Web Crammers Accused of Fraud

Epixtar • FTC Sets Up Hotline • Accused of Fraud • National Online Complaints

November 3, 2003
The Federal Trade Commission has charged a purported Web cramming operation with billing small business consumers for “free” Internet services, without full disclosure of the negative option features and without consumers’ authorization, and even when some consumers said that they were not interested in the offer.

The FTC alleges that Epixtar Corporation and its subsidiaries violated federal law by deceptively marketing a free trial of Internet services and then, unbeknownst to consumers, unfairly billing consumers’ telephone accounts without their express informed consent.

In filing its complaint, the FTC is seeking an injunction and consumer redress, including rescission of contracts and refunds. A federal district court has entered a temporary restraining order barring the defendants from making further misrepresentations and freezing their assets.

The FTC’s complaint names Epixtar Corp.; Liberty Online Services, Inc.; National Online Services, Inc.; B2B Advantage, Inc., formerly known as SBA Online; and William Douglas Rhodes, President of Epixtar, Liberty, National, and SBA Online, all based in Miami, Florida.

The FTC alleges that, since December 2001, the defendants have used telemarketing to market Internet services, including Internet access, Web site design, and other services, to small businesses and non-profit organizations – such as churches or community service organizations – nationwide.

The FTC’s complaint states that defendants typically claim that they are calling from an actual business telephone directory and that they are simply calling to update the consumer’s business information, leading consumers to believe they have a pre-existing relationship with the defendants. According to the FTC’s complaint, defendants claim in their sales pitch that consumers can try SBA Online’s services on a free trial basis for 30 days, with no obligation to pay for the service, and tell consumers that they can cancel the free services at any time. The defendants also allegedly impose the 30-day trial of their products on consumers without letting consumers refuse the offer.

The FTC alleges that the defendants violated the FTC Act by failing to disclose adequately: that consumers must cancel SBA Online’s Internet services before the end of the free trial period or their business will automatically be billed $29.95 plus tax on a monthly basis on their telephone bill; the prescribed manner in which the consumer must cancel the trial service, and other specific steps the consumer must take to avoid the charges; the inception and expiration dates of the trial service; and the date that the defendants will submit the charges for payment.

The FTC also charges that SBA Online unfairly billed consumers without their express informed consent in violation of the FTC Act.

The FTC’s complaint alleges that defendants charged some consumers who stated they were not interested in the service and ended the sales call. In other instances, the defendants allegedly asked consumers to review a packet of written information and then contact them if they were interested in the offer. When consumers agreed simply to review the information without being billed, the defendants allegedly never sent it, but began billing consumers.

The FTC alleges that some consumers pay SBA Online’s fee for months without realizing it, and that they often experience great difficulty in contacting the defendants to cancel the services and obtain a refund. The FTC’s complaint states that, in numerous instances, the defendants agree to cancel the services but refuse to refund consumers’ money, and in other instances, the defendants agree only to make partial refunds to consumers.

The FTC warns small businesses that some unscrupulous companies, claiming to provide free web design and hosting services, are billing small businesses for services that were never authorized and have little value. The bogus charges usually appear on businesses' phone bills – an illegal practice known as “cramming” – or on fraudulent invoices.

The FTC offers some suggestions to help protect small businesses from Web service scams and other unordered services:

• Know your rights. If you receive bills for services you did not order, do not pay. The law allows you to treat unordered services as a gift.
• Review your phone bills as soon as they arrive. Be on the lookout for charges for services you have not ordered or authorized. If you find an error on your bill, follow the instructions on your statement. Assign purchasing to designated staff and document all your purchases.
• Train your staff in how to respond to telemarketers. Advise employees who are not authorized to order services to say, “I am not authorized to place orders. If you want to offer or sell us something, you must speak to ______________.”
• Buy from people you know and trust. Authorized employees should be skeptical of “cold” or unsolicited calls and feel comfortable saying “no” to high pressure sales tactics.

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