FTC looks to force billing company to pay $52 million for bogus charges

By Brendan Sasso - 05/08/12 10:39 AM ET

The Federal Trade Commission (FTC) has asked a federal court to force a third-party billing company to pay $52.6 million for allegedly placing unauthorized charges on consumer phone bills.

The practice of charging consumers for unwanted telephone services is known as "cramming," and is the target of potential regulations by the Federal Communications Commission (FCC) and Congress.

According to the FTC's court filing, Billing Services Group (BSG), the nation's largest third-party billing company, placed charges on nearly 1.2 million telephone lines on behalf of a "serial phone crammer," which was one of its clients. The charges were for "enhanced services," such as voice mail, identity theft protection, directory assistance, job skills training and video streaming. Consumers never asked for the services.

BSG continued billing customers despite "voluminous" complaints and the fact that few customers ever used the services they were charged for, the FTC said.

According to the government's motion, BSG billed over 250,000 consumers for a streaming video service, but only 23 movies were ever streamed — some of them by the cramming company's employees.

BSG placed a total of $70 million bogus charges and only refunded about $17.4 million, according to the FTC.

The agency said the bogus charges violated a 1999 settlement BSG agreed to with the government. That settlement barred BSG from placing unauthorized charges or misleading consumers.

In a statement, BSG said the FTC's motion represents "an incomplete and inaccurate representation of the facts and leaps to false conclusions."

The company said one of its former clients, Alternate Billing Corp, is responsible for the fraudulent charges.

"The bottom line is that the FTC is trying to blame BSG for the acts of another party," the billing company said.

BSG said it has "fought hard to stop crammers" and "has a strict protocol in place to thwart cramming."

The FCC adopted a rule last month to try to combat cramming.

The regulation requires landline telephone companies to notify consumers if they have the option to block third-party charges and strengthens rules requiring companies to list the charges separately on bills.

The commission also asked for comment on whether it should adopt a further regulation to require phone companies to receive consumer consent before placing third-party charges on their bills.

Sen. Jay Rockefeller (D-W.Va.) has urged phone companies to ban third-party charges and has suggested he could introduce legislation on the issue.

An investigation by Rockefeller's Senate Commerce Science and Transportation Committee last year found that phone companies had placed $10 billion in third-party charges on customers' landline phone bills over the last five years — and that a large percentage of those charges was unauthorized.

--Updated with a statement from BSG at 1:16 p.m.