BILL ANALYSIS � 1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
ALEX PADILLA, CHAIR
SB 905 - Wolk Hearing Date: April 28, 2011
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As Amended: March 24, 2011 FISCAL B
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DESCRIPTION
Current law provides that a telephone bill may only contain
charges for products or services the purchase of which the
subscriber has authorized.
Current rules and orders of the California Public Utilities
Commission (CPUC) specify responsibilities of billing telephone
corporations and service providers relating to "cramming," which
occurs when an unauthorized charge is placed on a subscriber's
telephone bill.
Current law makes the service provider that generates a charge on
a customer bill responsible for resolving subscriber disputes
over unauthorized charges and requires that provider, within 30
days, to either verify that the subscriber authorized the charge
or resolve the billing dispute to the subscriber's satisfaction.
Current rules and orders of the CPUC provide that each billing
telephone corporation "bears ultimate responsibility" for all
items in subscribers' bills and prohibits a corporation from
deflecting subscriber complaints to third-party service providers
for resolution.
This bill would require a billing telephone corporation to
resolve complaints, billing inquiries, and refund requests from
its subscribers and prohibit the billing telephone corporation
from referring its subscribers to a service provider, billing
agent, or billing aggregator.
Current rules and orders of the CPUC require all billing
telephone corporations to offer customers the option to block all
third-party services free of charge and to provide written notice
to customers of this option at service initiation and at least
once a year.
This bill would require the CPUC to require all billing telephone
corporations to distribute bill inserts prepared by the CPUC with
information on how to dispute an unauthorized charge, a summary
of the responsibilities of a billing telephone corporation to
avoid including unauthorized charges on telephone bills, and any
other information the CPUC determines would be appropriate to
assist subscribers in avoiding unauthorized charges.
Current rules and orders of the CPUC require billing telephone
corporations to file with the CPUC quarterly reports with monthly
data of subscriber complaints regarding unauthorized charges for
services provided by third parties, with wireline service
providers required to report on actual complaints and wireless
service providers required to report on customer refunds issued.
This bill would require the CPUC to establish rules that require
each billing telephone corporation, billing agent, and service
provider to provide the CPUC monthly reports of subscriber
complaints and would require that the reports for all billing
telephone corporations be uniform.
This bill would require the CPUC to make a summary of monthly
complaints reported to the CPUC readily available on its Internet
Web site.
Current law requires the CPUC to commence a formal or informal
investigation if it receives more than 100 complaints regarding
unauthorized telephone charges in any 90-day period.
This bill would require the CPUC, on or before June 1 of each
year, to report to the Legislature on any investigation commenced
relating to unauthorized charges, and, on a quarterly basis, to
post on its Internet web site the number of investigations
commenced.
This bill would, whenever the incidence of meritorious subscriber
complaints of unauthorized billings exceeds 5 percent of customer
accounts, require the CPUC to impose a civil penalty, order a
billing telephone corporation to cease providing billing services
for that provider, and issue a press release about the penalty
and service termination; require the telephone corporation to
notify its subscribers of the name of the provider and
description of the unauthorized charges; and allow any
subscriber that made or makes a meritorious complaint about that
provider to terminate without financial penalty the remaining
term of a service contract with the underlying billing telephone
corporation.
Current rules and orders of the CPUC require all billing
telephone corporations that offer third party billing and
collection services to participate in meetings and workshops to
develop materials to educate consumers on how to avoid having
unauthorized charged placed on bills, including content for the
CalPhoneInfo web site and to discuss actions to inform consumers
of the ability to block third-party services and charges.
This bill would require the CPUC, in consultation with billing
telephone corporations, to develop materials, including
information placed on the CalPhoneInfo Internet Web site, to
educate consumers on how to avoid and detect unauthorized charges
on their telephone bills.
Current rules and orders of the CPUC provide that requirements
relating to "cramming" do not apply to "slamming," which occurs
when a subscriber's selection of a provider is changed without
authorization.
This bill would establish new responsibilities and procedures
relating to "cramming," defined to include an unauthorized charge
as a result of "slamming."
BACKGROUND
What is "Cramming"? - Cramming is the placement of charges on a
customer's telephone bill for services that the customer did not
order or authorize. Current law provides that a telephone bill
may only contain charges for products or services that a
subscriber has authorized. However, as telecommunications
technologies, services, and "apps" become more abundant and
complex, and marketing of these products through the internet and
text messages become more common, customers may find that their
phone bills contains charges for extra services they did not want
or did not authorize. Because of the time and inconvenience of
disputing charges, many customers often pay unauthorized charges.
Multiple parties are involved in providing telephone service and
bills to customers. A bill typically is issued to a customer by
the "billing telephone corporation," which is the provider of the
primary wireline or wireless service (i.e. AT&T or Frontier
landline, or T-Mobile or Verizon wireless). The bill includes
charges for this primary service from the billing telephone
corporation ( i.e. a monthly charge for wireline service or a
wireless calling plan), plus charges for other service provided
by the billing telephone corporation (i.e. caller ID, call
forwarding) or a third-party service provider (i.e. ring tones,
wall paper, weather reports, stock quotes, other "apps"). The
billing telephone corporation typically enters into contracts to
do billing for these third-party service providers, or with a
"billing aggregator," which is a middleman between multiple
third-party service providers and billing telephone corporations.
Charges collected from customers for the service are remitted to
the service provider, but the billing telephone corporation is
paid for doing the billing.
Service providers market their services to customers and then,
either directly or through a billing aggregator, notify the
billing telephone corporation to commence the service and include
the charge for the service on the customer's bill. Cramming
results when a charge appears on the bill and the customer
disputes that he or she actually ordered or authorized the
service.
Current Law - After statewide scandals of unauthorized telephone
billing, AB 2142 (Brown, 1998) enacted current law providing that
a telephone bill may only contain charges for products or
services that a subscriber has authorized. The law provides that
in the case of a dispute there is a rebuttable presumption that
an unverified charge was not authorized and the subscriber is not
responsible for that charge. It authorizes the CPUC to assess
penalties on a billing telephone corporation or other entity for
violating these provisions, order a billing telephone corporation
to terminate billing and collection services for any entity, and
directs the CPUC to require each billing telephone corporation,
billing agent and service provider to report subscriber
complaints and to initiate investigations. Pursuant to these
provisions, the CPUC adopted cramming rules in General Order 168,
which include requiring wireline carriers to report on cramming
complaints.
New CPUC Cramming Rules - On October 28, 2010, the CPUC adopted
new cramming rules designed to enhance customer protection and
account for rapid changes in the wireless telecommunications
marketplace (Decision 10-10-034). The new rules were the
culmination of a multi-year process that began in March 2006 and
involved several workshops, stakeholder negotiations, several
rounds of comments, and several proposed decisions. The CPUC
found that "unauthorized charges continue to vex California
telecommunications customers" and pointed to records from "deeply
frustrated customers showing unauthorized charges that reappear
on monthly bills despite extensive time and effort to dispute the
charges."
A key feature of the new rules is the requirement that all
billing telephone corporations offer customers the option to
block all third-party services free of charge and that they
provide written notice to customers of this option at service
initiation and at least once a year. The CPUC described this
requirement as "balancing our responsibilities to protect
consumers from unscrupulous service providers while at the same
time fostering an abundant mobile media marketplace in
California."
The new rules clearly specify that the billing telephone
corporation "bears ultimate responsibility for all items
presented in the subscriber's bill," requires them to resolve all
subscriber complaints within 30 days without deflecting them to
the service provider or billing agent and makes them responsible
for issuing refunds for unauthorized charges for up to one year
even if an unsuspecting customer paid the charges. The rules
require a billing telephone corporation, prior to providing
billing service, to conduct a reasonable inquiry of the service
provider's or billing agent's history of violations of consumer
protection laws and rules; to adopt protocols to prevent
submission of unauthorized charges; to monitor each service
providers' performance to detect unauthorized billings; and to
suspend or terminate billing services for entities that submit
unauthorized charges.
The new rules require billing telephone corporations to file with
the CPUC quarterly reports with monthly data of cramming
complaints for wireline carriers and refunds issued by wireless
carriers, as well as reports on suspension and termination of
billing services. The first quarterly reports are due April 30.
The CPUC reports that it has received seven letters from carriers
(wireline and wireless) notifying the CPUC that they have
terminated one or more of their contracts to provide billing for
third-party service providers.
COMMENTS
1. Author's Purpose . The author states that this bill is
intended to close loopholes in the CPUC's new "cramming"
rules and to "protect ratepayers from this pervasive and
growing threat to customers." The intent is to require
billing telephone corporations to report on complaints of
"first-party cramming," complaints from customers regarding
unauthorized charges for the billing telephone corporation's
own services, to make reporting requirements uniform so that
wireless carriers also have to report actual complaints
rather than customer refunds, to make billing telephone
corporations responsible for resolving all complaints
regarding services from any provider for whom they bill, and
to require increased enforcement and penalties for violation
of the rules.
2. Evidence of Cramming Problem . The pervasiveness of
cramming and the need to protect consumers is evident from
several indicators. The 2010 wireline carrier reports
submitted to the CPUC indicate that AT&T received more than
1,000 customer complaints on cramming each month, with a
high of 4,899 in March 2010, and that Verizon received more
than 4,000 complaints each month, with a high of 6,764 in
March 2010. Last year a federal court in California issued
an injunction against a cramming service provider and
chastised local exchange carriers for failing to protect
their customers from fraudulent charges. Also last year,
the Federal Communications Commission ordered Verizon to
repay customers nationwide more than $15 million in
unauthorized charges after customers complained about
mysterious $1.99 fees on their bills. The Federal Trade
Commission is convening a forum in May to examine how
government, businesses, and consumer protection
organizations can work together to protect consumers from
cramming.
3. Give New Rules a Chance ? Industry stakeholders argue
that this bill would undo the CPUC's new cramming rules that
were developed over several years with substantial
stakeholder input and that have been in effect for only a
few months. They claim that the bill seeks to add provisions
to the cramming rules that the CPUC rejected or to codify
detailed requirements that are better left to regulations
that can be modified more easily than legislation,
especially in response to the rapidly changing mobile
telecommunications marketplace. DRA, the sponsor of the
bill, and other consumer groups claim that this bill seeks
to close loopholes in the new rules, not undo them. They
claim that consumers need stronger protection from the
pervasive and growing threat of cramming, especially
consumers most vulnerable to cramming, such as the disabled,
elderly, and non-English speakers.
4. Changes to Reporting Requirements . This bill would
provide that "reporting requirements and standards for all
billing telephone corporations shall be uniform." The
author states that this is intended to achieve two
objectives. First, it would require wireless carriers to
report actual cramming complaints rather than refunds. The
new rules require wireline carriers to report complaints of
unauthorized charges and require wireless carriers to report
refunds made to subscribers as a proxy for complaints. The
wireless report is required to include, by service provider,
a description of service provided, total number of purchases
by subscribers, total dollar amount billed, total number of
refunds issued, total dollar amount of refunds. The CPUC
concluded that this refund data will be useful for further
investigation of bad actors and that it was a reasonable
balance of the requirement to protect consumers with the
"desire to not overly burden" wireless carriers with
tallying subscriber complaints of unauthorized charges.
Second, the author states that the "uniform" provision is
intended to require complaint reports on first-party
cramming. The CPUC specifically rejected this proposal,
requiring reports of cramming complaints for each service
provider but excluding the billing telephone corporation
from the definition of service provider. The CPUC found
that it has "comprehensive existing authority" over billing
telephone corporations to get complaint and other cramming
data upon request. In addition, all billing telephone
corporations are required to retain for at least two years
sufficient subscriber records to demonstrate compliance with
the cramming rules and to enable customer refunds of any
unauthorized charges, even if mistakenly paid.
The CPUC acknowledged in its October 2011 decision the
necessity of ongoing review of these reporting requirements:
"We recognize that further refinements to the reporting
requirements may be needed once we gain experience with the
data provided." Staff indicates that review of data from a
year of quarterly reports typically is necessary to discern
if the reported data is adequate to identify bad actors
against whom enforcement action is appropriate. The CPUC
decision adopting the rules also required the Communications
Division to report no later than January 1, 2013, on whether
the cramming rules sufficiently protect customers from
unauthorized charges for new types of service offerings by
wireless providers. If this bill is enacted and becomes
effective January 1, 2012, the CPUC would be required to
change reporting requirements, thereby prejudging whether
data obtained under the new rules - not even reported yet --
has enabled improved enforcement and customer protection.
If the need for more immediate change is necessary, DRA, or
any party, could seek these changes by filing a petition to
modify with the CPUC. Thus, the author and committee may
wish to consider amending the bill to delete the changes to
the reporting requirements and instead require the CPUC, no
later than March 1, 2012, to commence a new phase of the
cramming proceeding to review whether the reports required
under the new rules should be modified to better protect
consumers from cramming.
5. Timing of Reports . This bill would require the CPUC to
establish rules that require each billing telephone
corporation to file monthly reports of customer complaints
of unauthorized charges. The new cramming rules require
quarterly reports with monthly data. The author has stated
that it is not the intent to change the timing of the
reports as long as they contain monthly data and that she
would accept a technical amendment to delete from the bill
references to monthly reports.
6. Responsibility to Resolve Complaints . This bill would
require a billing telephone corporation to resolve
complaints, billing inquiries, and refund requests from its
subscribers and would prohibit a billing telephone
corporation from referring its subscribers to a service
provider, billing agent, or billing aggregator. The new
rules state that a billing telephone corporation "shall
resolve all subscriber complaints of unauthorized charges"
without deflecting the subscriber to the alleged service
provider. The rules require resolution within 30 days by
either verifying and advising the subscriber of
authorization of the disputed charge OR crediting the
disputed charge and any associated late charges or penalties
to the subscriber's bills AND offering the option of
blocking all future third party billings at no charge.
Thus, the bill is consistent with the new rules.
To achieve the author's intent of ensuring that only billing
telephone corporations resolve their subscribers'
complaints, the bill would delete from current law the
requirement that a billing telephone corporation include on
customer bills the "toll-free telephone number or other
no-cost means of contacting" the service provider that
generated the disputed charge. However, this bill fails to
make conforming changes to other provisions of existing law
that require third-party service providers to resolve
complaints. It is unclear if customers are served by not
being informed of service providers' contact information,
even if billing telephone corporations bear the ultimate
responsibility for resolving complaints. Nonetheless, in
order to achieve the intent of requiring only billing
telephone corporations to resolve all complaints, the author
and committee may wish to consider amending the bill to
delete all requirements in current law that require
third-party service providers to resolve customer cramming
complaints.
7. Trigger for Investigation and Penalties . Current law in
effect since 1998 requires the CPUC to commence a formal or
informal investigation if it receives more than 100
complaints regarding unauthorized telephone charges in any
90-day period. Current law also authorizes the CPUC to
assess fines and penalties for violation of its rules.
According to CPUC staff, the CPUC has not commenced any
formal investigation on cramming under these provisions and
has never assessed any penalty for cramming, although there
has been some informal staff investigation over the years.
Thus, the lack of enforcement against cramming, despite the
thousands wireline complains reported, may reflect CPUC
priorities rather than insufficient authority.
This bill seeks to make customer protection against cramming
more of a priority within the CPUC by establish a cramming
standard that will trigger automatic penalties and other
consequences. Aggressive enforcement against entities that
violate cramming rules is essential to protect customers.
Complaint reports alone are not sufficient if no action is
taken based on that information. Automatic penalties can be
effective to deter unlawful behavior. But the challenge is
crafting a reasonable and effective trigger.
Several questions arise regarding the trigger this bill
would impose: "whenever the incidence of meritorious
subscriber complaints of unauthorized billings exceeds 5
percent of the customer accounts that were billed on behalf
of a service provider or billing agent." What is a
"meritorious" complaint? Does this standard include only
complaints directed to the companies or also complaints
filed with the CPUC? Over what period of time is the 5
percent of customer accounts calculated? How do you track
the constantly changing customer base for each service?
Should this 5 percent threshold be instead of, or in
addition to, the existing standard of 100 complaints in 90
days?
Reports under the new cramming rules likely will inform the
CPUC as to what threshold should trigger an investigation
and cramming penalties. In addition to customer complaint
and refund information, the new rules require billing
telephone corporations to report on third party services for
which billing and collection services have been suspended or
terminated. Data on customer take rate of the free blocking
option also may be informative. Thus, the author and
committee may wish to consider amending the bill to delete
the 5 percent trigger and instead require the CPUC, no later
than March 1, 2012, to commence a new phase of the cramming
proceeding to establish a trigger for investigation of
cramming complaints and a penalty mechanism for cramming
violations.
8. Sunshine on Cramming . This bill would require the CPUC
to make an annual report to the Legislature on any cramming
investigations commenced pursuant to current law that
requires the CPUC to commence an informal or formal
investigation when it receives more than 100 complaints in
90 days. It also would require the CPUC to post on its web
site on a quarterly basis the number of cramming
investigations commenced. It would require the CPUC to post
on its web site a summary of cramming complaints reported to
the CPUC.
Had these requirements been in effect already, the lack of
any formal CPUC investigation on cramming since 1998 may
have led to more public attention to the issue of cramming.
Indeed, the report to the Legislature required by this bill
may be too narrow in focusing only on investigations
commenced. Similarly, the information required to be posted
on the CPUC web site should include all public information
on cramming investigations and enforcement that may help
consumers avoid being crammed, as long as information on a
particular investigation includes the outcome of that
investigation. Thus, the author and committee may wish to
consider amending the bill to require the CPUC to post
information on its web site and make an annual report to the
Legislature on cramming that includes, but is not limited
to, a summary of complaints and refunds reported, informal
and formal investigations and their outcomes, service
providers for which billing services were suspended or
terminated, penalties and fines imposed, the status of
customer education programs, and the effectiveness of
offering customers free blocking of third-party services.
9. Customer Education . The CPUC's new cramming rules require
all billing telephone corporations that offer third party
billing and collection services to participate in meetings
and workshops for the purpose of developing materials to
educate consumers on how to avoid having unauthorized
charged placed on bills, including developing content for
the CalPhoneInfo web site and to discuss actions to inform
consumers of the ability to block third-party services and
charges. The CPUC's decision requires the workshops to
occur no less than once each quarter in 2011 and no less
than annually thereafter. This bill would require the CPUC,
in consultation with billing telephone corporations, to
develop materials, including information placed on the
CalPhoneInfo Internet Web site, to educate consumers on how
to avoid and detect unauthorized charges on their telephone
bills. The bill would essentially codify the requirements
in the rules.
10. Cramming vs. Slamming . The CPUC's new cramming rules
that apply to "cramming" define "unauthorized charge" to
clarify that the rules do not apply to "slamming," charges
that relate to a change in a subscriber's selection of a
provider, such as a long distance carrier. This bill does
not define unauthorized charge to exclude slamming.
However, the author states that this bill is not intended to
apply to slamming. Thus, the author and committee may wish
to consider amending the bill to clarify that it does not
apply to slamming.
POSITIONS
Sponsor:
Division of Ratepayer Advocates
Support:
AARP
California Broadband Policy Network
Disability Rights Advocates
National Association of State Utility Consumer Advocates
National Consumer Law Center
The Greenlining Institute
The Utility Reform Network
Utility Consumers' Action Network
Oppose:
AT&T
California Association of Competitive Telecommunications
Companies (unless amended)
California Cable and Telecommunications Association
California Chamber of Commerce
California Communications Association
California Manufacturers and Technology Association
California's Independent Telecommunications Companies
CTIA-The Wireless Association
Frontier Communications
SureWest Communications
Verizon
Verizon Wireless
Jacqueline Kinney
SB 905 Analysis
Hearing Date: April 28, 2011