In the Matter of
Pay-Per-Call Rule Review
The Public Utility Commission of Texas (PUC of Texas) supports the efforts of the Federal Trade Commission (FTC) to prevent cramming and strengthen the 900 rule. Customers frequently assume their local telephone bill still contains only legitimate, regulated charges, but with recent changes in the marketplace unregulated and unauthorized charges now appear on local phone bills. The telephone bill is used as a collection vehicle, similar to a credit card but without the security, dispute resolution procedures, or authorization requirements that accompany credit card transactions. As a result, the local telephone bill is sometimes used to commit fraud.
The practice of cramming flourishes because there is little or no control over the charges that appear on the local phone bill. Although local phone companies now have the ability to place non-deniable charges (charges for which local phone service cannot be disconnected) on their bill, they have not changed their billing systems to differentiate clearly between regulated charges and non-deniable charges. Local telephone employees are also trained to collect the entire balance due and do not distinguish between deniable and non-deniable charges when dealing with customers. "Customers, therefore, are under the understandable impression that they must pay all of these charges to avoid losing their local telephone service."(1)
In Texas, cramming was the third highest customer complaint category reported to the PUC in fiscal year 1998. In fiscal year 1997, the PUC received 620 cramming complaints. In fiscal year 1998, there were 4,942 complaints, a 697 percent increase.
Cramming is a battle that must be fought on every front, so it is critical that the FTC not preempt state efforts, since state utility commissions are front-line experts in battling fraud in the telecommunications industry.
The PUC of Texas applauds the efforts of all agencies to combat cramming. Since November 1997 when it held an industry workshop on unauthorized billing, the PUC of Texas has used all means possible to curb this abuse. In August 1998, after conducting a focus group and public survey, the PUC of Texas proposed a rule to prevent and punish cramming. Texas commissioners will consider adoption of the proposed cramming rule in January 1999. The rule was carefully crafted so as not to conflict with the Federal Communications Commission (FCC) "Anti-Cramming Best Practices Guidelines". In its own rulemaking efforts, the PUC of Texas has attempted to be consistent with the proposals of other agencies with jurisdiction and encourages the FTC to do the same.
In its response to this notice of proposed rulemaking, the PUC of Texas will not address issues regarding benefits, burdens and improvements the rule would create for the industry. Consequently, the PUC of Texas will not comment on such issues as information necessary to collect debts, reporting times, and chargebacks. The PUC of Texas also will not address de minimis thresholds for pay-per-call services, rebuttable presumption of payment to a vendor, misrepresentation of cost, beepers and pagers, nominal cost calls, toll charges, Telephone Disclosure and Dispute Resolution Act (TDDRA) blocking, or fractional minute billing. However, the PUC of Texas generally supports the proposed FTC changes to these sections and agrees that Congress intended that the FTC be able to extend its power to protect customers from abusive practices under TDDRA through rule amendments. The PUC of Texas will not respond to questions about the Paperwork Reduction Act.
Pay-Per-Call Review Comments
The PUC of Texas supports adding new forms of billing errors to the current 900 rule to capture all currently known forms of unauthorized charges. Section 308.2(b)(10) which includes all telephone-billed purchases makes it possible to address future unauthorized charges. It might be useful to make this provision Section 308.2(b)(11) and renumber what is now (b) (11) as (b) (10).
Express authorization is necessary to prove that a disputed charge is a legitimate debt. The stipulation in Section 308.17 that express authorization must come from "the person to be billed" (i.e., the telephone service account holder) should eliminate the abuse by companies claiming that products or services were ordered by a customer simply because a call was placed from the customer's phone. The PUC of Texas supports all efforts to require that all charges be authorized by the person to be billed. However, the PUC of Texas urges the FTC to provide clear guidelines and establish within this rule the information necessary to provide valid express authorization.
This notice of proposed rulemaking discusses acceptable forms of express authorization. These items with specific details should be incorporated into the rule. For example, the PUC of Texas supports the use of a tape recording of the conversation with the person to be billed for the product or service as a form of valid express authorization. The recording also should contain the vendor's statement to the customer of the terms and costs of products or services and the customer's unequivocal acceptance of these terms and costs. The recording also should contain the same information the FCC recommends in its "Anti-Cramming Best Practices Guidelines" including:
A valid Personal Identification Number (PIN) should be issued to the customer only after this information has been provided.
The customer-specific proprietary information described above also should be required on written express authorization agreements which are signed by the person to be billed. To further minimize the possibility of deception, the statement of terms and conditions should be presented in a clear, concise, accurate, and conspicuous manner. The FTC may want to consider a minimum 12 point font size requirement.
The PUC of Texas also urges the FTC to reject negative option welcome packets as a valid form of express authorization. The PUC of Texas has experienced difficulty with this form of authorization in investigating slamming complaints. When a company claims that it mailed the welcome packet to a customer, there is no practical way of verifying with the postal service that this occurred. Junk mail is so prolific that even if a company legitimately mails the welcome packet, a customer may throw it away thinking it is junk mail and miss the opportunity to cancel the service.
Vendors' authorization costs can be recouped from customers who legitimately want these services or products. If customers did not order the products or services, the cost should be borne by the vendor. Most customers assume their local telephone bill contains only legitimate charges, so many do not realize they have been crammed until several months later. Getting credit for several months of charges is difficult and time-consuming for customers. Vendors often only credit charges for the month in which the charge was first noticed or for those months for which a customer can produce a bill. Customers must show proof that they were billed before they can be credited, but vendors do not have to show proof of authorization before they can bill. The PUC of Texas believes that the cost of providing proof of authorization is necessary to prevent cramming and other deceptive practices.
The proposed change to the definition of a presubscription agreement, like the definition of express authorization, would require a contractual agreement between the vendor and the person to be billed for the service. The PUC of Texas urges the FTC to provide clear guidelines and specify within this rule the information necessary to create a valid presubscription agreement because by entering into this agreement, customers lose the protections afforded to them by TDDRA. A valid presubscription agreement should mirror the requirements for express authorization. A valid presubscription agreement made before any service is provided, along with Section 308.13, Prohibitions concerning toll-free numbers, and the PIN requirements should prevent companies from billing customers for simply calling an 800 number.
A PIN is an excellent safeguard for customers who will lose their TDDRA protections because they enter into presubscription agreements. A PIN requirement should help prevent unauthorized persons accessing services and charges billed without valid authorization, since charges will not be billed to a customer until the PIN is delivered and used. The proposed rule would also provide an incentive to vendors to adequately authorize the PIN since the vendor is responsible for ensuring that only the person to be billed receives the PIN.
A point of clarification should be made on the distribution and purpose of PINs. Section 308.2 (i) defines a PIN as "a number or code unique to the individual that is not valid unless it (1) is requested by a consumer, (2) is provided exclusively to the consumer who will be billed for services provided pursuant to that presubscription agreement; and (3) has been delivered in writing, to the consumer who will be billed for the agreement, simultaneously with a clear and conspicuous disclosure of all material terms and conditions of the presubscription agreement." However, discussions of Section 308.17, Express authorization required, note that the use of a valid PIN by a caller constitutes express authorization. Since the use of a valid PIN pertains to conditions of presubscription agreements which do not have TDDRA protections and not to conditions requiring express authorization which are subject to the protections of TDDRA, PINs should be distributed only after meeting all conditions of a valid presubscription agreement.
It is important to emphasize that without a valid presubscription agreement, it is difficult to ensure that a PIN is valid. Requiring a vendor to obtain the name, address, billing number, and birth date of the customer to be billed will make enforcement efforts less difficult. It is harder for a customer to claim that no PIN was delivered and unauthorized charges were made if the vendor can produce customer-specific proprietary information.
Proposed Definitions for Service Bureau
The PUC of Texas is satisfied with the proposed definitions of service bureau. The definition captures all currently known participants in telephone-billed purchases. Additionally, the proposed definition of "any person, including a common carrier, who provides" the services listed in Section 308.2(n) makes it more difficult to qualify for exemption from liability and helps to hold all participants in customer abuses liable.
Billing Statement Disclosures
The PUC of Texas supports these requirements, particularly Section 308.18(d) which allows customers to obtain information necessary to contact the vendor by mail. Currently, some billing aggregators market their services by representing that they will not release vendor information to customers. Yet the vague descriptions of telephone-billed purchases may require that customers contact the vendor responsible for the charges in order to determine whether the charges were authorized. This section would require billing aggregators to release this information despite contract provisions. Since discussions indicate that the telephone number referenced in Section 308.18(d) will be that of the party ultimately responsible for addressing billing errors, this should be explicitly stated in the rule. The PUC of Texas believes that these measures will adequately assist the customer in reaching the party authorized to issue credits and refunds.
However, the FTC should note that many of the customers who complain to the PUC have a number to contact but cannot reach anyone at that number. In most cases, the customer then contacts the billing local phone company for assistance. For this reason, the PUC of Texas supports an amendment to Section 308.20(n) that would require that the billing local exchange carrier (LEC) be the party responsible for addressing billing error notices. Assigning the LEC to investigate billing error notices would ensure that the investigations were reasonable, since a party other than the vendor who is trying to sustain charges could determine whether supporting documentation legitimately shows customer authorization for those charges.
Liability of Service Bureau and Billing Entity
For enforcement purposes, the PUC of Texas supports strict liability rather than the limited liability standard of "knew or should have known." While the dispute resolution provision of proposed Section 308.20 should provide a remedy for the customer, enforcement action is still necessary to curtail abuses. States should not be limited by the liability standard of "knew or should have known" when imposing penalties.
Proving that someone "knew or should have known" that a problem existed is difficult. Furthermore, this standard may discourage parties from maintaining and reporting accurate information. If the complaint records kept by service bureaus and billing entities may be used to prove that these entities "knew or should have known" that a problem existed, there is no incentive to provide complete and accurate information. Strict liability is more likely to encourage billing entities and all parties to maintain records of authorizations.
Strict liability holds vendors, service bureaus, and billing entities to a higher standard of care for their customers. Even if they are aware of a problem, service bureaus and billing entities now have no incentive to discontinue billing for companies that defraud customers. Strict liability would provide an incentive to create contractual complaint thresholds and terminate billing and collection agreements to clients exceeding the thresholds. Strict liability for enforcement purposes would make the industry more accountable to customers and dramatically reduce cramming.
This rule would attempt to hold billing entities and service bureaus to limited liability if they try to collect a disputed debt or a debt which has not been investigated as required. Currently, billing entities such as the local phone company are primarily responsible for collection efforts. Local phone companies do not differentiate between deniable and non-deniable charges when they are collecting debts. They may be even less inclined to distinguish between disputed and non-disputed charges. In addition, a service bureau or billing entity may allege that it did not know that a charge was under dispute because it did not receive the billing error notice.
Another problem with the proposed rule is that Section 308.20 (k) would hold a billing entity or providing carrier liable for no more than the amount of the charge billed to the customer. A service bureau or billing entity could easily make the refund and collect that amount from the vendor. To prevent collections on disputed charges, the rule must require that the entity responsible for addressing billing error notices notify all parties to the transaction that a charge is under dispute.
The best way to increase industry accountability to customers is to subject all participating entities to potential liability and penalties. Otherwise, some providers can escape without consequences for their role in defrauding customers. If all industry participants are held liable for enforcement purposes, they would be more likely to incorporate safeguards into their billing and collection contracts to prevent unauthorized charges. At a November 1997 PUC of Texas industry workshop, LECs acknowledged that despite problems with service bureaus and vendors, they have rarely terminated billing and collection contracts because of the expense and fear of litigation. Even while a case is being litigated the LECs must continue to bill for the service bureau or vendor whose contract they are attempting to terminate. Only in recent months has Southwestern Bell Telephone Company notified billing and collection clients that it may terminate contracts if clients continue to exceed complaint thresholds.
The rule's requirement that a customer be provided a written explanation of the results of an investigation should make providers more responsive and accountable to customers. The requirement that the explanation "address with particularity" should forestall the collection of a debt without clear proof that the debt was owed. A written explanation would also inform the customer who may be pursued by debt collectors why such activities are occurring.
Evidence of Debt
The proposed rule would give customers an opportunity to rebut evidence that that the goods or services were delivered based on the ANI record. The PUC of Texas knows of no other evidence of debt besides ANI information that vendors are currently using. The experience here is that vendors retain no information other than the phone numbers of people who have called for their products or services. While the PUC of Texas cannot anticipate the cost to vendors associated with creating and maintaining other evidence beside ANI information, the PUC of Texas believes that there will always be costs necessary to do business in the telecommunications market. It does not seem unreasonable that pay-per-call providers should have sufficient financial resources to maintain records and resolve complaints.
Applicability to Third-party Debt Collectors
The PUC of Texas supports the proposed definition of "billing entity." There should be no exemptions for third-party debt collectors who are collecting for telephone-billed purchases. If an exemption were allowed, vendors who have no proof of customer authorization for charges could circumvent the protections of TDDRA by referring collection efforts to third-party collectors not subject to the TDDRA restriction on credit reporting. Many customers, especially the elderly, now pay unauthorized charges out of fear of damage to their credit record.
Significant portions of proposed Section 308.20 do not provide sufficient protection to customers. This section would require a customer to submit a notice of billing error within 60 days after the billing entity submits the bill to a customer in order to claim TDDRA protections. A June 1998 survey by the PUC of Texas of customers who had been crammed indicated 52 percent of the respondents had been crammed for four or more months before realizing it. Because recurring "crams" are usually less than $5 a month and similar to legitimate charges, it may be several months before customers notice that they have been crammed. Even knowledgeable customers may have difficulty detecting the problem quickly. A former PUC of Texas Commissioner was crammed for several years before she realized the billing error. Thus the 60-day limitation on customers is unrealistically restrictive. Discussions of this section indicate that LECs may remedy problems raised after the 60-day time limit has expired, but this does not provide much protection to customers. A one-year time period would be more reasonable.
A second point of concern is the divided responsibility for remedying unauthorized charges. Section 308.20 (n) (1) provides that if a purchase involves more than one billing entity those entities "shall agree among themselves which billing entity must receive and respond to billing error notices". For purposes of consistency, the rule should designate the single entity responsible for receiving and remedying all billing errors.
The PUC of Texas recommends that the LEC have this responsibility because the LEC should be responsible for all charges that appear on its telephone bill. This approach is consistent with the FCC Anti-Cramming Guidelines. There are several other advantages. First, it would reduce customer confusion since the LEC is likely to be the first point of contact for the customer in any case. As the entity sending out the bills, the LEC would likely be the entity responsible for disclosing the method of resolving billing error disputes. Section 308.20(n)(3) would require that every party involved in the billing process know who is designated to address billing error notices and forward notices to that entity. Since the LEC is usually the first point of contact for customer complaints, it should be the point of contact for billing error notices. A customer should have to contact only one known entity to dispute charges and should not have to contact the local phone company separately to advise of the dispute and to prevent collection efforts. Also, customers would be less fearful of losing local phone service because the single point of contact could ensure that local phone service is unaffected. The PUC of Texas urges the FTC to make the LEC the point of contact for all billing error notices for all of the above reasons.
Section 308.20(c), Response to customer notice, allows excessive time for a billing entity to respond to customers. The PUC of Texas allows utilities 30 days to investigate and respond to customer complaints on slamming. Most companies respond within 30 days or less. Companies who do not make the 30-day deadline usually respond within five to ten days after the deadline. The PUC of Texas sees no reason why an investigation of cramming should take longer than the investigation of slamming. In its proposed cramming rule, the PUC of Texas would require that refunds to customers be issued in 45 days. One respondent to the Texas cramming survey pointed out: "Local phone companies want their money from us in 30 days. They should be required to return our money to us in the same amount of time."
Actions by States
The portion of the rule that would require a state attorney general or other authorized officer of the state to go to court to enforce this rule unduly limits enforcement actions against cramming. The rule also should authorize state utility commissions, the experts in the telecommunications field, to create rules for administrative enforcement that follow FTC guidelines. Civil court action, which can be slow and costly, must not be the only means of punishing violators of this rule. Since state commissions have authority over the intrastate activities of LECs and regulate the billing and collection practices of these companies, this section of the rule must clearly and unequivocally state that the FTC rule does not preempt other or more stringent state efforts to prevent unauthorized charges from appearing on a telephone bill.
Public Utility Commission of Texas
January 12, 1999
Pat Wood, III
1. The National Regulatory Research Institute Quarterly Bulletin, "Cramming is the Last Straw: A Proposal to Prevent and Discourage the Use of the Local Telephone Bill to Commit Fraud," Volume 19, Number 3, Fall 1998, p. 259.