sweepstakes and prize offers as an example, there are certain disclosures that are required concerning the odds of winning and the values of the prizes and so on, which would, I think, be properly applicable to Internet promotions that involve prizes and sweepstakes.

There are also a host of prohibited practices, for instance, asking for a payment up-front to extend credit or a loan. Again, I think that such a prohibition for Internet and online promotions would make sense. A lot of the same types of scams that we see on the Internet are things that have been long-time abuses in telemarketing fraud and that the telemarketing fraud rule was promulgated to prevent and to give law enforcement agencies more tools to prosecute.

Senator COLLINS. Do you believe, Ms. Grant, that online providers such as AOL should also be doing more to educate consumers up-front about the possibility of fraud and to do more referrals to law enforcement? Is there an obligation that they should undertake, as well?

Ms. GRANT. I think there is. I think that most of the major Internet service providers are stepping up to the plate, as AOL is, and doing that through the educational messages that were demonstrated here today and reporting those problems when they hear about them to law enforcement agencies. There are, of course, a vast number of providers out there and not everybody is stepping up to the plate and helping to become part of a solution here.

Senator COLLINS. I appreciate very much the specific regulatory and law changes that you both included in your testimony. I am going to turn now to Senator Glenn for his questions.

Senator GLENN. Thank you very much. Senator Durbin could not be here this morning. He has done a lot of work in this area and is very interested in it. He is on Judiciary, and they are having some hearings or meetings on the tobacco situation, and so he could not be here this morning.

But his staff gave me something a moment ago that I was not even aware of. We now even have magazines out, Internet Shopper, that I had not seen before, and I was just leafing through it here. I was not reading a cowboy story or something up here. I was looking through this. [Laughter.]

And I am amazed at some of this stuff. I was not aware until this moment about the extent of some of this. We have 50 national companies and thousands of Internet service providers listed in here State by State. I count 65 in my own State of Ohio, and 50 national. Illinois has, I think, more than that. I did not count them, but probably 80 or so in Illinois, where Senator Durbin is from, of

course.

And I am going back to the office and click in on one of these. It says, "Click and win 1,000 roses, Valentine's Day coming up,

"and I will not give the rest of it. But this has gone beyond anything that I was even aware of, even with the briefings that I received for this hearing. I had not seen that particular magazine before and I am not recommending everybody go get a subscription. These things, you know, "Click and win 1,000 roses for Valentine's Day, detail and registration at,” and gives it. That is it, that is pretty seductive.

Ms. GRANT. That could be legitimate.

Senator GLENN. Could be.

Ms. GRANT. But I do not know as I would smell those roses yet. [Laughter.]

Senator GLENN. Could be. But if everybody who clicks in is expected to win 1,000 roses, they have a lot of roses going out. And Annie is going to like that once I get back to the office and click in on that. But we knew this was big stuff, and it is even bigger than I realized it was when the Chairman planned these hearings. Do we need stiffer civil and criminal penalties on these, Ms. Grant?

Ms. GRANT. I am always in favor of stiffer civil and criminal penalties. I think you need to hit white-collar crooks in the pocket.

Senator GLENN. But you have to get a balance here. Someplace you get into personal rights and constitutional rights and things like that. Are we at the point where we shouldn't go further, or are we way short of that point and need more legislation?

Ms. GRANT. Even in telemarketing, there are ongoing discussions about enhanced penalties for targeting certain vulnerable populations or for certain really egregious violations. And I certainly think, especially if we are talking about fraud, if we are talking about intentionally robbing people of their money, that those people ought to be put in jail.

Senator GLENN. Now, Ms. Gau, you look at it from an industry standpoint. Do you think we need more regulation? I know the industry has preferred to look at this that they can self-regulate, and yet the record has not been very good in that regard.

Ms. GAU. We do, in fact, believe that education and technology tools are the way to provide consumers with real-time information that can allow them to protect themselves when they go online.

When it comes to the role of the government, we believe the government does need to play a role, just as they do in the real world, the off-line world, in protecting consumers against fraud. And Congress should thus appropriate the necessary resources to the agencies that are charged with enforcing anti-fraud statutes.

We would agree that enhancing penalties would be a beneficial way to deter other criminals from conducting such activities, but we also believe that one needs to take a look at the juvenile issue, because a number of the scam artists that are perpetrating these frauds are, indeed, juveniles.

Senator GLENN. Well, OK. The Internet service providers have been termed as being the gatekeepers, and many consumers who use the Internet will form their opinions of the medium through the relations that they have with the ISP's. And I guess you folks have about as much control about what goes on the Internet as anyone, and yet the track record hasn't been all that good for the industry.

I don't know when you came with America Online, but it is discouraging to read that three of the largest ISP's, including America Online, were charged by and settled with the FTC for engaging in practices that I would look at as being similar to the consumer scams we are talking about here today.

Let me just run through them real quickly here:

Offering free trial subscriptions and not adequately disclosing that consumers would be billed as subscribers after the trial period unless they affirmatively canceled their membership. I wouldn't want to be treated that way, and I don't think you would either. In mail, years ago, some businesses would send a gift through the mail and then they billed you for it unless you paid the postage to return it. Well, we have corrected that through the years, and that is not done now.

Another one was debiting checking accounts before receiving authorization to do so. I don't want anybody debiting my checking account, and you wouldn't either, unless I gave specific permission to do it.

Failing to give consumers advance notice of the amounts to be transferred from their accounts.

Now, America Online was also cited for failing to adequately inform consumers that 15 seconds of connection time was added to each session. Well, I don't know how major these things are. I know that they were settled somehow with FTC. I don't know how they were settled or what the penalties were. And maybe this didn't happen on your watch. But when the leaders in the industry are being hauled up for things like this, we have got a major problem. What are we going to do about it?

Ms. GAU. Well, my first comment would be to say that we have, indeed, corrected those problems in that we are providing more disclosure on exactly the policies. And I think that that is very dissimilar from the fraud that is occurring on the Internet where it is strangers that approach you

Senator GLENN. Well, it is a different level. I will grant you that. Ms. GAU. You may recall that one of my safety tips was not to do business with a Web site or a service, even, if you don't know that company's background. And there, really, I do believe that, in fact, we were not adequately, perhaps, disclosing all these specifics to our consumers, but we have rectified that at this point.

Senator GLENN. Well, this showed a mind-set of what they were trying to do, maximize the money coming in and don't worry about whether the person was being treated fairly or not, it seems to me. Has that mind-set been changed now so that you are looking at it from the consumer's standpoint? You are a consumer, too.

Ms. GAU. Yes.

Senator GLENN. If you call and you get a service from somebody, you don't want to be treated like that. Has this all been corrected now? And how are we handling this?

Ms. GAU. Absolutely. This is being corrected, and it actually was one of the reasons for my appointment at America Online in late 1996. It was to create the position of integrity assurance in that

area

Senator GLENN. Very good.

Ms. GAU [continuing]. As part of the assurances to members that they are being looked out for and actually acting as somewhat of an ombudsman for members.

Senator GLENN. Well, I hope your being brought on has corrected all this, and I hope you are keeping them on a mind-set that looks at it from the consumer's standpoint. Because if this goes on like this, I can guarantee you we are going to have tough new regula

tions and tough new standards, and we will have to set up a big enforcement group, we will expand FTC, and we will do all sorts of things, whatever we have to do, because this is the wave of the future. This is not a little thing where we are going out on the Internet momentarily and all the Internet stuff will pass away in a year or two. We are just at the beginning of the Internet way of doing business and financial transactions.

So if the companies don't police themselves, they are going to get policed. I will tell you that right now, and you can carry that back. If the same people are in charge that let this stuff happen to begin with, then bringing you on as one person down below in the hierarchy isn't going to correct the problem, if the mind-set of everybody else is that they are out to skim what they can off the people. And that is from one of the biggest companies in the business.

Ms. GAU. I would again like to reiterate that those issues have been corrected, and, indeed, moving forward, they are situations that are not going to happen again.

Senator GLENN. Just those three or four things that I read off, were estimates ever made or did FTC prepare any estimates of what consumers lost as a result of these practices? Because as I understand it, no recompense was made, no payback was made to people that were dealt with unfairly. Is that correct?

Ms. GAU. My understanding is that, in fact, there were settlements made, but I don't know the specifics of them.

Senator GLENN. Did FTC make an estimate of that, do you know?

Ms. GAU. I don't know.

Senator GLENN. OK. We will ask and see if they have any estimates on that later when they testify.

Recently, America Online went to court to stop a junk mailer that threatened to publicize the addresses of all 5 million customers of American Online if your company did not allow it to send junk mail. That sounds like the worst kind of extortion, with the customers as the innocent victims. Luckily, it sounds as if you were successful in stopping the firm.

Could you tell us about that case and explain how the company was able to obtain the E-mail addresses? And I would like you also to address, once it had them, did it in turn sell them to others? Is this a scheme where one company sells to another, to another, to another, and so the fact that you have corrected it with one company, the horse is out of the barn, and it may have gone to half a dozen companies eventually? Is that correct?

Ms. GAU. Yes. The site collected the names of AOL members through harvesting techniques, as I explained previously.

Senator GLENN. Yes.

Ms. GAU. Not only do they pass them on to other spammers, but they also sell them via spam. In those cases, you will receive an E-mail, saying, "Want to grow your business? Send $25, and we will send you 5 million screen names you can send your promotion material to."

So, in fact, there is this constant continuing circle of spammers to spammers, and then also selling those lists to individual users as well.

Senator GLENN. Do all the ISP's have a policy or do most of them have a policy of selling their customer list to others?

Ms. GAU. I am not familiar, no.

Senator GLENN. How about America Online? Do they sell their customer list to others or rent them?

Ms. GAU. No.1

Senator GLENN. Either one?

Ms. GAU. Not anything providing the actual identity of the user in terms of their screen name on AOL.

Senator GLENN. I am not sure what you mean by that. Say I am going into business, could I contact America Online and could I get a list of people? Or how would I do that? Would I buy them?

Ms. GAU. No, you could not.

Senator GLENN. I could not. Could I rent them?

Ms. GAU. No, you could not.

Senator GLENN. From the accounts I have read, it sounds like an ISP already has the authority and technical capability to refuse to send out unsolicited E-mail and to enable its subscribers to block it. Is that correct?

Ms. GAU. That is correct.

Senator GLENN. What standards do you apply when deciding whether or not to send out unsolicited commercial E-mail? What is the criteria?

Ms. GAU. What is the criteria for AOL in deciding to send out? Senator GLENN. What standards do you apply when deciding whether or not to send out unsolicited commercial E-mail?

Ms. GAU. We apply the concept of a previous existing business relationship or, in fact, that if we have to send mail to our members, it is because we have a member relationship with them.

Senator GLENN. Well, what is your business relationship? What does a business relationship consist of, then?

Ms. GAU. I am sorry? Excuse me.

Senator GLENN. Define business relationship.

Ms. GAU. A pre-existing relationship in which either a transaction has occurred or there is an ongoing business relationship. Senator GLENN. Well, OK. So if anybody had come in online, if anybody had tapped in and used your service at all, then they could be the subject of having unsolicited E-mail sent to them in the future because you have had a business relationship with that person. Is that correct?

Ms. GAU. Perhaps I would like to make a clarification. What I am discussing right now is mail that AOL might send to its members. I am not discussing mail that comes from the Internet which is of a spam nature, and junk E-mail. Mail that AOL sends to its members consists of advisory notices about different things relating to the service, letters from Steve Case, the chairman and CEO, and materials of those sort that are meant to enhance the member experience, but they are, if you want to call them, unsolicited.

Senator GLENN. There have been some recent articles about AOL subscribers being the targets of E-mail scams to steal such things as account numbers, passwords, credit cards. In one scam to obtain

1 See Exhibit No. 7 for clarification of this answer which appears in the Appendix on page 358.