3. Need for Reform
The State Controller's 2007 Audit Report recommended among other things that the Commission conduct more stringent background and financial viability reviews of applicants registering with the Commission. The Audit Report further stated: "in many cases, unscrupulous individuals or companies began billing consumers for millions of dollars in unauthorized charges shortly after being registered by the CPUC."
These unauthorized charges are commonly referred to as "cramming." Commission Decision, D.10-10-034: Final Decision Adopting California Billing Rules, defines unauthorized charges as "[a]ny charge placed upon a Subscriber's telephone bill for a service or goods that the Subscriber did not agree to purchase, including any charges that resulted from false, misleading, or deceptive representations." California Public Utilities Code Section 2890(a) also states that "a telephone bill may only contain charges for products or services, the purchase of which the subscriber has authorized."
Cramming complaints are on the rise in California and there is evidence that California telephone corporation subscribers continue to experience unauthorized charges on their telephone bills. In 2010, the Consumer Affairs Branch of the CPUC reported 2,784 complaints regarding cramming. This figure is more than double the 1075 complaints lodged in 2005. In response to increasing concerns, the Commission issued new cramming rules applicable to all telecommunications carriers, including resellers and wireless service providers, in D.10-10-034. Wireless service providers are now required to report refunds made to subscribers for charges appearing on the bills of wireless service providers. In addition, the Commission requires all billing telephone corporations, including wireless, to report suspensions and terminations of third-party service providers to the Commission's Consumer Protection and Safety Division (CPSD). These reports are assisting CPSD in protecting consumers against unauthorized charges.
The Commission recently opened two Orders Instituting Investigation (OII) related to cramming. One Investigation delves into the practices of Telseven, LLC (Telseven), its affiliate Calling 10, LLC (Calling 10), and Patrick Hines (collectively "Respondents").8 This investigation was prompted because of a large number of consumer complaints lodged against Respondents. Respondents' billing agents reported receiving between 89,000 and 125,000 (or more) calls from Californians expressing dissatisfaction with the placement of Respondents' charges on their telephone bills. The second investigation against OSP Communications, LLC (OSP), also was prompted by a large number of consumer complaints lodged against OSP. OSP's billing agents reported to the Commission receiving 12,750 complaints from Californians concerning OSP's charges on their telephone bills. Further, the suspicious nature of OSP's billing transactions caused OSP's billing agent, TBR, to terminate billing and collection services for OSP and to withhold approximately $1.2 million in funds collected on behalf of OSP.9
Today, cramming complaints are not limited to wireline customers and they are certainly not limited to wireline interexchange service providers that obtained their operating authority by registration. Examples cited in the State Controller's Audit Report identified problem providers that are CPCN holders. Customers are also lodging cramming complaints against other types of telecommunications service providers including wireless and Voice over Internet Protocol (VoIP) providers.
Because cramming is a persistent and ever-growing problem for customers, we propose to adopt measures for the CPCN and wireless application process to reduce the potential for fraud or other inappropriate practices and to enhance the adequacy of remedies if problems occur. Measures to be considered include requiring applicants to provide additional information, to undergo expanded financial and background checks and to maintain resources to resolve valid claims when they arise.
8 OII filed December 16, 2010, (Investigation (I.) 10-12-010) on the Commission's own motion into the operations, practices, and conduct of Telseven, LLC, Calling 10 LLC dba California Calling 10, (U7015C), and Patrick Hines, an individual, to determine whether Telseven, Calling 10, and Patrick Hines have violated the laws, rules and regulations of this State in the provision of directory assistance services to California consumers.
9 OII filed May 26, 2011 (I.11-05-028) on the Commission's Own Motion Into the Operations, Practices, and Conduct of OSP Communications LLC, and John Vogel, an Individual, to Determine Whether OSP Communications LLC and John Vogel Have Violated the Laws, Rules and Regulations of this State in the Provision of Operator and Calling Card Services to California Consumers; and Whether The Billing Resource LLC, a Delaware Corporation, and The Billing Resource LLC d/b/a/ Integretel, a California Corporation, Should Refund and Disgorge All Monies Billed and Collected on Behalf of OSP Communications LLC.
