VI. Key Issues

A. Protection for Consumers and Businesses

These interim rules protect individual consumers and businesses alike. Although the Commission receives complaints primarily from individuals, businesses also have been victims of cramming. (See, e.g., Comments of California Small Business Association.) Extending the protection provided by these rules to businesses in California will benefit those businesses and further discourage the practice of cramming in this state.

B. Role of Billing Telephone Company

As discussed above, responsible billing telephone company practices are a crucial component of effective safeguards. These interim rules require billing telephone companies that choose to provide billing services to vendors of non-communications products and services to adopt certain practices, such as screening the vendors that bill through them directly or indirectly through billing agents, and requiring them to provide proof of authorization for all disputed charges. These practices and others set forth in the interim rules will effectively deter most cramming.

C. Authorization of Charges

1. Billing Telephone Companies Must Obtain Affirmative Consent from a Subscriber before Opening Up that Subscriber's Telephone Bill to Non-Communications Charges (the "Opt-in" Requirement)

Because billing for non-communications charges on telephone bills has been prohibited by statute, many subscribers initially will be unaware that as a result of a change in the law, they are now exposed to a risk of having unauthorized charges for non-communications products and services placed in their telephone bills. Consumers should not be exposed to this risk unknowingly. Accordingly, these interim rules require billing telephone companies to obtain express permission directly from a subscriber to include non-communications-related charges before any non-communications-related charges may be included on that subscriber's bill. Although some carriers objected to this requirement as onerous and unnecessary, we believe this "opt-in" approach constitutes a necessary safeguard at this time. It enables the billing telephone company to block all non-communications charges on the bills of subscribers who do not want to use their telephone bill for anything but their telephone service, greatly reducing the risk of fraudulent authorizations. The "opt-in" authorization need only be obtained once for each subscriber, unless a subscriber subsequently revokes authorization.

Options for limited authorization:

Our June 1 draft required billing telephone companies to offer subscribers certain options for placing limits on their authorization, for example to certain vendors and to a certain dollar amount per month. Consumer groups and the Attorney General support these options but carriers, in general, opposed them on the ground that their billing systems are not flexible enough to allow these options. The Commission will not, at this time, require billing telephone companies to provide subscribers with these options, but it encourages billing telephone companies to explore means of providing them. The Commission notes that Section 2890 requires telephone companies to separate charges on the bill by provider. As this provision must be complied with, we believe it is also feasible, perhaps without significant additional cost, to provide customers with the option of allowing charges only by certain providers. We believe that allowing customers to place a dollar limit per month on their accounts is feasible too, because telephone companies currently place dollar limits on the accounts of customers with poor credit histories. We intend to revisit this issue after the rules have been in effect for a while.

2. Charges Must Be Authorized By Subscriber at Point of Sale

The need to ensure that only properly authorized charges are included in subscribers' bills is non-controversial; however, parties differ on how the Commission should address that problem in its rules. Many carriers, in their comments to the first version of these rules, urged the Commission to refrain from imposing a particular method, such as use of a PIN number, because other security procedures are being developed that might be preferable. The interim rules require use of an authorization verification procedure at least as effective as a PIN number, but allow flexibility in the choice of a procedure. Billing telephone companies should require that the entities they bill for use security procedures consistent with this standard, and promptly suspend billing services for them if they do not.

3. Subscribers May Revoke Their Authorization

The rules enable subscribers to revoke consent to allow non-communications charges on their telephone bills at any time without charge. As with credit cards, this provision is necessary to protect consumers in the event of loss or theft of a cell phone, and any unauthorized use of their account.

D. Privacy Protections

California has a substantial state interest in protecting telephone subscribers from becoming the victims of fraud, including identity theft, and unwanted telephone solicitations. California residents' "right to private communications" has been codified at Section 2891, which provides, with specified exceptions, that no telephone corporation shall make available to any other person or corporation a residential subscriber's personal financial information without the subscriber's written consent.

Failure to keep confidential personal financial information confidential can result in significant harm to individuals. Ineffective protection of confidential financial information may encourage identity theft, which in turn may result in severe damage to the credit record of the victim, and may require victims to spend days establishing that they are not responsible for debts incurred in their names.⁸ And dozens of California residents, in public hearings held last summer in this proceeding, expressed outrage at being subjected to intrusive telemarketing at home, and great frustration at being unable to prevent these intrusions.

To help subscribers avoid these invasions of their privacy, subscriber's confidential information, including financial information, should not be released to a third party without the subscriber's written consent. When the Legislature enacted Section 2891, it determined that consent should be required in writing to ensure that subscribers were adequately informed of the terms and conditions of any release to which they were agreeing before they gave their consent.⁹ Our rules are consistent with this requirement.

E. No Disconnection Rule

The interim rules prohibit disconnecting, or threatening to disconnect basic local telephone service for nonpayment of non-communications charges. This rule is consistent with the no-disconnect policy we announced in D.00-03-020 (as modified by D.00-11-015), which prohibits disconnection of basic local service for nonpayment of interexchange service.

F. Billing Telephone Companies' Obligations To Screen and Monitor Entities for Whom They Bill

The interim rules direct billing telephone companies to take reasonable precautions to screen vendors and billing agents, including monitoring of vendors' and billing agents' performance. This rule requires billing telephone companies to investigate subscribers' complaints, whether written or verbal, of unauthorized charges and other billing errors. If the vendor or billing agent generates a significant percentage (ten percent) of complaints, the billing telephone company is required to promptly suspend billing on behalf of the vendor or billing agent. If the percentage of complaints reaches five percent, the billing telephone company shall, within no more than two business days, notify the Director of Consumer Services Division with information on the vendor's or billing agent's performance. The Director of CSD, based upon review of the vendor's performance and other relevant information, may direct the billing telephone company to suspend billing on behalf of the vendor or billing agent. If the venbdor's or billing agent's billing is suspended, CSD shall within no more than 30 days from the suspension of billing, initiate an order to show cause why the Commission should continue to suspend the billing rights of the vendor or billing agent.