Companies Agree to $13 Million Settlement with FTC

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Four phone entertainment companies charged by The Federal Trade Commission with unfair billing practices related to toll-free 800 numbers agreed to pay up to $13 million in consumer redress.


Under the terms of the agreement filed in U.S. District Court, up to $4 million will go towards re-payment of charges to consumers, and the remaining $9 million will be paid through forgiven phone charges to consumers.


The companies, Allstate Communications Inc., which was added after the initial complaint was filed, Interactive Audiotext Services Inc., American Billing and Collection Inc., and U.S. Interstate Distributing Inc., all based in Los Angeles, and several executives of the company were charged with improperly charging callers to 800 lines that provided adult entertainment.


The FTC accused the companies of failing to notify callers that, as consumers, they did not have a legal obligation to pay the charges for calls made to the companies' 800 numbers. In addition, the FTC alleges that callers to the 800 entertainment numbers were routed to international 011 or 500 numbers and not notified that the tolls for those lines could cost as much as $4 per minute. The commission also charged the defendants billed the calls to consumers credit cards without the proper authorization.


"The companies made arrangements with a host country that does not have a lot of phone traffic and got permission from the country to route calls through it," Cohen said. "The country gets long distance revenue and the defendants get a cut of it."


Since the sovereign country made the arrangements, the long distance carrier is not liable.


Cohen said the FTC did not keep records of how many calls were made to the entertainment lines, nor could he say how many people were being protected by the FTC.


The 900-Number-Rule, established in 1993, establishes requirements for advertising and operating pay-per-call services, requiring that a provider of such a service include cost and other disclosures in advertisements and in an introductory message at the outset of the call. The rule also establishes procedures for billing and collection of charges for pay-per-call services.


The rule prohibits any person from using an 800 number in a manner that would result in a charge to the caller unless the caller pays by credit card or has previously agreed to billed for the information.


In addition to the monetary settlement, the defendants agreed that they will notify consumers that they are not obligated to pay for calls that were not authorized or purchased. They will also either state the cost of the call when referring consumers to international calls, or, state the name of the country the call is being routed through so consumers can check the call price with their long distance company. In addition, the defendants agreed to include a message at the outset of the call, telling callers when the charges begin, and giving them an opportunity to hang up before incurring charges.


The reason this matter is in the purview of the FTC and not the Federal Communications Commission is because this not a communications matter it is a question of tariffs which is in the FTC's jurisdiction.


The companies will have a year from the time that a federal judge signs the agreement. There has been no date set as of press time.


Lewis Rose, the attorney representing the defendants, did not return calls as of press time.
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