BILL ANALYSIS � 1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
ALEX PADILLA, CHAIR
SB 905 - Wolk Hearing Date: May 3, 2011 S
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. Bill Held Over . On April 28, this bill was heard by
this committee, and the author indicated that she would
amend the bill by deleting its current provisions and
instead insert language in recommended amendments in
comments No. 4, No. 7, and No. 8. Witnesses testifying in
opposition to the bill asked if the author would instead
consider amending the bill with new provisions that would
require the CPUC to report to the Legislature by January 1,
2013, expanding on the report that the CPUC required the
Communications Division to make, as described in Comment
No. 4. The author agreed to meet with stakeholders to
discuss possible alternative amendments. The author
reported that no language was agreed to prior to release of
this analysis.
2. 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.
3. 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.
4. 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.
5. 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.
6. 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.
7. 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.
8. 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.
9. 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.
10. 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.
11. 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
Oppose (Continued):
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: May 3, 2011