Part 4: Rules Governing Slamming Complaints

Background

Slamming, the unauthorized change of a telephone customer's preferred carrier, has been a problem for consumers ever since it became possible for telephone customers to choose among competing providers. It has been equally vexing for the state and federal regulators responsible for protecting them. The Commission last year completed a consolidated investigation and rulemaking proceeding⁵² into slamming and, after workshops and several rounds of comments, issued D.00-03-020, Final Opinion on Rules Designed to Deter Slamming, Cramming, and Sliding.⁵³ D.00-03-020 addressed certain limited aspects of slamming including record keeping, letters of agency, third-party verification, and removing the economic incentive for slamming. On the latter topic, our staff had recommended that we require carriers to refund all charges paid by customers who allege that they were slammed. In response, we observed,

In a recent proceeding, the FCC has adopted a rule similar to that proposed by Staff. On December 17, 1998, the FCC adopted its Second Report and Order and Further Notice of Proposed Rulemaking in its docket, CC No. 94-129, which is addressing unauthorized changes to consumers' long distance carriers. The FCC decision addresses many of the issues that have been presented in this proceeding in addition to removing the economic incentive for slamming.

On May 18, 1999, the United States Court of Appeals for the District of Columbia Circuit issued a decision partially staying the FCC slamming rules. Those rules remain pending before the court.

On June 27, 2000 the court lifted its partial stay, and the FCC subsequently issued its amended rules for handling preferred carrier changes, including remedies for slamming. We refer here to those rules⁵⁴ as the FCC slamming rules, or simply the federal rules.

In addition to slamming allegations, the FCC rules cover carrier change order verification, letters of agency for changing carriers, preferred carrier freezes, and state administration of the unauthorized carrier change rules and remedies. It is this last topic we address here and in our new G.O. ___, Part 4, rules.

The FCC slamming rules give each state the option to act as the adjudicator of slamming complaints, both interstate and intrastate, and California has opted to do so.⁵⁵ Under 47 CFR 64.1110, each state which opts to take on that responsibility must notify the FCC of the procedures it will use to adjudicate individual slamming complaints. Our staff prepared an initial set of proposed slamming complaint handling rules late last year, and in January, 2001, the assigned Commissioner issued a ruling in this proceeding sending them out for comments and reply comments. After considering the parties' input and making modifications where warranted, the Commission is now adopting them as the Rules Governing Slamming Complaints included in G.O. ___, Part 4.

The FCC Slamming Rules

The FCC prefers that subscribers who believe they have been slammed go first to the state commissions in states that have elected to handle slamming complaints. However, subscribers also have the option of filing a complaint with the FCC for slamming involving interstate service. The FCC will use the federal rules for complaints coming to them, and state commissions handling slamming complaints may administer the FCC rules using their own procedures. Because the FCC rules are complex, we set forth here only a simplified overview to help understand their major elements.

When a subscriber first reports having been slammed, the alleged unauthorized carrier must remove any unpaid charges for the first 30 days from the bill. If the carrier contests the allegation and loses after the subscriber files a complaint, it must also remit to the authorized carrier 150% of any payments it has received from the subscriber. From that amount, the authorized carrier reimburses the subscriber 50% and retains the remaining 100%. The subscriber may also ask the authorized carrier to recalculate the bill using its own rates and attempt to recover from the alleged slammer on the subscriber's behalf any incremental amount in excess of the 50%. Any unpaid subscriber charges beyond the 30-day absolution period are to be recalculated and paid to the authorized carrier at the authorized carrier's rates.

If the carrier decides to contest the allegation, it must still reverse all unpaid charges for the first 30 days and inform the customer of his or her right to file a complaint and the procedures for filing. If the customer fails to file a complaint within 30 days after both the notice has been given and the charges reversed, the carrier may re-bill the customer.

The alleged unauthorized carrier may also decide not to contest the allegation, and instead grant the subscriber what the subscriber would have obtained had he or she filed a complaint and prevailed (i.e., absolution for unpaid charges during the first 30 days, and 50% reimbursement or re-billing at the preferred carrier's rate for the period beyond 30 days and charges the subscriber has already paid). In that case, the subscriber need not file a complaint to be made whole unless he or she is dissatisfied with the outcome.

If the subscriber does file a complaint, the agency⁵⁶ will notify the allegedly unauthorized carrier and require it to remove all unpaid charges for the first 30 days if it has not already done so. The allegedly unauthorized carrier then has 30 days to provide clear and convincing evidence that the carrier switch was valid and properly authorized. The agency will make a determination based on evidence submitted by the carrier and the subscriber, provided that, if the carrier fails to respond or to furnish proof of verification, it will be presumed to have slammed the subscriber.

The CPUC Slamming Rules

The Rules Governing Slamming Complaints we adopt today closely parallel the federal slamming rules in most respects for slams involving intraLATA, interLATA and interstate toll carriers. We have retained our current slamming rule for unauthorized changes of subscribers' local exchange carriers because it offers a greater level of protection. The full text of our new rules may be found in Part 4 of new G.O. ___, Appendix B to this order, so we will limit this discussion to highlighting some of the key elements and how they compare with the FCC slamming rules.

For IntraLATA, InterLATA and Interstate Toll Carriers

Both the FCC rules and our procedures allow the unauthorized carrier to either accept or challenge a slamming charge, and grant the subscriber the same 30-day complaint filing window during which the unauthorized carrier may not re-bill, a 30-day absolution period for unpaid charges, and partial refunds or credits for other charges.

Our rules require the executing carrier to return the subscriber to his or her preferred carrier at the unauthorized carrier's expense in every instance of alleged slamming, and to refund or credit back to the subscriber any earlier charge to make the allegedly unauthorized switch. The FCC rules are silent on when and how the subscriber is returned to the authorized carrier, although they do require that once the FCC has made a determination that a slam has occurred, the unauthorized carrier must reimburse the subscriber for any charge to switch back to the authorized carrier.

When the subscriber is switched back to his or her preferred carrier, both sets of rules require the preferred carrier to re-enroll the subscriber in his or her previous calling plan.

When the alleged unauthorized carrier challenges the allegation and the subscriber then files an informal complaint, the matter will be decided by our Consumer Affairs Branch. If CAB decides against the subscriber, the subscriber may appeal to the Consumer Affairs Manager, and may file a formal complaint at any time.

When the subscriber has already paid charges to the alleged unauthorized carrier, our rules require the unauthorized carrier to refund or credit 50% of the amount paid⁵⁷ to the subscriber within 3 days. An unauthorized carrier which challenges an allegation and eventually loses after the subscriber files a complaint is in addition liable to the authorized carrier for 100% of the charges the subscriber has paid, plus any expenses the authorized carrier incurs in billing and collecting from the unauthorized carrier. The FCC rules, in contrast, do not require the 50% reimbursement up front. Instead, they make the unauthorized carrier liable to the authorized carrier for the entire 150% after the subscriber has prevailed in a complaint, plus the same billing and collecting expenses. Under the federal rules, only if and when it is able to collect 150% from the unauthorized carrier must the authorized carrier reimburse the subscriber 50%, and it would then retain the other 100%. This is the most significant difference between the two sets of rules: we require a 50% direct pre-complaint reimbursement from the unauthorized carrier to the subscriber, while the FCC requires routing the same 50% reimbursement post-complaint from the unauthorized carrier through the authorized carrier to the subscriber. If the authorized carrier is unable (or disinclined) to collect from the slammer, under the federal rules the subscriber gets no reimbursement for amounts already paid.

The Commission's rules also prohibit the executing carrier from using these contacts with slammed subscribers as opportunities to promote or sell its own products or services. The federal rules do not.

Lastly, our rules state explicitly that they are in addition to any other remedy available by law. The FCC made a similar statement in its implementing order, but did not include that provision in the text of its rules.

For Local Exchange Carriers

When CLCs first became eligible for certification, we adopted a set of Consumer Protection and Consumer Information Rules for CLCs as Appendix B to D.95-07-054. Rule 11B, Unauthorized Service Termination and Transfer ("Slamming"), from those CLC rules sets forth carriers' and subscribers' rights and responsibilities where the alleged slam is of a subscriber's local exchange carrier. That current rule applies to slams of and by both LECs and CLCs. It does not limit slammed subscribers to absolution for the first 30 days of unpaid charges and 50% reimbursement for other charges as the federal rules do. Instead, it requires the slammer to restore the subscriber to the authorized carrier without charge and to refund all billings for the unauthorized service period. We have brought Rule 11B into these Part 4 rules intact as Section D, Unauthorized Local Exchange Carrier Changes.

The Parties' Comments

Fourteen groups representing 29 named entities, some of which were in turn associations of many more members, took the opportunity to file comments or replies to comments in response to the draft rules. Three contributors represented consumers, one represented small business, and the remaining ten represented carriers of all types.

Carrier representatives generally opposed and consumer representatives generally supported the Commission's California-specific rules. There were exceptions among both groups with respect to particular provisions.

The most frequent comment from industry representatives was that the Commission may not implement one provision or another in the proposed rules because it is preempted from devising any rules that vary from the federal rules. Further, they argue, even if California has the authority to enact and enforce its own rules differing from the FCC's, it should wait for some period of time to see how the federal rules work first. We disagree on both counts. In establishing the federal rules, the FCC granted states which elect to handle slamming complaints great latitude in fashioning their own procedures: "We note that nothing in this Order prohibits states from taking more stringent enforcement actions against carriers not inconsistent with Section 258 of the [Communications Act of 1934, as amended by the Telecommunications Act of 1996]."⁵⁸ In that First Order on Reconsideration, the FCC went on to explain that its determination to entrust primary slamming enforcement to the states was based on its belief that the states are close to the problem, experienced in addressing it, and have demonstrated that past state-devised slamming handling rules have been effective:

We agree with [the National Association of Utility Regulatory Commissioners] that the states are particularly well-equipped to handle complaints because they are close to the consumers and familiar with carrier trends in their region. As NARUC describes, establishing the state commissions as the primary administrators of slamming liability issues will ensure that "consumers have realistic access to the full panoply of relief options available under both state and federal law...." Moreover, state commissions have extensive experience in handling and resolving consumer complaints against carriers, particularly those involving slamming. In fact, the General Accounting Office has reported that all state commissions have procedures in place for handling slamming complaints, and that those procedures have been effective in resolving such complaints.⁵⁹

Thus, the FCC has expressed its confidence in the states' ability to fashion effective slamming rules and permits them to do so, so long as those state rules are not inconsistent with Section 258 of the federal Telecommunications Act.

Carriers also objected to the Commission's requiring the unauthorized carrier upon learning of the allegation to reimburse the subscriber 50% of any charges already paid. The FCC requires routing the same 50% reimbursement from the unauthorized carrier through the authorized carrier to the subscriber. Our rules require the reimbursement be made when the unauthorized carrier learns of the allegation, whereas the federal rules call for the subscriber to file a complaint and the agency to issue an order before requiring the refund. Carriers again claim California is preempted from adopting this differing provision, and again we disagree because the FCC has said more stringent state provisions are permitted. In this instance, we believe there are good reasons for requiring partial reimbursement up front. When discussing the 30-day absolution period, the FCC stated,

Absolution minimizes slamming carriers' physical control over slamming revenues, and thereby minimizes the incentive to slam customers. The [FCC] has seen several cases in which slamming carriers went out of business or declared bankruptcy after the [FCC] or state enforcement agencies detected their illegal activities. Such evasion has made it difficult to provide restitution to injured consumers. Accordingly, it is important to deprive a slamming carrier of slamming revenues in the first instance.⁶⁰

That same rationale applies to slamming revenues a subscriber may already have paid. There are many possible reasons the subscriber may have paid the slammer's charges before complaining to us: confusion caused by an excessively complex bill, ignorance of the redress procedure, intimidation at the thought of losing service or being sent to collection, inability to reach a carrier's service representatives, and so forth. Under our rules, the alleged slammer will hold one-half of the subscriber's charges and the subscriber will hold the other half until the allegation is resolved. Neither is denied due process: the subscriber may file a complaint with the Commission, in which case our CAB will review the evidence and make a determination; and if the subscriber has not done so within 30 days, the carrier may re-bill the subscriber for the other half of its charges. In the end, the result is the same under both sets of rules, the only difference being that our rules allow each party to hold half the funds pending a determination.

We have also accepted a suggestion that when a carrier which executes the provider change (typically the LEC) is also the billing telephone company for the allegedly unauthorized carrier, it should convey the refund or credit to the subscriber and has 3 days to do so. This refinement fits well with our requirement that the allegedly unauthorized carrier return 50% of amounts already paid, and with the FCC's and our requirement to remove any unpaid charges for the first 30 days pending resolution.

Two carriers suggested we clarify the unauthorized carrier's responsibility to reimburse the authorized carrier for expenses incurred in billing and collecting from the unauthorized carrier. This is consistent with the FCC rules and we have done so.

The federal rules require that when a subscriber notifies an executing carrier that he or she has been slammed, the executing carrier must notify both the authorized and allegedly unauthorized carriers of the incident and identify both carriers. A commenting carrier suggested the executing carrier should also share any information about the transaction it may have. We have made that change.

A consumer group suggested we require carriers to report their slamming statistics quarterly as a monitoring tool. In response, a carrier pointed out that the FCC already requires carriers to file biannual slamming reports. We have adopted the carrier's suggestion and adjusted our rule to call instead for copies of those FCC reports.

In addition to these substantive changes, the parties suggested numerous lesser revisions consistent with the federal rules and our proposed rules. We have accepted them where appropriate. Other suggestions, and some of our own earlier proposals, do not appear in the final version because after consideration we found them unnecessary or inadvisable.