II. Background

Cramming, the submission or the inclusion of unauthorized, misleading, or deceptive charges for products or services on the subscriber's telephone bills, has become a serious and widespread problem in California in recent years, draining time and money from California consumers and businesses.² In an effort to address the problem, the Legislature enacted Sections 2889.9 and 2890, which contain many provisions designed to deter cramming, and, in addition, authorize the Commission to adopt rules needed to accomplish the consumer protection purpose of those statutes.

Section 2890, however, was amended effective July 1, 2001 to permit the use of telephone bills to bill for non-communications charges, subject to Commission rules. AB 994 extended Section 2890's ban on non-communications-related charges from January 1, 2001 to July 1, 2001, in order to allow the Commission more time to develop appropriate safeguards. Fashioning effective safeguards presents a challenge because, as the Federal Communications Commission (FCC) has noted,

. . . it is significantly easier to bill fraudulent charges on telephone bills than on credit card bills. While credit card charges require access to a customer account number that consumers understand should be treated as confidential, all that is often required to get a charge billed on a local telephone number is the consumer's telephone number. This number is not only expected to be widely distributed, but can easily be captured by an entity even when the consumer has not authorized charges or made a purchase. (Truth-In-Billing, First Report and Order and Further Notice of Proposed Rulemaking, CC Docket No. 98-170, 14 FCC Rcd. 7492 (1999), ¶ 7, fn. 18.)

Because the harm that can result from misuse of confidential information is great - ranging from intrusive telemarketing to identity theft and other types of fraud -it is essential that subscribers retain control of the confidential information they provide to telephone companies in order to obtain service, and that this information not be used for other purposes without their consent. The privacy protections provided by Section 2891, which requires telephone companies, among other things, to obtain the written consent of residential customers before releasing their confidential information to any other person or corporation, are therefore an important component of the consumer protection rules we adopt today.

On January 3, 2001, Assigned Commissioner Carl Wood issued a ruling in this proceeding requesting comment on a first draft of proposed rules governing non-communications charges. Many carriers and consumer groups submitted comments and reply comments. The Attorney General and the California Small Business Association also submitted comments containing suggestions for supplementing and clarifying the proposed rules. Substantially revised rules were mailed out for comment on June 1, 2001. The draft rules were revised further in response to written comments and as a result of further study.

Several parties suggested that the Commission reevaluate the rules after they have been in effect for approximately 18 months. The Commission agrees that it would be useful after about that length of time to evaluate the initial experience with non-communications charges on telephone bills, assess how effective these rules have been in protecting consumers, and consider whether changes to the rules and/or legislative changes are needed.