IV. Applicability of Truth in Lending Act

Opening up telephone bills to non-communications charges raises the question whether this new billing service will be subject to general consumer protection laws governing credit and billing, particularly, the federal Truth in Lending Act³ and its implementing regulation, the Federal Reserve Board's Regulation Z. Regulation Z contains the rules governing credit card transactions and billing that are relatively well known to consumers. Extensions of credit that "involve public utility services" where the "charges for service, delayed payment, or any discounts for prompt payment are filed with or regulated by a governmental unit" are exempt from Regulation Z. (See 12 C.F.R. 226.3(c).) Most, if not all, non-communications services that may be charged to telephone bills under the version of Section 2890 that goes into effect July 1, 2001, clearly will not fall under this exemption.

A business offering or extending credit falls under Regulation Z's scope when:

1. The credit is offered or extended to consumers,

2. The offering or extension of credit is done regularly,

3. The credit is subject to a finance charge or is payable by a written agreement in more than four installments, and

4. The credit is primarily for personal, family, or household purposes. ⁴
Thus, it appears that if billing telephone companies impose a finance charge in connection with billing for non-communications charges unrelated to telephone service, in effect the billing service will constitute an offer or extension of consumer credit that is subject to Regulation Z. (See 12 C.F.R. § 226.1(c).) "Finance charges" are broadly defined under Regulation Z. ⁵

The assigned Commissioner, in his January 3, 2001, ruling inviting comment on the first draft of these rules, invited billing telephone companies to state whether they intended to impose finance charges. No carrier gave a definitive response. Lacking information on this point, it would be irresponsible for the Commission to assume that no billing telephone company will impose finance charges as that term is defined for purposes of the Truth in Lending Act. The Commission must consider the possibility that some billing telephone companies may impose finance charges and that their billings for non-communications charges may be subject to the Truth in Lending Act and Regulation Z, as well as parallel state laws.

State regulations governing creditor disclosure requirements and billing complaint procedures must be consistent with Regulation Z. (See § 226.28.) Consequently, the Commission's rules governing non-communications charges must be consistent with Regulation Z, given the possibility, if not likelihood, that at least some non-communications billing will be subject to that body of law. Clearly, having two distinct sets of rules, one consistent with Truth in Lending, one not, is not workable or desirable. Accordingly, our intent in drafting these rules is to make them consistent with the Truth in Lending Act. We have focused primarily on the areas of disclosure requirements and complaint procedures. Billing telephone companies must bear in mind, however, that they are responsible for complying with all applicable legal requirements under federal and state law, not just those requirements set forth in our rules.

As many parties have commented, there are other good reasons to pattern these rules after the Truth in Lending Act and Regulation Z. (See, inter alia, Comments and Reply Comments of the Attorney General, California Small Business Association, and TURN.) The federal rules governing credit card transactions and credit card billing disputes are relatively well known to consumers and to businesses. They have been tested, and they apply nationwide. They include disclosure requirements that enable consumers to verify charges on their bills, and provide a workable procedure to get unauthorized charges removed and other errors corrected. California consumers who opt to open up their telephone bills to non-communications charges will be well served by these safeguards.

⁵ Regulation Z defines a finance charge as "the cost of consumer credit as a dollar amount" and includes "any charges payable directly or indirectly by the consumer and imposed directly or indirectly by the creditor as an incident to or a condition of the extension of credit." (See 12 C.F.R. § 226.4(a).)