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Premium Rate Services (Ofcom Review)

3.28 pm

Sir George Young (North-West Hampshire) (Con): I make no apologies for again raising the abuse of premium rate services by unscrupulous operators who are fleecing our constituents. There cannot be a Member in the House who has not had constituents with unexplained telephone bills because of scams operated through computers, or through text messages on mobile phones about wholly fictitious prizes, or people ringing them at home asserting that they have won £5,000. Such scams require calls to be made to an expensive 090 number, which enrich the fraudster and impoverish our constituents. The related ring tone scam is particularly obnoxious because it is focused on children.

First, let me set the scene. What has happened—almost by default—is that a new currency has been invented. Traditionally, our telephone bill simply paid for telephone calls; now, it can pay for information and services. The revenue is shared between BT, NTL or Telewest on the one hand and the service provider on the other. Most of the services are entirely harmless— the weather, the traffic, news from "Big Brother" or "Who Wants to be a Millionaire?". Others—the so-called adult services—are slightly less so. A few, of which more in a moment, are simply frauds. The account for one's telephone, whether fixed line or mobile, has become a new form of cash, like a credit card, paying for services or content, but, crucially, without the associated safeguards.

Secondly, with technological advance and the breaking down of geographical barriers, more people outside the direct regulatory control of the UK can access our telephones and computers and use the new currency to siphon money out of our accounts. The rate of technological development and the ingenuity of the fraudsters mean that the target is always changing: they are now moving on from 090 numbers to international numbers and 0871 numbers, to which I shall come in a moment.

Thirdly, the complex structure of the industry—what it is pleased to call the value chain—means that the fraudsters get their revenue up front from the telephone companies. In some cases, that happens long before we know that a huge debit has been placed on our bill and even longer before the bill is to be paid, which makes enforcement difficult and compensation impossible.

Fourthly, the regulatory regime has lagged behind all those developments. ICSTIS—the Independent Committee for the Supervision of Standards of Telephone Information Services—was in meltdown last year. Although it is now on the path to recovery, complainants are told that they will not get a personal response to their complaint, but that they should look at the website adjudications for an outcome, which might come 12 months after the original complaint. There has been, and there remains, regulatory failure on a massive scale.

Finally, every number that is allocated to the fraudsters has been allocated by a public body and the money is collected for them principally by our reputable national telephone suppliers. Ofcom gives them the licence to print the money and BT collects it for them. One would have thought that with those two
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gatekeepers at each end of the operation—Ofcom on the one hand, and BT and the telecom companies on the other—we might have closed the scam down, but we have not.

Let me give specific examples of what is happening as we speak. A constituent writes:

I had one such message on my constituency office voice mail on Friday, telling me that I had won a cruise or £5,000. I, too, was invited to ring an 090 number, with no mention that it was a premium rate number. The use of automated dialling equipment to call home numbers is illegal, but that has not deterred the fraudsters. The Information Commissioner is meant to be dealing with the issue. No service provider has approval for such service, but it is happening.

There is also fraud based on mobiles. At the end of November, I got the following text message on my mobile:

it then gave my number, which I do not propose, for understandable reasons, to read into the record—

which was the day after I got the message. That was another scam. I did not call the number, but I did call ICSTIS, which was helpful. It said that this seemed to be

I then wrote to Ofcom to find out to whom it had given the number and what it proposed to do. Its letter, which is dated 22 December, started by saying:

There then followed a rather laid-back sentence:

That, of course, was after I had told it of specific consumer detriment, but perhaps MPs do not count as consumers.

The really depressing part of Ofcom's reply was its response to my question about to whom the number had been given. Ofcom wrote:

it then gave the number—

I was told that I could contact that company in New York on a US number, or in the UK—this was the final insult—on an 0871 number. So, if I wanted to ring the service provider to complain that he had ripped me off,
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I got ripped off again. There was, however, a morsel of good news. I was told that

I am told that the Commissioner for Information Society and Media is on the case.

Iberian Holdings Ltd probably paid nothing for that number because it offered to share the revenue with the next company up the chain. If someone is deceived into calling the number, Iberian Holdings Ltd might be paid within seven days; in due course, BT will collect the money from the customer, who might not have realised that he was making a very expensive call.

Given the changing nature of telecommunications, to which I referred, and the abuse, it is entirely inappropriate to issue 0871 numbers as though they were raffle tickets. The letter says that there is no requirement for any member of the chain to be a resident of, or be a company registered in, the United Kingdom.

There is also the ringtone scam. Two constituents e-mailed me to say:

They went on to say:

They provided details of the company, and concluded:

Another constituent with the same problem wrote:

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I hope that the Minister for Small Business and Enterprise, whom I welcome to the debate, accepts that there is a problem with some so-called service providers.

The Ofcom review makes it clear that some terminating communications providers, which are in the middle of the chain between the consumer and the service provider, are responsible for a disproportionate number of the abuses. More than half the fines levied by ICSTIS have been against only five of the 70 terminating operators, so why not stop giving them more numbers until they have cleaned up their act? This is what I have been told—I quote from the review—

That strikes me as plain common sense. It continues:

What on earth is going on? Everybody knows that scams are taking place. We know who is responsible, but the EC tells us that the people complicit in carrying out the scams cannot have their numbers taken away. The service providers are also cocking a snook at the regulators. From January to September last year, ICSTIS imposed fines totalling £2.03 million on 91 service providers. Half the fines were unpaid as of 17 September, and of the 17 largest fines—those over £50,000—14 were imposed on overseas service providers, on which we have the least hold.

Let us have a system of bonds, as I proposed during the last debate that I initiated on this subject. If companies had to put up bonds before they could offer services, they would have an incentive to behave, because if they did not, they would lose their bonds; in addition, we would have a means of compensating their customers. Disappointingly, the review says only that my proposal should receive "further consideration".

One of the review's recommendations relates to the revenue-sharing arrangement. It proposes that the so-called seven-day rule, to which I referred earlier, be replaced with a 30-day rule. That seems eminently sensible, as it would mean that the company at the end of the chain providing the so-called service would have to wait for 30 rather than seven days for its cash, thus increasing the likelihood that the scam would be discovered and the cash frozen. Is that rule now in operation and, if not, when might it be introduced?

I turn now to consumer redress. The review says:

However, the review is not very forthcoming about that. I know from my postbag that BT is still chasing people for money that, in my view, is not payable. Let me repeat the advice that I am giving my constituents: if they have taken their complaint to ICSTIS and ICSTIS has confirmed that the call is part of a scam, they should not pay. I stand behind any of my constituents who refuses to pay for calls that he has not made.
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Some of the changes mentioned in the review can be made only after a three-month consultation period. Can the Minister tell us whether that period has started and whether there is any way of reducing it so that we can implement the changes quickly?

To sum up, I would like to see faster and more effective action taken against the minority who abuse premium rate services: we need to cut off the numbers more quickly to freeze the flow of cash. There should be a proper compensation process, funded out of bonds. We should name and shame the guilty parties and stop them playing the game; provide better consumer information; reduce the 12-week period for investigating complaints; and increase the maximum fine, as proposed by the review.

I hope that, when he replies, the Minister will have some good news for all who have been victims of the scams that I have mentioned.

3.43 pm

The Parliamentary Under-Secretary of State for Trade and Industry (Nigel Griffiths) : I congratulate the right hon. Member for North-West Hampshire (Sir George Young) on securing the debate and highlighting a scandal of fraud and ineffective consumer protection under the present regime. The Minister for Energy and E-Commerce apologises for not being with us today, and has asked me to respond.

ICSTIS is charged with protecting consumers, regulating companies and tackling unethical business practices. It is responsible for regulating premium rate services. Last year, thanks to increasing numbers of consumer complaints and representations from many of our colleagues, ICSTIS became aware of the scam that the right hon. Member has highlighted and acted immediately in response to the problem: emergency action was taken to cancel the numbers as soon as ICSTIS suspected scam dialler activity. I am advised that ICSTIS can shut down a company—prevent use of its numbers—in two hours. Last year, it cancelled more than 90 numbers following consumer complaints.

A bar was imposed on B and B services LLC, which had installed a dialler in consumers' computers without them being aware of it. It was fined £100,000, and two other operators were also fined £100,000. Last year, ICSTIS levied 95 fines totalling more than £2 million. Regrettably, although B and B Services paid its fine, 33 operators failed to do so. Many are based abroad, but several are based in Britain, such as DCL (NW) Ltd in Liverpool, which has failed to pay one penny of its fine. KT Promotions in Cheltenham was fined £10,000, and according to the data I received this morning, it still remains unpaid. Another Liverpool company, Mr. J. Harrison t/a TIS UK, owes £3,000 in fines. Most disturbing of all is a case for which I require an explanation from ICSTIS and about which I will inform Ofcom: it concerns a Stockport-based range of companies, each of which has had a £10,000 fine levied on it. They include Dynamic Promotions, James Promotions, Quality Sign Services and Resource Promotions Mobile Services Network, and the common thread linking them, apart from not paying fines after having been guilty of malpractice, is that they are all based at Bromley House, Woodford road, Stockport, Cheshire. I shall ask ICSTIS whether it is able to ensure
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that anyone operating from that address is investigated, so that if they are connected, action will be taken to end the fraudulent activities for which fines have been levied.

The right hon. Member highlighted several areas in which he wants immediate action. He complains quite rightly that reputable telecom companies—the network companies—are profiteering from such scams by ensuring that they pay the supplier, the fraudster, too quickly. He called for a 30-day delay to allow consumers to see their bill, lodge their complaint and have a payment stopped so that no one loses out. That approach is wholeheartedly endorsed by the Government and forms one of the 18 recommendations that Ofcom made last year, which we hope will be implemented. In the meantime, I urge all telecom operators to take immediate action to renegotiate contracts with other companies, especially where they suspect there may be fraud, to ensure that the delay is built in and the fraud prepared for. It is wrong that they should profit, just as it is wrong that the fraudsters should get away with such bad and illegal practice. Telecom operators can take that step without delay in order to restore public confidence. There are many reputable companies operating in the telecommunications field: the sector legitimately contributes about £1 billion to the economy and it is wrong that a few rotten apples, exploiting consumers who, as the right hon. Member said, are unwittingly suckered into their schemes, should tarnish the whole industry.

It is important to recognise that the potential profits from such scams are huge. I therefore welcome Ofcom's second recommendation that the maximum fine that ICSTIS can levy for breaches of its code of practice be increased from £100,000 and that it be made commensurate with an estimate of the profits that have been made. I hope that Ofcom and ICSTIS will not delay the implementation of that and several other key recommendations.

I was disappointed to read that 12 weeks has been allowed for public consultation and responses from companies. I hope that reputable companies respond favourably and well within the 12 weeks. There is then a further 12 weeks for the European Commission to consider the recommendations. The Government will vigorously lobby the Commission to ensure that it fully understands the scale of the problem in Britain and that it co-operates with us in implementing Ofcom's recommendations to try to end the scandal.

In the meantime, we want Ofcom to use its emergency powers. I am advised that it can close a line down in two hours. It can act quickly if it gets a series of complaints about any number. It is to act as quickly as possible so that consumers—many of which are small businesses, for which I have ministerial responsibility—are not subject to further scams of this nature.

I hope soon to place in the Library a list of all the companies that have been fined by ICSTIS and details about whether they have paid their fines. I hope that
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appropriate action is taken without delay by Companies House, or whichever body is most appropriate, against the British-based companies that I mentioned.

Sir George Young : The Minister is being very helpful. Would he expect any numbers used by companies that have not paid their fines to be cancelled until such time as they have paid their fines?

Nigel Griffiths : I can give the House an assurance that the numbers are cancelled—generally, when a scam is detected. The fine is then levied and collected. I am assured that relatives and associates are also banned from offering any premium rate service in the UK and that Ofcom or ICSTIS is determined to name and shame the individuals who are involved in such companies. I hope that the House will be reassured by that information.

I want to be clear about this: public confidence in ICSTIS and Ofcom is undermined by such scams. We expect ICSTIS to continue to use its emergency powers and procedures to take enforcement action against those who abuse the PRS charging mechanism. In the meantime, we also want to emphasise consumer education and awareness, strongly to advise people to install anti-virus software on their computer to avoid the problem, and to warn the young, vulnerable consumers that the right hon. Member rightly highlighted against mobile phone scams. ICSTIS has recently improved its website to inform members of the public about rogue internet diallers. I urge people, as they are already connected, to go to the ICSTIS website and follow its advice.

I am aware that countries such as Germany have banned certain premium rate services. I stress that such services are valuable businesses in Britain and the vast majority of them are legitimate. It would be a terrible loss not just to business but to consumers as well if there were to be a reaction along German lines to such scams. I am assured that the proposals will help to eliminate scams by building in a delay and therefore preventing payment from being made too quickly. It is important to allow companies to retain that money and pass it back to the consumer, not on to the fraudster. I know this is perhaps not Ofcom's finest hour, but the right hon. Member and I will do all in our power to put a bit of spine in the regulation.

Sir George Young : It sounds as if the Minister is working himself up to his peroration. Will he say a word about the suggestion that bonds be put up before services are offered? They were considered in the review and a number of people are keen on them, but, as I said in my speech, the review's response was, "No, not yet, but we will look at it." Does he have a view on whether bonds would be a useful safeguard to prevent abuse, and to compensate consumers?

Nigel Griffiths : The issue is not whether bonds would be a safeguard, but rather the ramifications of introducing them. Of course they could be useful. They are being considered as part of the implementation of the Ofcom report and I am advised that they have not been ruled out. I shall draw the right hon. Member's comments and strong advocacy of bonds to Ofcom's attention. It is important that the range of issues is
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looked at quickly and efficiently and that consumers are not left vulnerable while that happens. That is why I am a strong advocate of the emergency procedures. We want to see them acted on, and we want to see the culprits' names published. I intend to put those procedures in the House of Commons Library as soon as ICSTIS is able to confirm all the details.

I am grateful to the right hon. Gentleman for raising the issue. I assure him that it is being addressed seriously. I shall ensure that he is kept well abreast of developments.

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