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DAVID LAZARUS

Bogus fees land on phone bills too easily

Companies rarely check whether charges have been authorized until a customer complains. Additional protections, such as a PIN, are needed to keep sneaky third-party vendors at bay.

August 12, 2009|DAVID LAZARUS

California law states that "a telephone bill may only contain charges for products or services, the purchase of which the subscriber has authorized."

So why do so many seemingly unauthorized fees appear on people's phone bills?

Fontana resident Howard Cohen is among the thousands of people a year who, state officials say, report questionable charges on their phone bills.

In May, his AT&T bill included a $14.95 charge from a company called ILD Telecommunications. He didn't recognize the name or know what the charge was for.

Cohen, 65, said he immediately called AT&T and was told by a service rep that it wasn't the phone company's problem. He'd have to take it up with ILD.

"I was very upset," Cohen recalled. "They do the billing. They should be responsible."

Still, he called ILD, which turned out to be an "aggregator" that handles billing for hundreds of third-party vendors, and the company readily agreed to waive the $14.95 charge, no questions asked.

Yet ILD appeared again in Cohen's most recent AT&T bill, charging $12.13 for a directory-assistance service. And another aggregator, PaymentOne Corp., was also there with a $14.95 charge for a credit-monitoring service.

Cohen's best guess is that his wife clicked on some pop-up windows while online and inadvertently signed up for services she had no intention of using.

He said he called AT&T again and once again was told to take it up with the vendors. He called ILD and the company said it would waive the charge. PaymentOne said it would too.

They apparently didn't. Cohen said he checked his AT&T account online and found that ILD had removed only a portion of the $12.13 charge. PaymentOne hadn't done anything.

So he called AT&T yet again, and this time he encountered a service rep who agreed that what was happening to Cohen was unfair. The rep said he would waive the charges.

But Cohen is still steaming.

"They made me jump through too many hoops," he said. "It's their bill. They're supposed to be responsible for everything."

In its 2006 telecommunications "bill of rights," the California Public Utilities Commission specified that "telephone companies may bill subscribers only for authorized charges."

The onus, it would seem, is on the phone company to ensure that a charge is authorized.

"That's how I read it," said Chris Witteman, an attorney with the regulatory agency. "But it's unclear. It's never been tested."

In fact, the honor system typically prevails among phone companies, third-party vendors and the billing services that act as middlemen in processing transactions.

AT&T and other phone companies rarely check whether charges on their bills have been authorized by consumers until a complaint is lodged. They receive millions of charges annually from aggregators.

The aggregators say they strive to ensure that the vendors they represent are honest and above board. But they usually have to take the vendors' word for it that a consumer authorized a transaction.

"We bill over 120 million transactions a year," said Ilona Olayan, marketing director for ILD Telecommunications in Florida. "We couldn't check all of them on an individual basis."

Rachelle Chong, a PUC member who frequently takes the lead on California telecom issues, acknowledged that vendors using questionable authorization methods "is an area of concern" for regulators.

But she insisted that phone companies are ultimately responsible for what's in their bills.

Chong likened the companies' position to that of credit card issuers: A bank can't know that a purchase was fraudulent until a customer brings it to light.

The difference, however, is that banks don't operate under state rules requiring them to pass along only authorized charges.

Gordon Diamond, an AT&T spokesman, said the company takes a variety of steps to protect customers from bogus charges. But he acknowledged that AT&T relies on the vendors themselves to determine that all transactions are authorized.

"An end user's relationship with a third-party provider is separate from the end user's relationship with AT&T," he said. "AT&T has no access to the third party's customer records or to its verification data."

Still, Diamond said AT&T won't hesitate to waive a questionable fee if an investigation shows that the fee wasn't authorized -- which may indeed be the case but doesn't reflect Cohen's experience.

Phone companies don't disclose details of their contracts with business partners. But a PUC insider said regulators believe the companies receive a portion of the amount billed by third parties and thus have an incentive to include such charges on their bills.

One way to safeguard consumers from unauthorized charges would be to have phone companies issue ID numbers to customers, similar to the four-digit PIN you use at the ATM.

That telecom PIN would have to be given to a third-party vendor before any charge could be authorized for your phone bill. No PIN, no authorization.

Chong said the PUC considered such an idea while cooking up its telecom bill of rights several years ago. But she said the commissioners decided a PIN would be "too onerous for consumers."

I disagree. The methods many vendors use to ensnare consumers are so sneaky, additional protections are needed to keep the wolves at bay.

A PIN would do this and would allow phone companies to meet their statutory obligation of ensuring that the charges in their bills are all authorized.

As it stands, the companies have no way of no knowing that a customer has been hoodwinked until the customer finds out.

And even then, they often make it unnecessarily difficult for the customer to resolve the situation.

"If someone calls up with a complaint about a charge, the phone company needs to do something right away," Cohen said. "That's how it's supposed to be."

It is. And our regulators should know better.

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David Lazarus' column runs Wednesdays and Sundays. Send your tips or feedback to david.lazarus@latimes.com.

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