing error if the consumer
receives charges for a telephone-billed purchase that the consumer did
not authorize, and the telephone-billed purchase could not have been
prevented by TDDRA blocking. This will create an incentive for
providers to use a dialing platform that is subject to TDDRA-blocking,
because by using such a dialing platform, these providers will not be
obligated under the proposed Rule to secure evidence that such charges
were expressly authorized by the person being billed.
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\71\ See, e.g., SW at 2; SNET at 2; AT&T at 29-30.
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The Commission uses the term ``express authorization'' in
describing this billing error to indicate that it is not sufficient for
a provider to demonstrate that the telephone of the consumer being
billed was the telephone used to make the call that resulted in a
telephone-billed purchase. In order to sustain the charge, the provider
must show tangible evidence that the person being billed for the
telephone-billed purchase actually consented to the charge.\72\
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demonstrate that the telephone of the consumer being
billed was the telephone used to make the call that resulted in a
telephone-billed purchase. In order to sustain the charge, the provider
must show tangible evidence that the person being billed for the
telephone-billed purchase actually consented to the charge.\72\
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\72\ For example, a tape recording of the person who was billed,
agreeing in advance to pay for the charge after hearing the material
terms of the agreement, would constitute evidence of such
authorization sufficient to show that this billing error did not
occur. Of course, if the voice recording was not of the person being
billed, the vendor would not be able to sustain the charge. For
additional examples of evidence of ``express authorization,'' see
discussion of proposed Sec. 308.17, infra.
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Section 308.2(b)(11)--Inconsistency with blocking option selected.
The Commission is aware of complaints from consumers who allege that
900-number calls have been made from their telephones even though the
consumer had previously opted to have a 900-number block on their
telephone.\73\ Section 308.2(b)(11) of the proposed Rule addresses this
situation by specifying that it is a billing error when a consumer
receives a telephone bill containing a charge that is inconsistent with
a blocking option already selected by the consumer. This billing error
will provide the consumer with a means to challenge such a charge and
receive a credit or refund if in fact the consumer had already elected
to block access to that type of service or dialing pattern.
ecifying that it is a billing error when a consumer
receives a telephone bill containing a charge that is inconsistent with
a blocking option already selected by the consumer. This billing error
will provide the consumer with a means to challenge such a charge and
receive a credit or refund if in fact the consumer had already elected
to block access to that type of service or dialing pattern.
Under this scenario, regardless of the reason for the block being
ineffective (i.e., because the block failed or because someone using
the consumer's telephone ''dialed around`` the block),\74\ the consumer
would be entitled to a credit or refund if they had elected to block
such calls and the block was supposed to be in place at the time the
call was placed. The Commission believes that once a consumer has taken
the affirmative step to elect TDDRA blocking, this should be
interpreted as an affirmative statement that the consumer does not
authorize any telephone-billed purchases that should have been blocked
by this action. If the TDDRA blocking system fails, the economic burden
should not be borne by the consumer who had taken the steps available
to guard against access to such purchases.
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\73\ TURJANICA at 1. See also, Transcript of ``FCC Public Forum
on Local Exchange Carrier Billing for Other Businesses,'' (June 24,
1997), p. 113.
\74\ For example, a caller can ``dial around'' a 900-number
block that has been placed on the line by the line subscriber's
carrier simply by dialing another carrier's ``10-XXX'' access code,
then dialing a 900 number.
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FCC Public Forum
on Local Exchange Carrier Billing for Other Businesses,'' (June 24,
1997), p. 113.
\74\ For example, a caller can ``dial around'' a 900-number
block that has been placed on the line by the line subscriber's
carrier simply by dialing another carrier's ``10-XXX'' access code,
then dialing a 900 number.
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(3) Section 308.2(e)--Customer. The definition of ''customer``
remains largely unchanged. Depending upon the context, the term refers
to either the person who made the call or the person who received the
bill for a telephone-billed purchase, or both. The only proposed
substantive change is that an unnecessarily limiting phrase at the end
of the definition was deleted. The Commission intends for this
definition to cover any recipient of a bill for a telephone-billed
purchase, regardless of whether he or she is the subscriber.
(4) Section 308.2(f)--Pay-per-call purchase. The Commission has
added a definition of ``pay-per-call purchase'' to fill the need for a
term that succinctly refers to both an attempt to purchase a pay-per-
call service as well as an actual purchase of such services.
(5) Section 308.2(g)--Pay-per-call service--Background. Virtually
all interested parties--industry as well as consumer advocates and law
enforcement--overwhelmingly support extending the definition of ``pay-
per-call service'' to cover audio information and entertainment
services that are accessed and delivered through dialing patterns other
than 900, but in other respects are similar to 900-number services and
subject to the same abuses.\75\ Indeed, the majority of complaints now
relate to toll-free numbers, international numbers, or other dialing
patterns that do not use the 900-number prefix.\76\ In general, the
problems associated with these non-900 audiotext services are the same
types of problems that Title II of TDDRA was designed to prohibit--
misrepresentations about the underlying service to be provided and
me abuses.\75\ Indeed, the majority of complaints now
relate to toll-free numbers, international numbers, or other dialing
patterns that do not use the 900-number prefix.\76\ In general, the
problems associated with these non-900 audiotext services are the same
types of problems that Title II of TDDRA was designed to prohibit--
misrepresentations about the underlying service to be provided and
inadequate cost disclosures.\77\
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\75\ AARP at 3; ALLIANCE at 4-6; AT&T at 24; CINCINNATI at 1; CU
at 1; FLORIDA at 2; NCL at 3; GORDON at 1, 3; ISA at 26-27; SNET at
4-6; SW at 2, 4-5; TSIA at 20-21; Tr. at 17-19, 21-24, 38-40, 418,
458.
\76\ ALLIANCE at 2-3; CINCINNATI at 1; FLORIDA at 4; NAAG at 1;
NCL at 2; SW at 2; SNET at 3-4. NCL states that, in 1996, it
received three times as many complaints about 800 numbers as it did
about 900 numbers. (NCL at 2).
\77\ See, e.g., FTC v. International Telemedia Associates, Inc.,
No. 1-98-CV-1935 (N.D. Ga., filed July 10, 1998); FTC v. Interactive
Audiotext Services, Inc., No. 98-3049 CBM (C.D. Calif., filed April
22, 1998); FTC. v. Audiotex Connection, Inc., No. 97-0726 (E.D.N.Y.,
filed Feb. 13, 1997); and FTC. v. Daniel B. Lubell, No. 3-96-CV-8200
(S.D. Iowa, filed Dec. 17, 1996).
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The influx of complaints in recent years concerning international
audiotext services drew particular attention from commenters, many of
whom asserted that it is essential for international audiotext services
to be subject to the same rules as 900-number services in order to
``level the playing field'' among competitors and protect all consumers
who utilize such services.\78\ In fact, several commenters suggested
that all audiotext services should be restricted to the 900-number
dialing pattern to ensure adequate protection to consumers.\79\ The two
commenters representing the international audiotext industry were the
only co
s as 900-number services in order to
``level the playing field'' among competitors and protect all consumers
who utilize such services.\78\ In fact, several commenters suggested
that all audiotext services should be restricted to the 900-number
dialing pattern to ensure adequate protection to consumers.\79\ The two
commenters representing the international audiotext industry were the
only commenters who opposed the extension of the definition of ``pay-
per-call services'' to include international dialing patterns.\80\
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\78\ See, e.g., GORDON at 3; ISA at 26-27; CINCINNATI at 1; SNET
at 3; Tr. at 17-19, 458.
\79\ SNET at 2; SW at 2; AT&T at 29-30; Tr. at 344, 369.
\80\ ATN generally; ITA at 3-9.
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Characteristics of services that should be covered by the Rule. The
Commission believes that there are two fundamental distinguishing
characteristics of all audiotext services: (1) the instantaneous nature
of the transaction; and (2) the eventual receipt of remuneration by the
provider of the audio information or entertainment. The instantaneous
creation of a financial obligation--the result of the instant capture
of ANI by the provider--not only enhances the convenience for the
seller and buyer, it also creates fertile ground for deception.\81\
Title II of TDDRA, and the provisions of the original Rule that
implemented it, were designed specifically to remedy this potential for
misrepresentation.
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result of the instant capture
of ANI by the provider--not only enhances the convenience for the
seller and buyer, it also creates fertile ground for deception.\81\
Title II of TDDRA, and the provisions of the original Rule that
implemented it, were designed specifically to remedy this potential for
misrepresentation.
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\81\ Congress recognized that the instantaneous nature of the
purchase of pay-per-call services is what made the consumer
protections under Title II of TDDRA so important. Congress noted
that ``[b]ecause the consumer most often incurs a financial
obligation as soon as the pay-per-call transaction is completed, the
accuracy and descriptiveness of vendor advertisements become crucial
in avoiding consumer abuse.'' 15 U.S.C. 5701(b)(6).
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Based on the record in this proceeding, and based on the
Commission's enforcement experience, the Commission believes that, in
any circumstance where a provider solicits consumers to call a
telephone number to receive information or entertainment, and where
that provider will receive a per-call or per-minute payment as a result
of those calls, the service is susceptible to the same types of unfair
and deceptive practices that are prohibited by Title II of TDDRA.\82\
The record does not suggest any justification for treating non-900
audiotext services any differently from 900 audiotext services.\83\ In
both circumstances, the two key factors which create the incentive and
susceptibility for fraud are both present: instantaneous purchase by
virtue of placement of a telephone call, and receipt of remuneration
from the call revenue to the provider of the audio information or
entertainment.
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00 audiotext services.\83\ In
both circumstances, the two key factors which create the incentive and
susceptibility for fraud are both present: instantaneous purchase by
virtue of placement of a telephone call, and receipt of remuneration
from the call revenue to the provider of the audio information or
entertainment.
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\82\ See, e.g., FTC v. International Telemedia Associates, Inc.,
No. 1-98-CV-1935 (N.D. Ga., filed July 10, 1998); FTC v. Interactive
Audiotext Services, Inc., No. 98-3049 CBM (C.D. Calif., filed Apr.
22, 1998); and FTC v. Daniel B. Lubell, No. 3-96-CV-8200 (S.D. Iowa,
filed Dec. 17, 1996). See also, ALLIANCE at 2, 4; AARP at 2-3; AT&T
at 6; CINCINNATI at 1; CU at 1; FLORIDA at 1, 5; GORDON at 2; ISA at
4, 26-27; NAAG at 9-10; NCL at 3; SNET at 4; SW at 2; TSIA at 20-21.
\83\ In fact, the record indicates that the danger of unfair and
deceptive practices may be greater in non-900 audiotext because
consumers are not able to effectively block access to these
services. See, e.g., International Telemedia Associates and
Interactive Audiotext Services. See also, ALLIANCE at 2-4; NAAG at
2.
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Proposed definition of ``pay-per-call services.'' Pursuant to the
authority granted to the Commission under Section 701(b) of the 1996
Act, the Commission proposes to extend the definition of ``pay-per-call
services'' to cover all purchases of telephone-based audio information
or audio entertainment services. The new definition is set forth in
Section 308.2(g) of the proposed Rule.
Section 308.2(g)(1) sets forth the statutory definition of ``pay-
per-call services.'' Sections 308.2(g)(2)-(3) augment this definition
while retaining the substance of 47 U.S.C. 228(i)(1)(A) and 228(i)(2),
pursuant to the Commission's mandate under Section 701 of the 1996 Act
nformation
or audio entertainment services. The new definition is set forth in
Section 308.2(g) of the proposed Rule.
Section 308.2(g)(1) sets forth the statutory definition of ``pay-
per-call services.'' Sections 308.2(g)(2)-(3) augment this definition
while retaining the substance of 47 U.S.C. 228(i)(1)(A) and 228(i)(2),
pursuant to the Commission's mandate under Section 701 of the 1996 Act.
The proposed definition is designed to bring within its reach any audio
information or entertainment service, accessed by dialing any telephone
number or receipt of any telephone call, where all or a portion of the
charge paid by the consumer ``results in payment, either directly or
indirectly, to the person who
provides or purports to provide such information or entertainment
service.'' \84\ This proposed change in the Rule brings international
audiotext services squarely within the definition of ``pay-per-call
services.''
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\84\ There are four exemptions which are discussed infra: (1)
services resulting in de minimis remuneration to the provider; (2)
services delivered pursuant to a valid presubscription agreement;
(3) services utilizing telecommunications for the deaf; (4) and
tariffed directory services provided by a common carrier or its
affiliate.
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four exemptions which are discussed infra: (1)
services resulting in de minimis remuneration to the provider; (2)
services delivered pursuant to a valid presubscription agreement;
(3) services utilizing telecommunications for the deaf; (4) and
tariffed directory services provided by a common carrier or its
affiliate.
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Both the written comments and the workshop discussion strongly
supported using remuneration to an information or entertainment
provider as the distinguishing characteristic of pay-per-call
services.\85\ Several commenters, however, were opposed to the strict
use of a remuneration standard to the extent that it would encompass
some services where the remuneration was disguised within the charge
paid by the consumer for the transmission of the call (e.g., 10-XXX
audiotext,\86\ international audiotext).\87\ One commenter supported
expansion of the definition of pay-per-call services to cover ``all
international audiotext transactions'' \88\ but strongly opposed the
extension of the definition of pay-per-call services to cover audiotext
services where the consumer merely pays a domestic toll charge that is
similar in price to a ``content neutral'' (non-audiotext) call.\89\
Another commenter went further, opposing coverage of any audiotext
services where the payment to the provider is contained within the
toll-charge. The commenter characterized those services where the
remuneration takes the form of a toll charge as ``free to consumers''
because the consumers pay ``no more than the normal toll charge.'' \90\
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t further, opposing coverage of any audiotext
services where the payment to the provider is contained within the
toll-charge. The commenter characterized those services where the
remuneration takes the form of a toll charge as ``free to consumers''
because the consumers pay ``no more than the normal toll charge.'' \90\
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\85\ See, e.g., ALLIANCE at 5; NAAG at 9-10; AT&T at 8, 25-28;
Tr. at 331.
\86\ Another alternative to the 900-number dialing pattern is
audiotext accessed through a particular common carrier's ``10-XXX''
access code (such as ``10-321''). Under this scenario, callers reach
the audiotext service by dialing the 10-XXX number followed by a
long-distance telephone number. The resulting toll charge to the
consumer thus includes a hidden charge for the audiotext service
itself, because the carrier and the vendor share the call revenue.
The FCC effectively put an end to this practice through a
pronouncement in an advisory opinion letter, which stated that
common carriers that engage in such practices are ``not providing
common carrier services in a just and reasonable manner as required
by Section 201(b) of the [Communications] Act and the spirit of
[Title I of TDDRA].'' See letter dated September 1, 1995, to Ronald
J. Marlowe of Cohen, Berke, Bernstein, Brodie, Kondell & Laszlo,
from John B. Muleta, Chief, Enforcement Division, Common Carrier
Bureau, Federal Communications Commission. These 10-XXX access codes
are currently being converted to ``101-XXX'' numbers.
\87\ DMA generally and at 4; ISA at 28; Tr. at 309-310.
\88\ ISA at 26-27.
\89\ ISA at 28.
\90\ DMA at 2-3. The Commission finds the characterization of an
international audiotext service as ``free'' to be misleading. This
issue is specifically addressed in FTC. v. Daniel B. Lubell, No. 3-
96-CV-8200 (S.D. Iowa, filed Dec. 17, 1996).
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ly and at 4; ISA at 28; Tr. at 309-310.
\88\ ISA at 26-27.
\89\ ISA at 28.
\90\ DMA at 2-3. The Commission finds the characterization of an
international audiotext service as ``free'' to be misleading. This
issue is specifically addressed in FTC. v. Daniel B. Lubell, No. 3-
96-CV-8200 (S.D. Iowa, filed Dec. 17, 1996).
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The fact that an international audiotext or 10-XXX audiotext call
may cost the same as an ordinary, non-audiotext, ``content neutral''
toll call is not determinative on the issue of susceptibility to the
unfair and deceptive practices prohibited by the Commission's Rule.\91\
Content neutral calls (i.e., regular toll calls) might cost the same
amount as certain audiotext calls, but the fact that there is no
remuneration to the call recipient in the case of a content neutral
call is an important distinction. Because the recipient of a content
neutral call lacks the economic incentive to induce consumers to call
as often as possible and stay on the line as long as possible, content
neutral calls are not susceptible to the types of unfair and deceptive
practices that are prohibited by the original Rule. It is the presence
of this economic incentive in audiotext services that gives rise to the
susceptibility to unfair and deceptive practices.\92\
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le and stay on the line as long as possible, content
neutral calls are not susceptible to the types of unfair and deceptive
practices that are prohibited by the original Rule. It is the presence
of this economic incentive in audiotext services that gives rise to the
susceptibility to unfair and deceptive practices.\92\
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\91\ Similarly, the fact that some 900-number audiotext programs
may cost the same or less than many international or domestic toll
charges does not make these services any less susceptible to the
unfair and deceptive practices prohibited by the Commission's Rule.
\92\ On the other hand, to the extent that a great portion of
the toll charge actually goes towards the genuine cost of
transmission of the call, and not to the information or
entertainment provider, a call might fit within the exemption
proposed by the Commission for de minimis payments to a provider,
discussed infra. Proposed Section 308.3(a)(3)(ii).
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Circumstances where there will be a rebuttable presumption of
remuneration to a provider. Although remuneration to the service
provider is the hallmark of any pay-per-call service, the actual
details evidencing certain remuneration agreements are not likely to be
immediately available to federal and State law enforcement authorities.
For example, information about contractual arrangements between a
vendor and a foreign telephone company may not be readily available.
Nonetheless, enforcement experience of the FTC and State attorneys
general has shown that there are certain circumstances that generally
indicate that a revenue-sharing agreement exists.\93\ Thus, any of
these circumstances will give rise to a rebuttable presumption that
payment to a provider of audio information or entertainment services as
described under 308.2(g)(2) has been made:
ilable.
Nonetheless, enforcement experience of the FTC and State attorneys
general has shown that there are certain circumstances that generally
indicate that a revenue-sharing agreement exists.\93\ Thus, any of
these circumstances will give rise to a rebuttable presumption that
payment to a provider of audio information or entertainment services as
described under 308.2(g)(2) has been made:
\93\ See, e.g., Interactive Audiotext Services, Inc., No. 98-
3049 CBM (C.D. Calif., filed April 22, 1998); FTC v. Audiotex
Connection, Inc., No. 97-0726 (E.D.N.Y., filed Feb. 13, 1997); and
Daniel B. Lubell.
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(a) Where persons are solicited to call an international
telephone number in order to receive audio information or
entertainment that is not specifically related to or dependent on
the country where the call supposedly terminates; \94\
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\94\ For example, in Daniel B. Lubell, callers were solicited to
call telephone numbers in Guyana and the Dominican Republic in order
to enter a sweepstakes to win a free Hawaiian vacation and to
receive information about free domestic airline travel.
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(b) Where there is a sudden and unusual increase in the number
of long-distance calls to a particular telephone number, or where
the number of calls to an information or entertainment number is
unusually high; \95\
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\95\ For example, in Audiotex Connection, AT&T noted an unusual
and sudden increase in call volume to several telephone numbers in
Moldova.
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number, or where
the number of calls to an information or entertainment number is
unusually high; \95\
---------------------------------------------------------------------------
\95\ For example, in Audiotex Connection, AT&T noted an unusual
and sudden increase in call volume to several telephone numbers in
Moldova.
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(c) Where persons are solicited to call one or more specific
telephone numbers via a specific common carrier in order to receive
audio information or entertainment services; \96\ and
---------------------------------------------------------------------------
\96\ For example, solicitations for consumers to call specific
telephone numbers, along with instructions for a caller to first
dial a carrier's 10-XXX (now 101-XXXX) access code.
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(d) Where a provider of audio information or audio entertainment
utilizes advertisements that emit electronic signals, including data
transmission of computer programs or computer instructions, that can
automatically dial a telephone number which will result in charges
to a subscriber.\97\
\97\ Audiotex Connection.
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The fact that any one of these circumstances is present will not be
determinative of whether remuneration to a provider actually exists. It
merely gives rise to a presumption of remuneration that can be rebutted
with credible evidence that, in fact, there has been no payment to the
provider.
Scope of definition
ion.
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The fact that any one of these circumstances is present will not be
determinative of whether remuneration to a provider actually exists. It
merely gives rise to a presumption of remuneration that can be rebutted
with credible evidence that, in fact, there has been no payment to the
provider.
Scope of definition. The proposed definition of ``pay-per-call
services'' covers ``audio information and audio entertainment
[services], including simultaneous voice conversation services.''
This phrase includes live as well as pre-recorded information or
entertainment programs, in addition to so-called ``group access
bridged'' services where a provider connects two or more callers to
discuss a certain topic.\98\ In other words, this definition will
include all services where a person provides or purports to provide the
audio content of a call, and where that provider receives payment on
the basis of calls placed to access that content.
The expanded portion of the proposed definition includes all of the
audio information and audio entertainment services included in the
statutory definition of ``pay-per-call'' \99\ but, pursuant to the
Commission's authority under Section 701(b)(1) of the 1996 Act, omits
any limitations based on dialing pattern.
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\98\ For example, if a provider offers callers a list or menu of
suggested topics or otherwise represents that callers will be able
to listen to or participate in discussions concerning certain
topics, such as ``adult'' chat, that service would be covered by the
definition. Providers who make no representations regarding the
content of a call, and who exercise no control, influence, or
interest over the content of the call would not be covered by the
definition.
\99\ 47 U.S.C. 228(i)(1)(A)(i) and (ii).
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tain
topics, such as ``adult'' chat, that service would be covered by the
definition. Providers who make no representations regarding the
content of a call, and who exercise no control, influence, or
interest over the content of the call would not be covered by the
definition.
\99\ 47 U.S.C. 228(i)(1)(A)(i) and (ii).
---------------------------------------------------------------------------
The proposed expanded definition includes only those services
``where the action of placing the call, receiving a call, or subsequent
dialing, touch-tone entry, or comparable action of the caller'' results
in a charge to a customer.\100\ This phrase is based on the language
contained in the original Rule's definition of ``telephone-billed
purchase.'' \101\ However, in addition to the language contained in
that definition, the Commission has added ''receiving a call`` to the
list of actions that would result in a charge to the consumer and thus
be included as a ``pay-per-call service.''
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\100\ ``Comparable action'' includes any scenario where a caller
takes action that will result in a billing statement being generated
by virtue of ANI. See, e.g., FTC v. International Telemedia
Associates, Inc., No. 1-98-CV-1935 (N.D. Ga., filed July 10, 1998)
and Interactive Audiotext Services, Inc., No. 98-3049 CBM (C.D.
Calif., filed April 22, 1998). It also includes, but is not limited
to, any action that a consumer might take while on the Internet or
online that may cause his or her computer modem to dial a telephone
number that results in a charge. See Audiotex Connection.
\101\ Section 308.7(a)(6) of the original Rule uses the term
``telephone-billed purchase'' to describe transactions to which the
billing and collection provisions of the Rule apply.
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Internet or
online that may cause his or her computer modem to dial a telephone
number that results in a charge. See Audiotex Connection.
\101\ Section 308.7(a)(6) of the original Rule uses the term
``telephone-billed purchase'' to describe transactions to which the
billing and collection provisions of the Rule apply.
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The Commission uses the phrase ``receiving a call'' to refer to all
instances where a consumer incurs a charge by virtue of receiving a
telephone call, including traditional ``collect call'' services, as
well as other scenarios whereby the receipt of a call results in a
charge. The Commission's experience with callback schemes in response
to toll-free calls by consumers demonstrates that these schemes are
susceptible to the types of abuses prohibited by the Commission's
Rule.\102\ The fact that the services are accessed by merely answering
a telephone call (rather than placing a call) may make them even more
susceptible to unfair and deceptive practices than outgoing calls from
consumers because the recipient of the bill has even less ability to
avoid charges for such services.\103\
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\102\ In fact, the Commission's Rule explicitly prohibits
collect callback schemes that result from calls to toll-free
numbers. See, e.g., International Telemedia Associates.
\103\ Although audiotext services delivered by incoming calls to
consumers are covered by the proposed definition of pay-per-call
services, this does not mean that such services would be permissible
under the proposed Rule. On the contrary, billing for such services
would almost certainly violate proposed Section 308.17.
---------------------------------------------------------------------------
03\ Although audiotext services delivered by incoming calls to
consumers are covered by the proposed definition of pay-per-call
services, this does not mean that such services would be permissible
under the proposed Rule. On the contrary, billing for such services
would almost certainly violate proposed Section 308.17.
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Section 308.2(g)(3)(i)-(iii)--Exemptions. These provisions describe
the circumstances under which an audio information or entertainment
service will not be considered to be a ``pay-per-call service'' and
will thus be exempt from the Rule's requirements, even if it would
otherwise meet the criteria contained in proposed Section 308.2(g)(2).
Each exemption is discussed below.
Section 308.2(g)(3)(i)--Presubscription agreement. This section
will exempt from the Rule's requirements calls made pursuant to valid
``presubscription agreements,'' which are described, infra. The
Commission's intention is that no exemption will exist unless the
presubscription agreement meets all of the elements of the definition
of that term, as set forth in proposed Sec. 308.2(j). This includes the
requirement that the provider demonstrate that the presubscription
agreement has been entered into with the person from whom payment is
sought. As discussed, infra, the Commission has learned that, in many
instances, providers of audiotext services have attempted to collect
payment pursuant to a purported presubscription agreement from persons
who did not authorize or were not aware of the existence of such an
agreement. In order to be valid, a presubscription agreement must meet
the criteria set forth in proposed Section 308.2(j).\104\ Any agreement
not meeting these criteria is not exempt from the Rule and its
requirements.
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cription agreement from persons
who did not authorize or were not aware of the existence of such an
agreement. In order to be valid, a presubscription agreement must meet
the criteria set forth in proposed Section 308.2(j).\104\ Any agreement
not meeting these criteria is not exempt from the Rule and its
requirements.
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\104\ Among other things, this means that the agreement must be
entered into with the person to be charged for the service.
---------------------------------------------------------------------------
Section 308.2(g)(3)(ii)--De minimis payments. This proposed section
will allow a vendor of audio information or audio entertainment
services to show that a service is not a pay-per-call service by
demonstrating that the payment received by the provider does not exceed
a specified amount.\105\ Many of the commenters and workshop
participants supported a rebuttable presumption approach to a
definition--whereby a service would be presumed to be ``pay-per-call''
unless the provider could show certain facts mitigating the likelihood
of fraud.\106\ The Commission proposes such an approach. Providers
could rebut the presumption of ``pay-per-call'' by demonstrating that
the payment for the information or entertainment is de minimis as
defined by Section 308.2(g)(3)(ii).
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\105\ The Commission intends that the demonstration specified by
this section need only be made upon a prior request by the
Commission or its staff, or by any other government agency with the
authority to enforce this Rule, or as a defense to an enforcement
action under this Rule.
\106\ Alliance at 5; ISA at 28; AT&T at 8, 25-28; Tr. at 329,
331, 335.
---------------------------------------------------------------------------
he demonstration specified by
this section need only be made upon a prior request by the
Commission or its staff, or by any other government agency with the
authority to enforce this Rule, or as a defense to an enforcement
action under this Rule.
\106\ Alliance at 5; ISA at 28; AT&T at 8, 25-28; Tr. at 329,
331, 335.
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At some point the amount of shared revenue is not sufficiently
large for a service to be susceptible to the unfair or deceptive
practices prohibited by Title II of TDDRA. Thus, the proposed Rule sets
a specific threshold for such revenue, below which an audiotext service
would not be considered pay-per-call, even if it otherwise met the
definitional criteria. The comments and discussion at the workshop
support this approach.\107\ The Commission has proposed that if the
provider demonstrates that, on average,\108\ the payments to the
provider will not exceed $.05 per minute or $.50 per call for the
particular service, then the service will not be considered pay-per-
call.\109\ The Commission seeks comment on the appropriate threshold
figure for defining pay-per-call, including any relevant statistics or
other numerical support.\110\
---------------------------------------------------------------------------
\107\ Tr. at 335-36. The AT&T supplemental comment argued
against a threshold that was triggered by a certain percentage of
the payment going to the vendor. AT&T-2 at 2-4. However, the AT&T
supplemental comment did not address the possibility of a threshold
triggered by a specific per-minute amount as proposed by the
Commission. Indeed, many of the arguments made by AT&T in opposition
to a percentage threshold seem to provide support for a nominal per-
minute threshold.
\108\ The average will be calculated for each different
audiotext service offered by the provider
r, the AT&T
supplemental comment did not address the possibility of a threshold
triggered by a specific per-minute amount as proposed by the
Commission. Indeed, many of the arguments made by AT&T in opposition
to a percentage threshold seem to provide support for a nominal per-
minute threshold.
\108\ The average will be calculated for each different
audiotext service offered by the provider. In the case of a ``loss
leader,'' where call volumes are inflated with low charges for some
consumers to bring down the average to allow others to be charged
higher rates, the Commission will consider services that charge
different rates (e.g., one high-priced and the other low-priced) to
be separate services.
\109\ The provider would only be required to demonstrate that
the remuneration it receives fell below either the $0.50 per-call de
minimis threshold or the $0.05 per-minute de minimis threshold. The
Commission has selected these two figures based on its enforcement
experience and on widely available data provided by service bureaus
for international audiotext services. The appropriate threshold is
one below which there is little incentive for vendors to solicit
calls for the sale of audio information or entertainment. Certain
arrangements, such as those described by AT&T in its comments
(``TSAAs'') may not be subject to unfair or deceptive practices
because the payments involved may fall below the threshold. Although
the record does not contain details relating to the level of
remuneration involved in TSAAs, AT&T's statements at the workshop
would seem to indicate that a $0.05 de minimis threshold would
exempt these agreements. Tr. at 355. As explained in note 110,
infra, the Commission does not agree with the view of some
commenters who urged that exemptions should be granted for specific
categories or types of revenue sharing arrangements, such as an
exemption for all TSAAs. See, e.g., AT&T at 8, 25-30
atements at the workshop
would seem to indicate that a $0.05 de minimis threshold would
exempt these agreements. Tr. at 355. As explained in note 110,
infra, the Commission does not agree with the view of some
commenters who urged that exemptions should be granted for specific
categories or types of revenue sharing arrangements, such as an
exemption for all TSAAs. See, e.g., AT&T at 8, 25-30.
\110\ The Commission wants to ensure that its de minimis
provision exempts only those information or entertainment services
that are not susceptible to the unfair or deceptive practices
covered by the Rule. One example of such a service is a local time
or weather information line that is operated by a LEC. Undoubtedly,
the LEC derives some minimal revenue for calls to these information
lines. However, most callers will pay nothing to access the line.
More importantly, the per-call and per-minute revenues derived by
the common carrier for such a line are likely to be well below the
de minimis thresholds. The Commission believes that the de minimis
exemption is the best way to exempt such services--a categorical
exemption for such information lines would be open to abuse by
unscrupulous vendors who could use common carrier status to derive
significant revenue from information or entertainment lines.
---------------------------------------------------------------------------
Other exemptions. Section 308.2(g)(3)(iii) exempts calls utilizing
telecommunications services for the deaf, and tariffed directory
services provided by a common carrier or its affiliate. This exemption
tracks analogous language in the statutory definition of ``pay-per-call
services'' found in Title I of TDDRA.\111\ The proposed Rule adds the
word ``tariffed'' to clarify the meaning of the exemption, and to
prevent unscrupulous vendors from seeking to abuse the exemption.
---------------------------------------------------------------------------
ommon carrier or its affiliate. This exemption
tracks analogous language in the statutory definition of ``pay-per-call
services'' found in Title I of TDDRA.\111\ The proposed Rule adds the
word ``tariffed'' to clarify the meaning of the exemption, and to
prevent unscrupulous vendors from seeking to abuse the exemption.
---------------------------------------------------------------------------
\111\ 47 U.S.C. 228(i). The Commission has not been given the
authority under Sec. 701(b) of the 1996 Act to extend the definition
of pay-per-call services to eliminate these exemptions.
---------------------------------------------------------------------------
Relationship to FCC regulations. Section 308.2(g)(4) states that
this section shall not be construed to permit any conduct or practice
otherwise precluded or limited by regulations of the Federal
Communications Commission. For example, if the FCC were to adopt
regulations prohibiting the use of a specific dialing pattern for pay-
per-call services, the FTC's ``pay-per-call service'' definition cannot
be used as a basis to argue that the FTC has permitted such a practice.
The Commission believes it is important to make it clear that a service
is not necessarily legal or permissible for purposes of FCC regulation
of pay-per-call services simply because it falls within the FTC's
proposed definition of ``pay-per-call.''
(6) Section 308.2(h)--Person. The definition has been modified to
add ``unincorporated association'' and ``group'' to the list of
entities that are considered to be a ``person'' for purposes of the
proposed Rule. The Commission adds these two terms based on enforcement
experience \112\ and the desire for consistency among its rules
regulating telephone-related transactions.\113\
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to
add ``unincorporated association'' and ``group'' to the list of
entities that are considered to be a ``person'' for purposes of the
proposed Rule. The Commission adds these two terms based on enforcement
experience \112\ and the desire for consistency among its rules
regulating telephone-related transactions.\113\
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\112\ FTC v. Audiotex Connection, Inc., No. 97-0726 (E.D.N.Y.,
filed Feb. 13, 1997) (International audiotext scheme where one
defendant did business as ``Electronic Forms Management,'' an
unincorporated association).
\113\ The definition of ''person`` in the Telemarketing Sales
Rule includes all of these entities. 16 CFR 310.2(o).
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(7) Section 308.2(i)--Personal identification number. Section
308.2(i) provides a definition of ``personal identification number''
(``PIN''), a term used in the definition of presubscription agreement.
The original Rule's definition of presubscription agreement used a
similar term, ``identification number,'' but did not define that term
or specify the manner in which it should be issued.
Background. Use of a presubscription agreement allows a vendor to
avoid the Rule's requirements by entering into a contractual agreement
with a consumer for providing, and receiving payment for, goods or
services in a manner that, absent the agreement, would otherwise be
covered by the Rule. This means that if a provider has a valid
presubscription agreement with a consumer, the provider may provide
services to that consumer in a manner that would otherwise violate the
Rule (e.g., the provider may charge a consumer for audiotext services
accessed via a toll-free number). Where a consumer has entered a
presubscription agreement, a PIN provides a means by which the consumer
can control access to the service to which he or she has presubscribed
ment with a consumer, the provider may provide
services to that consumer in a manner that would otherwise violate the
Rule (e.g., the provider may charge a consumer for audiotext services
accessed via a toll-free number). Where a consumer has entered a
presubscription agreement, a PIN provides a means by which the consumer
can control access to the service to which he or she has presubscribed.
Thus, the original Rule establishes that one of the prerequisites of a
PIN is that it prevent unauthorized access to the service by
nonsubscribers.\114\
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\114\ 16 CFR 308.2(e)(1)(iv).
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Nonetheless, some service providers have utilized PINs that do not
prevent such unauthorized access. For example, some service providers
have issued PINs over the telephone upon request, without taking
sufficient steps to ensure that the party who has requested the PIN is
also the person who will be billed for the presubscribed charges.\115\
Other providers have assigned a consumer's checking account number as a
PIN and then debited that checking account for services purchased by
any caller who presented that PIN number.\116\ Such billing methods do
not prevent unauthorized access where insufficient steps are taken to
ensure that the person paying by this method is actually authorized to
debit that account. Purported presubscription agreements that entail
these methods of assigning PINs do not satisfy the original Rule's
criteria for a presubscription agreement because such PINs are
ineffective to ``prevent unauthorized access by nonsubscribers.''
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person paying by this method is actually authorized to
debit that account. Purported presubscription agreements that entail
these methods of assigning PINs do not satisfy the original Rule's
criteria for a presubscription agreement because such PINs are
ineffective to ``prevent unauthorized access by nonsubscribers.''
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\115\ See, e.g., U.S. v. American TelNet, Inc., No. 94-2551 CIV-
NESBIT (S.D. Fla., filed Nov. 30, 1994) and FTC v. Interactive
Audiotext Services, Inc., No. 98-3049 CBM (C.D. Calif., filed Apr.
22, 1998). See, also, FLORIDA at 8, A44-A60; NAAG at 11; NCL at 4.
\116\ Interactive Audiotext Services.
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Proposed definition of ``personal identification number.'' The
proposed definition will furnish additional guidance to providers on
what methods of assigning a PIN satisfy the Rule's requirements. The
revised Rule specifies that the PIN must be ``unique to the
individual.'' This means that the PIN must be assigned to the person
who will be billed for the offered goods or services, not to a
telephone number or account. PIN assignments on the basis of ANI do not
satisfy the original Rule's requirement that a PIN prevent
``unauthorized access to the service by nonsubscribers,'' \117\ and
would continue to be inadequate under the proposed Rule because they
are not unique to the individual. The requirement that a PIN be unique
to the individual also means that a provider cannot issue the same PIN
to more than one person. Moreover, a PIN cannot be based on a number
that is likely to be known to other persons, such as the telephone
number from which the call is placed, a person's checking account
number, credit card number, or social security number
e not unique to the individual. The requirement that a PIN be unique
to the individual also means that a provider cannot issue the same PIN
to more than one person. Moreover, a PIN cannot be based on a number
that is likely to be known to other persons, such as the telephone
number from which the call is placed, a person's checking account
number, credit card number, or social security number. Since the
purpose of a PIN is to limit access to the service to those persons who
have entered into a presubscription agreement, allowing a well-known or
published number (such as a telephone number) would do little to
control access.
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\117\ 16 CFR 308.2(e)(1)(iv).
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The proposed definition also specifies that the PIN must be valid.
Three conditions must be met in order for a PIN to be valid: (1) it
must be requested by a consumer; \118\ (2) it must be provided to no
person other than the person who will be billed for the service; \119\
and (3) it must be delivered to the person to be billed for the service
simultaneously with a clear and conspicuous \120\ written disclosure of
all the material terms and conditions associated with the
presubscription
agreement, including the service provider's name and address, a
business telephone number that the consumer may use to obtain
additional information or register a complaint, and the rates for the
service. Although the proposed Rule does not require that a
presubscription agreement be signed, the Commission believes that it is
important for the consumer to be provided with a written copy of the
terms of the agreement before the service is accessed for the first
time. Written disclosures sent along with the PIN ensure that the
consumer will receive an ``unavoidable'' disclosure of the material
terms and conditions before the service can be accessed and before any
charges can accrue
he Commission believes that it is
important for the consumer to be provided with a written copy of the
terms of the agreement before the service is accessed for the first
time. Written disclosures sent along with the PIN ensure that the
consumer will receive an ``unavoidable'' disclosure of the material
terms and conditions before the service can be accessed and before any
charges can accrue.
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\118\ Thus, unsolicited issuance of PIN numbers will not meet
the proposed Rule's requirements for establishing a valid PIN.
\119\ A valid PIN will become invalid by later disclosure to the
wrong party. Thus, providers must use caution when giving out PINs
to persons who claim to have ``lost'' or ``forgotten'' a previously-
issued PIN.
\120\ The concept of ``clear and conspicuous'' disclosure is
well-developed in Commission case law and policy statements. See,
e.g., Thompson Medical Co., 104 F.T.C. 648, 797-98 (1984); The
Kroger Co., 98 F.T.C. 639, 760 (1981); Statement of Enforcement
Policy, ``Clear and Conspicuous Disclosures in Television
Advertising,'' Trade Regulation Reporter (CCH) para. 7569.09 (Oct.
21, 1970); Statement of Enforcement Policy, ``Requirements
Concerning Clear and Conspicuous Disclosures in Foreign Language
Advertising and Sales Materials,'' 16 CFR 14.9.
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The Commission does not believe it is necessary to specify the
method by which the PIN should be delivered; service providers may use
whatever method of delivery is most appropriate. Regardless of the
method chosen, however, the service provider will be responsible for
ensuring that the PIN is not distributed to anyone other than the
person who will be billed for services under the presubscription
agreement.
es not believe it is necessary to specify the
method by which the PIN should be delivered; service providers may use
whatever method of delivery is most appropriate. Regardless of the
method chosen, however, the service provider will be responsible for
ensuring that the PIN is not distributed to anyone other than the
person who will be billed for services under the presubscription
agreement.
(8) Section 308.2(j)--Presubscription agreement--Background. The
purpose of the presubscription agreement is to allow the seller and
consumer to mutually agree to remove themselves from the TDDRA
regulatory framework. The definition of this term generated substantial
discussion both in the written comments and during the workshop. One
significant issue was whether such agreements should be in writing and
signed by the consumer. The audiotext industry generally opposed a
writing requirement because it would inhibit the ``instantaneous''
nature of audiotext services offered through 800 numbers.\121\ Other
parties countered industry's arguments by asserting that the proper
vehicle for offering instantaneous information or entertainment has
been, and continues to be, through the 900-number dialing pattern.\122\
These commenters believe that any vendor wishing to sell such goods or
services through 800 numbers must take particular care to ensure that
the consumer understands the material terms under which the service is
offered, including that the consumer will be charged for the goods or
services, and how much he or she will pay. One commenter specifically
recommended that the Rule require these disclosures to be provided
before the consumer incurs charges, even if that means that the
purchase is not instantaneous.\123\
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\121\ PILGRIM at 19, 21-22; Tr. at 487-90.
\122\ Tr. at 79, 493, 495.
\123\ SW at 5.
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ed that the Rule require these disclosures to be provided
before the consumer incurs charges, even if that means that the
purchase is not instantaneous.\123\
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\121\ PILGRIM at 19, 21-22; Tr. at 487-90.
\122\ Tr. at 79, 493, 495.
\123\ SW at 5.
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Many commenters favored a writing requirement because of the
numerous complaints from consumers who have been charged for calls to
800 numbers in situations where they did not authorize such charges or
where the goods or services had been represented to be free.\124\
Several commenters were troubled by presubscription agreements that
were formed orally during the course of a telephone call in which the
consumer is issued an ``instant'' calling card or is asked to provide
bank account information.\125\ As a result, they urged the Commission
to ban oral transmission of presubscription agreements and to require
that presubscription agreements be in writing.\126\ Many of the same
commenters believed that a written agreement was particularly important
in situations where charges would be recurring.\127\ NCL noted that
many of the complaints received by its National Fraud Information
Center (``NFIC'') were from consumers who thought that certain 800-
number calls were free but found out that they had been charged for the
calls and/or inadvertently signed up for services, such as club
memberships or voice mail, to which they had not expressly agreed.\128\
Two common carriers agreed that a presubscription agreement must be in
writing.\129\
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o thought that certain 800-
number calls were free but found out that they had been charged for the
calls and/or inadvertently signed up for services, such as club
memberships or voice mail, to which they had not expressly agreed.\128\
Two common carriers agreed that a presubscription agreement must be in
writing.\129\
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\124\ FLORIDA at 8; NCL at 4-5; NAAG at 11; Tr. at 169, 193-94,
472-74.
\125\ NCL at 5; FLORIDA at 8; NAAG at 11.
\126\ NCL at 5; FLORIDA at 8; NAAG at 11; SW at 2, 5-6; Tr. at
18. NAAG suggested that electronic transmission of the agreement
would also be sufficient to inform the consumer of the costs and
terms and conditions of the service. (NAAG at 11). SW suggested that
if electronic transmission is allowed, there should be a 10-day lag
before the vendor could bill for the service, during which time the
vendor should send a written confirmation of the agreement. (SW at
2, 5-6).
\127\ NCL at 5; FLORIDA at 8; NAAG at 11; TSIA at 16-17.
\128\ NCL at 4. (In 1996, the NFIC received 85 complaints
against one Texas-based company regarding unauthorized charges for
voice mail service after consumers had called an 800-number for a
``free'' psychic reading.)
\129\ AT&T at 10; SW at 2, 5-6; Tr. at 488.
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The industry representatives as a whole generally opposed a
requirement that the agreement be signed, based on the argument that
the signature of an individual neither demonstrates legal competence
nor that the proper person is being billed for the service.\130\ One
industry member argued that requiring an executed agreement might
prevent contemporaneous purchase of merchandise.\131\ Industry members
also pointed out the difficulties in requiring an agreement to be
signed and sent back, and that the failure of someone to sign and
return an agreement would not necessarily indicate a lack of desire to
use the service.\132\
------
for the service.\130\ One
industry member argued that requiring an executed agreement might
prevent contemporaneous purchase of merchandise.\131\ Industry members
also pointed out the difficulties in requiring an agreement to be
signed and sent back, and that the failure of someone to sign and
return an agreement would not necessarily indicate a lack of desire to
use the service.\132\
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\130\ PILGRIM at 19, 21-22; Tr. at 487-90.
\131\ PILGRIM at 19, 21-22; Tr. at 487-90.
\132\ Tr. at 487-88.
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A presubscription agreement must meet general principles of
contract law.\133\ Nonetheless, the Commission is aware of numerous
examples of purported ``agreements'' created during calls to 800
numbers that do not adhere to these basic principles of contract law--
e.g., agreements entered into with minors, or agreements where the
party to be billed for the service is not the party who placed the call
and supposedly entered into the agreement.\134\ Often, these purported
``agreements'' involve the use of ANI to identify a billing name and
address and to send a bill, a practice that frequently results in one
consumer receiving a bill for a service ordered by another.\135\
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\133\ Complying with the 900-Number Rule: A Business Guide
Produced by the Federal Trade Commission (Nov. 1993) at 3.
\134\ See, e.g., FTC v. Interactive Audiotext Services, Inc.,
No. 98-3049 CBM (C.D. Calif., filed Apr. 22, 1998) and FTC v.
International Telemedia Associates, Inc., No. 1-98-CV-1935 (N.D.
Ga., filed July 10, 1998). Indeed, the Commission's first action to
enforce the 900-Number Rule challenged invalid presubscription
agreements. U.S. v. American TelNet, Inc., No. 94-2551 CIV-NESBIT
(S.D. Fla., filed Nov. 30, 1994)
Interactive Audiotext Services, Inc.,
No. 98-3049 CBM (C.D. Calif., filed Apr. 22, 1998) and FTC v.
International Telemedia Associates, Inc., No. 1-98-CV-1935 (N.D.
Ga., filed July 10, 1998). Indeed, the Commission's first action to
enforce the 900-Number Rule challenged invalid presubscription
agreements. U.S. v. American TelNet, Inc., No. 94-2551 CIV-NESBIT
(S.D. Fla., filed Nov. 30, 1994).
\135\ The Commission's view that ANI is insufficient to identify
the party to a presubscription agreement is shared by FCC staff, as
evidenced by a 1994 letter from FCC staff, relating to the issue of
billing for audiotext services offered through 800 numbers. The FCC
letter stated that a legitimate presubscription agreement is not
created if the vendor immediately issues a personal identification
number without determining that the caller is both the subscriber to
the line and legally capable of entering into a contractual
agreement. ``The basic terms of the presubscription definition
preclude reliance on ANI either to create or provide evidence of a
valid presubscription or comparable arrangement, because ANI
identifies only the originating line and not the caller who seeks to
establish an arrangement. Thus billing systems based solely or
primarily on ANI do not ensure that presubscribed information
services charges are being properly assessed.'' Letter dated June
15, 1994, to Randal R. Collett, Association of College and
University Telecommunications Administrators, from Gregory A. Weiss,
Acting Director, Enforcement Division, FCC.
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ems based solely or
primarily on ANI do not ensure that presubscribed information
services charges are being properly assessed.'' Letter dated June
15, 1994, to Randal R. Collett, Association of College and
University Telecommunications Administrators, from Gregory A. Weiss,
Acting Director, Enforcement Division, FCC.
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Proposed definition of ``presubscription agreement.'' Because the
presubscription exception to Rule coverage circumvents the TDDRA
protections, the Commission believes the exception should be carefully
delineated and not be a source of
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