[Federal Register Volume 63, Number 210 (Friday, October 30, 1998)]
[Proposed Rules]
[Pages 58524-58568]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-28974]
[[Page 58523]]
_______________________________________________________________________
Part III
Federal Trade Commission
_______________________________________________________________________
16 CFR Part 308
Pay-per-Call Rule; Proposed Rule
Federal Register / Vol. 63, No. 210 / Friday, October 30, 1998 /
Proposed Rules
[[Page 58524]]
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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.
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
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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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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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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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
[[Page 58525]]
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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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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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
(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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\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.
\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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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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On June 19 and 20, 1997, staff of the Commission conducted a public
workshop at the Federal Trade
[[Page 58526]]
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. 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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\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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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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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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\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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\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
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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.
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\41\ 16 CFR 308.9.
\42\ 15 U.S.C. 5711(a)(2)(J), 5711(a)(4), and 5721(a)(1).
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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.
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\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.
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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. 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.
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\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.
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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. 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
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
[[Page 58528]]
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. 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.
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.
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.
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.
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\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).
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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:
[[Page 58529]]
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. 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. 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.
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.
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. 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)
[[Page 58530]]
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. 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).
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(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.
(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).
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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.
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.
(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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[[Page 58531]]
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].
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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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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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\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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\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.
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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\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
[[Page 58532]]
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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\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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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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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. 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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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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\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.
[[Page 58533]]
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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(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
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 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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\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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\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.
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
[[Page 58534]]
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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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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\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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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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\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:
\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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(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. 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.
[[Page 58535]]
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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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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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.
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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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\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.
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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\
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\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. 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.
\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.
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[[Page 58536]]
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.
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\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.
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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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\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.
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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\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. 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.
---------------------------------------------------------------------------
\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
[[Page 58537]]
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.
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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.
(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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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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\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\
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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).
\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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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 abusive and deceptive practices. The
proposed Rule modifies original Section 308.2(e)(1) to make it clear
that the disclosures must be provided to, and the agreement must be
reached with, the consumer who will be billed for the service. In
addition, the proposed Rule
[[Page 58538]]
will require that presubscription agreements be delivered, in writing,
to the person who will be billed for the service.\136\ As explained
above, Section 308.2(i) of the proposed Rule requires that the provider
of presubscription services deliver (to the person who will be billed
for the service) a PIN, together with a written disclosure of all the
material terms and conditions of the agreement. In every instance, an
actual contractual agreement with the person to be billed for the
service must be reached in advance of the provision of service and the
person to be billed for the service must have received clear and
conspicuous disclosure of the material terms of the contract.
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\136\ While this should prohibit the instantaneous sale of
audiotext over toll-free numbers, the Commission believes that 900
numbers, not toll-free numbers, should be the proper vehicle for
offering ``impulse'' purchases of audiotext services. See 15 U.S.C.
5711(a)(2)(F).
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The Commission has decided not to propose a requirement, advanced
by some commenters, that the written agreement be signed by the
consumer. Instead, the proposal would make it clear that the provider
who engages in a transaction pursuant to a presubscription agreement
has the burden to show that it obtained the actual authorization of the
person who was billed for the service. The presubscription agreement is
never valid (i.e., it does not meet the conditions of the current Rule
or the proposed Rule) unless the agreement is reached with the person
who will be billed for the service.
In addition to the changes to the presubscription provisions
discussed above, the proposed Rule makes two other minor modifications
to the original Rule's treatment of presubscription agreements. First,
to simplify the language of the proposed Rule, the phrase
``presubscription agreement'' has been substituted for the phrase
``presubscription or comparable arrangement.''
Second, the proposed Rule adds language in Section 308.2(j)(1) to
clarify that a presubscription agreement is an agreement to purchase
goods or services, including audio information or audio entertainment
services.
Section 308.2(j)(2)--Billing by credit card. In promulgating the
original Rule, the Commission stated that it did not appear that
Congress intended to include credit card or charge card transactions
within the regulatory framework of TDDRA. Therefore, in Section
308.2(e)(2) of the original Rule, the Commission included within the
definition of ``presubscription agreement'' those credit and charge
card transactions that were subject to the dispute resolution
requirements of the Truth in Lending Act (``TILA'') and Fair Credit
Billing Act (``FCBA'').\137\
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\137\ 58 FR at 42367.
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In the current proceeding, some industry members urged the
Commission to expand the types of billing methods that would be
permitted to constitute a presubscription agreement.
Specifically, one industry association advanced the argument that
both pre-authorized drafts \138\ and a direct billing option would
provide consumers with all of the material disclosures required by the
Rule while giving vendors more flexibility in the methods by which they
could bill consumers.\139\ Other commenters expressed concern with
respect to direct billing, noting that there was no substantive
difference between 800-number billing through a LEC and 800-number
billing through direct billing by a third party. In other words, they
believed that to allow these billing options under Section 308.2(e)(2)
of the original Rule would effectively allow a person to be charged for
a call to a toll-free number--a practice prohibited by TDDRA.\140\
These commenters expressed the belief that, if a vendor is charging for
audiotext services offered through an 800 number, there should be an
actual agreement, regardless of the billing method.\141\ Furthermore,
some commenters pointed out that they have received complaints from
consumers who were billed directly for services after they called an
800-number, but who had not understood that there would be a
charge.\142\
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\138\ By use of a pre-authorized draft (also known as a ``demand
draft'' or a ``phone check'') a seller can obtain funds from a
buyer's checking account without that person's signature on a
negotiable instrument.
\139\ TSIA at 15-16; Tr. at 473-82.
\140\ 15 U.S.C. 5711(a)(2)(F). See also, Tr. at 480-87.
\141\ Tr. at 483, 486-87.
\142\ Tr. 483-84.
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The Commission has carefully considered all of the comments and
discussion regarding presubscription agreements, and has decided to
retain in the proposed Rule the ``credit and charge card''
presubscription option in its current form, with only minor technical
changes. The Commission also has determined not to include within this
option other types of cards, such as debit, prepaid, or calling cards,
which are not subject to both TILA and FCBA.
Presubscription agreements based on a credit or a charge card are
permitted because these transactions are already subject to the legal
protections of TILA and FCBA, including the right to dispute
unauthorized charges. In the absence of the protections afforded by
these Acts, however, it is essential that the consumer who will be
billed for a service agree, in advance, to pay for the service after
receiving clear and conspicuous disclosure of all the material terms of
the agreement. Title III of TDDRA directed the Commission to promulgate
rules with requirements ``substantially similar to the requirements
imposed, with respect to the resolution of credit disputes, under the
Truth in Lending and Fair Credit Billing Acts.'' \143\ To allow a
calling card, a debit card, or other means not within the ambit of both
TILA and FCBA to substitute for an actual agreement with the person to
be billed for the service would undermine the entire purpose of the
presubscription agreement exception to the Rule. It would also
undermine the Commission's mandate to promulgate TDDRA rules
substantially similar to TILA and FCBA.
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\143\ 15 U.S.C. 5721(a)(2).
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Allowing such types of payment methods to substitute for an actual
agreement with the person to be billed for a service would also
encourage the use of so-called ``instant'' calling cards. Such cards
are often issued without any assurance that the caller obtaining the
card is authorized to arrange for a purchase to be billed to the
telephone number from which the call is being placed. Under the
proposed Rule, cards not subject to TILA and FCBA do not constitute
presubscription agreements unless they meet the requirements of Section
308.2(j)(1).
For the reasons discussed above, Section 308.2(j)(2) of the
proposed Rule retains the language of the original Rule, with only
three revisions that are dictated by the Commission's decision to
expand coverage of the Rule beyond the ``pay-per-call services''
offered through the 900-number platform. First, the proposed Rule
changes the language relating to the disclosure of a credit card number
``during the course of a call to a pay-per-call service,'' to read
``during the course of a call to purchase goods or services, including
audio information or audio entertainment services.'' This change is
designed to clarify that services billed to a credit card are purchases
made pursuant to a presubscription agreement and thus are excluded from
the definition of ``pay-per-call services.''
Second, the proposed Rule deletes the last sentence of 308.2(e)(2)
of the original Rule. This sentence made clear that providers are
prohibited from
[[Page 58539]]
charging consumers for calls to presubscribed services unless the
consumer either had entered an agreement before that telephone call, or
was paying for the service with a credit or charge card. This sentence
is no longer necessary because the proposed Rule in Section 308.2(j)(1)
prohibits providers from charging consumers until the consumer has
received, in writing, a PIN and a clear and conspicuous disclosure of
all the material terms of the agreement.
Finally, the proposed Rule clarifies that, in order for the Section
308.2(j)(2) credit card alternative to a 308.2(j)(1) presubscription
agreement to be available, the credit card must be ``the sole method
used to pay for the charge.'' The Commission is aware that some
providers request a credit card number from a consumer, but bill the
consumer by some other method--a method that is not subject to the
dispute resolution protections of TILA and FCBA.\144\ As the text of
the original Rule and its Statement of Basis and Purpose make clear,
this practice violates the Rule.\145\ The Commission proposes adding
this clause to remove any possible ground for argument, unpersuasive
though it may be, that the Rule could be construed to allow a provider
to make use of the presubscription option through the meaningless
eliciting of a credit card number without using the card to bill
charges.
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\144\ In one case recently filed by the Commission, a provider
was allegedly collecting credit card numbers from consumers
purportedly to create a valid presubscription service, but instead
allegedly billed the consumers directly, based on ANI. FTC v.
Interactive Audiotext Services, Inc., No. 98-3049 CBM (C.D. Calif.,
filed Apr. 22, 1998).
\145\ 58 FR at 42367. See Tr. at 472 (NAAG: ``I think the proper
way to construe the law is to say if you're going to acquire pay-
per-call services using a credit card, the charge ought to appear on
the credit card.'').
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Relationship to FCC Regulations. Since passage of the 1996 Act, the
FCC's regulations enacted under Title I of TDDRA have differed in some
respects from the FTC's Rule enacted under Titles II and III of TDDRA.
This is because the 1996 Act amended Title I of TDDRA to require the
FCC to amend its rules governing the obligations of common carriers
with respect to the use of toll-free numbers for audiotext
services.\146\ These amendments affected what the FCC rules require
common carriers to include in any tariff or contract relating to the
use of toll-free telephone numbers for audiotext purposes. The proposed
revision of the FTC's Rule would not conflict with any FCC requirements
for what common carriers must include in their tariffs or contracts,
and the two sets of regulations would continue to differ with respect
to their approach to audiotext services provided over toll-free
numbers.
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\146\ On July 11, 1996, the FCC published an Order and Notice of
Proposed Rulemaking to amend its Rules in accordance with the
amendments to Title I of TDDRA. ``FCC Pay-Per-Call Order and
Notice,'' CC Docket Nos. 96-146 and 93-22, and FCC 96-289, 11 FCC
Rcd 14738 (1996). The Order portion of this document amended 47 CFR
Part 64 (the FCC's pay-per-call rules) in accordance with the
mandate of the 1996 Act; the Notice of Proposed Rulemaking portion
of the document requested comment on additional proposed changes to
the FCC's rules not specifically mandated by the Act.
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Prior to the 1996 Act, the FCC's regulations pertaining to toll-
free numbers were virtually identical to the requirements imposed in
Section 308.5(i) of the FTC's original Rule: the use of a toll-free
number to charge for information conveyed during a call was prohibited,
unless the charges were the result of a presubscription or comparable
arrangement, which included (by definition) a charge to any credit card
that was covered by TILA and FCBA. With the 1996 amendments, however,
the FCC's regulations now differ from the FTC's Rule by requiring
common carriers to prohibit the use of toll-free numbers to charge for
information or entertainment unless the consumer has entered into a
written agreement. At the same time, the FCC's new rules are more
lenient than the FTC's Rule in that, under the FCC's new rules, common
carriers can permit vendors and service bureaus using the carrier's
networks to charge consumers for calls made to an 800 number in the
absence of a presubscription agreement, if the call is charged to,
inter alia, a debit card, calling card, or prepaid account. Section
701(a) of the 1996 Act is silent as to TILA and FCBA coverage of
transactions by these means.
A number of commenters suggested that the Commission amend its
original Rule \147\ to track the amended FCC regulations.\148\
Commenters advanced several arguments in support of such a
modification. Several commenters supported tracking the FCC's amended
rules so that the Commission's Rule would allow providers other methods
to bill for toll-free audiotext services besides obtaining an explicit
``presubscription'' agreement or charging the service to a credit card
which is subject to TILA and FCBA.\149\ Other commenters favored such a
modification because it would reinforce the FCC's requirement that
presubscription agreements be in writing.\150\ Finally, some commenters
argue that amending the FTC Rule to track the FCC's regulations would
serve the goal of regulatory consistency; industry would only need to
look to one set of rules.\151\
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\147\ Specifically, these commenters supported amending Sections
308.2(e) and 308.5(i) of the original Rule--the provisions dealing
with presubscription agreements and the use of toll-free numbers for
audiotext purposes.
\148\ AT&T at 5; ISA at 31-33; NAAG at 11; PMAA at 4, 15; SW at
3, 10; TSIA at 19.
\149\ ISA at 32-33; PMAA at 15.
\150\ NAAG at 11; AT&T at 10. SW specifically opposed tracking
the new FCC regulations with regard to its allowance of an
``electronic'' signature. Such a form of written agreement, the
commenter argued, would not provide a method of verifying that the
execution was by a competent adult who is the person responsible for
paying the telephone bill. SW at 5.
\151\ AT&T at 5-6; ISA at 31-33; PMAA at 4, 15; SW at 3, 10;
TSIA at 19.
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Regulatory consistency is an important goal. This is one of the
primary reasons why, in promulgating the original Rule, the FTC chose,
at its own discretion, to adopt a provision that paralleled the
analogous FCC provisions regulating the use of 800 numbers \152\ and
defining ``presubscription or comparable arrangement.'' \153\ However,
were the FTC to adopt a definition of ``presubscription agreement''
that tracked the FCC's new definition, or if it were to similarly
modify the Rule's provisions governing toll-free numbers, it would not
be possible to achieve the explicit purposes of Titles II and III of
TDDRA as amended by the 1996 Act.\154\
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\152\ 58 FR at 42387.
\153\ Id. at 42367.
\154\ In fact, the 1996 Act's amendments to TDDRA virtually
mandate divergence between the FTC and FCC regulations. Under Title
I of TDDRA, the FCC's regulations continue to operate under the
statutory definition of ``pay-per-call services'' set forth in 47
U.S.C. 228(i). However, under Title II of TDDRA, as amended by the
1996 Act, the Commission may adopt an alternative definition of
``pay-per-call services.'' Thus, after the 1996 Act, the FCC and FTC
Rules are now focused on two different categories of ``pay-per-call
services.'' In the current legal framework, an attempt to produce
parallel Rules under Titles I, II, and III of TDDRA would be futile.
---------------------------------------------------------------------------
There is no inherent conflict between the FCC's new regulations and
the FTC's original or proposed Rule. The FCC's Title I regulations
apply only to common carriers in their role of providing basic dial
tone and transport service to service providers that use toll-free
numbers, while the FTC's regulations under Title II of TDDRA directly
apply to vendors and service bureaus who would be using toll-free
numbers to charge a consumer for audio information or entertainment.
Furthermore, there is nothing in the FTC's proposed Rule to prevent a
vendor from offering to accept payment by means of a card not subject
to TILA or FCBA, as long as the vendor reaches
[[Page 58540]]
a presubscription agreement with the person to be billed for the
service and complies with the requirements of proposed Section
308.2(j)(1).\155\ Thus, it is entirely possible to use any of the
billing mechanisms permitted under Title I of TDDRA, as amended, as
long as the provider complies with the additional precautions of
proposed Rule Section 308.2(j)(1), which are designed to ensure that
the party being billed for the toll-free audiotext service is the same
person who agreed to be billed for that service.
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\155\ In fact, many of the billing options permitted by the
FCC's rule (e.g., a calling card) might easily fall within the
Commission's proposed definition of PIN.
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It is the mandate of the FTC, acting under Title II and III of
TDDRA, to prohibit the use of unfair or deceptive practices in the
provision of audiotext services.\156\ Title I of TDDRA gives the FCC no
similar mandate. The FTC must consider the extent to which any proposed
new exemption from the Rule (such as the exemption embodied in the
revised FCC rules) would be likely to increase the types of unfair and
deceptive practices that prompted enactment of the TDDRA. There is
evidence on the record suggesting that audiotext services purchased
using these billing methods--methods that would be permitted if the FTC
Rule tracked the revised FCC rules--are susceptible to the same types
of unfair or deceptive practices that are prohibited by the original
Rule. To fulfill the mandate of Section 701(b) of the 1996 Act, it is
necessary for the FTC's Rule to cover these purchases.\157\
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\156\ 15 U.S.C. 5711(a)(1), 5711(a)(4), and 5721(a)(1).
\157\ See, e.g., NCL at 3-5; FLORIDA at 8, Attachments A44-A60;
NAAG at 11; SW at 2, 5-6; Tr. at 194, 471-84, 498-500.
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Amending the FTC Rule to parallel the revised FCC rules would also
undermine the FTC's mandate under Title III of TDDRA to promulgate
rules that impose requirements that are ``substantially similar to the
requirements imposed, with respect to the resolution of credit
disputes, under the Truth in Lending and Fair Credit Billing Acts.''
\158\ The FCC's regulations are not subject to a similar mandate. The
Commission believes that it is consistent with the regulatory framework
of TDDRA that FCC and FTC regulations differ with respect to the
requirement that billing alternatives to presubscription agreements be
subject to TILA and FCBA.
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\158\ 15 U.S.C. 5721(a)(2).
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(9) Section 308.2(n)--Service bureau--Background. One of the more
significant changes in the audiotext marketplace since the promulgation
of the original Rule is that service bureaus now play an important role
for many vendors in providing access to billing and collection systems.
Some service bureaus act as ``billing aggregators''--i.e., they act as
intermediaries between vendors and LECs in order to get their client-
vendors' charges to appear on telephone bills. Other service bureaus
bypass the LEC billing system completely and provide their clients with
direct billing services. Still other service bureaus have played an
essential role in the growth of international audiotext by entering
into revenue-sharing agreements with foreign telephone companies, and
then providing vendors of audiotext services with international numbers
through which their audiotext services can be accessed.\159\
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\159\ Some of these new types of service bureaus have played key
roles in the new deceptive and unfair practices that have injured
consumers. For example, one service bureau providing international
audiotext programs to willing vendors proudly boasts ``no
chargebacks'' in its advertisements--underscoring both the potential
harm to consumers caused by international audiotext, as well as the
essential role service bureaus play in making international
audiotext possible.
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Proposed definition of ``service bureau.'' The Commission proposes
several changes to the definition of ``service bureau'' reflecting the
fact that the role of the service bureau has expanded since the
original Rule was promulgated. The proposed definition of ``service
bureau'' is also more specific than the definition of that term in
Section 308.2(i) of the original Rule. The original definition of
``service bureau'' was open-ended--i.e, it was defined as a person
``who provides, among other things, access to telephone service and
voice storage, to pay-per-call providers.'' \160\ By contrast, the
proposed definition will define a service bureau as a person who
provides one or more of a finite list of services to vendors. This
format will provide better guidance to industry and law enforcement in
determining which entities are service bureaus and will clarify that
billing aggregators and entities providing access to international
audiotext payment systems are covered by the definition.
---------------------------------------------------------------------------
\160\ 16 CFR 308.2(i). [Emphasis added.]
---------------------------------------------------------------------------
The proposed definition of service bureau is intended to
incorporate all of the essential services that a vendor might need in
setting up a business selling products or services through telephone-
billed purchases. Section 308.2(n)(1) of the proposed Rule identifies
the following services: voice storage, voice processing, call
processing, billing aggregation, call statistics (call and minute
counts), call revenue arrangements (including revenue-sharing
arrangements with common carriers), or pre-packaged pay-per-call
investment opportunities (i.e, ``turn-key programs''). Any person
providing one or more of these services to vendors will be covered by
the proposed definition of service bureau.
Billing aggregators are explicitly included in the proposed
definition of service bureau. As the Commission's enforcement
experience has demonstrated, billing aggregators play a key role in
providing to vendors--including unscrupulous ones--access to a
telephone billing and collection system that permits vendors to cost-
effectively bill and collect for their services. In many, if not most
cases, they are the entity responsible for submitting the charges to
the LECs for placement on consumers' telephone bills. Thus, the Rule's
purposes would be thwarted unless billing aggregators were brought
explicitly within the ambit of the Rule. Similarly, service bureaus
that facilitate revenue-sharing arrangements between vendors and
foreign telephone companies in connection with international audiotext
are included in the proposed definition. This service bureau activity
is essential to vendors seeking to sell audiotext in a manner that
circumvents the consumer protections guaranteed by Title III of TDDRA.
In the original Rule, the definition of ``service bureau''
contained an exemption for all common carriers.\161\ In its Request for
Comment, the Commission asked whether it was still appropriate for the
definition to exclude all common carriers, regardless of the activities
they perform.\162\ Several commenters urged the Commission to reexamine
this common carrier exemption, arguing that the service being provided,
and not the type of entity that provides the service, should determine
whether an entity is subject to the Rule.\163\ One commenter argued
that the common carrier exemption enabled service bureaus to claim
``common carrier'' status to evade regulation, thereby gaining a
competitive advantage.\164\ The Commission is persuaded by these
arguments. Therefore, under the proposed Rule, any person, including a
common carrier, who provides the
[[Page 58541]]
services listed in 308.2(n)(1) to vendors would be considered a service
bureau.
---------------------------------------------------------------------------
\161\ 16 CFR 308.2(i).
\162\ 62 F.R. 11753 (Mar. 12, 1997).
\163\ NCL at 4; NAAG at 10; TSIA at 19-20.
\164\ TSIA at 19-20.
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Nevertheless, the Commission recognizes that there is one key
service bureau function--providing access to telephone service to
vendors of pay-per-call services--that cannot be fairly applied to
common carriers. This service, which was identified in the original
definition of service bureau, is essential to any pay-per-call service.
Indeed, it is a key function of those service bureaus who obtain
international telephone numbers for vendors who wish to provide
international audiotext services. However, a common carrier that merely
provides a vendor of pay-per-call services with access to basic
telephone service (the essential function of a common carrier) should
not be considered a service bureau subject to the Commission's Rule
promulgated under Title II and III of TDDRA. Acting as traditional
common carriers, these entities are already subject to the regulations
of the FCC promulgated under Title I of TDDRA. Therefore, the
Commission proposes a limited exemption from the definition of service
bureau for common carriers that provide vendors of pay-per-call
services with nothing more than access to telephone service. Under
proposed Section 308.2(n)(2), any person, other than a common carrier,
who provides access to telephone service to vendors of pay-per-call
services,\165\ would be considered a service bureau.
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\165\ It is important to note that proposed Sec. 308.2(n)(1),
unlike Sec. 308.2(n)(2), applies to all vendors, and is not limited
to vendors of pay-per-call services.
---------------------------------------------------------------------------
(10) Section 308.2(q)--Telephone-billed purchase. The term
``telephone-billed purchase'' defines those products and services that
are covered by the dispute resolution provisions of the Rule
promulgated under Title III of TDDRA. The term is much broader in scope
than the term ``pay-per-call services,'' the category of services
covered by Title II of TDDRA. The original Rule's definition of
``telephone-billed purchase'' comes from Title III of TDDRA,\166\ and
it currently includes ``any purchase that is completed solely as a
consequence of the completion of the call or subsequent dialing, touch
tone entry, or comparable action of the caller.''\167\ The term
specifically excludes all local exchange or interexchange telephone
services, as well as other services excluded by FCC regulation. Thus,
any purchase of a product or service (other than telephone toll
service) that results in a charge to a consumer or an account
identified by reference to ANI is included in the current definition,
and any person billed for such a purchase would be entitled to dispute
the charges pursuant to the Commission's Rule.\168\
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\166\ 15 U.S.C. 5724(1).
\167\ Section 308.7(a)(6) of the original Rule.
\168\ Services provided pursuant to a presubscription agreement
are excluded from the definition. 15 U.S.C. 5724(1)(A), 16 CFR
308.7(a)(6)(i).
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Background. At the time the original Rule was promulgated, 900-
number services were the primary, if not the only, familiar example of
telephone-billed purchases. Today, the growing use of ANI as a basis
for billing consumers has increased the range of available telephone-
billed purchases. Consumers can purchase voice mail, Internet access,
telephone equipment, roadside assistance club memberships, and other
goods and services and have the charges billed to their telephone bill.
Concurrent with this development, there has been a sharp increase in
complaints about telephone-billed charges for such goods and
services.\169\ Consumer organizations, as well as federal and State
regulatory and law enforcement agencies, have received a large number
of complaints from consumers who have found unclear or unexplained
monthly recurring charges on their telephone bills for services that
were never authorized, ordered, received, or used.\170\ These
unauthorized charges (i.e., ``cramming'' charges), are often
purportedly for club memberships, or subscriptions for psychic,
personal, travel, or 900-number services. In other instances, the
charges involve services such as personal 800 numbers, voice mail,
paging, and calling cards.
---------------------------------------------------------------------------
\169\ SW at 7-8; NCL at 4; Tr. at 382-84, 498-504. For example,
NCL reported that most of the complaints received by the NFIC that
relate to 800 numbers involve calls that the consumer thought were
free, but by making them, the consumer had unknowingly signed up for
services which resulted in charges (such as voice mail or club
memberships).
\170\ Tr. at 498-500.
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The common thread in all of these types of cramming charges is that
a consumer is identified, and a billing statement is transmitted, based
on a telephone number. In other words, in all of these instances, a
telephone number was used in the same manner that a credit card account
number might have been used in the past.\171\ While consumers have for
a long time had numerous rights to dispute unauthorized or other
incorrect charges to their credit card numbers,\172\ until 1992 they
had no comparable rights to dispute charges for products and services
billed to a telephone number. Title III of TDDRA was specifically
designed to address this problem; Congress instructed the Commission to
prescribe rules establishing a dispute resolution procedure for
telephone-billed purchases that are ``substantially similar'' to the
dispute resolution protections afforded credit card users under TILA
and FCBA.\173\
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\171\ FCC Public Forum on Local Exchange Carrier Billing for
Other Businesses (June 24, 1997). Transcript, pp. 232-237.
\172\ 15 U.S.C. 1666.
\173\ 15 U.S.C. 5721(a)(2).
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Proposed definition of ``telephone-billed purchase.'' The original
Rule definition of ``telephone-billed purchase'' covered all (non-toll)
charges resulting from ANI capture. This includes many, but not all,
instances of cramming.\174\ It does not cover instances of cramming,
for example, where a phone call is never made in connection with a
charge, yet the charge is billed to the consumer's telephone bill.\175\
Proposed Section 308.2(q) expands the definition of telephone-billed
purchase to include all purchases that are ``charged to a customer's
telephone bill,'' even if the purchase did not involve a telephone
call.
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\174\ As discussed elsewhere in this Notice, the Commission
proposes several modifications to the Rule to provide greater
protection to consumers who have been ``crammed'' (for example,
proposed Secs. 308.2(b)(9)-(11)) and to prohibit vendors, service
bureaus, and billing entities from engaging in cramming (proposed
Sec. 308.17).
\175\ In at least one case where unexplained or unauthorized
charges did not result from a telephone call, a deceptive prize
promotion allegedly was used to market a voice mail service.
Allegedly, consumers were enticed to fill out a sweepstakes form for
a chance to win a new vehicle or a sum of cash. The form failed to
adequately disclose that the vendor interpreted the submission of a
completed entry form as authorization to bill charges for a
``membership'' to the telephone number listed on the form. In many
instances, consumers allegedly were unaware that they had signed up
for this ``membership''; in other instances, consumers allegedly
found they were being billed for services because someone else had
filled out the form and put down their telephone number. FTC v. Hold
Billing Services, Ltd., No. SA98CA0629 FB (W.D. Texas, filed July
19, 1998).
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Title III of TDDRA was intended to provide telephone-billed
purchases the same types of protections afforded to credit card
purchases under TILA and FCBA. The telephone number, in telephone-
billed purchases, is analogous to the credit card number. To carry the
analogy further, instances of ``non-ANI cramming,'' such as a charge
resulting from entry of a consumer's telephone number on a sweepstakes
entry form, are much like instances where a consumer's credit card
number is used in a transaction where the physical card is not itself
presented. In the credit card environment (under TILA and FCBA), the
fact that a transaction takes place without the presence of the actual
card would not affect the cardholder's right
[[Page 58542]]
to dispute an unauthorized charge. By contrast, in non-ANI cramming, a
consumer loses his or her right to dispute the charge simply because
the telephone was not actually used in the transaction. In this
respect, the Commission's Rule is no longer ``substantially similar''
to the rights afforded by TILA and FCBA.
Congress has given the Commission significant flexibility in
prescribing regulations that are ``necessary or appropriate'' to
implement the provisions of Title III.\176\ The Commission has broad
authority to prohibit unfair or deceptive practices that ``evade'' its
dispute resolution rules or otherwise ``undermine the rights'' Congress
gave to consumers under Title III of TDDRA.\177\ Non-ANI cramming is
such a practice.
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\176\ 15 U.S.C. 5723.
\177\ 15 U.S.C. 5721(a)(1). See also 15 U.S.C. 5711(a)(2)(J) and
(a)(4) (providing similar authority under Title II).
---------------------------------------------------------------------------
The Commission believes that consumers should have equal rights to
dispute unauthorized non-toll charges on their telephone bills
regardless of whether or not a telephone was used to generate the
charges. Even if consumers carefully monitor the use of the telephone,
they cannot keep their telephone number secure and private as they
would their credit card number. Indeed, consumers may not be aware of
the need to keep their telephone numbers secure. The ability to use a
telephone number alone to bill a consumer, in the absence of an actual
telephone call, represents a tremendous opportunity for fraud.
The Commission believes that in order to provide consumers with
rights that are substantially similar to the dispute resolution rights
of TILA and FCBA, and in order to prevent unfair or deceptive practices
that evade these rights, it is both necessary and appropriate to
propose an amendment to the definition of ``telephone-billed purchase''
to include instances of cramming that do not arise from a telephone
call from the consumer's telephone.
Clarification. Proposed Section 308.2(q) also clarifies the
definition of ``telephone-billed purchase'' by adding the phrase``pay-
per-call purchase.'' While the Commission believes that the current
language of the Rule clearly encompasses pay-per-call services, this
revision will prevent any misinterpretation of the Rule's coverage.
This clarification will ensure that persons billed for pay-per-call
services will have the full panoply of protections provided by the
dispute resolution provisions of the Rule, regardless of the dialing
pattern used to access the service. Proposed Section 308.2(q) also
clarifies the definition by using the term ``presubscription
agreement'' in place of the term ``preexisting agreement,'' and by
specifying that the exemption for presubscription agreements applies
only to those purchases where the presubscription agreement satisfies
all of the requirements of the proposed Rule.
(11) Section 308.2(r)--Variable option rate basis. The original
Rule used the term ``variable rate basis'' to describe situations where
the rate charged for a pay-per-call service varied depending on the
options chosen by the caller. For example, in the course of a pay-per-
call program, a consumer might be asked to press a specific number on a
touch tone keypad that would access a different program charged at a
higher rate. The term ``variable rate basis,'' however, is no longer
specific enough to describe the current situation. This is true
because, as discussed infra, there are now pay-per-call services where
the charge to the consumer may vary depending on factors other than the
options specifically chosen by the consumer--e.g., services where the
rates vary depending on the passage of time.\178\ To clarify the
specific situations that the original phrase ``variable rate basis''
was intended to cover (i.e., those that are dependent on the options
selected by the caller), the Commission proposes substituting the
phrase ``variable option rate basis.'' Proposed Section 308.2(r)
defines this term to refer to the rate structure of pay-per-call
services where the rate billed to the consumer depends on the specific
options chosen by the caller during the call.
---------------------------------------------------------------------------
\178\ See, e.g., ISA at 22; PMAA at 10-12; TSIA at 17-18.
---------------------------------------------------------------------------
(12) Section 308.2(s)--Variable time rate basis. As noted above,
new forms of variable rates have become available since the original
Rule was promulgated. For example, it is now possible to bill the first
minute at one rate while subsequent minutes are billed at a higher or
lower rate.\179\ Proposed Section 308.2(s) provides a term, ``variable
time rate basis,'' to describe instances where charges vary according
to the amount of time the caller is on the telephone or according to
other factors not determined by the options chosen by the caller.
Section 308.4(a)(1)(iii)(B) of the proposed Rule requires that, in
advertisements for pay-per-call services billed on a variable time rate
basis, the advertisement shall state the cost of each different portion
of the call. This same requirement applies to the free preamble message
under proposed Section 308.9(a)(2)(iii)(B). These provisions will
ensure that consumers receive accurate disclosure of the full cost of
the call before a call is placed or before charges are incurred.
---------------------------------------------------------------------------
\179\ Id.
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(13) Section 308.2(t)--Vendor. The original Rule uses both the term
``vendor'' and the term ``provider of pay-per-call services.'' Under
the original Rule, a ``provider of pay-per-call services'' was a
specific type of vendor--a vendor who happened to sell pay-per-call
services. The proposed Rule discontinues the use of the term ``provider
of pay-per-call services'' because the Commission does not believe
there is any value to maintaining a separate term for those vendors who
sell pay-per-call services. The proposed Rule therefore uses the term
``vendor'' to refer to both providers of pay-per-call services as well
as sellers of other telephone-billed goods or services.
Subpart C--Pay-Per-Call Services
Section 308.3 General Requirements for Advertising Disclosures
Section 308.3 of the original Rule contained the provisions
relating to disclosures of cost and other material information in the
advertising of pay-per-call services. As discussed earlier, the
proposed Rule has broken the former single Section 308.3 (``Advertising
of pay-per-call services'') into several shorter sections, each dealing
with a discrete subject.
Section 308.3 of the proposed Rule, entitled ``General Requirements
for Advertising Disclosures,'' retains the language from Section
308.3(a) of the original Rule. This section sets forth the ``minimum
standards'' applicable to disclosures required in advertisements under
the Rule.\180\ The only proposed modification to this section is the
addition of a new requirement relating to any advertising medium not
specifically addressed in the Rule.
---------------------------------------------------------------------------
\180\ See, discussion in the Statement of Basis and Purpose of
the original Rule, 58 FR at 42369.
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Internet and online advertisements. In its Request for Comment, the
Commission sought information and views on whether the advertising
regulations of the original Rule should set forth specific requirements
for advertising that appears on the Internet or online. In general, the
commenters, both in writing and in the discussion at the workshop,
expressed the view that the regulation of Internet and online
advertising is an issue best suited for another rulemaking proceeding
in which comment can be solicited from a
[[Page 58543]]
much broader array of online advertisers.\181\ Several participants at
the workshop cautioned that this proceeding may not be an appropriate
forum for setting such advertising standards,\182\ but nevertheless
were troubled by the prospect of the Internet becoming the next haven
for deceptive pay-per-call advertising. These participants suggested
that some type of general standard for advertising might be necessary
in order to ensure that this scenario did not occur.\183\
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\181\ PMAA at 14; ISA at 28-31; AT&T at 11-12, 32; USWEST at 2;
Tr. at 560-75. One commenter suggested that the Commission specify
reasonable requirements for clear and conspicuous disclosures for
pay-per-call services advertised on the Internet or online. (NCL at
5).
\182\ In general, commenters argued that since online
advertisements are still in their infancy, any comprehensive
treatment of the topic in this forum might have an undesired impact
on the entire online industry.
\183\ Tr. at 569-74.
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The Commission agrees that standards for Internet or online
advertising would best be considered in a proceeding focusing more
narrowly on business practices in the newer types of electronic
commerce. In fact, the Commission has begun this process by requesting
comment on the applicability of many of its rules and guides to
electronic media.\184\
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\184\ 63 FR 24996 (May 6, 1998).
---------------------------------------------------------------------------
Nonetheless, the Commission shares the concerns of those who fear
that, absent some specific provision in this Rule, unscrupulous vendors
might use the Internet to sell pay-per-call services without providing
consumers with the cost disclosures that are required of pay-per-call
vendors using the traditional print and broadcast media specifically
addressed in the original Rule. Accordingly, Section 308.3(g) of the
proposed Rule requires that, in any advertising medium not specifically
addressed elsewhere in the Rule, the required advertising disclosures
must be clear and conspicuous and made in a manner in which they cannot
be avoided by consumers acting reasonably. A vendor must ensure that in
any Internet or online advertisement, a consumer will not receive the
information required to make the purchase (i.e., the telephone number
of the pay-per-call service), unless a consumer also receives the
required disclosures, displayed clearly and conspicuously. This will
usually mean that the disclosures must appear adjacent to the
disclosure of the telephone number itself, and that the consumer must
not be required to ``click through'' or ``scroll down'' to see the
disclosures. This proposed change is consistent with the proposal
contained in the Commission's Request for Comment regarding the
applicability of its rules and guides to electronic media, referred to
above.\185\
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\185\ 63 FR at 25002-04.
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Section 308.4 Advertising Disclosures
Proposed Section 308.4 incorporates the provisions set out the
following sections of the original Rule: 308.3(b) (Cost of the call);
308.3(c) (Sweepstakes; games of chance); 308.3(d) (Federal programs);
and 308.3(f) (Advertising to individuals under the age of 18). Each of
these provisions deal with specific, substantive disclosure and
advertising requirements. The Commission has decided to group these
requirements together in their own separate section in order to give
them more prominence.\186\
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\186\ Original Section 308.3(e) (Prohibition on advertising to
children) appeared adjacent to these provisions in the original
Rule. However, this Section is not a substantive disclosure
requirement for pay-per-call advertisements. Instead, it implements
TDDRA's mandate to prohibit most pay-per-call advertisements to
children under 12 (15 U.S.C. 5711(a)(2)(C)). This provision has been
incorporated in the proposed Rule in Section 308.5 (Advertising to
children prohibited).
---------------------------------------------------------------------------
In addition to placing these requirements together in a separate
section, the proposed Rule clarifies the term ``variable rate basis''
that was used in Section 308.3(b)(1)(iii) of the original Rule. As
discussed, the Commission originally intended this term to cover
situations where the rate charged would vary depending on the options
chosen by the caller. However, technological advances since the
original Rule was promulgated now allow other forms of variable rates,
such as billing the first minute at one rate and billing subsequent
minutes at a lower or higher rate.\187\ Thus, Section
308.4(a)(1)(iii)(A) now uses the term ``variable option rate basis''
(emphasis added) in order to denote the type of cost disclosure to be
made when the cost of the call varies depending on the options chosen
by the caller.
---------------------------------------------------------------------------
\187\ See, e.g., ISA at 22; PMAA at 10-12; TSIA at 17-18.
---------------------------------------------------------------------------
The Commission believes that consumers should know, in advance of
placing a call, that the rates may vary as time passes. Consumers must
be given sufficient information to make judgments about how much time
they wish to spend listening to a pay-per-call service and how much
money they want to spend for it. Accordingly, the Commission proposes a
new provision [308.4(a)(1)(iii)(B)] to specify the cost disclosures to
be made in instances where charges vary according to the amount of time
the caller is on the telephone or to other factors unrelated to options
chosen by the caller. The Commission intends for these situations to be
encompassed by the term ``variable time rate basis'' (emphasis added).
Section 308.6 Misrepresentation of Cost Prohibited
Proposed Section 308.6(a) is a new provision that specifies that a
deceptive practice for a vendor to misrepresent the cost of a pay-per-
call service. In many respects, this deceptive practice is already
prohibited by the original Rule: the original Rule requires cost
disclosures \188\ and prohibits the vendor from making representations
in advertising that are ``contrary to, inconsistent with, or in
mitigation of'' the cost and other required disclosures.\189\
Nevertheless, the Commission believes that the importance of the
disclosure of cost warrants a separate provision explicitly prohibiting
this type of misrepresentation. Importantly, unlike existing Rule
provisions, proposed Section 308.6(a) will not only address
misrepresentations of cost that appear in advertising, but it will also
address misrepresentations that occur during the pay-per-call
transaction itself. For example, proposed Section 308.6 will address
situations where the recorded or live audiotext program misleads a
caller into staying on the line by misrepresenting that charges on the
pay-per-call service have stopped.
---------------------------------------------------------------------------
\188\ 16 CFR 308.3(b).
\189\ 16 CFR 308.3(a)(5).
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The Commission continues to believe, as it did when the original
Rule was published, that callers should be left with no doubt as to
when they must hang up to avoid being charged for the call.\190\ The
original Rule requires a signal or tone at the end of the free preamble
\191\ or after any free time following the preamble.\192\ Proposed
Section 308.6(b) makes clear that if any portion of a telephone call is
free,
[[Page 58544]]
regardless of where it occurs in the program, the vendor shall provide
a clearly discernible signal or tone indicating the end of the free
time.
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\190\ This is especially important, given that the
advertisements of some providers obscure the amount of ``free'' time
a consumer will receive. For instance, Commission staff has observed
some deceptive advertisements promising ``10 free minutes,'' when in
reality the caller will not receive all of these free minutes in one
call--the caller might receive only two free minutes in five
different calls to the service. A caller who failed to read the fine
print may believe it is safe to stay on the telephone line for ten
minutes before charges accrued. The requirement of a signal or tone
clearly indicating the end of the free time will be an important
tool in curbing the harm to consumers from this type of advertising.
\191\ 16 CFR 308.5(a)(3) and (b).
\192\ See December 18, 1996, opinion letter from Eileen
Harrington, Associate Director, Division of Marketing Practices,
Federal Trade Commission, to Barry J. Cutler, Esq., McCutcheon,
Doyle, Brown & Enerson. (This letter is appended to several
comments. See, e.g., Exhibit 3 of AT&T comment or Appendix H of ISA
comment.)
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Several workshop participants indicated that some pay-per-call
services would experience technical difficulties in inserting a tone at
the end of the free period of time.\193\ Other participants stated
their belief that the original Rule did not require a tone at the end
of the free portion of the call and that it was not necessary because
consumers could watch their clocks and know when the free time
expired.\194\ Similar opinions were expressed in several of the written
comments.\195\ Conversely, one written comment specifically supported a
requirement for a tone at the end of the free time to alert consumers
to the fact that the free portion of the call was coming to an
end.\196\ That sentiment was echoed at the workshop by law enforcement
officials who had received complaints from consumers who had actually
timed calls themselves to stay within the ``free'' time but were
charged anyway.\197\ Proposed Section 308.6(b) would ensure that
callers receive adequate notice of when charges begin, regardless of
where in the program the free time is offered.
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\193\ Tr. at 522-25.
\194\ Tr. at 528-29.
\195\ PMAA at 9-12; TSIA at 17-18; ISA at 20-23.
\196\ AT&T at 16-17.
\197\ Tr. at 532.
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Section 308.7 Other Advertising Restrictions
Section 308.7 of the proposed Rule incorporates several sections of
the original Rule that deal with advertising restrictions and adds
three new subsections.
Use of electronic tones and referral to toll-free numbers. The
proposed Rule retains the prohibition in the original Rule against
using electronic tones in advertising.\198\ It also retains the
original prohibition against referring to toll-free telephone numbers
in an advertisement if the toll-free number is used in a manner that
violates the prohibitions in proposed Section 308.13.\199\
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\198\ 16 CFR 308.3(g). The Commission believes this provision
will play an important role in stopping scam artists from using the
``modem hijacking'' techniques that allegedly formed the basis of
the scheme targeted in the Commission's complaint in FTC v. Audiotex
Connection. Internet advertisements that ``emit electronic tones''
via a modem and cause such modems to disconnect and redial a pay-
per-call service will violate this provision.
\199\ 16 CFR 308.3(i).
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Disclosures in telephone message. The original Rule required any
telephone message that solicits calls to a pay-per-call service to
disclose the cost of the call in a slow and deliberate manner and in a
reasonably understandable volume.\200\ Section 308.7(b) of the proposed
Rule retains that requirement and clarifies that the term ``telephone
message'' includes telephone messages conveyed during calls placed by a
consumer, as well as those conveyed during calls placed by the vendor
or its agent. The Commission added this clarifying language in order to
ensure that consumers receive the necessary disclosures regardless of
who places the telephone call and regardless of whether the message the
consumer receives is the result of an inbound or an outbound call.
---------------------------------------------------------------------------
\200\ 16 CFR 308.3(h).
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Disclosures in facsimile message. New Section 308.7(c) of the
proposed Rule clarifies that any facsimile message soliciting calls to
a pay-per-call service must include all disclosures required by the
Rule. Since the original Rule was promulgated in 1993, consumers have
had increased access to facsimile machines at work and in the home--
either as stand-alone machines or as part of a personal computer
system. The Commission has received complaints from consumers regarding
instances where consumers have received deceptive facsimiles soliciting
calls to expensive international audiotext services.\201\ Vendors who
solicit calls to pay-per-call services by using this technology should
be governed by the same disclosure requirements as those providers who
advertise in other printed media. Therefore, this proposed section
clarifies that pay-per-call service information transmitted to
consumers via facsimile must make all the relevant disclosures required
by the Rule, and that such disclosures must be provided in the manner
required for print advertisements in proposed Sections 308.3 and
308.4(a)(2)(ii).
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\201\ See, e.g., ``Phone, E-Mail & Pager Messages May Signal
Costly Scams,'' FTC Alert (Dec. 1996).
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FCC regulations ban unsolicited facsimile advertisements.\202\ The
FTC's proposed Rule should not be read to permit unsolicited facsimile
messages or any other practice that would be in violation of the FCC's
rules. Therefore, Section 308.7(f) states that the FTC's proposed Rule
should not be construed to permit any conduct or practice that the FCC
otherwise has prohibited.
---------------------------------------------------------------------------
\202\ 47 CFR 64.1200(a)(3).
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Use of pagers to solicit calls. New Section 308.7(d) of the
proposed Rule clarifies that any beeper or pager message that solicits
calls to a pay-per-call service must include all disclosures required
by the Rule. The practice of soliciting calls in this manner has been
the subject of numerous complaints over the past several years.\203\ In
some instances, consumers report receiving a page from a pay-per-call
service that simply listed an area code and seven-digit number as the
return number to call. The number flashed on the pager did not use a
900- or 976-number dialing pattern and thus could not be identified by
the consumer as an audiotext service. Absent any explanation for the
call, consumers reasonably assume that such pages indicate an urgent
call from someone known personally or professionally. Upon dialing the
number given on the pager and after later receiving a bill containing
an expensive charge for the call, however, the consumer discovers that
he or she has called an international audiotext service. Several
commenters urged the Commission to design particular rules to prevent
this practice and to prohibit all unsolicited messages left on
pagers.\204\ One commenter urged the Commission to prohibit more
narrowly unsolicited pay-per-call advertisements on pagers.\205\
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\203\ ``Sexy Calls Are a Headache for Pager Users,'' Memphis
(TN) Commercial Appeal (March 2, 1995), p. 14-1. See also, ``Phone,
E-Mail & Pager Messages May Signal Costly Scams,'' FTC Alert (Dec.
1996).
\204\ SW at 3; NCL at 5.
\205\ NCL at 5.
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Given current pager technology, in all likelihood it is not
possible for most pager solicitations to comply with the Rule's
advertising disclosure requirements. Nevertheless, the Commission is
not inclined to prohibit completely this method of advertising so long
as such advertisements are not deceptive. Therefore, proposed Section
308.7(d) makes it clear that pager messages soliciting calls to a pay-
per-call service will be treated like any other advertisement and thus
must contain all relevant advertising disclosures required by the Rule.
Vendors using this method of promoting their pay-per-call services are
responsible for ensuring that all required disclosures are actually
displayed by the consumer's beeper or pager; it is not sufficient to
merely transmit this information with the hope that the recipient's
beeper or pager is sophisticated enough to display all of the relevant
disclosures.
FCC regulations prohibit the use of automatic dialers to call a
number assigned to a paging service.\206\ The FTC's proposed Rule
should not be read to permit the use of automatic dialers to
disseminate pay-per-call advertisements on beepers or pagers, or to
permit any other practice that would be in violation of the FCC's
rules. Therefore, Section
[[Page 58545]]
308.7(f) states that the FTC's proposed Rule should not be construed to
permit any conduct or practice that the FCC otherwise has prohibited.
---------------------------------------------------------------------------
\206\ 47 CFR 64.1200(a)(1)(iii).
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Section 308.9 Preamble Message
Proposed Section 308.9 incorporates the provisions previously
contained in Sections 308.5(a)-(e) of the original Rule, setting out
the requirements relating to the introductory disclosure message (or
``preamble'') that must be provided without charge to callers to a pay-
per-call service. The Commission proposes two substantive changes to
this section. First, the proposed Rule requires specific disclosures
for services billed on a ``variable time rate basis.'' Second, the
proposed Rule adjusts the ``nominal cost'' exemption to the preamble
requirement.
Variable option versus variable time rate basis. The proposed
provision retains most of the language from the original provision,
although the Commission added clarifying language to two of the
subsections. Proposed Section 308.9(a)(2)(iii) details the manner in
which the cost disclosure must be given, depending on whether the call
is billed on a variable option rate basis or on a variable time rate
basis. These changes parallel the proposed changes for disclosures in
advertisements in proposed Section 308.4(a)(1)(iii). As in proposed
Section 308.4(a)(1)(iii), the preamble cost disclosure for calls billed
on a variable option rate basis are the same as those in the original
Rule. In those instances where the call is billed on a variable time
rate basis, however, the Commission has proposed that the preamble must
state the cost of each different portion of the call (e.g., ``The first
five minutes are $5.99 per minute; thereafter, you will be charged
$3.99 per minute'').\207\
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\207\ Proposed Section 308.9(a)(1)(iii)(B).
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Nominal cost calls. Currently, the Rule allows a vendor to provide
a pay-per-call service without a free preamble if the entire cost of
the call is $2.00 or less.\208\ The comments suggest that this figure
may be too low to encourage vendors to provide these low cost services
to consumers.\209\ Section 308.9(c) of the proposed Rule thus raises
the maximum charge for a ``nominal cost'' call to $3.00.
---------------------------------------------------------------------------
\208\ 16 CFR 308.5(c).
\209\ ISA at 26 (``a review of approximately 40,000 current 900
number applications revealed that only 725 of the these applications
(many of which involved polling) were priced at $2.00 or below. The
ISA expects, that if the FTC increased the threshold to $3.00, more
[vendors] would consider offering services at or about $3.00 per
call. As a result, the number of low-priced services available to
the public should increase.'').
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Parental permission advisory. Both TDDRA \210\ and the original
Rule \211\ require the preamble to state that anyone under the age of
18 must have the permission of a parent or legal guardian in order to
call. Numerous commenters from industry urged that the Commission
recommend to Congress that TDDRA be amended to change the parental
consent requirement to reduce consumer confusion and to discourage
minors from accessing adult-oriented material.\212\
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\210\ 15 U.S.C. 5711(a)(1)(E) and 5711(a)(2)(A)(iv).
\211\ 16 CFR 308.5(a)(4).
\212\ See, e.g., TPI at 4-5; ISA at 23-24; PMAA at 12-13; Tr. at
190-91 and 550-53.
---------------------------------------------------------------------------
To discourage minors from calling their services, some information
providers prefer that the preamble present a stronger message--i.e.,
that no one under 18 may place the call and that anyone under that age
must hang up. The Commission agrees that such a statement is stronger
than the warning required by the statutory language. Because it is
stronger than the required warning, the statement subsumes the mandated
statutory language. For this reason, the Commission believes that such
statements would comply with the requirement for a parental consent
disclosure.\213\
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\213\ This statement is intended to supersede the position set
out in the FTC staff opinion letter, dated May 17, 1994, from
Heather L. McDowell, staff attorney, Federal Trade Commission, to
William W. Burrington of the Interactive Services Association.
---------------------------------------------------------------------------
Section 308.10 Deceptive Billing Practices
Section 308.10(a)--Deceptive billing for services in violation of
the Rule. This section of the proposed Rule replaces the ``billing
limitations'' provision contained in Section 308.5(f) of the original
Rule, which: (1) prohibited vendors from billing consumers in excess of
the amount stated in the preamble for those services; and (2)
prohibited billing for any services provided in violation of any
section of the Rule. Proposed Section 308.10(a) treats each of these
two prohibitions in separate subparagraphs and, for greater clarity and
precision, substitutes the phrase ``collect or attempt to collect'' for
the original phrase, ``billing consumers.'' This proposed modification
is meant to ensure that the Rule protects not only those consumers who
have already paid their bill, but also those who have not yet paid but
who have received a bill containing a charge for services that violate
the Rule. In addition, the proposed provision would prohibit a vendor
from engaging in these collection activities either ``directly or
indirectly.'' This is meant to clarify that the proposed Rule does not
permit a vendor or service bureau to evade this provision by filtering
the charges through a third party, such as a billing aggregator.
Finally, proposed Section 308.10(a) reformulates the prohibitions
of 308.5(f) of the original Rule, specifying that they are deceptive
practices. Attempting to collect charges for services that violate the
Rule is a deceptive practice because the bills received by the consumer
falsely indicate that the consumer must pay for these services when, in
fact, the consumer is not legally obligated to do so. These are
material misrepresentations that are likely to mislead reasonable
consumers. Proposed Section 308.10(a) prohibits this deceptive
practice, and has been re-titled to clarify the purpose of the
provision.
Section 308.10(b)--Deceptive billing for time-based charges after
disconnection by the caller. Section 308.5(g) of the original Rule
required the provider of pay-per-call services to ``stop the assessment
of time-based charges immediately upon disconnection by the caller.''
Section 308.10(b) of the proposed Rule contains this same provision and
reformulates it to specify that this constitutes a deceptive practice.
Charging a consumer for more time than the consumer actually used is
appropriately designated to be a deceptive practice. Vendors are in the
best position to accurately measure the amount of time a consumer
spends using a pay-per-call service. Charging a consumer for more than
this time misrepresents the amount of time a consumer spent using the
service, and is likely to mislead reasonable consumers into paying for
more time on the service than they actually used. Thus, the practice of
charging a consumer for time-based charges after a consumer has hung up
the telephone is a deceptive practice.
In the Statement of Basis and Purpose accompanying the original
Rule, the Commission recognized that ``time-sensitive billing is
accomplished in one-minute increments, and that any portion of a minute
will be billed as full time.'' \214\ The Commission also stated then
that billing in such a manner would ``not be considered a violation of
this provision.'' In the Rule review, the Commission asked whether
billing in fractions of minutes was now
[[Page 58546]]
possible.\215\ Comments revealed that fractional minute billing is now
possible and is accomplished by some providers.\216\ Although several
commenters requested that they be permitted to use business discretion
when choosing whether or not to use one-minute billing or to implement
fractional minute billing, the Rule as mandated by Congress does not
allow for such discretion. Title II of TDDRA requires that the
Commission promulgate rules requiring providers of pay-per-call
services to ``stop the assessment of time-based charges immediately
upon disconnection by the caller.'' \217\ Based on the current
information contained in the record, the Commission believes that
technology has made it possible to bill in increments smaller than one
minute.\218\ Thus, under the proposed Rule, billing in one-minute
increments will no longer be acceptable.
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\214\ 58 FR 42387 (August 9, 1993).
\215\ 62 FR 11754 (March 12, 1997).
\216\ AT&T at 14; US WEST at 6-7.
\217\ 15 U.S.C. 5711(a)(2)(D). [Emphasis added].
\218\ The Commission solicits comment on this determination.
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Section 308.12 Prohibition Concerning Toll Charges
As discussed, supra, the Commission proposes extending the
definition of ``pay-per-call services'' to include all audiotext
services, regardless of the dialing pattern used to access the
service.\219\ The proposed definition would include many services
offered over international or other long-distance numbers. By expanding
the definition to cover these services, the Commission intends that the
Rule should apply equally to all providers of audiotext, regardless of
the dialing pattern used to access those services. The proposed Rule
does not require that pay-per-call services be offered only over 900
numbers; rather, the Rule requires that, regardless of the telephone
number used to access a service, the vendor and the service bureau must
provide the service in a manner that complies with the Rule.
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\219\ Excluding calls resulting in only de minimis payments to
information or entertainment providers, presubscription agreement
services, calls utilizing telecommunications services for the deaf,
and tariffed directory services provided by a common carrier.
Proposed Sections 308.2(g)(2)-(3).
---------------------------------------------------------------------------
There was considerable discussion at the workshop relating to the
issue of whether many of the basic consumer protections required by the
Rule are technologically available in the international audiotext
context.\220\ In written comments, one commenter pointed out that
international audiotext services could not comply with the Rule's cost
disclosure requirements because vendors cannot determine this
information in advance.\221\ Several participants suggested that free
preambles could not be inserted in international audiotext services
because the international toll charges begin immediately upon
connection, and because exact cost information could not be provided in
the advertising or in a preamble due to the multitude of factors that
affect the cost of an international telephone call (e.g., the caller's
carrier, calling plan, time of day called, origin of call).\222\
Several LECs that bill for pay-per-call services indicated that
currently it is impossible to ensure that calls to international
audiotext services appear on a separate section of the telephone bill,
as required by the original Rule,\223\ because there is no identifiable
dialing pattern associated with international audiotext services.\224\
In addition to these important protections which are guaranteed by
Titles II and III of TDDRA, international audiotext services, as a
discrete category, cannot be blocked under Title I of TDDRA; i.e.,
consumers can choose to block calls to all international telephone
numbers or none at all, but cannot block calls only to selected
international numbers that access audiotext services.\225\ Moreover, a
block on international dialing will not block calls to the Caribbean
countries where many of these services terminate, because those
countries are part of the North American Numbering Plan.\226\
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\220\ Tr. at 393-460.
\221\ ISA at 27.
\222\ TSIA at 20-21; Tr. at 345, 393.
\223\ 16 CFR 308.5(j)(1).
\224\ Tr. at 440-41.
\225\ See, e.g., ALLIANCE at 2-3.
\226\ Tr. at 432.
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These apparent technological difficulties in applying the Rule's
consumer protections to international audiotext services prompted some
commenters to suggest that, if the Commission were to extend the
definition of pay-per-call services to cover international audiotext
services, then the Commission should exempt these services from having
to comply fully with the Rule.\227\ On the other hand, one consumer
organization condemned the notion that businesses that choose to offer
audio information and entertainment services via international dialing
patterns should be permitted to do so without providing all of the
consumer protections contemplated by TDDRA.\228\ Several commenters and
participants supported the idea of requiring international pay-per-call
services to be offered through 900 numbers, so that all of the consumer
protections required by TDDRA and the Rule could be applied to such
services.\229\
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\227\ ISA at 27.
\228\ Tr. at 418 (NCL: ``What I am really hearing is that it is
probably technically feasible to give consumers the same types of
protections but it is not currently economically feasible, but
nobody is forcing information providers to use international numbers
to provide their services. That's a choice that they are consciously
making. We're being asked essentially to countenance this choice to
use these numbers and to not give consumers the same protections
that we felt so strongly they were entitled to with 900 numbers,
because it would be too expensive for the companies to do so,
resulting in what--what we have seen as tremendous harm, economic
harm, to consumers.'')
\229\ SNET at 2; SW at 2; AT&T at 29-30; Tr. at 344, 369.
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Based on the record and on the Commission's enforcement
experience,\230\ the Commission believes that the practice of
disguising audiotext charges as long-distance or other telephone toll
charges is inherently inconsistent with the protections set forth by
Congress in Titles II and III of TDDRA. This is true for several
reasons. First, billing statements containing these charges do not
accurately identify the charges, nor do they meet the Rule's
requirement in Section 308.5(j)(1)\231\ that the charges be displayed
in a portion of the bill that is ``identified as not being related to
local and long-distance telephone charges.''
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\230\ See, e.g., FTC v. Daniel B. Lubell, No. 3-96-CV-8200 (S.D.
Iowa, filed Dec. 17, 1996) and FTC v. Interactive Audiotext
Services, Inc., No. 98-3049 CBM (C.D. Calif., filed April 22, 1998).
\231\ This provision is found in 308.18(a) of the proposed Rule.
---------------------------------------------------------------------------
Second, international audiotext services cannot accurately disclose
the costs callers will incur when they access the service.\232\ It is
insufficient to disclose that ``long-distance rates apply'' \233\ or
even that the rates are much higher than rates to some of the more
familiar international destinations. TDDRA mandated that pay-per-call
services disclose in advertising ``the total cost or the cost per
minute.'' \234\
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\232\ See, e.g., ISA at 27; ITA at 11-12.
\233\ See, e.g., Interactive Audiotext Services and Daniel B.
Lubell.
\234\ 15 U.S.C. 5711(a)(1)(A) and (2)(A)(ii).
---------------------------------------------------------------------------
Third, according to the discussion at the workshop, current
technology does not allow international audiotext to operate in such a
way as to provide two of the other important protections intended by
TDDRA: (1) a free preamble message that provides the caller with cost
disclosures and the opportunity to hang up without incurring a charge;
and (2) the ability to block access to these services without blocking
access to other, non-audiotext, international numbers.\235\
---------------------------------------------------------------------------
\35\ Tr. at 429-32. There seemed to be some disagreement between
at least one of the common carriers and the international audiotext
providers as to whether free preambles could be provided at the
beginning of international audiotext services. The MCI
representative suggested that international services could be
offered via a 900 number and that would enable a free preamble to be
provided. Tr. at 345-46. In any event, the FCC has no jurisdiction
over foreign common carriers to require them to implement TDDRA-like
blocking on their audiotext lines.
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[[Page 58547]]
Fourth, consumers who receive charges for international pay-per-
call are not able to exercise their dispute resolution and other rights
guaranteed by TDDRA. Long-distance toll charges are expressly excluded
from the statutory definition of ``telephone-billed purchase'' and thus
are not covered by the billing and collection protections of Title III
of TDDRA.\236\ By concealing a pay-per-call charge within an
international telephone toll charge, a vendor effectively evades the
requirement to fulfill the consumers' dispute resolution rights under
Title III. By relying on a billing and collection system for toll
charges--a system designed to guarantee payment to carriers for
telecommunications transport services they provide--international
audiotext service providers remain safely insulated from injured
consumers who have no means to pursue refunds for international
audiotext charges that may be incurred as a result of deceptive
practices.\237\ Domestic long-distance carriers sometimes forgive these
charges as a means of cultivating consumer goodwill, but in doing so
they are willingly forfeiting payment for services rendered--i.e.,
long-distance transport of the call. Prohibiting vendors from
disguising charges for information or entertainment services as toll
charges will prevent consumers and common carriers from having to bear
this loss.
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\236\ 15 U.S.C. 5724(1)(B).
\237\ Tr. at 443-61. See also, e.g., Daniel B. Lubell. In fact,
one advertisement for an international audiotext service bureau
boasts that vendors who use their services suffer ``No
Chargebacks!'' InfoText Magazine (May/June 1996), front cover.
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In sum, the Commission believes that concealing a pay-per-call
charge within a telephone toll charge is a practice that is inherently
deceptive because it evades all of the important protections intended
by TDDRA that are set out in the original Rule. The Commission intends
for consumers to receive all the protections of Title II and Title III
of TDDRA when using any pay-per-call service. The practice of hiding
the cost of an audiotext call within the cost of a toll charge
represents a serious threat to this goal.
Congress realized that it could not anticipate all provisions that
might be necessary to prevent unfair, deceptive, or abusive practices
that would undermine the rights afforded to consumers by TDDRA.
Therefore, Section 5711(a)(2)(J) of TDDRA gave the Commission the
flexibility to prescribe ``such additional standards'' as may be needed
``to prevent abusive practices.'' Additionally, in Title II of TDDRA,
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 * * *, including the
use of alternative billing or other procedures [emphasis
added].\238\
\238\ 15 U.S.C. 5711(a)(4).
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Similarly, Title III of TDDRA directs the Commission to include
provisions in its Rules to:
prohibit unfair or deceptive acts or practices that evade such rules
or undermine the rights provided to customers under [Title III of
TDDRA].\239\
\239\ 15 U.S.C. 5721(a)(1).
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The record developed in this matter leaves little doubt that the
practice of concealing a charge for audio information or entertainment
services within a regulated toll charge has eroded the vital consumer
protections provided by TDDRA.\240\ Thus, proposed Section 308.12
provides that a vendor may not offer a pay-per-call service that would
result in the consumer receiving a charge for a toll call. The most
frequent example of this practice is international audiotext, where the
consumer is billed for an international long-distance call and a
portion of the long-distance charge paid by the consumer is shared with
the provider of the audio information or entertainment.\241\ In
addition, the Commission is aware of other situations where consumers
have been assessed ''toll`` charges that are, in fact, charges for
information or entertainment programs, not transmission of
telecommunications.\242\
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\240\ As one commenter stated: ``The financial impact of pay-
per-call service abuses which occur over non-900 dialing patterns is
staggering. Unsuspecting consumers run up huge amounts of debt,
especially for international calls. Even authorized users are taken
aback at the high dollar amounts charged to call these numbers.'' SW
at 4.
\241\ See, e.g., Daniel B. Lubell; FTC v. Interactive Audiotext
Services, Inc., No. 98-3049 CBM (C.D. Calif., filed April 22, 1998).
See also, Wisconsin v. Top Communications, Inc., No. 95 CV 200 (Cir.
Ct., filed Jan. 10, 1997).
\242\ 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, regarding the legality of providing
information and entertainment programs through calls to long-
distance numbers, which would be reached by dialing a 10-XXX number,
a 500-number, or a 700-number. The FCC concluded that such
arrangements would violate ``both the letter and the spirit'' of
TDDRA and Section 228 of the Communications Act of 1934, as amended.
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Much of the language from Section 308.12 is taken from the TDDRA
definition of ''telephone-billed purchase.`` This will ensure that the
proposed Rule will prohibit precisely those types of pay-per-call
services that would not be covered by the dispute resolution
protections guaranteed by Title III of TDDRA. The Commission believes
that this is essential in order to protect the rights afforded to
consumers by TDDRA. Whenever a consumer is billed for pay-per-call
services that result in a toll charge, the vendor of that pay-per-call
service will have violated the proposed Rule.\243\
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\243\ In all likelihood, the service bureau will have violated
this provision as well because the service bureau ``should have
known'' of this violation.
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Section 308.13 Prohibitions Concerning Toll-Free Numbers
Section 308.13 of the proposed Rule retains the provision in
Section 308.5(i) of the original Rule prohibiting any person from using
a toll-free number to provide access to or delivery of pay-per-call
services. Sections 308.13(a) through (d) of the proposed Rule have been
modified to clarify and emphasize that a consumer cannot be held
responsible for charges resulting from a presubscription agreement into
which he or she did not enter. In addition, Section 308.13(c) clarifies
that no consumer may be charged for information or entertainment
conveyed during a call to a toll-free number, unless that consumer has
agreed to be charged for the information or entertainment by entering
into a presubscription agreement that satisfies the requirements of the
proposed Rule.
The Commission also proposes changing the language of 308.13(d) to
provide that the prohibition applies to all incoming calls for which
there is a charge, regardless of whether or not they are characterized
as ``collect'' calls.\244\ The Commission also proposes modifying the
language of proposed Sections 308.13(c) and (d) to clarify that the
prohibitions against charging for the content of an outbound or inbound
call include entertainment services as well as information services.
This will more effectively implement the Congressional mandate set
forth in Title II of TDDRA that the Commission prohibit vendors ``from
providing pay-per-call services through an 800 number or other
telephone number advertised or widely understood to be toll-free.''
\245\ Since pay-per-call services include
[[Page 58548]]
entertainment services in addition to information services, this
section also should include entertainment services.
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\244\ The Commission uses the term ``collect call'' in its most
general sense to refer to any instance where a consumer incurs a
charge by virtue of answering or accepting a telephone call.
\245\ 15 U.S.C. 5711(a)(2)(F).
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Section 308.14 Monthly or other recurring charges
Section 308.14 of the proposed Rule prohibits a vendor from
providing a pay-per-call service that results in a monthly or other
recurring charge to a consumer, unless that vendor and consumer have
entered into a presubscription agreement that authorizes such monthly
or other recurring charges. The proposed Rule also states that the
presubscription agreement must meet the requirements of Sec. 308.2(j).
There was discussion at the workshop concerning unexpected and
unauthorized recurring pay-per-call service charges on consumers'
telephone bills, often in connection with ``psychic'' services.\246\
Consumer organizations have received numerous complaints about such
unauthorized recurring monthly charges.\247\ Several participants
described scenarios where a consumer had made a call to an 800 number
and then unexpectedly began to incur monthly charges on his or her
phone bill.\248\ Several commenters and participants suggested that the
problem of unauthorized recurring charges could best be remedied by
requiring a presubscription agreement for all such charges.\249\
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\246\ Tr. at 382-84, 498-505.
\247\ See, e.g., NCL at 4.
\248\ Tr. at 498-500.
\249\ NCL at 5; FLORIDA at 8; NAAG at 11; TSIA at 16-17; Tr. at
498.
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The Commission agrees that such an approach is appropriate. The
Commission believes that, when compared to the one-time purchase of an
audiotext program, the continuing business relationship between a
provider and a caller that is involved in long-term membership would
likely entail more terms and conditions (and more complicated terms and
conditions), as well as higher long-term costs. A presubscription
agreement, with its requirements for written terms and a PIN, is
therefore a more appropriate, and likely a more effective, format for
disclosures of this information about telephone-billed purchases that
involve recurring charges than is a preamble. As noted above, in most
cases, the Commission believes that a vendor is justified in assuming
that a call from a consumer's telephone to a 900-number service (and
ensuing charges for the service) have been authorized by that consumer,
since the consumer could have easily blocked the call and avoided the
charges. Such an assumption is not justified, however, where a single
call to a pay-per-call service results in charges, not only for the
initial call, but monthly or other recurring charges that cannot be
blocked, even though the initial call could have been. A single call to
a pay-per-call service from a consumer's home is simply not an adequate
basis for recurring charges. Thus, under the proposed Rule, a
presubscription agreement would be required for all such arrangements.
Section 308.16 Service Bureau Liability
Proposed Section 308.16 retains the provision of the original Rule
which held service bureaus liable where they knew or should have known
of violations of the Rule by vendors of pay-per-call services. However,
where the original Rule contemplates service bureau liability only in
those instances where its ``call processing facilities'' are used,\250\
the proposed Rule expands the circumstances under which a service
bureau may be found to be indirectly liable--i.e., where a law-
violating vendor has availed itself of any of the services offered by a
service bureau. Since adoption of the original Rule, the capabilities
and offerings of service bureaus has greatly expanded to include
services such as voice processing, call processing, billing
aggregation, call statistics (call and minute counts), call revenue
arrangements (including revenue-sharing arrangements with common
carriers), and pre-packaged pay-per-call investment opportunities
(``turn-key operations'').\251\ Some of these newly-available service
bureau functions (e.g., acting as an aggregator for billing and
collection) have given rise to many consumer complaints about cramming.
Service bureaus that perform these functions are in the best position
to know the practices of their client vendors because they contract
directly with these vendors and because they are often the first point
of contact for consumer complaints about charges for their client-
vendors' services or products. While the original Rule contemplated
that a service bureau would be liable only for violations of a vendor
when the vendor of pay-per-call services had used its call processing
facilities, experience has demonstrated there is no reason to
distinguish those services from any others provided by service bureaus.
Thus, the proposed Rule imposes liability on a service bureau
regardless of the service it provides a rule-violating vendor, if the
service bureau knew or should have known of the violation.\252\
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\250\ 16 CFR 308.5(l).
\251\ See, e.g., FTC v. Hold Billing Services, Ltd., No.
SA98CA0629 FB (W.D. Texas, filed July 19, 1998); FTC v.
International Telemedia Associates, Inc., No. 1-98-CV-1935 (N.D.
Ga., filed July 10, 1998); and FTC v. Interactive Audiotext
Services, Inc., No. 98-3049 CBM (C.D. Calif., filed April 22, 1998).
See also, ``9th Annual Service Bureau Review,'' InfoText Magazine
(July/August 1997).
\252\ In some circumstances, a service bureau will always be in
a position where it should know of a vendor's violation. For
example, service bureaus should know if they are providing services
to vendors of pay-per-call services that result in toll-charges. In
such instances, a vendor will be in violation of proposed Section
308.12, and a service bureau providing services to that vendor will
be liable under proposed Section 308.16 (Service bureau liability).
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Subpart C--Pay-Per-Call Services and Other Telephone-Billed Purchases
Section 308.17 Express Authorization Required
Section 308.17 of the proposed Rule specifies that the ``express
authorization of the person to be billed'' is required for a telephone-
billed purchase that is not blockable by TDDRA blocking. The proposed
section also specifies that it is a deceptive practice and a Rule
violation for any vendor, service bureau, or billing entity to collect
or attempt to collect payment, directly or indirectly, for a telephone-
billed purchase that was not TDDRA blockable, where the vendor, service
bureau, or billing entity knew or should have known that the purchase
was not authorized by the person from whom payment is being sought.
Requirement of authorization. Generally, purchases of goods or
services require some form of authorization from the purchaser--that
is, the purchaser must indicate some intent or desire to make the
purchase.\253\ Telephone-billed purchases are no exception to this
broad legal principle. For telephone-billed purchases that can be
blocked by TDDRA blocking, the Commission believes it is reasonable for
a vendor to presume that a call that comes from a telephone
subscriber's telephone was authorized by that subscriber. After all, if
the subscriber wanted to prevent these types of charges from being made
through his or her telephone, there is a cost-free and simple method to
do so: TDDRA blocking. Election of TDDRA blocking will not require the
line subscriber to sacrifice other valuable uses of his or her
telephone--he or she will still be able to use the telephone for any
purpose other than making TDDRA-blockable telephone-billed purchases.
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\253\ Restatement (Second) of Contracts (``Restatement'')
Sec. 23 (1979).
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[[Page 58549]]
However, where a telephone-billed purchase is not TDDRA blockable,
the Commission does not believe that it is reasonable for vendors to
presume that telephone-billed purchases made from a subscriber's
telephone were, in fact, authorized by that subscriber. A line
subscriber has no effective means of preventing these purchases from
being made, short of monitoring the placement and content of every
telephone call made from his or her telephone. A merchant is not
entitled to presume that the line subscriber has agreed to pay for a
good or service merely because that subscriber's telephone was used to
order a product or service. A consumer is no more obligated to pay for
a non-blockable telephone-billed purchase made from his or her
telephone than the consumer is obligated to pay for any other purchase
(for example, a purchase of a sweater from a clothing catalog) that
just happened to be made from that consumer's telephone.\254\
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\254\ This was illustrated in two of the Commission's recent
cases. FTC v. Interactive Audiotext Services, Inc., No. 98-3049 CBM
(C.D. Calif., filed April 22, 1998); and FTC v. International
Telemedia Associates, Inc., No. 1-98-CV-1935 (N.D. Ga., filed July
10, 1998). These situations can easily be distinguished from a
consumer's obligation to pay for any tariffed charges for basic
telecommunications service resulting from calls made from his or her
telephone. First, basic telecommunications services are most often
purchased from an entity with whom the consumer has a pre-existing
and voluntary relationship. More importantly, consumers accept basic
telecommunications services on terms and conditions that are
regulated by the FCC, from carriers that are under a statutory duty
to ensure that the services provided to consumers in a manner that
is deemed ``just and reasonable.'' 47 U.S.C. 201.
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Meaning of the term ``express authorization.'' As explained in the
discussion of the proposed new billing error in section 308.2(b)(10) of
the proposed Rule, the Commission uses the term ``express
authorization'' to indicate that the authorization contemplated by the
proposed Rule cannot be inferred from the fact that a telephone call
came from a specific telephone. ``Express'' authorization requires that
the person to be billed for the service actually agree to make the
purchase. For example, a tape recording of the person to be billed for
the service being informed of the material terms of the agreement and
then agreeing to make the purchase on those terms and pay the charge,
would constitute evidence of express authorization.\255\ Similarly, an
agreement containing a non-deceptive statement of material terms and
conditions and signed by the person to be billed for the service, would
be evidence of express authorization. If a valid PIN (as that term is
defined by the proposed Rule), were used by the caller, after hearing
all the material terms of the agreement, that would also constitute
evidence of express authorization.\256\
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\255\ It is important to reiterate that the recording must show
that the person to be billed for the service authorized the charge.
\256\ For example, if a LEC were to issue a secure PIN to
subscribers, the LEC could require subscribers to use this PIN when
ordering enhanced services.
---------------------------------------------------------------------------
Deceptive billing practice. A consumer is not legally obligated to
pay charges for a telephone-billed purchase that falls within the
Rule's enumerated billing errors. As discussed above, the proposed Rule
would include within the term ``billing error'' charges arising from
unauthorized, non-blockable telephone-billed purchases. Therefore, a
representation to a consumer that he or she owes a charge for a
telephone-billed purchase that was not, in fact, expressly authorized
by that consumer is likely to mislead a reasonable consumer into paying
a charge that is not collectible under the Rule. Proposed Section
308.17 thus prohibits vendors, service bureaus, or billing entities
from collecting or attempting to collect charges that result from an
unauthorized, non-blockable telephone-billed purchase, if the vendor,
service bureau, or billing entity knew or should have known that such
charges were not authorized by the person from whom payment is being
sought.
Limited applicability--``Knew or should have known.'' Proposed
Section 308.17 applies where the vendor, service bureau, or billing
entity ``knew or should have known'' that the charge was not authorized
by the person from whom payment is being sought. This standard
encompasses not only those circumstances where a vendor, service
bureau, or billing entity had actual knowledge that a particular
consumer was charged without authorization, but also circumstances
where the vendor, service bureau, or billing entity should have known
that numerous consumers were likely to have been billed without
authorization.
The Commission believes that it is unnecessary to impose strict
liability on the vendor, service bureau, or billing entity for each
time an attempt is made to collect an unauthorized charge. The
Commission believes that in most cases, the dispute resolution
provisions of proposed Section 308.20 should supply an adequate remedy
for consumers who receive these types of unauthorized charges on their
telephone bills. Therefore, the Commission proposes limiting the
applicability of this section to those circumstances where a vendor,
service bureau, or billing entity ``knew or should have known'' of the
lack of authorization.
Parties affected--Vendors, service bureaus, and billing entities.
Proposed Section 308.17 would apply to vendors and service bureaus
because these entities are responsible for structuring and offering the
underlying service, and they are in a position to know, with respect to
any particular offering, whether sufficient steps were taken to ensure
that express authorization has been obtained. Vendors are most directly
in control of how their own transactions are conducted and the
procedures used to secure authorization. They are in a position to know
whether or not those procedures are effective in securing actual
authorization from the person who will be billed for the service.
Service bureaus are in a similarly strong position to demand (by
contract or otherwise) that responsible procedures be used by the
vendor to secure express authorization, and are in an excellent
position to monitor vendors to ensure that adequate precautions are
being followed.
In addition to covering vendors and service bureaus, proposed
Section 308.17 also applies directly to billing entities.\257\ These
entities (in most cases LECs) play a unique and critical role in the
billing of products and services on telephone bills. They are
frequently in a position to know if the wrong consumer has been billed,
because often they are the first point of contact for consumer
complaints. Any billing entity that receives complaints from consumers
who are being charged without their express authorization is on notice
of the problem, and should take immediate action to stop the unlawful
billing or risk violating proposed Section 308.17.\258\
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\257\ Where a common carrier is also a billing entity, liability
may already exist under Title I of TDDRA where the carrier knew or
should have known of the violation. 47 U.S.C. 228(e)(1). Billing
entity liability under proposed Section 308.17 would complement this
Title I provision.
\258\ The Commission supports the efforts of the LECs and the
FCC in developing ``best practices'' guidelines to prevent cramming.
Proposed Section 308.17 should work in complementary fashion to
fight this harmful practice.
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Section 308.18 Disclosure Requirements for Billing Statements.
Section 308.18 of the proposed Rule is a revised version of Section
308.5(j) of the original Rule. The original provision applied only to
billing statements for pay-per-call services, whereas the proposed
revision requires disclosures to be placed on billing
[[Page 58550]]
statements for all telephone-billed purchases.
Subsection 308.18(c) identifies those disclosures that will still
be required only in billing statements for pay-per-call purchases. This
subsection includes the substance of section 308.5(j)(2) of the
original Rule, but also requires that the billing statement list the
actual telephone number dialed for any pay-per-call purchase.
Representatives from the LECs and other common carriers reported at the
workshop that it was not uncommon for calls to be represented as having
been made to one number when the consumer had actually dialed some
other number.\259\ The Commission's enforcement experience confirms
this. This practice of misrepresenting on a billing statement the
number purported to have been dialed (and giving rise to the charge) is
likely to mislead the consumer in attempting to understand his or her
bill. It is also confusing to the LEC when it tries to identify a
disputed call. The practice deprives consumers of material information
about the actual nature of the charges allegedly owed.\260\ Therefore,
the Commission believes that it is necessary that a billing statement
accurately reflect the telephone number dialed by the caller. This
information, coupled with the date, time, and duration of the call,
should be sufficient information for both the consumer and the LEC to
identify a particular call in the event of a dispute.
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\259\ Tr. at 159-62 (SW reported that companies had submitted
charges for 900 numbers that were never dialed). See also, Tr. at
203-05; 233-38 (PILGRIM reports that calling card calls and calls to
800 numbers are reported on consumers' billing statements as 700
numbers).
\260\ For example, consumers who receive bills that do not
accurately reflect the telephone number dialed will not be able to
compare the charges on the bill to the charges disclosed in an
advertisement soliciting calls to a specific telephone number.
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Subsection 308.18(d) of the proposed Rule modifies the requirements
of Section 308.5(j)(3) of the original Rule by expanding the provision
to cover all telephone-billed purchases, not just pay-per-call
purchases. The proposed provision retains the requirement that billing
statements display a local or toll-free telephone number where
consumers can obtain answers to questions and information about their
billing rights and obligations in connection with telephone-billed
purchases. The revised section also retains the requirement that
consumers must be able to obtain the name and mailing address of the
vendor by calling that number. In addition, the proposed Rule specifies
that the consumer must be able to readily obtain this information when
he or she calls the number listed on the statement.
Several commenters and participants in the workshop reported
widespread complaints from consumers who were unable to obtain
information from LECs or billing aggregators about charges or about the
identity of the vendor.\261\ In some instances (e.g., international
pay-per-call services), a consumer can only get the name of the foreign
telephone company from his or her long-distance provider, but not the
identity of the audiotext service provider with whom the foreign
carrier splits the revenues collected from the consumer.\262\ In some
cases, consumers who call a listed customer service 800 number are
unable to get through, and often give up in frustration or write to
consumer or law enforcement agencies.
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\261\ NAAG at 12-13; Tr. at 114-16, 173-74, 262-65. One of the
NAAG representatives described the frustration consumers often feel
when attempting to inquire about charges on their telephone bills in
this way: ``By the time consumers get to us * * * they are
tremendously angry, and part of this anger comes from having to go
through this maze to discover, if they can, who put the charges on
the bill.'' Tr. at 173-174. The Commission's enforcement experience
confirms this observation.
\262\ Tr. at 115.
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NAAG recommended that the bill list the name of the actual vendor
so consumers can take a dispute directly to that party in the first
instance instead of going through the LEC and/or the third-party
billing and collection entity.\263\ Industry representatives countered
that many vendors do not have the capability to respond to routine
billing inquiries; furthermore, industry noted that there are
limitations on the amount of information that can be printed on the
bill.\264\ In the alternative, NAAG recommended that the entity whose
name and number appear on the bill must have ultimate authority for
handling disputes and issuing refunds or credits.\265\ In response,
industry countered that billing and collection entities already have
full authority to satisfactorily resolve any dispute.\266\
---------------------------------------------------------------------------
\263\ NAAG at 13. See also, Tr. at 255, 263-64.
\264\ Tr. at 258-59.
\265\ Tr. at 263-64.
\266\ Tr. at 265.
---------------------------------------------------------------------------
The Commission believes that it is important that billing entities
and vendors be accountable to their customers. However, the Commission
also is mindful that such protections must be balanced against the cost
to industry. The Commission does not believe that it is necessary to
list the name of the vendor on the bill, as long as the entity listed
on the bill is the party with authority to answer questions and to
resolve disputes, including authorizing a refund or credit.
Section 308.19 Access to information
The proposed Rule retains the requirement from Section 308.6 of the
original Rule that common carriers who provide telecommunications
services to any provider of pay-per-call services must make available
to the Commission, upon request, any records and financial information
maintained by such carrier relating to the arrangements between the two
entities. However, the proposed Rule expands that requirement to
include records and financial information relating to arrangements with
vendors of other telephone-billed goods or services, as well as to
arrangements with service bureaus.
The rapid growth of telephone-billed purchases (other than pay-per-
call), and the rapid growth of problems associated with such purchases
has shown that there is no rationale for limiting this requirement as
the original Rule did. Whenever a common carrier provides
telecommunications services to a vendor that offers any type of
telephone-billed goods or services (including pay-per-call), it should
provide to the Commission, upon request, any records and financial
information relating to its arrangements with those vendors. In
addition, since the original Rule was promulgated, it has become clear
to the Commission that, in most cases, the business arrangement exists
between the common carrier and the service bureau, and not directly
between the carrier and the vendor. Thus, on a practical level, a
requirement limited to information regarding vendors will not result in
meaningful information when, in many cases, the carrier will only
possess the relevant information with respect to the service bureau.
Section 308.20 Dispute Resolution Procedures
Section 308.20 of the proposed Rule is a revision of Section 308.7
of the original Rule, which was titled ``Billing and collection for
pay-per-call services.'' The proposed Rule changes the title to
``Dispute Resolution Procedures'' because the Commission believes this
title more accurately reflects the substance of the section.\267\
Although much of the language in the original section has been
retained, the Commission has revised several provisions in this section
to clarify the responsibilities of the parties, enhance consumer
protections by closing loopholes, and increase the efficiency of the
billing process, thus reducing the burden on industry.
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\267\ Proposed Section 308.20 implements Title III of TDDRA, 15
U.S.C. 5721-5724.
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[[Page 58551]]
TDDRA requires that the Commission impose requirements that are
substantially similar to the requirements imposed under TILA and FCBA
with respect to the resolution of credit disputes.\268\ TDDRA also
directs the Commission to consider the extent to which the regulations
should diverge from the requirements of TILA and FCBA in order to
protect consumers as well as be cost effective to billing
entities.\269\ The proposed Rule preserves, wherever feasible, the
balance struck by the original Rule. However, as described in more
detail, infra, there are a number of instances where the Commission now
believes that some additional divergence from TILA and FCBA may be
necessary to protect consumers.
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\268\ 15 U.S.C. 5721(a)(2).
\269\ 15 U.S.C. 5721(d)(10).
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Definitions. As discussed supra, the definitions contained in
Section 308.7(a) of the original Rule have been moved to Section 308.2
of the proposed Rule and have been incorporated alphabetically into the
other definitions.
Clarification of the 60-day time limit to initiate a billing
review. In proposed Sections 308.20(a) and 308.20(m), the Commission
has clarified the meaning of the time limit within which the consumer
may initiate a billing review. The original Rule provided:
A customer may initiate a billing review * * * by providing the
billing entity with notice of a billing error no later than 60 days
after * * * the first billing statement that contains [the charge].
(emphasis added) [308.7(b)]
Many industry members interpreted that provision to mean that the
billing entity (generally the LEC) was prohibited from allowing any
challenges to a bill containing charges for telephone-billed purchases
after the 60-day period had ended.\270\ Conversely, the LECs understood
the provision to mean that they were required to give the consumer at
least 60 days to dispute a charge, but that they were not prohibited
from giving the consumer more time.\271\ The Commission did not intend
that the original Rule require a billing entity to refuse to honor a
dispute raised after 60 days. Rather, consumers must raise a dispute
within 60 days in order to preserve their rights under this section,
including the right to an investigation and protection against further
collection activity while the dispute is under investigation.\272\ In
order to clarify this, the Commission has added an explanatory phrase
at the beginning of proposed Sections 308.20(a) and (m) indicating that
a consumer must initiate a billing review within 60 days of receiving
the bill ``in order to be guaranteed the protections provided by the
Rule.'' This language, however, does not prohibit the LECs from
honoring disputes (and providing refunds) raised after the 60-day
period has expired.\273\
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\270\ Tr. at 25, 44, 63-64, 271-78.
\271\ Tr. at 49-50, 101-03.
\272\ Tr. at 245, 248, 274-75.
\273\ As discussed infra, the proposed Rule also imposes new
restrictions on the billing entities (generally the LECs) who
initially deal with consumers. These new restrictions are designed
to address vendors' complaints that they experience difficulty
obtaining timely customer information from LECs.
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Facilitating the reporting of a billing error. Consumers should be
able to report billing errors easily. The Commission does not intend
that any consumer waive his or her right to invoke the dispute
resolution protections guaranteed by the Rule simply because he or she
used the wrong words in a billing error notice. Therefore, Section
308.20(a) of the proposed Rule modifies the language of original
Section 308.7(b) to clarify the consumer's burden with respect to
reporting a billing error. Under proposed Sections 308.20(a)(2) and
(a)(3), a billing error notice need not indicate a belief that there is
a ``billing error'' (as that term is defined by proposed Section
308.2(a)); rather, it need only indicate a belief that there is an
error of some kind. The purpose of the consumer's notice is to alert
the billing entity of a potential problem, not to fully assert a list
of facts, which if true, would constitute a ``billing error.'' Notices
that would satisfy the proposed requirement include but are not limited
to statements such as: ``There is something wrong with my bill,''
``Nobody was at home that day,'' ``I did not order these services,''
``I did not make these calls,'' ``I do not know what these charges are
for,'' ``This is not what I paid for,'' or ``These were supposed to be
free.''
After receiving a notice from the consumer indicating that there is
some sort of problem or error with the billing statement, the billing
entity then has the burden under proposed Section 308.20 to determine
whether there was, in fact, a ``billing error.'' Until it makes such a
determination, a billing entity may not attempt to collect the disputed
charges. It is the billing entity, not the consumer, who bears the
responsibility of knowing the potential billing errors that may be
involved in a given telephone-billed purchase. For example, if a
billing entity has charged a customer for a ``telephone-billed purchase
* * * that would not have been avoided by that customer's election of
blocking pursuant to 47 U.S.C. 228(c)'' as described by proposed
308.2(b)(10), and the customer subsequently submits a billing error
notice, the billing entity is obligated to provide some supporting
evidence that the customer being billed had ``expressly authorized''
that purchase in advance (e.g., by the voice recording or signature of
the person being billed, reliably indicating authorization to bill for
a specified product or service).
Requirement that a reasonable investigation be conducted if
collection attempted on disputed charge. Several commenters expressed
concern that in many, if not most, circumstances where a consumer has
submitted a billing error notice, no one (neither the billing entity,
the vendor, nor the service bureau) provides supporting evidence to the
consumer showing that a disputed charge is in fact valid.\274\ NAAG
stated that, in many instances, the vendor or its agent simply sends a
form letter stating that the call originated from the consumer's phone
number and, thus, the consumer must pay the charge.\275\ The Commission
believes that a consumer who disputes a telephone-billed purchase
charge under the Rule should not have to pay that charge unless a
billing entity conducts a reasonable investigation of the validity of
the charge and determines that there was no billing error. The
Commission also believes that the consumer who disputes the charge
should be entitled to documentary evidence of the charge's validity,
and a written explanation of the billing entity's conclusion that no
billing error occurred. Section 308.20(f) of the proposed Rule requires
that, once a customer has submitted a billing error notice to a billing
entity, the customer need not pay the charge until a reasonable
investigation of the charge has been conducted, and until the customer
has received the written explanation and documentary evidence setting
forth that no billing error has occurred.
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\274\ Tr. at 149-50; SNET at 7; FLORIDA at 2-3, 11; SW at 3, 8-
10.
\275\ Tr. at 150. See also, FTC v. Hold Billing Services, Ltd.,
No. SA98CA0629 FB (W.D. Texas, filed July 19, 1998); FTC v.
International Telemedia Associates, Inc., No. 1-98-CV-1935 (N.D.
Ga., filed July 10, 1998); and FTC v. Interactive Audiotext
Services, Inc., No. 98-3049 CBM (C.D. Calif., filed April 22, 1998).
---------------------------------------------------------------------------
Secondary collection activities by billing entities other than the
one designated to receive and respond to billing errors. If a billing
entity receiving the billing error notice decides to respond to that
notice by forgiving the disputed charge, it has no further obligation
to conduct a reasonable
[[Page 58552]]
investigation. In these circumstances, the billing entity generally
passes the charge back to the vendor, who often tries to collect on its
own or through the services of some third party. Under the original
Rule, only one billing entity was obligated to comply with the dispute
resolution provisions of the Rule. This meant that these secondary
collection efforts by later billing entities were not subject to the
Rule's dispute resolution process--the consumer who has raised a
billing dispute may continue to be pursued for collection, but never
have the right to receive evidence that a valid debt was owed.\276\
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\276\ This situation should be compared to the protections
provided under the Fair Debt Collection Practices Act (``FDCPA''),
15 U.S.C. 1692 et seq., to a consumer who disputes a debt. Under the
FDCPA, once the consumer notifies the debt collector that the debt
is disputed, the debt collector must cease attempting to collect the
debt until the debt collector obtains verification of the debt and
sends a copy of the verification to the consumer. 15 U.S.C. 1692g.
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In order to address this problem, the Commission proposes a
modification of former Section 308.7(o). Proposed Section 308.20(n)(2)
specifies that, once a billing entity has forgiven a disputed
telephone-billed purchase charge, no billing entity may attempt to
sustain charges for a telephone-billed purchase unless a reasonable
investigation has been conducted and the consumer has received a
written explanation of the charges and evidence of the debt. The
proposed revision brings within the scope of the provision those
situations involving multiple billing entities when a vendor (or its
agent) attempts to collect after a LEC has forgiven a charge without
providing any explanation.
The proposed revisions will prevent consumers from being subjected
to secondary collection efforts without ever receiving any explanation
or proof that the charges are valid. Although the proposal goes
marginally further than the analogous requirements set out in TILA and
FCBA, the Commission believes the revisions are appropriate. In several
recent cases, the Commission has addressed the issue of vendors or
billing entities attempting to collect charges from a consumer without
providing any evidence that those charges were valid, other than the
fact that the charges purportedly were accessed or received on the
consumer's telephone line.\277\
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\277\ In these cases, the Commission made clear that it is
deceptive and unfair to misrepresent that a consumer is obligated to
pay for services, when that consumer did not access or purchase
those services or was not a party to any purported agreement to
purchase such services. Hold Billing Services; International
Telemedia Associates; and Interactive Audiotext Services.
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Proposed section 308.20(f) prohibits collection activity by a
billing entity once the charge has been disputed with any billing
entity, regardless of whether the two entities are the same. This means
that, where there are multiple billing entities, an entity should not
attempt to collect a charge before verifying with the other entities
that, if a billing error notice has been sent by the consumer, a
reasonable investigation of the charge has been conducted.\278\ If such
verification is not possible, a billing entity should not engage in
secondary collection activities unless it first conducts the reasonable
investigation of the validity of the charge, and provides the written
explanation to the consumer in accordance with the 308.20(c)(2) of the
proposed Rule.
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\278\ The proposed Rule should ensure that such verification is
possible. Proposed Section 308.20(c)(3)(i) requires the billing
entity that handled the initial dispute to ``notify the appropriate
providing carrier, vendor, or service bureau as applicable'' of a
decision to forgive a disputed charge.
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Scope of ``reasonable investigation.'' The Commission proposes
modifying original Section 308.7(d)(2) to remedy a somewhat awkward
requirement of the original Rule. Under this section, a billing entity
that received a billing error notice may either (i) correct the error
and credit the customer's account, or (ii) conduct a reasonable
investigation of the legitimacy of the charge, and transmit an
explanation to the customer setting forth the reasons why the billing
entity has determined that no billing error has occurred ``or that a
different billing error occurred from that asserted'' by the customer.
Under a literal reading, this creates the bizarre result that a billing
entity conducting a reasonable investigation would be required to
articulate to a customer that a billing error did occur, but the
billing entity would not be required to correct the error and credit
the customer's account. This provision could be read to require the
customer to once again transmit a billing error notice specifically
listing the error cited by the billing entity, and then wait for the
billing entity to correct the error and credit the account. In revising
this Section, the Commission intends to make it clear that these
additional steps are not required.
Under the proposed Rule, a billing entity is not obligated to tell
the customer exactly what billing error did or did not occur. Instead,
under proposed Section 308.20(c)(2), in response to a billing error
notice, a billing entity may either (i) correct any billing error and
credit the customer's account, or (ii) conduct a reasonable
investigation into the legitimacy of the charge, and transmit a written
explanation (including documentary evidence) that the charge is indeed
valid (i.e., that ``no billing error'' occurred). The effect of this
change will be to clarify a billing entity's obligations under the
Rule.
Finally, the proposed Rule specifies that a reasonable
investigation and written explanation address every relevant billing
error, and ``address with particularity'' the facts asserted by the
customer in the billing error notice. These revisions are designed to
clarify that billing entities must do more than merely send the
customer a non-responsive form letter to reply to a billing error
notice. A response to a billing error notice must provide evidence to
the customer that the charge is valid (i.e., that ``no billing error''
occurred). The statement cannot be sent to a customer automatically or
by rote--it must be preceded by a bona fide investigation to gather the
information showing the validity of the charge. Under the proposed
Rule, this investigation, where necessary, should include contacting
the customer for further details in addition to contacting the vendor,
service bureau, or providing carrier.
Limitation on the rebuttable presumption created by documentary
records. The proposed Rule also amends the footnote previously found in
Section 308.7(d)(2)(ii), now Section 308.20(c)(2)(ii) of the proposed
Rule. The original footnote established a rebuttable presumption that
goods or services were actually delivered if the billing entity
produced documents showing the date on, and place to, which the goods
or services were transmitted or delivered (e.g., an ANI record). The
Commission is aware that, in many instances, vendors are not allowing
consumers the opportunity to rebut this presumption. If a consumer
provides sufficient evidence to rebut the presumption that the
provider's ANI records are valid, however, then the presumption must
fall. The proposed Rule modifies the footnote to make this clear.
Additionally, the footnote lists a specific method by which
consumers may rebut the presumption of ANI validity: a declaration
signed under penalty of perjury.\279\ For example, if a consumer
disputes a charge for a
[[Page 58553]]
telephone-billed purchase on the ground that a particular phone call
was not made from his or her phone, and the billing entity submits ANI
records showing that a call was placed to the disputed number from the
consumer's telephone number on the date and at the time indicated, a
rebuttable presumption is raised that the charge is valid. However, the
consumer can rebut this presumption by submitting a declaration, signed
under penalty of perjury, that the documentary information upon which
the bill was based is not correct and that the call could not have been
made from the consumer's phone. Although this declaration can rebut the
presumption of validity of ANI, it may not be enough to prevent
collection activity in the face of more reliable evidence--i.e.,
evidence showing more than merely ``the date on, and the place to,
which the goods or services were transmitted or delivered.'' If the
vendor or service bureau can show additional reliable evidence of
delivery of the goods or services (such as a true and accurate tape
recording, a signature, or other evidence that the goods or services
were actually delivered), then, depending on the facts of a given
transaction, a billing entity's investigation might still conclude that
no billing error occurred.
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\279\ This proposed provision is comparable to the steps a card
issuer may take in the credit card context while conducting a
reasonable investigation of a charge disputed on the basis of
unauthorized use. 12 CFR Part 226, Supplement 1, section 12(b)-(3).
---------------------------------------------------------------------------
The revised footnote further adds that the Commission can rebut the
presumption with evidence indicating that, in numerous instances, the
goods or services were not actually transmitted or delivered. It is not
necessary to show that each and every consumer did not receive the
goods or services, but only that numerous consumers did not receive the
goods or services. For example, the Commission may introduce evidence
showing that, while ANI records may indicate that calls were placed
from the phones of particular consumers, in fact, the calls could not
have been placed from those phones because the phones had a 900-number
block in place, or there was other compelling evidence that no one
could have made the call from within the home.
New time limits within which the investigation must be conducted;
modification of other time limits established in the original Rule. One
of the major complaints from industry members has been the length of
time it takes to learn from the LECs about chargebacks or refunds the
LECs have granted.\280\ TSIA maintained that businesses had been
destroyed when ``chargebacks came back that were a year, year and a
half, and two years old.'' \281\
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\280\ See, e.g., GORDON at 2; ISA at 10-12, 17-18; PMAA at 13;
TPI at 5, 6; TSIA at 10-12; Tr. at 20, 25, 43-44, 68, 224-27.
\281\ Tr. at 25.
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In order to address this problem, the Commission has proposed
several modifications to Section 308.7 of the original Rule (now
proposed Section 308.20). First, in proposed Section 308.20(c)(3), the
time period within which a billing entity must conduct an investigation
and either sustain or forgive a charge has been shortened from 90 to 60
days. In the event that the LEC forgives the charge or is otherwise
unable to collect it, the shorter time frame will enable vendors to
receive more expeditiously the information they need to initiate
collection on their own.
Second, in proposed Section 308.20(c)(3)(i), the Commission has
added a new requirement that, within 30 days of determining not to
sustain a charge, a billing entity (usually a LEC) must provide
sufficient information to the vendor or service bureau to allow it to
identify the customer account at issue. This provision addresses
industry's complaint that when the LECs forgive charges, they do not
provide the vendors and service bureaus with the timely information
needed to initiate collection on their own.\282\ This provision should
be viewed in conjunction with the new language requiring that a
``reasonable investigation'' be conducted before a vendor or its agent
can engage in secondary collection activities to collect an alleged
debt. The Commission believes that consumers are entitled to an
investigation and supporting evidence that a debt is valid. However,
the Commission also believes that consumers must be held accountable
for the valid debts they incur and that industry is entitled to attempt
to collect such debts. Given this balance of interests, it seems fair
to allow vendors and service bureaus the information they need to
attempt their own collections, and to require that information be
provided in a timely manner.
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\282\ PILGRIM--FCC comment at 6-7, 9; PILGRIM--FCC Reply
comments at 20.
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Finally, several commenters asked that the Commission take steps to
remedy the current LEC practice of writing off a charge after a lengthy
period of attempting to collect.\283\ In some instances, a consumer may
fail to provide notice of a billing error that the LEC can investigate;
instead, the consumer, without explanation, simply withholds from his
payment the amount of a particular charge. In the absence of a formal
notice of a billing error from the consumer explaining the reason for
non-payment, the LEC has no way to know whether payment is withheld
because of a disputed charge, and thus continues to attempt to collect
the debt. Apparently, after a lengthy period of time, the LEC may
determine the debt to be uncollectible and charge the debt back to the
vendor. In these instances, the vendor generally learns of the disputed
charge only after it is too late to undertake its own collection
effort. To remedy this situation, the Commission has proposed adding a
new subsection 308.20(n)(4) requiring that a billing entity (usually
the LEC) shall notify the vendor or service bureau of an unpaid charge
no later than 120 days after the original bill was sent to the
consumer, if a consumer has neither paid such charges nor initiated a
billing error review within the allotted 60-day time period. The
billing entity must provide the vendor or service bureau with notice of
the failure to pay, the amount of the unpaid charge, and sufficient
information to identify the customer's account.
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\283\ GORDON at 2; TSIA at 10-11; Tr. at 25, 43-44, 63-64.
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Revision of the Notice of Billing Error Rights to simplify the
language and to clarify the meaning of the 60-day time limit by which
the consumer must give notice. A number of commenters asked the
Commission to revise the wording of the Notice of Billing Error Rights
set out in Section 308.7(n) of the original Rule to enhance consumers'
understanding that they have the obligation to pay for any valid pay-
per-call charges and that failing to pay valid charges may subject them
to debt collection efforts.\284\ Some commenters maintained that
consumers have abused their rights under the Rule to dispute billing
errors and have refused to pay valid charges.\285\
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\284\ GORDON at 2-3; ISA at 6-9; PMAA at 3, 13; TSIA at 12-13;
Tr. at 27-28, 68, 126-45.
\285\ AT&T at 20-21; Tr. at 8, 25-26, 128.
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The Commission agrees that it is important for consumers to
understand both their rights and their obligations when they are billed
for pay-per-call services or telephone-billed purchases. In order to
further consumers' understanding of their rights and obligations, the
proposed Rule simplifies the requirements regarding the notice of
customers' billing rights. Under Section 308.20(m) of the proposed
Rule, such a notice of billing rights must be provided with each
billing statement that contains charges for a pay-per-call service or
for a telephone-billed purchase; the annual
[[Page 58554]]
notice option is no longer permitted.\286\ If each billing statement
that contains charges for a telephone-billed purchase also contains a
notice of billing error rights, customers will be assured of timely
notice of their rights and obligations in the event that a billing
dispute arises. The proposed Rule retains the requirements that the
notice set forth the procedure the customer must follow to notify the
billing entity of a billing error, that the notice must disclose the
customer's right to withhold payment of any disputed amount, and that
any action to collect that amount will be suspended pending the billing
review. The proposed Rule would add the disclosure that, in order to be
guaranteed the protections under the dispute resolution provisions of
the Rule, the consumer must give notice of a billing error dispute
within 60 days.
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\286\ The Commission is not aware of many instances where the
annual statement format was being used.
---------------------------------------------------------------------------
Two commenters suggested language for the notice that would advise
the consumer of the consequences that may occur if the consumer fails
to pay a valid charge, even if the charge was forgiven by the LEC.\287\
In the original Rule, the Commission declined to mandate specific
language for the Notice of Billing Error Rights in order to give the
billing entity the flexibility to fashion its own notice and to arrange
and disclose the material information in a more cost-effective
manner.\288\ The Commission believes this approach is still
appropriate. As the Commission explained in the Statement of Basis and
Purpose to the original Rule, the Rule does not preclude a billing
entity from including additional information on the notice, as long as
it does not confuse or mislead the consumer or obscure or detract from
the required disclosures, which must appear separately and above any
other information.\289\ The Commission still believes that vendors,
service bureaus, and billing entities are in the best position to
negotiate among themselves to provide any additional information to
consumers regarding their liability for telephone-billed purchases.
Several workshop participants agreed that the Rule need not be changed
to accommodate specific language, and that it would be sufficient to
provide additional sample language in the Commission's Compliance
Guides.\290\
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\287\ ISA at 7-9; GORDON at 2-3.
\288\ 58 FR 42364, 42397 (August 9, 1993).
\289\ 58 FR 42364, 42398 (August 9, 1993).
\290\ Tr. at 141-42.
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Direct liability under the dispute resolution requirement extended
to service bureaus in addition to vendors, providing carriers, and
billing entities. Under the original Rule, billing entities, providing
carriers, and vendors are all directly liable for compliance with the
requirements of Section 308.20. Where appropriate, the proposed Rule
adds `service bureau' to the parties who will be held directly liable
for compliance with the provisions of this section. Thus, under the
proposed Rule, service bureaus are directly liable for compliance with
the following provisions of Section 308.20: 308.20(f)--Limitation on
collection action; 308.20(g)--Prohibition on charges for initiating
billing review; and 308.20(h)(1)--Prohibition on adverse credit
reports.
The proposed Rule extends direct liability to service bureaus in
these instances because the service bureau often is the entity handling
the dispute resolution process, as well as the party with whom the
billing entity has a contract. Additionally, as aggregators or as
entities developing ``turn-key'' pay-per-call service operations,
service bureaus are often in the best position to make sure that the
services are offered and provided in a non-deceptive manner that
complies with the Rule.
Clarification of the forfeiture of right to collect. Section
308.7(j) of the original Rule provided that any billing entity, vendor,
or service bureau that failed to comply with the requirements of the
dispute resolution section would forfeit the right to collect any
amount the customer has disputed in a notice of a billing error.
Proposed Section 308.20(i) adds language to clarify that this
forfeiture relates only to charges that are legitimate charges that the
entity would otherwise be entitled to collect. If an entity does not
comply with proposed Section 308.20, it must forgive even legitimate
charges. However, this provision does not limit liability to provide
refunds or credits for charges that are in error, nor does it affect
liability for civil penalties for violations of proposed Section
308.20, or for violations of other provisions of the Rule.
Requirement for identifying information to be disclosed at time of
billing. Section 308.20(b) of the proposed Rule clarifies and expands
the requirements in current section 308.7(c) to disclose certain
identifying information to the customer on the billing statement or in
other material accompanying the billing statement. In addition to
disclosing the method by which the customer can provide a billing error
notice (required by the current Rule), under the revised provision, the
billing statement must also disclose the name of the billing entity
designated to receive and respond to billing error notices and how to
contact that entity. For example, if the customer must submit written
notice of a billing error, the disclosure must include the mailing
address to which the notice should be sent; if the customer may submit
notice orally, the disclosure must contain a local or toll-free number
that is readily available for customers to call in the event of a
billing error. The billing entity and vendor may agree to a single
telephone number to satisfy both the requirements of this section as
well as the requirements of proposed Section 308.18(d).
This section is intended to ensure that consumers are able to reach
a responsible party when they submit a billing error notice, and has
been included to address the problems consumers reportedly encounter
when they attempt to assert a billing error. Consumer groups at the
workshop described the frustration consumers often feel when they
attempt to inquire about charges on their telephone bills. Instead of
reaching a helpful customer service representative, they often find
themselves navigating a maze to find the entity to whom the billing
error should be reported. Consumers reportedly get passed from one
entity to another, are placed on hold for long periods of time, or the
telephone numbers they are told to call are disconnected, perpetually
busy, or are not answered at all.\291\ Under the proposed Rule, these
types of practices will constitute a violation of Section 308.20(b).
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\291\ ISA at A4; NAAG at 12-13; Tr. at 114-16, 173-74, 262-65.
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Clarification that all billing entities must comply with the Rule's
requirements. Where a telephone-billed purchase involves more than one
billing entity, section 308.20(n)(1) of the proposed Rule requires them
to agree which one of them will be responsible for receiving and
responding to billing errors. Furthermore, proposed Section 308.20(b)
requires that this designation be clearly and conspicuously disclosed
on the billing statement. This will ensure that unscrupulous billing
entities will not pass responsibility from one to another, leaving a
consumer without an effective means of exercising his or her dispute
resolution rights. Furthermore, the proposed Rule modifies the language
of Section 308.7(o)(2) of the original Rule, which allowed multiple
billing entities to agree among themselves which billing entity was
responsible for compliance with the Rule. The Commission believes that
all billing entities are under an obligation
[[Page 58555]]
to comply with the proposed Rule's requirements, regardless of which
entity is designated to give disclosures and respond to billing error
notices. Thus, each billing entity that attempts to sustain a charge
for a telephone-billed purchase must comply with the requirement that
it conduct a reasonable investigation and provide proof of the debt
before collection attempts are made.
Deceptive statements to billing entities by vendors, service
bureaus, and providing carriers. Section 308.20(p) of the proposed Rule
specifies that it is a deceptive act or practice for any vendor,
service bureau, or providing carrier to provide false or misleading
information to a billing entity conducting an investigation of a
disputed telephone-billed purchase charge. One of the cornerstones of
the Rule is that once a consumer disputes the validity of a charge, a
billing entity cannot attempt to collect the disputed charge until an
investigation of the validity of the charge has been conducted and the
consumer has been provided documentary evidence of the charge, and an
explanation of why the investigating billing entity has determined that
no billing error has occurred. The proposed Rule provides that, in
conducting the investigation, the billing entity should contact (where
appropriate) the vendor, service bureau, or providing carrier. False or
misleading statements to the investigating billing entity by the
vendor, service bureau, or providing carrier would undermine the
investigation of a disputed charge, and would be likely to mislead
reasonable consumers into paying money that is not actually owed. The
proposed Rule will prohibit such false or misleading statements.
Subpart D--General Provisions
Section 308.22 Actions by States
TDDRA grants the States authority to enforce the rules that the
Commission promulgates pursuant to 15 U.S.C. 5711. The original Rule
did not contain a provision that detailed the procedures the States
should follow in bringing actions under the Rule. The Commission's
enforcement experience with its Telemarketing Sales Rule, 16 CFR Part
310, indicates that such procedures are helpful in promoting
consistency and in coordinating law enforcement activity in order to
maximize the impact of such actions. Therefore, the proposed Rule adds
Section 308.22, which outlines the procedures that State law
enforcement officials should use in bringing actions under the Rule.
The language in Section 308.22 tracks the language and procedures set
out in Section 310.7 of the Telemarketing Sales Rule.
Section 308.22 also closely tracks the statutory language of TDDRA
which provided for such State action.\292\ Since Section 5712 of TDDRA
gives States the authority to enforce only the rules promulgated under
15 U.S.C. 5711 (i.e., Title II of TDDRA), the proposed Rule delineates
those provisions that are not enforceable by the States because they
have been proposed under the rulemaking authority granted in other
sections of TDDRA. Thus, it specifies that States can bring actions
only where a violation of the Rule relates to the provision of pay-per-
call services, since this is the subject matter of the Commission's
rulemaking authority under Title II of TDDRA.\293\ In addition,
proposed Section 308.22(a) specifies that States may not enforce
Section 308.20, because that section is promulgated under the
rulemaking authority granted under Title III of TDDRA.\294\
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\292\ 15 U.S.C. 5712.
\293\ 15 U.S.C. 5711.
\294\ 15 U.S.C. 5721--5724.
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Rulemaking Review Requirement
The original Rule required that a rule review proceeding be
commenced within four years of the effective date of the Rule. The
proposed Rule does not have an equivalent provision. The Commission has
a policy of reviewing all of its rules and guides on a periodic basis
to ensure that they continue to meet the goals and provide the
protections that were intended when they were promulgated. This
periodic review also examines the economic costs and benefits of the
particular rule or guide under review. The Commission believes that
this periodic review should be sufficient for any final Rule, and that
it is not necessary to include a specific deadline within the text of
the Rule.
Section D. Invitation To Comment
All persons are hereby given notice of the opportunity to submit
written data, views, facts, and arguments concerning the proposed
changes to the Commission's 900-Number Rule. The Commission invites
written comments to assist it in ascertaining the facts necessary to
reach a determination as to whether to adopt as final the proposed
changes to the Rule. Written comments must be submitted to the Office
of the Secretary, Room 159, Federal Trade Commission, Sixth Street and
Pennsylvania Avenue, N.W., Washington, DC 20580, on or before January
8, 1999. Comments submitted will be available for public inspection in
accordance with the Freedom of Information Act (5 U.S.C. 552) and
Commission Rules of Practice, on normal business days between the hours
of 9:00 a.m. and 5 p.m. at the Public Reference Section, Room 130,
Federal Trade Commission, Sixth Street and Pennsylvania Avenue, N.W.,
Washington, DC 20580. Comments submitted in electronic form will be
made available on the Commission's web site at www.ftc.gov.
Section E. Public Workshop
The FTC staff will conduct a public workshop to discuss the written
comments received in response to the Federal Register notice. The
purpose of the workshop is to afford Commission staff and interested
parties a further opportunity to discuss issues raised by the proposal
and in the comments, and, in particular, to examine publicly any areas
of significant controversy or divergent opinions that are raised in the
written comments. The workshop is not intended to achieve a consensus
among participants or between participants and Commission staff with
respect to any issue raised in the comments. Commission staff will
consider the views and suggestions made during the workshop, in
conjunction with the written comments, in formulating its final
recommendation to the Commission regarding amendment of the 900-Number
Rule.
Commission staff will select a limited number of parties from among
those who submit written comments, to represent the significant
interests affected by the issues raised in the notice. These parties
will participate in an open discussion of the issues, including asking
and answering questions based on their respective comments. In
addition, the workshop will be open to the general public. The
discussion will be transcribed and the transcription placed on the
public record.
To the extent possible, Commission staff will select parties to
represent the following interests: advertisers, billing entities,
vendors, service bureaus, local exchange carriers, long-distance
carriers, consumer groups, federal and State law enforcement and
regulatory authorities; and any other interests that Commission staff
may identify and deem appropriate for representation.
Parties who represent the above-referenced interests will be
selected on the basis of the following criteria:
1. The party submits a written comment during the comment period.
[[Page 58556]]
2. During the comment period the party notifies Commission staff of
its interest in participating in the workshop.
3. The party's participation would promote a balance of interests
being represented at the workshop.
4. The party's participation would promote the consideration and
discussion of a variety of issues raised in this notice.
5. The party has expertise in activities affected by the issues
raised in this notice.
6. The number of parties selected will not be so large as to
inhibit effective discussion among them.
The workshop will be held at the Federal Trade Commission, 6th
Street and Pennsylvania Avenue, NW., Washington, DC 20580, on February
25 and 26, 1999. Prior to the workshop, parties selected will be
provided with copies of the comments from all other participants
selected to participate in the workshop.
Section F. Communications by Outside Parties to Commissioners or
Their Advisors
Pursuant to Commission Rule 1.26(b)(5), communications with respect
to the merits of this proceeding from any outside party to any
Commissioner or Commissioner advisor during the course of this
rulemaking shall be subject to the following treatment. Written
communications, including written communications from members of
Congress, shall be forwarded promptly to the Secretary for placement on
the public record. Oral communications, not including oral
communications from members of Congress, are permitted only when such
oral communications are transcribed verbatim or summarized at the
discretion of the Commissioner or Commissioner advisor to whom such
oral communications are made and are promptly placed on the public
record, together with any written communications and summaries of any
oral communications relating to such oral communications. Oral
communications from members of Congress shall be transcribed or
summarized at the discretion of the Commissioner or Commissioner
advisor to whom such oral communications are made and promptly placed
on the public record, together with any written communications or
summaries of any oral communications relating to such oral
communications.
Section G. Paperwork Reduction Act
Pursuant to the Paperwork Reduction Act (PRA), as amended, 44
U.S.C. 3510-3520, the FTC has current approval from the Office of
Management and Budget (OMB) for 3,241,200 total burden hours associated
with certain reporting and disclosure requirements under the 900-Number
Rule (control number 3084-0102, which expires on December 31, 1999).
The Commission is seeking to extend this approval for the existing Rule
requirements and to obtain such approval for certain additional or
amended disclosure requirements being proposed by the Commission.
The FTC has previously estimated that approximately 25 common
carriers routinely maintain certain business records and make them
available to the Commission under the Rule, at an average annual burden
of 5 hours per submission, for a total reporting burden of 125 hours.
Based on a 12 percent estimated growth of the industry since 1995 (when
the last burden was calculated), the Commission estimates that the
current burden would be 140 hours. The Commission is not proposing to
change this reporting requirement in a manner that would increase the
compliance burden.
The Rule further requires that advertisements for pay-per-call
services contain certain disclosures mandated by TDDRA as to the cost
of the telephone call. The Commission has previously estimated that
these requirements apply to approximately 20,000 vendors, who must make
additional disclosures if the advertisement is directed to individuals
under 18 (50 percent of the ads) or relates to pay-per-call services
for sweepstakes or information on federal programs (30 percent of the
ads). The Commission has estimated that each disclosure mandated by the
Rule, whether cost or otherwise, requires approximately one hour of
compliance time. Based on three advertisements per vendor, or a total
of 60,000 ads, 80 percent of which would require a disclosure in
addition to the cost disclosure, the Commission has estimated that
approximately 110,000 burden hours are needed for vendors to comply
with these requirements. Based on the estimated growth of the industry,
the Commission now calculates the current burden to be 123,000 hours.
The Commission is proposing to amend the advertising disclosure section
of the Rule (proposed Section 308.4(a)(1)(iii)(B)) to require that
advertisements for pay-per-call services billed on a variable time rate
basis disclose the cost of each portion of the call. Assuming that 20
percent of the 67,200 (adjusted from 60,000 for 12 percent growth) pay-
per-call services will be required to make the new disclosure, the
Commission estimates that the additional burden associated with the
proposed change will be 12,240 hours, assuming one hour for each
disclosure. The Commission is also proposing that a new disclosure
(i.e., a signal indicating the end of free time typically used to
market pay-per-call services) be included in proposed Rule Section
308.7(b). Based on an assumption that 25 percent of the 67,200 pay-per-
call services will be required to include the new signal, the
additional burden associated with this proposed change is calculated to
be 16,800 hours, again assuming one new burden hour for each
disclosure.
In addition, the Commission has previously estimated that
approximately 60,000 pay-per-call services are required to make
disclosures in the preamble to the pay-per-call service, at an average
burden of 10 hours for each preamble, resulting in a total burden
estimate of 600,000 hours. Based on the estimated growth of the
industry, the Commission now calculates the current burden to be
672,000 hours. The Commission's proposal to amend the preamble
requirements of the Rule (proposed Section 308.9(a)(2)(iii)(B)) would
further require the preamble to disclose the cost of each portion of a
telephone call to a pay-per-call service billed on a variable time rate
basis. Assuming that 30 percent of the 67,200 pay-per-call services
would be required to make the new disclosure in the preamble, the
Commission estimates that the new burden associated with the proposed
change would be 20,160 hours, if each new disclosure requires one
additional hour of compliance.
The Commission's Rule also requires that vendors ensure that
certain disclosures appear on each billing statement that contains a
charge for a call to a pay-per-call service. Because these disclosures
appear on telephone bills already generated by the local telephone
companies, and because the carriers are already subject to nearly
identical requirements pursuant to the FCC's rules, the Commission
estimated that the burden to comply would be minimal. At most, the only
burden on the vendor may be to conduct spot checks of telephone bills
to ensure that the charges are displayed in the manner required by the
Rule. Staff estimated that only 10 percent of the 20,000 vendors would
monitor billing statements in this manner and that it would take 12
hours each year to conduct such checks, for a total of 24,000 burden
hours. Based on the estimated growth of the industry, the Commission
calculates the current burden to be 26,880 hours. The Commission is not
proposing to amend
[[Page 58557]]
this disclosure requirement section in a way that will increase the
burden of compliance.
The Commission's Rule imposes certain disclosure requirements
relating to billing and dispute resolution. In particular, the Rule
requires billing entities to notify pay-per-call service customers in
writing of their rights and obligations with respect to pay-per-call
service charges. The FTC has previously estimated that it would take
7,000 hours for billing entities to provide such notice to customers,
based on approximately 1,400 billing entities spending 5 hours to
review, revise, and provide the disclosures annually. Based on the
estimated growth of the industry, the Commission estimates the current
burden to be 7,840 hours. Proposed Rule Section 308.18(m)(1), if
adopted, would make this requirement mandatory with each billing
notice, rather than annually. There should be no additional burden
hours associated with this proposed change because most, if not all,
entities already disclose customer rights and obligations in each
billing statement that contains such charges. The Commission is also
proposing to amend paragraphs (i) and (j) of proposed Section 308.2 of
the Rule to require certain disclosures to customers regarding the
personal identification numbers requested by and issued to such
customers, and the material terms and conditions governing the use of
such numbers. Assuming that 50,000 different audiotext services are
provided via toll-free numbers and will be required to comply with
these proposed new disclosure requirements, the Commission estimates
that the additional burden will be 50,000 hours, based on 1 hour per
service.
The Commission has separately estimated that the compliance burden
associated with the existing dispute resolution requirements of the
Rule is, on average, about one hour per each billing error, and that
approximately 5 percent of the estimated 50,000,000 calls made to pay-
per-call services each year would involve such a billing error, for a
total burden of 2,500,000 hours. Based on the estimated growth of the
industry, the Commission calculates the current burden to be 2,800,000
hours. The Commission proposes to expand the disclosure requirements
that apply to billing entities in the resolution of billing disputes,
as set forth in the proposed amendments to proposed Sections
308.18(n)(2) (notice to customer when attempting to collect charge that
was forgiven by another billing entity), and 308.18(n)(4) (notice to
vendor or service bureau of certain customer information by the billing
entity designated to receive and respond to alleged billing errors).
Assuming again that 5 percent of the 56,000,000 calls (adjusted for 12
percent growth) require billing entities to respond to billing errors,
the Commission estimates that the new burden associated with these two
new disclosure requirements will be 1,400,000 hours, based on an
additional \1/2\ hour of compliance time required for both disclosures.
Based on the above figures, the total PRA burden under the existing
requirements of the Rule was estimated to be approximately 3,241,125
hours, comprising 125 hours for reporting requirements, with the
remainder attributable to requirements for disclosures in advertising
(110,000), preamble (600,000), billing statement disclosures (24,000),
and billing dispute resolution (2,500,000 and 7,000). Based on
estimated growth of the industry, the Commission calculates the current
burden to be 3,630,060 hours. The Commission calculates that the new
burden associated with all of the proposed changes described above will
be 1,499,200 additional burden hours for industry to comply with the
proposed Rule. Of course, the Commission seeks comment to determine
whether its calculation of burden hours is accurate.
Section H. Regulatory Flexibility Act
The provision of the Regulatory Flexibility Act requiring an
initial regulatory flexibility analysis (5 U.S.C. 603) does not apply
because it is believed that these Rule amendments, if adopted, will not
have a significant economic impact on a substantial number of small
entities (5 U.S.C. 605). This notice also serves as certification to
the Small Business Administration of that determination.
It appears that some vendors may be small entities, but the
Commission, on the basis of information currently available to its
staff, does not believe the number of such entities is clearly
substantial when compared to the number and size of other businesses
covered by the Rule (e.g., service bureaus, common carriers, and
billing entities). Furthermore, to the extent that the Rule's
requirements are expressly mandated by TDDRA, the Commission has no
discretion to adopt alternative provisions that would reduce any
significant impact that such requirements might have on small entities,
as the Commission noted when the Rule was originally promulgated.
Nonetheless, to ensure that no significant economic impact on a
substantial number of small entities is overlooked, the Commission
hereby requests public comment on the effect of the proposed Rule
amendments on costs, profitability, competitiveness, and employment on
small entities. After considering such comments, if any, the Commission
will determine whether preparation of a final regulatory flexibility
analysis (pursuant to 5 U.S.C. 604) is required.
Section I. Questions for Comment on the Proposed Rule
The Commission seeks comment on various aspects of the proposed
Rule. Without limiting the scope of issues on which it seeks comment,
the Commission is particularly interested in receiving comments on the
questions that follow. In responding to these questions, include
detailed, factual supporting information whenever possible.
General Questions
Please provide comment, including relevant data, statistics,
consumer complaint information, or any other evidence, on each
different proposed change to the Rule. Regarding each proposed
modification commented on, please include answers to the following
questions:
(a) What is the effect (including any benefits and costs), if any,
on consumers?
(b) What is the impact (including any benefits and costs), if any,
on individual firms that must comply with the Rule?
(c) What is the impact (including any benefits and costs), if any,
on industry?
(d) What changes, if any, should be made to the proposed Rule to
minimize any cost to industry or consumers?
(e) How would those changes affect the benefits that might be
provided by the proposed Rule to consumers or industry?
(f) How would the proposed Rule affect small business entities with
respect to costs, profitability, competitiveness, and employment?
Questions on Proposed Specific Changes
In response to each of the following questions, please provide: (1)
detailed comment, including data, statistics, consumer complaint
information and other evidence, regarding the problem referred to in
the question; (2) comment as to whether the proposed changes do or do
not provide an adequate solution to the problems they were intended to
address; and (3) suggestions for additional changes that might better
maximize consumer protections or minimize the burden on industry.
1. Unauthorized charges. Viewed together, do the new billing error
and
[[Page 58558]]
express authorization sections (proposed 308.2(b) and 308.17) of the
proposed Rule adequately address the problem of consumers being charged
for unauthorized telephone-billed purchases? Is the ``knew or should
have known'' standard for vendors, service bureaus, and billing
entities sufficient to address the deceptive practices that the Rule
intends to prevent?
2. PIN number. Does the requirement that a PIN, as defined in
proposed 308.2(i), be used in connection with a presubscription
agreement adequately address the problem of controlling access to
audiotext services provided through toll-free numbers?
3. Presubscription agreement. Do the proposed changes to the
definition of ``presubscription agreement''(proposed 308.2(j)),
together with the provision relating to prohibitions concerning toll-
free numbers (proposed 308.13), adequately address the problem of
consumers receiving charges on their telephone bills under
presubscription agreements to which they were not a party?
4. Service bureau. The proposed definition of ``service bureau''
(proposed 308.2(n)) is designed to include billing aggregators, and to
prevent an entity from escaping liability under the Rule by hiding
behind ``common carrier`` status. Does the revised definition include
the appropriate entities? Are there other entities that should be
included?
5. Pay-per-call service. Does the proposed definition of ``pay-per-
call service''(proposed 308.2(g)) rely on the appropriate criteria to
identify a pay-per-call service? Are the exemptions to the proposed
definition of pay-per-call service appropriate? Are there additional
exemptions that should be included?
6. De minimis threshold for pay-per-call services. Does the
proposed $.05 per minute or $.50 per call de minimis threshold strike
the appropriate balance between services that should be considered pay-
per-call and services that should not be considered pay-per-call?
Should the proposed threshold be higher or lower? Will some vendors be
required to undertake additional record keeping in order to demonstrate
their exemption? Is there a more efficient alternative to the de
minimis approach?
7. Rebuttable presumption of payment to a vendor. In the absence of
direct evidence of payment, is a rebuttable presumption the best method
of determining whether remuneration has been provided to a vendor? If
so, has the Commission described the appropriate circumstances under
which it should presume that payment has been made to a vendor? If not,
what is a more appropriate method of determining whether remuneration
has been provided to a vendor? Are there other circumstances under
which payment should be presumed?
8. Misrepresentation of cost. Does the proposed provision governing
misrepresentation of cost (proposed 308.6) adequately address the
problem of consumers being misled regarding the cost of services?
9. Beepers and pagers. Is there any non-deceptive way in which
beepers or pagers are used or could be used to solicit calls to a pay-
per-call service? Is the restriction in proposed 308.7 appropriate? Is
it possible to make adequate disclosures in beeper or pager
solicitations? Would it be appropriate to prohibit these types of
solicitations altogether?
10. Nominal cost calls. Do the data suggest that $3.00 is an
appropriate threshold for designation of ``nominal cost calls''
(proposed 308.9) for which no preamble is necessary? If not, what
``nominal cost'' threshold does the data support? Should the ``nominal
cost'' figure be adjusted for inflation?
11. Fractional minute billing. Under what circumstances are
telecommunications calls or services currently billed in increments of
less than one minute? In what increments are these calls or services
billed? What billing increments are technologically feasible? What
costs, if any, would be associated with requiring pay-per-call services
to bill in increments of less than one minute?
12. Toll charges. Does the proposal to prohibit audiotext services
from being billed as toll charges (proposed 308.12) adequately address
the problem of consumers being charged for audiotext services in a
manner that does not provide them with all of the TDDRA-mandated
protections? Are there other, less restrictive, means to address the
problem?
13. Express authorization. What costs would be associated with
obtaining express authorization from consumers for non-blockable
telephone-billed purchases (proposed 308.17)? Are there methods of
obtaining express authorization that would impose lower costs than
those methods described in the Notice? Is the proposed Rule
sufficiently flexible to accommodate technological developments that
may make it easier to obtain express authorization?
14. Billing statement disclosures. Do the modifications regarding
the disclosures on billing statements (proposed 308.18) adequately
address the problem of consumers being unable to reach the entity whose
telephone number is listed on the phone bill for billing inquiries?
Does the provision adequately address the problem that consumers often
cannot reach the entity with the authority to provide refunds or
credits?
15. Service bureau liability. What effect will the additional
direct liability of service bureaus pursuant to proposed 308.17 and
308.20 have on industry? Will it increase the level of industry's
accountability to consumers? What effect will it have on cramming?
16. Billing entity liability. What effect will the additional
liability of billing entities pursuant to proposed 308.17 and 308.20
have on industry? Will it increase the level of industry's
accountability to consumers? What effect will it have on cramming?
17. Information necessary to collect debts. Does the proposed Rule
adequately address in proposed 308.20(n)(4) the need of vendors and
service bureaus to obtain sufficient information from the LECs to
continue collection activities against customers who refuse to pay
valid charges?
18. Reporting times. If the period of time that LECs or other
billing entities have to respond to a billing error notice is shortened
from 90 to 60 days, what effect, if any, would this have on billing
entities? Would this impose additional costs? Do the changes in the
proposed 308.20 of the Rule that shorten the times by which the LEC
must provide information to the vendor or service bureau sufficiently
expedite the process so that vendors or service bureaus will be able to
pursue collection of valid debts in a timely manner? Are these
deadlines feasible?
19. Chargebacks. Are the proposed changes to the dispute resolution
section the most cost effective and appropriate ways to deal with
industry concerns regarding the chargeback process?
20. Reasonable investigation. Does the proposed Rule adequately
address in proposed 308.20 the problem of consumers becoming the target
for a collection action without ever receiving an explanation or
evidence that the alleged debt is in fact valid?
21. Evidence of debt. What evidence (other than ANI information) is
currently created or maintained that would show the delivery of
telephone-billed purchases? If no such evidence is created or
maintained, what would be the costs, if any, associated with creating
and maintaining such evidence. What would be the benefits?
22. TDDRA blocking. What records do LECs maintain with respect to
900-number blocking? Do these records
[[Page 58559]]
indicate the date a consumer-requested block became effective? What
measures do LECs take to ensure that blocks are not turned off by
someone other than the subscriber? Do LECs make blocking information
available to billing entities who are conducting ``reasonable
investigations'' of disputed charges for telephone-billed purchases?
Should LECs be required to do so? What would be the costs and benefits
associated with such a requirement?
23. Applicability to third-party debt collectors. The proposed
definition of ``billing entity'' does not include an exemption for
third-party debt collectors attempting to collect debts for telephone-
billed purchases. Should there be such an exemption? What, if any,
costs or benefits would be associated with such an exemption?
Questions Relating to the Paperwork Reduction Act
The Commission solicits comments on the reporting and disclosure
requirements above to the extent that they constitute ``collections of
information'' within the meaning of the PRA. The Commission requests
comments that will enable it to:
1. Evaluate whether the proposed collections of information are
necessary for the proper performance of the functions of the agency,
including whether the information will have practical utility;
2. Evaluate the accuracy of the agency's estimate of the burden of
the proposed collections of information, including the validity of the
methodology and assumptions used;
3. Enhance the quality, utility, and clarity of the information to
be collected; and
4. Minimize the burden of the collections of information on those
who are to respond, including through the use of appropriate automated,
electronic, mechanical, or other technological collection techniques or
other forms of information technology (e.g., permitting electronic
submission of responses).
Section J. Proposed Rule
List of Subjects in 16 CFR Part 308
Advertising, 900 telephone numbers, Pay-per-call services,
Telephone, Telephone-billed purchases, Toll-free numbers, Trade
practices.
Accordingly, it is proposed that part 308 of title 16 of the Code
of Federal Regulations, be revised to read as follows:
PART 308--RULE CONCERNING PAY-PER-CALL SERVICES AND OTHER
TELEPHONE-BILLED PURCHASES
Subpart A--Scope and Definitions
Sec.
308.1 Scope of regulations in this part.
308.2 Definitions.
Subpart B--Pay-Per-Call Services
308.3 General requirements for advertising disclosures.
308.4 Advertising disclosures.
308.5 Advertising to children prohibited.
308.6 Misrepresentation of cost prohibited.
308.7 Other advertising restrictions.
308.8 Special rule for infrequent publications.
308.9 Preamble message.
308.10 Deceptive billing practices.
308.11 Prohibition on services to children.
308.12 Prohibition concerning toll charges.
308.13 Prohibitions concerning toll-free numbers.
308.14 Monthly or other recurring charges.
308.15 Refunds to customers.
308.16 Service bureau liability.
Subpart C--Pay-Per Call Services and Other Telephone-Billed Purchases
308.17 Express authorization required.
308.18 Disclosure requirements for billing statements.
308.19 Access to information.
308.20 Dispute resolution procedures.
Subpart D--General Provisions
308.21 Severability.
308.22 Actions by States.
Authority: Pub. L. 102-556, 106 Stat. 4181 (15 U.S.C. 5701, et
seq.); Sec. 701, Pub. L. 104-104, 110 Stat. 56 (1996).
Subpart A--Scope and Definitions
Sec. 308.1 Scope of regulations in this part.
This Rule implements Titles II and III of the Telephone Disclosure
and Dispute Resolution Act of 1992, in relevant part at 15 U.S.C. 5711-
14, 5721-24, as amended by the Telecommunications Act of 1996, Sec.
701, Pub. L. 104-104, 110 Stat. 56 (1996).
Sec. 308.2 Definitions.
(a) Billing entity means any person who transmits a billing
statement or any other statement of debt to a customer for a telephone-
billed purchase, or any person who assumes responsibility for receiving
and responding to billing error complaints or inquiries.
(b) Billing error means any of the following:
(1) 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.
(2) A reflection on a billing statement of a telephone-billed
purchase for which the customer requests additional clarification,
including documentary evidence thereof.
(3) A reflection on a billing statement of a telephone-billed
purchase that was not accepted by the customer or was not provided to
the customer in accordance with the stated terms of the transaction.
(4) A reflection on a billing statement of a telephone-billed
purchase for a call made to an 800, 888, 877, or other toll-free
telephone number.
(5) The failure to reflect properly on a billing statement a
payment made by the customer or a credit issued to the customer with
respect to a telephone-billed purchase.
(6) A computation error or similar error of an accounting nature on
a billing statement of a telephone-billed purchase.
(7) Failure to transmit a billing statement for a telephone-billed
purchase to a customer's last known address if that address was
furnished by the customer at least twenty (20) days before the end of
the billing cycle for which the statement was required.
(8) A reflection on a billing statement of a telephone-billed
purchase identified in a manner that violates the requirements of
Sec. 308.18.
(9) A reflection on a customer's billing statement of a charge
incurred pursuant to a purported presubscription agreement that does
not meet the requirements of Sec. 308.2(j).
(10) A reflection on a customer's billing statement of a telephone-
billed purchase not blockable pursuant to 47 U.S.C. 228(c) that was not
expressly authorized by that customer.
(11) A reflection on a billing statement of a charge that is
inconsistent with any blocking option chosen by a customer pursuant to
47 U.S.C. 228(c).
(c) Bona fide educational service means any pay-per-call service
dedicated to providing information or instruction relating to
education, subjects of academic study, or other related areas of school
study.
(d) Commission means the Federal Trade Commission.
(e) Customer means any person who acquires or attempts to acquire
goods or services through a telephone-billed purchase, or who receives
a billing statement for a telephone-billed purchase.
(f) Pay-per-call purchase means any attempt to purchase, or any
actual purchase of pay-per-call services.
(g) Pay-per-call service means:
(1) Any service covered by the definition of ``pay-per-call
services'' provided in Section 228(i) of the
[[Page 58560]]
Communications Act of 1934, as amended;\1\ or
---------------------------------------------------------------------------
\1\ Section 228(i) of the Communications Act of 1934, as amended
by Section 701 of the Telecommunications Act of 1996, states:
(1) 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 services; or
(iii) Any service, including the provision of a product, the
charges for which are assessed on the basis of the 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)).
(2) Such term does not include calls utilizing
telecommunications devices for the deaf, or directory services
provided by a common carrier or its affiliate or by a local exchange
carrier or its affiliate, or any service for which users are
assessed charges only after entering into a presubscription or
comparable arrangement with the provider of such service.
---------------------------------------------------------------------------
(2) Any service that provides, or that is purported to provide,
audio information or audio entertainment, including simultaneous voice
conversation services, where the action of placing a call, receiving a
call, or subsequent dialing, touch-tone entry, or comparable action of
the caller results in a charge to a customer, and where all or a
portion of such charge results in a payment, directly or indirectly, to
the person who provides or purports to provide such information or
entertainment services.
(3) Services meeting the criteria of Sec. 308.2(g)(2) will not be
considered pay-per-call services if:
(i) The provider of the audio information or an audio entertainment
service demonstrates that the person from whom payment is being sought
has entered into a presubscription agreement, meeting the requirements
of Sec. 308.2(j), to be charged for the information or service;
(ii) The provider of audio information or audio entertainment
services demonstrates that, on average, the payment to the providers of
audio information or audio entertainment services will not exceed $0.05
per minute or $0.50 per call for that particular service; or
(iii) The services provided are calls utilizing telecommunications
services for the deaf, or are tariffed directory services provided by a
common carrier or its affiliate;
(4) Nothing in this definition shall be construed to permit any
conduct or practice otherwise precluded or limited by regulations of
the Federal Communications Commission.
(h) Person means any individual, partnership, corporation,
association or unincorporated association, government or governmental
subdivision or agency, group, or other entity.
(i) Personal identification number means a number or code unique to
the individual, that is not valid unless it:
(1) Is requested by a consumer;
(2) Is provided exclusively to the consumer who will be billed for
services provided pursuant to that presubscription agreement; and
(3) Has been delivered, in writing, to the consumer who will be
billed for the agreement, simultaneously with a clear and conspicuous
disclosure of all material terms and conditions of the presubscription
agreement, including the service provider's name and address, a
business telephone number which the consumer may use to obtain
additional information or to register a complaint, and the rates for
the service.
(j)(1) Presubscription agreement means a contractual agreement to
purchase goods or services, including audio information or audio
entertainment services, in which:
(i) The service provider clearly and conspicuously discloses to the
consumer who will be billed for the service, all material terms and
conditions associated with the use of the service, including the
service provider's name and address, a business telephone number which
the consumer may use to obtain additional information or to register a
complaint, and the rates for the service;
(ii) The service provider agrees to notify the consumer who will be
billed for the service of any future rate changes;
(iii) The consumer who will be billed for the service agrees to
utilize the service on the terms and conditions disclosed by the
service provider; and (iv) The service provider requires the use of a
valid personal identification number to prevent unauthorized charges by
persons other than the person who will be billed for the service.
(2) Disclosure of a credit card or charge card number, along with
authorization to bill that number, made during the course of a call to
purchase goods or services, including audio information or audio
entertainment services, shall constitute a presubscription agreement if
the credit or charge card is subject to the dispute resolution
requirements of the Fair Credit Billing Act and the Truth in Lending
Act, as amended, and if the credit or charge card is the sole method
used to pay for the charge.
(k) Program-length commercial means any commercial or other
advertisement fifteen (15) minutes in length or longer or intended to
fill a television or radio broadcasting or cablecasting time slot of
fifteen (15) minutes in length or longer.
(l) Providing carrier means a local exchange or interexchange
common carrier providing telephone services (other than local exchange
services) to a vendor for a telephone-billed purchase that is the
subject of a billing error complaint or inquiry.
(m) Reasonably understandable volume means at an audible level that
renders the message intelligible to the receiving audience, and, in any
event, at least the same audible level as that principally used in the
advertisement or the pay-per-call service.
(n) Service bureau means:
(1) Any person, including a common carrier, who provides one or
more of the following services to vendors: voice storage, voice
processing, call processing, billing aggregation, call statistics (call
and minute counts), call revenue arrangements (including revenue-
sharing arrangements with common carriers), or pre-packaged pay-per-
call investment opportunities; or
(2) Any person, other than a common carrier, who provides access to
telephone service to vendors of pay-per-call services.
(o) Slow and deliberate manner means at a rate that renders the
message intelligible to the receiving audience, and, in any event, at a
cadence or rate no faster than that principally used in the
advertisement or the pay-per-call service.
(p) Sweepstakes, including games of chance, means a game or
promotional mechanism that involves the elements of a prize and chance
and does not require consideration.
(q) Telephone-billed purchase means any pay-per-call purchase or
any purchase that is either charged to a customer's telephone bill, or
that is completed solely as a consequence of the completion of the call
or a subsequent dialing, touch tone entry, or comparable action of the
caller. Such term does not include:
(1) A purchase pursuant to a presubscription agreement that meets
the requirements of Sec. 308.2(j);
(2) Local exchange telephone services or interexchange telephone
services or any service that the Federal Communications Commission
determines by rule--
(i) Is closely related to the provision of local exchange telephone
services or interexchange telephone services; and
[[Page 58561]]
(ii) Is subject to billing dispute resolution procedures required
by Federal or State statute or regulation; or
(3) The purchase of goods or services that is otherwise subject to
billing dispute resolution procedures required by Federal statute or
regulation.
(r) Variable option rate basis refers to the rate structure of a
pay-per-call service where the rate billed to the customer depends on
the specific options chosen by the caller during the call.
(s) Variable time rate basis refers to the rate structure of a pay-
per-call service where the rate billed to the customer changes during
the call due to passage of time or due to other factors unrelated to
specific options chosen by the caller.
(t) Vendor means any person who sells or offers to sell a pay-per-
call service or who sells or offers to sell goods or services via a
telephone-billed purchase. A person who provides only transmission
services or only billing and collection services shall not be
considered a vendor.
Subpart B--Pay-Per-Call Services
Sec. 308.3 General requirements for advertising disclosures.
The following requirements apply to disclosures required in
advertisements under Sec. 308.4:
(a) The disclosures shall be made in the same language as that
principally used in the advertisement.
(b) Television, video, and print disclosures shall be of a color or
shade that readily contrasts with the background of the advertisement.
(c) In print advertisements, disclosures shall be parallel with the
base of the advertisement.
(d) Audio disclosures, whether in television or radio, shall be
delivered in a slow and deliberate manner and in a reasonably
understandable volume.
(e) Nothing contrary to, inconsistent with, or in mitigation of,
the required disclosures shall be used in any advertisement in any
medium; nor shall any audio, video, or print technique be used that is
likely to detract significantly from the communication of the
disclosures.
(f) In any program-length commercial, required disclosures shall be
made at least three (3) times (unless more frequent disclosure is
otherwise required) near the beginning, middle, and end of the
commercial.
(g) In any advertising medium not specifically addressed in this
Rule, all advertising disclosures must be clear and conspicuous and not
avoidable by consumers acting reasonably.
Sec. 308.4 Advertising disclosures.
(a) Cost of the call. (1) The vendor shall clearly and
conspicuously disclose the cost of the call, in Arabic numerals, in any
advertisement for the pay-per-call service, as follows:
(i) If there is a flat fee for the call, the advertisement shall
state the total cost of the call.
(ii) If the call is billed on a time-sensitive basis, the
advertisement shall state the cost per minute and any minimum charges.
If the length of the program can be determined in advance, the
advertisement shall also state the maximum charge that could be
incurred if the caller listens to the complete program.
(iii)(A) If the call is billed on a variable option rate basis, the
advertisement shall state, in accordance with Sec. 308.4(a)(1)(i) and
(ii), the cost of the initial portion of the call, any minimum charges,
and the range of rates that may be charged depending on the options
chosen by the caller;
(B) If the call is billed on a variable time rate basis, the
advertisement shall state, in accordance with Secs. 308.4(a)(1)(i) and
(ii), the cost of each different portion of the call;
(iv) The advertisement shall disclose any other fees that will be
charged for the service.
(v) If the caller may be transferred to another pay-per-call
service, the advertisement shall disclose the cost of the other call,
in accordance with Sec. 308.4(a)(1)(i), (ii), (iii), and (iv).
(2) For purposes of Sec. 308.4(a), disclosures shall be made
``clearly and conspicuously'' as set forth in Sec. 308.3 and as
follows:
(i) In a television or videotape advertisement, the video
disclosure shall appear adjacent to each video presentation of the pay-
per-call number. However, in an advertisement displaying more than one
pay-per-call number with the same cost, the video disclosure need only
appear adjacent to the largest presentation of the pay-per-call number.
Each letter or numeral of the video disclosure shall be, at a minimum,
one-half the size of each letter or numeral of the pay-per-call number
to which the disclosure is adjacent. In addition, the video disclosure
shall appear on the screen for the duration of the presentation of the
pay-per-call number. An audio disclosure shall be made at least once,
simultaneously with a video presentation of the disclosure. However, no
audio presentation of the disclosure is required in an advertisement
fifteen (15) seconds or less in length in which the pay-per-call number
is not presented in the audio portion, or an advertisement in which
there is no audio presentation of information regarding the pay-per-
call service, including the pay-per-call number. In an advertisement in
which the pay-per-call number is presented only in the audio portion,
the cost of the call shall be delivered immediately following the first
and last delivery of the pay-per-call number, except that in a program-
length commercial, the disclosure shall be delivered immediately
following each delivery of the pay-per-call number.
(ii) In a print advertisement, the disclosure shall be placed
adjacent to each presentation of the pay-per-call number. However, in
an advertisement displaying more than one pay-per-call number with the
same cost, the disclosure need only appear adjacent to the largest
presentation of the pay-per-call number. Each letter or numeral of the
disclosure shall be, at a minimum, one-half the size of each letter or
numeral of the pay-per-call number to which the disclosure is adjacent.
(iii) In a radio advertisement, the disclosure shall be made at
least once, and shall be delivered immediately following the first
delivery of the pay-per-call number. In a program-length commercial,
the disclosure shall be delivered immediately following each delivery
of the pay-per-call number.
(b) Sweepstakes; games of chance. (1) The vendor that advertises a
prize or award, or a service or product, at no cost or for a reduced
cost, to be awarded to the winner of any sweepstakes, including games
of chance, shall clearly and conspicuously disclose in the
advertisement the odds of being able to receive the prize, award,
service, or product at no cost or reduced cost. If the odds are not
calculable in advance, the advertisement shall disclose the factors
used in calculating the odds. Either the advertisement or the preamble
required by Sec. 308.9 for such service shall clearly and conspicuously
disclose that no call to the pay-per-call service is required to
participate, and shall also disclose the existence of a free
alternative method of entry, and either instructions on how to enter,
or a local or toll-free telephone number or address to which customers
may call or write for information on how to enter the sweepstakes. Any
description or characterization of the prize, award, service, or
product that is being offered at no cost or reduced cost shall be
truthful and accurate.
(2) For purposes of Sec. 308.4(b) disclosures shall be made
``clearly and conspicuously'' as set forth in Sec. 308.3 and as
follows:
(i) In a television or videotape advertisement, the disclosures may
be made in either the audio or video
[[Page 58562]]
portion of the advertisement. If the disclosures are made in the video
portion, they shall appear on the screen in sufficient size and for
sufficient time to allow customers to read and comprehend the
disclosures.
(ii) In a print advertisement, the disclosures shall appear in a
sufficient size and prominence and such location to be readily
noticeable, readable, and comprehensible.
(c) Federal programs. (1) The vendor that advertises a pay-per-call
service that is not operated or expressly authorized by a Federal
agency, but that provides information on a Federal program, shall
clearly and conspicuously disclose in the advertisement that the pay-
per-call service is not authorized, endorsed, or approved by any
Federal agency. Advertisements providing information on a Federal
program shall include, but not be limited to, advertisements that
contain a seal, insignia, trade or brand name, or any other term or
symbol that reasonably could be interpreted or construed as implying
any Federal government connection, approval, or endorsement.
(2) For purposes of Sec. 308.4(c), disclosures shall be made
``clearly and conspicuously'' as set forth in Sec. 308.3 and as
follows:
(i) In a television or videotape advertisement, the disclosure may
be made in either the audio or video portion of the advertisement. If
the disclosure is made in the video portion, it shall appear on the
screen in sufficient size and for sufficient time to allow customers to
read and comprehend the disclosure. The disclosure shall begin within
the first fifteen (15) seconds of the advertisement.
(ii) In a print advertisement, the disclosure shall appear in a
sufficient size and prominence and such location to be readily
noticeable, readable, and comprehensible. The disclosure shall appear
in the top one-third of the advertisement.
(iii) In a radio advertisement, the disclosure shall begin within
the first fifteen (15) seconds of the advertisement.
(d) Advertising to individuals under the age of 18. (1) The vendor
shall ensure that any pay-per-call advertisement directed primarily to
individuals under the age of 18 shall contain a clear and conspicuous
disclosure that all individuals under the age of 18 must have the
permission of such individual's parent or legal guardian prior to
calling such pay-per-call service.
(2) For purposes of Sec. 308.4(d), disclosures shall be made
``clearly and conspicuously'' as set forth in Sec. 308.3 and as
follows:
(i) In a television or videotape advertisement, each letter or
numeral of the video disclosure shall be, at a minimum, one-half the
size of each letter or numeral of the largest presentation of the pay-
per-call number. The video disclosure shall appear on the screen for
sufficient time to allow customers to read and comprehend the
disclosure. An audio disclosure shall be made at least once,
simultaneously with a video presentation of the disclosure. However, no
audio presentation of the disclosure is required in an advertisement
fifteen (15) seconds or less in length in which the pay-per-call number
is not presented in the audio portion, or an advertisement in which
there is no audio presentation of information regarding the pay-per-
call service, including the pay-per-call number.
(ii) In a print advertisement, each letter or numeral of the
disclosure shall be, at a minimum, one-half the size of each letter or
numeral of the largest presentation of the pay-per-call number.
(3) For the purposes of this regulation, advertisements directed
primarily to individuals under 18 shall include any pay-per-call
advertisement appearing during or immediately adjacent to programming
for which competent and reliable audience composition data demonstrate
that more than 50% of the audience is composed of individuals under 18,
and any pay-per-call advertisement appearing in a periodical for which
competent and reliable readership data demonstrate that more than 50%
of the readership is composed of individuals under 18.
(4) For the purposes of this regulation, if competent and reliable
audience composition or readership data do not demonstrate that more
than 50% of the audience or readership is composed of individuals under
18, then the Commission shall consider the following criteria in
determining whether an advertisement is directed primarily to
individuals under 18:
(i) Whether the advertisement appears in publications directed
primarily to individuals under 18, including, but not limited to,
books, magazines, and comic books;
(ii) Whether the advertisement appears during or immediately
adjacent to television programs directed primarily to individuals under
18, including, but not limited to, mid-afternoon weekday television
shows;
(iii) Whether the advertisement is broadcast on radio stations that
are directed primarily to individuals under 18;
(iv) Whether the advertisement appears on a cable or broadcast
television station directed primarily to individuals under 18;
(v) Whether the advertisement appears on the same videotape as a
commercially-prepared videotape directed primarily to individuals under
18, or preceding a movie directed primarily to individuals under 18
shown in a movie theater; and
(vi) Whether the advertisement, regardless of when or where it
appears, is directed primarily to individuals under 18 in light of its
subject matter, visual content, age of models, language, characters,
tone, message, or the like.
Sec. 308.5 Advertising to children prohibited.
(a) The vendor shall not direct advertisements for such pay-per-
call services to children under the age of 12, unless the service is a
bona fide educational service.
(b) For the purposes of this regulation, advertisements directed to
children under 12 shall include any pay-per-call advertisement
appearing during or immediately adjacent to programming for which
competent and reliable audience composition data demonstrate that more
than 50% of the audience is composed of children under 12, and any pay-
per-call advertisement appearing in a periodical for which competent
and reliable readership data demonstrate that more than 50% of the
readership is composed of children under 12.
(c) For the purposes of this regulation, if competent and reliable
audience composition or readership data do not demonstrate that more
than 50% of the audience or readership is composed of children under
12, then the Commission shall consider the following criteria in
determining whether an advertisement is directed to children under 12:
(1) Whether the advertisement appears in a publication directed to
children under 12, including, but not limited to, books, magazines, and
comic books;
(2) Whether the advertisement appears during or immediately
adjacent to television programs directed to children under 12,
including, but not limited to, children's programming as defined by the
Federal Communications Commission, animated programs, and after-school
programs;
(3) Whether the advertisement appears on a television station or
channel directed to children under 12;
(4) Whether the advertisement is broadcast during or immediately
adjacent to radio programs directed to children under 12, or broadcast
on a
[[Page 58563]]
radio station directed to children under 12;
(5) Whether the advertisement appears on the same video as a
commercially-prepared video directed to children under 12, or preceding
a movie directed to children under 12 shown in a movie theater;
(6) Whether the advertisement or promotion appears on product
packaging directed to children under 12; and
(7) Whether the advertisement, regardless of when or where it
appears, is directed to children under 12 in light of its subject
matter, visual content, age of models, language, characters, tone,
message, or the like.
Sec. 308.6 Misrepresentation of cost prohibited.
(a) Deceptive representation of cost. It is a deceptive act or
practice, and a violation of this Rule for any vendor to misrepresent
the cost of a pay-per-call service.
(b) Signal indicating end of free time. If any portion of a
telephone call to a pay-per-call service is offered as free, the vendor
shall provide a clearly discernible signal or tone indicating the end
of the free time, and shall inform the caller that to avoid charges,
the call must be terminated within three (3) seconds of such signal or
tone.
Sec. 308.7 Other advertising restrictions.
(a) Electronic tones in advertisements. The vendor is prohibited
from using advertisements that emit electronic tones that can
automatically dial a pay-per-call service.
(b) Telephone solicitations. The vendor shall ensure that any
telephone message conveyed during an inbound or outbound call that
solicits a person to place a call to a pay-per-call service discloses
the cost of the call in a slow and deliberate manner and in a
reasonably understandable volume, in accordance with
Secs. 308.4(a)(1)(i) through (v).
(c) Solicitations via facsimile machine. The vendor shall ensure
that any facsimile message that solicits calls to a pay-per-call
service contains all the relevant disclosures required by this Rule,
and that such disclosures are provided in the manner required for print
advertisements in Secs. 308.3 and 308.4(a)(2)(ii).
(d) Solicitations via beeper, pager, or similar device. The vendor
shall ensure that any beeper or pager message that solicits calls to a
pay-per-call service contains all the relevant disclosures required by
this Rule, and that such disclosures are provided in the manner
required for print advertisements in Secs. 308.3 and 308.4(a)(2)(ii).
(e) Referral to toll-free telephone numbers. The vendor is
prohibited from referring in advertisements to an 800, 888, or 877
number, or any other telephone number advertised as or widely
understood to be toll-free, if that number is used in a manner that
violates the prohibition concerning toll-free numbers set forth in
Sec. 308.13.
(f) Nothing in this section shall be construed to permit any
conduct or practice otherwise precluded or limited by regulations of
the Federal Communications Commission.
Sec. 308.8 Special rule for infrequent publications.
(a) The vendor that advertises a pay-per-call service in a
publication that meets the requirements set forth in Sec. 308.8(c) may
include in such advertisement, in lieu of the cost disclosures required
by Sec. 308.4(a), a clear and conspicuous disclosure that a call to the
advertised pay-per-call service may result in a substantial charge.
(b) The vendor that places an alphabetical listing in a publication
that meets the requirements set forth in Sec. 308.8(c) is not required
to make any of the disclosures required by Secs. 308.4(a) through (d)
in the alphabetical listing, provided that such listing does not
contain any information except the name, address, and telephone number
of the vendor.
(c) The publication referred to in Sec. 308.8(a) and (b) must be:
(1) Widely distributed;
(2) Printed annually or less frequently; and
(3) One that has an established policy of not publishing specific
prices in advertisements.
Sec. 308.9 Preamble message.
(a) The vendor shall include, in each pay-per-call message, an
introductory disclosure message (``preamble'') in the same language as
that principally used in the pay-per-call message, that clearly, in a
slow and deliberate manner and in a reasonably understandable volume:
(1) Identifies the name of the vendor and describes the service
being provided;
(2) Specifies the cost of the service as follows:
(i) If there is a flat fee for the call, the preamble shall state
the total cost of the call;
(ii) If the call is billed on a time-sensitive basis, the preamble
shall state the cost per minute and any minimum charges; if the length
of the program can be determined in advance, the preamble shall also
state the maximum charge that could be incurred if the caller listens
to the complete program;
(iii)(A) If the call is billed on a variable option rate basis, the
preamble shall state, in accordance with Sec. 308.9(a)(2)(i) and (ii),
the cost of the initial portion of the call, any minimum charges, and
the range of rates that may be charged depending on the options chosen
by the caller;
(B) If the call is billed on a variable time rate basis, the
preamble shall state, in accordance with Sec. 308.9(a)(2)(i) and (ii),
the cost of each different portion of the call;
(iv) Any other fees that will be charged for the service shall be
disclosed, as well as fees for any other pay-per-call service to which
the caller may be transferred;
(3) Informs the caller that charges for the call begin, and that to
avoid charges the call must be terminated, three (3) seconds after a
clearly discernible signal or tone indicating the end of the preamble;
(4) Informs the caller that anyone under the age of 18 must have
the permission of a parent or legal guardian in order to complete the
call; and
(5) Informs the caller, in the case of a pay-per-call service that
is not operated or expressly authorized by a Federal agency but that
provides information on a Federal program, or that uses a trade or
brand name or any other term that reasonably could be interpreted or
construed as implying any Federal government connection, approval, or
endorsement, that the pay-per-call service is not authorized, endorsed,
or approved by any Federal agency.
(b) No charge to caller for preamble message. The vendor is
prohibited from charging a caller any amount whatsoever for such a
service if the caller hangs up at any time prior to three (3) seconds
after the signal or tone indicating the end of the preamble described
in Sec. 308.9(a). However, the three-second delay, and the message
concerning such delay described in Sec. 308.9(a)(3), is not required if
the vendor offers the caller an affirmative means (such as pressing a
key on a telephone keypad) of indicating a decision to incur the
charges.
(c) Nominal cost calls. The preamble described in Sec. 308.9(a) is
not required when the entire cost of the pay-per-call service, whether
billed as a flat rate or on a time sensitive basis, is three (3)
dollars or less.
(d) Data service calls. The preamble described in Sec. 308.9(a) is
not required when the entire call consists of the non-verbal
transmission of information.
(e) Bypass mechanism. The vendor that offers to frequent callers or
regular customers to such services the option of
[[Page 58564]]
activating a bypass mechanism to avoid listening to the preamble during
subsequent calls shall not be deemed to be in violation of
Sec. 308.9(a), provided that any such bypass mechanism shall be
disabled for a period of no less than thirty (30) days immediately
after the institution of an increase in the price for the service or a
change in the nature of the service offered.
Sec. 308.10 Deceptive billing practices.
(a) Deceptive billing for pay-per-call services in violation of the
Rule. It is a deceptive act or practice and a violation of this Rule
for any vendor to collect or attempt to collect, directly or
indirectly:
(1) Charges for pay-per-call services in excess of the amount
described in the preamble for such pay-per-call services; or
(2) Charges for pay-per-call services that are provided in
violation of this Rule.
(b) Deceptive billing for time-based charges after disconnection by
the caller. It is a deceptive practice and a violation of this Rule for
the vendor to fail to stop the assessment of time-based pay-per-call
service charges immediately upon disconnection by the caller.
Sec. 308.11 Prohibition on services to children.
The vendor shall not direct pay-per-call services to children under
the age of 12, unless such service is a bona fide educational service.
The Commission shall consider the following criteria in determining
whether a pay-per-call service is directed to children under 12:
(a) Whether the pay-per-call service is advertised in the manner
set forth in Sec. 308.5(b) and (c); and
(b) Whether the pay-per-call service, regardless of when or where
it is advertised, is directed to children under 12, in light of its
subject matter, content, language, featured personality, characters,
tone, message, or the like.
Sec. 308.12 Prohibition concerning toll charges.
The vendor shall not offer a pay-per call service that would result
in any customer being assessed a charge for any local exchange
telephone service or interexchange telephone service or any service
that the Federal Communications Commission determines by rule--
(a) Is closely related to the provision of local exchange telephone
services or interexchange telephone services; and
(b) Is subject to billing dispute resolution procedures required by
Federal or State statute or regulation.
Sec. 308.13 Prohibitions concerning toll-free numbers.
Any person is prohibited from using an 800, 888, or 877 number, or
any other telephone number advertised as or widely understood to be
toll-free in a manner that would result in:
(a) Any customer being assessed, by virtue of a caller completing
the call, a charge for the call;
(b) The caller being connected to an access number for, or
otherwise transferred to, a pay-per-call service;
(c) Any customer being charged for information or entertainment
conveyed during the call, unless that person has entered into a
presubscription agreement, meeting the requirements of Sec. 308.2(j),
to be charged for the information or entertainment; or
(d) Any person being charged for a call back for the provision of
audio or data information services, entertainment services,
simultaneous voice conversation services, or products.
Sec. 308.14 Monthly or other recurring charges.
The vendor is prohibited from providing a pay-per-call service that
results in a monthly or other recurring charge, unless the vendor and
the person to be billed for the service have entered into a
presubscription agreement, meeting the requirements of Sec. 308.2(j),
that authorizes monthly or other recurring charges for that service.
Sec. 308.15 Refunds to customers.
The vendor shall be liable for refunds or credits to customers who
have been billed for pay-per-call services, and who have paid the
charges for such services, pursuant to pay-per-call services that have
been found to have violated any provision of this Rule or any other
Federal rule or law.
Sec. 308.16 Service bureau liability.
A service bureau shall be liable for violations of the Rule by any
vendor of pay-per-call services using its call processing facilities or
other services where the service bureau knew or should have known of
the violation.
Subpart C--Pay-Per-Call Services and Other Telephone-Billed
Purchases
Sec. 308.17 Express authorization required.
Any telephone-billed purchase, other than a pay-per-call purchase
that is blockable pursuant to 47 U.S.C. 228(c), requires the express
authorization of the person to be billed for the purchase. It is a
deceptive act or practice and a violation of this Rule for any vendor,
service bureau, or billing entity to collect or attempt to collect,
directly or indirectly, payment for such a telephone-billed purchase
where the vendor, service bureau, or billing entity knew or should have
known that the charge was not expressly authorized by the person from
whom payment is being sought.
Sec. 308.18 Disclosure requirements for billing statements.
The vendor shall ensure that any billing statement for its charges
shall:
(a) Display any charges for telephone-billed purchases in a portion
of the customer's bill that is identified as not being related to local
and long-distance telephone charges;
(b) For each telephone-billed purchase charge so displayed,
identify the type of service or product and the amount of the charge;
(c) For each pay-per-call purchase charge so displayed, accurately
specify the telephone number dialed by the caller, as well as the date,
time, and, for calls billed on a time-sensitive basis, the duration of
the call; and
(d) Display the local or toll-free telephone number where customers
can readily obtain answers to their questions and information on their
rights and obligations with regard to their telephone-billed purchases,
and can obtain the name and mailing address of the vendor.
Sec. 308.19 Access to information.
Any common carrier that provides telecommunication services to any
vendor or service bureau shall make available to the Commission, upon
written request, any records and financial information maintained by
such carrier relating to the arrangements (other than for the provision
of local exchange service) between such carrier and any vendor or
service bureau.
Sec. 308.20 Dispute resolution procedures.
(a) Initiation of billing review. To be guaranteed the protections
provided under Sec. 308.20, a customer shall initiate a billing review
with respect to a telephone-billed purchase by providing the billing
entity with notice of a billing error no later than sixty (60) days
after the billing entity transmitted the first billing statement that
contains the disputed charge. If the billing error is the reflection on
a billing statement of a telephone-billed purchase not provided to the
customer in accordance with the stated terms of the transaction, the
60-day period shall begin to run from the date the goods or services
are delivered or, if not delivered, should have been delivered, if such
date is later than the date the billing statement was transmitted. The
customer's billing error notice shall:
[[Page 58565]]
(1) Set forth or otherwise enable the billing entity to identify
the customer's name and the telephone number to which the charge was
billed;
(2) Indicate the customer's belief that the statement contains an
error, and the date and amount of such error; and
(3) Set forth the reasons for the customer's belief, to the extent
possible, that the statement contains an error.
(b) Disclosure of method of providing notice; presumption if oral
notice is permitted. A billing entity shall clearly and conspicuously
\2\ disclose on each billing statement or on other material
accompanying the billing statement:
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\2\ The standard for ``clear and conspicuous'' as used in this
Section shall be the standard enunciated by the Board of Governors
of the Federal Reserve System in its Official Staff Commentary on
Regulation Z, which requires simply that the disclosures be in a
reasonably understandable form. See 12 CFR part 226, Supplement I,
Comment 226.5(a)(1)-1.
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(1) The method (oral or written) by which the customer may provide
a billing error notice in the manner set forth in Sec. 308.20(a); \3\
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\3\ If oral notice is permitted, any customer who orally
communicates an allegation of a billing error to a billing entity
shall be presumed to have properly initiated a billing review in
accordance with the requirements of 308.20(a).
---------------------------------------------------------------------------
(2) The name of the billing entity designated to receive and
respond to billing errors;
(3) If written notice is required, the mailing address to which
notice should be sent;
(4) If oral notice is permitted, a local or toll-free telephone
number that is readily available for customers to submit a billing
error notice. The billing entity and the vendor may, by agreement,
select a single telephone number to satisfy the requirements of this
section as well as Sec. 308.18(d).
(c) Response to customer notice. A billing entity that receives
notice of a billing error as described in Sec. 308.20(a) shall:
(1) Send a written acknowledgment to the customer including a
statement that any disputed amount need not be paid pending
investigation of the billing error. This shall be done no later than
forty (40) days after receiving the notice, unless the action required
by Sec. 308.20(c)(2) is taken within such 40-day period; and
(2)(i) Correct any billing error and credit the customer's account
for any disputed amount and any related charges, and notify the
customer of the correction. The billing entity also shall disclose to
the customer that collection efforts may occur despite the credit, and
shall provide the names, mailing addresses, and business telephone
numbers of the vendor, service bureau, and providing carrier, as
applicable, that are involved in the telephone-billed purchase, or
provide the customer with a local or toll-free telephone number that
the customer may call to readily obtain this information directly.
However, the billing entity is not required to make the disclosure
concerning collection efforts if the vendor, its agent, or the
providing carrier, as applicable, will not collect or attempt to
collect the disputed charge; or
(ii) Conduct a reasonable investigation (including, where
appropriate, contacting the customer, vendor, service bureau, or
providing carrier), after which it shall transmit a written explanation
to the customer, setting forth the reasons why it has determined that
no billing error occurred, make any appropriate adjustments to the
customer's account, and provide copies of documentary evidence of the
customer's indebtedness. The reasonable investigation and written
explanation shall, in every case, address each potential billing error,
and shall address with particularity the relevant facts asserted by the
customer.\4\
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\4\ There shall be a rebuttable presumption that goods or
services were actually transmitted or delivered to the extent that a
vendor, service bureau, or providing carrier produces documents
prepared and maintained in the ordinary course of business showing
the date on, and the place to, which the goods or services were
transmitted or delivered. If a billing entity relies on this
presumption in responding to a billing error notice, it shall
provide the customer with the opportunity to rebut this presumption
with a declaration signed under penalty of perjury. The billing
entity shall not require this declaration to be notarized. In
enforcing violations of this Rule, the Commission may rebut this
presumption with evidence indicating that, in numerous instances,
the goods or services were not actually transmitted or delivered.
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(3) The action required by Sec. 308.20(c)(2) shall be taken no
later than sixty (60) days after receiving the notice of the billing
error and before taking any action to collect the disputed amount, or
any part thereof. After complying with Sec. 308.20(c)(2), if the
billing entity has determined that any disputed amount is in error, or
has for other reasons determined not to sustain the disputed charge,
the billing entity shall:
(i) Within thirty (30) days of such determination, notify the
appropriate providing carrier, vendor, or service bureau as applicable,
of its disposition of the customer's billing error and the reasons
therefor, and provide sufficient information for the appropriate entity
to identify the customer account at issue; and
(ii) Promptly notify the customer in writing of the time when
payment is due of any portion of the disputed amount determined not to
be in error and that failure to pay such amount may be reported to a
credit reporting agency or subject the customer to a collection action,
if that in fact may happen. The billing entity shall allow the longer
of ten (10) days or the number of days the customer is ordinarily
allowed (whether by custom, contract, or State law) to pay undisputed
amounts.
(d) Withdrawal of billing error notice. A billing entity need not
comply with the requirements of Sec. 308.20(c) if the customer has,
after giving notice of a billing error and before the expiration of the
time limits specified therein, agreed that the billing statement was
correct or agreed to withdraw voluntarily the billing error notice.
(e) Limitation on responsibility for billing error. After complying
with the provisions of Sec. 308.20(c), a billing entity has no further
responsibility under that section if the customer continues to make
substantially the same allegation with respect to a billing error.
(f) Customer's right to withhold disputed amount; limitation on
collection action. Once the customer has submitted notice of a billing
error to a billing entity, the customer need not pay, and no billing
entity, providing carrier, service bureau, or vendor may try to
collect, any portion of any required payment that the customer
reasonably believes is related to the disputed amount until the billing
entity receiving the notice has complied with the requirements of
Sec. 308.20(c) and until the customer has received the written
explanation and documentary evidence setting forth that no billing
error has occurred, pursuant to Sec. 308.20(c)(2)(ii) or
Sec. 308.20(n)(2). The billing entity, providing carrier, service
bureau, or vendor are not prohibited from taking any action to collect
any undisputed portion of the bill, or from reflecting a disputed
amount and related charges on a billing statement, provided that the
billing statement clearly states that payment of any disputed amount or
related charges is not required pending the billing entity's compliance
with Sec. 308.20(c).
(g) Prohibition on charges for initiating billing review. A billing
entity, providing carrier, service bureau, or vendor may not impose on
the customer any charge related to the billing review, including
charges for documentation or investigation.
(h) Restrictions on credit reporting--(1) Adverse credit reports
prohibited. Once the customer has submitted notice of a billing error
to a billing entity, a billing entity, providing carrier, service
bureau, vendor, or other agent may not report or threaten directly or
indirectly
[[Page 58566]]
to report adverse information to any person because of the customer's
withholding payment of the disputed amount or related charges, until
the billing entity has met the requirements of Sec. 308.20(c) and
allowed the customer as many days thereafter to make payment of any
amount determined not to be in error, as prescribed by
Sec. 308.20(c)(3)(ii).
(2) Reports on continuing disputes. If a billing entity receives
further notice from a customer within the time allowed for payment
under Sec. 308.20(h)(1) that any portion of the billing error is still
in dispute, a billing entity, providing carrier, vendor, or other agent
may not report to any person that the customer's account is delinquent
because of the customer's failure to pay that disputed amount unless
the billing entity, providing carrier, vendor, or other agent also
reports that the amount is in dispute and notifies the customer in
writing of the name and address of each person to whom the vendor,
billing entity, providing carrier, or other agent has reported the
account as delinquent.
(3) Reporting of dispute resolutions required. A billing entity,
providing carrier, vendor, or other agent shall report in writing any
subsequent resolution of any matter reported pursuant to
Sec. 308.20(h)(2) to all persons to whom such matter was initially
reported.
(i) Forfeiture of right to collect disputed amount. Any billing
entity, providing carrier, vendor, or other agent who fails to comply
with the requirements of Sec. 308.20(b), (c), (f), (g), or (h) forfeits
any right to collect from the customer the amount indicated by the
customer, under Sec. 308.20(a)(2), to be in error, and any late charges
or other related charges thereon, up to fifty (50) dollars per
transaction. Nothing in this Section shall be construed to limit the
liability of any billing entity, providing carrier, or other agent with
respect to:
(1) Providing full refunds or credits for charges that are in
error;
(2) Civil penalties for violations of Sec. 308.20; or
(3) Liability for violations of any other provision of this Rule.
(j) Prompt notification of returns and crediting of refunds. When a
vendor other than the billing entity accepts the return of property or
forgives a debt for services in connection with a telephone-billed
purchase, the vendor shall, within seven (7) business days from
accepting the return or forgiving the debt, either:
(1) Mail or deliver a cash refund directly to the customer's
address, and notify the appropriate billing entity that the customer
has been given a refund; or
(2) Transmit a credit statement to the billing entity through the
vendor's normal channels for billing telephone-billed purchases. The
billing entity shall, within seven (7) business days after receiving a
credit statement, credit the customer's account with the amount of the
refund.
(k) Right of customer to assert claims or defenses. Any billing
entity or providing carrier who seeks to collect charges from a
customer for a telephone-billed purchase that is the subject of a
dispute between the customer and the vendor shall be subject to all
claims (other than tort claims) and defenses arising out of the
transaction and relating to the failure to resolve the dispute that the
customer could assert against the vendor, if the customer has made a
good faith attempt to resolve the dispute with the vendor or providing
carrier (other than the billing entity). The billing entity or
providing carrier shall not be liable under this paragraph for any
amount greater than the amount billed to the customer for the purchase
(including any related charges).
(l) Retaliatory actions prohibited. A billing entity, providing
carrier, vendor, or other agent may not accelerate any part of the
customer's indebtedness or restrict or terminate the customer's access
to pay-per-call services solely because the customer has exercised in
good faith rights provided by this Section.
(m) Notice of billing error rights--(1) Billing notice. With each
billing statement that contains charges for a telephone-billed
purchase, a billing entity shall include a statement that sets forth
the procedure that a customer must follow to notify the billing entity
of a billing error. The statement shall also disclose:
(i) The customer's right to withhold payment of any disputed
amount;
(ii) That any action to collect any disputed amount will be
suspended, pending completion of the billing review; and
(iii) That, to be guaranteed the protections provided under the
Dispute Resolution Procedures of the Federal Trade Commission's Rule
Concerning Pay-Per-Call Services and Other Telephone-Billed Purchases,
a customer must initiate a billing review no later than sixty (60) days
after the billing entity transmitted the first billing statement that
contains a charge for such telephone-billed purchase.
(2) General disclosure requirements. (i) The disclosures required
by Sec. 308.20(m)(1) shall be made clearly and conspicuously and may be
made on a separate statement or on the customer's billing statement. If
any of the disclosures are provided on the back of the billing
statement, the billing entity shall include a reference to those
disclosures on the front of the statement.
(ii) At the billing entity's option, additional information or
explanations may be supplied with the disclosures required by
Sec. 308.20(m), but none shall be stated, utilized, or placed so as to
mislead or confuse the customer or contradict, obscure, or detract
attention from the information required to be disclosed. The
disclosures required by Sec. 308.20(m) shall appear separately and
above any other disclosures except those required under 47 CFR
64.1510(a)(2)(i).
(n) Multiple billing entities. (1) If a telephone-billed purchase
involves more than one billing entity, only one set of disclosures need
be given, and the billing entities shall agree among themselves which
billing entity must receive and respond to billing error notices.
(2) If any billing entity has forgiven a disputed charge for a
telephone-billed purchase, no other billing entity may attempt to
collect such charge without first conducting the reasonable
investigation and providing the customer with the written explanation
and documentary evidence as specified by Sec. 308.20(c)(2)(ii).
(3) If a billing entity other than the one designated to receive
and respond to billing errors receives notice of a billing error as
described in Sec. 308.20(a), that billing entity shall either:
(i) Promptly transmit to the customer the name, mailing address,
and business telephone number of the billing entity designated to
receive and respond to billing errors; or
(ii) Transmit the billing error notice within fifteen (15) days to
the billing entity designated to receive and respond to billing errors.
The time requirements in Sec. 308.20(c) shall not begin to run until
the billing entity designated to receive and respond to billing errors
receives notice of the billing error, either from the customer or from
the billing entity to whom the customer transmitted the notice.
(4) If a customer fails to pay for a telephone-billed purchase and
fails to initiate a billing review within the sixty (60) days provided
under Sec. 308.20(a), the billing entity that transmitted the first
billing statement containing the unpaid charge shall, no later no later
than one hundred and twenty (120) days after such statement was
transmitted, provide the vendor or service bureau with:
[[Page 58567]]
(i) Notice of the failure to pay;
(ii) The amount of the unpaid charge; and
(iii) Sufficient information to identify the customer's account.
(o) Multiple customers. If there is more than one customer involved
in a telephone-billed purchase, the disclosures may be made to any
customer who is primarily liable on the account.
(p) Deceptive statements to billing entities by vendors, service
bureaus, and providing carriers. It is a deceptive act or practice and
a violation of this Rule for any vendor, service bureau, or providing
carrier to provide false or misleading information to a billing entity
conducting an investigation of a telephone-billed purchase charge under
Sec. 308.20(c) or Sec. 308.20(n).
Subpart D--General Provisions
Sec. 308.21 Severability.
The provisions of this Rule are separate and severable from one
another. If any provision is stayed or determined to be invalid, it is
the Commission's intention that the remaining provisions shall continue
in effect.
Sec. 308.22 Actions by States.
(a) As provided by 15 U.S.C. 5712, whenever an attorney general of
any State has reason to believe that the interests of the residents of
that State have been or are being threatened or adversely affected
because any person has engaged or is engaging in a pattern or practice
which violates any section of this Rule relating to the provision of
pay-per-call services, other than Sec. 308.20, the State may bring a
civil action on behalf of its residents in an appropriate district
court to enjoin such pattern or practice, to enforce compliance with
this Rule (except for Sec. 308.20), or to obtain such further and other
relief as the court may deem appropriate.
(b) Any attorney general or other officer of a State authorized by
the State to bring an action under this Rule shall serve written notice
on the Commission, if feasible, prior to its initiating such action.
The notice shall be sent to the Office of the Director, Bureau of
Consumer Protection, Federal Trade Commission, Washington, DC 20580,
and shall include a copy of the complaint and any other pleadings to be
filed with the court. If prior notice is not feasible, the State shall
serve the Commission with the required notice immediately upon
instituting its action.
(c) Nothing contained in this section shall prohibit an authorized
State official from proceeding in State court on the basis of an
alleged violation of any general civil or criminal statute of such
State.
(d) Nothing contained in this section shall prevent the attorney
general from exercising the powers conferred on the attorney general by
the laws of such State to conduct investigations or to administer oaths
or affirmations or to compel the attendance of witnesses or the
production of documentary and other evidence.
(e) Whenever the Commission has instituted a civil action for
violation of any provision of this Rule, no State may, during the
pendency of such action instituted by the Commission, subsequently
institute a civil action against any defendant named in the
Commission's complaint for violation of any provision as alleged in the
Commission's complaint.
By direction of the Commission.
Donald S. Clark,
Secretary.
Note: The following appendix will not appear in the Code of
Federal Regulations.
Appendix--List of Commenters and Acronyms
------------------------------------------------------------------------
Acronym Commenter
------------------------------------------------------------------------
ALLIANCE.......................... Alliance of Young Families.
ALLIANCE-2........................ Supplemental comments (May 23, 1997)
of Alliance of Young Families.
AARP.............................. American Association of Retired
Persons.
AMERITECH......................... Ameritech.
ATN............................... Atlantic Tele-Network.
ATN-2............................. Supplemental comments (September 3,
1997) of ATN.
AT&T.............................. AT&T.
AT&T-2............................ Supplemental comments (August 8,
1997) of AT&T.
AUDIOTEX.......................... Audiotex Connection Inc.
BELL.............................. W. Marie Bell.
CINCINNATI........................ Cincinnati BBB.
CVS............................... Communications Venture Services,
Inc.
CU................................ Consumers Union.
DMA............................... Direct Marketing Association.
FLORIDA........................... Florida Public Service Commission.
GORDON............................ Honorable Bart Gordon, U.S. House of
Representatives.
GORDON-2.......................... Supplemental comments (September 4,
1997) of Honorable Bart Gordon.
HFT............................... HFT and LO-AD Communications Corp.
UK................................ Independent Committee for the
Supervision of Standards of
Telephone Information Services.
ISA............................... Interactive Services Association.
ITA............................... International Telemedia Association.
MCI............................... MCI Telecommunications Corporation.
NAAG.............................. National Association of Attorneys
General.
NCL............................... National Consumers League.
PILGRIM........................... Pilgrim Telephone, Inc.
PMAA.............................. Promotion Marketing Association of
America.
SNET.............................. Southern New England Telephone
Company.
SW................................ Southwestern Bell and Pacific Bell.
TPI............................... Tele-Publishing, Inc.
TSIA.............................. TeleServices Industry Association.
TSIA-2............................ Supplemental Comments (July 24,
1997) of TSIA.
TURJANICA......................... William L. Turjanica.
US WEST........................... U S West, Inc.
[[Page 58568]]
WISCONSIN......................... Wisconsin Department of Justice.
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[FR Doc. 98-28974 Filed 10-29-98; 845 am]
BILLING CODE 6750-01-P
