Legislature(2011 - 2012)BELTZ 105 (TSBldg)
03/23/2012 01:30 PM JUDICIARY
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* first hearing in first committee of referral
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SB 138-THIRD-PARTY CHARGES ON TELEPHONE BILLS 2:47:12 PM CHAIR FRENCH announced the consideration of SB 138. [CSSB 138(L&C) was before the committee.] 2:47:21 PM SENATOR WIELECHOWSKI, sponsor of SB 138, said this bill dealt with "telephone cramming," which as the practice of placing unauthorized, third-party charges on telephone bills. This was a multi-billion-dollar problem, and the federal government had started to take notice. CHAIR FRENCH said that because of time constraints, the committee would hear most public testimony on Monday. 2:50:12 PM THOMAS PRESLEY, intern for Senator Wielechowski, said SB 138 bans the practice of cramming, which is adding unauthorized third-party charges to consumers' telephone bills. He explained that cramming began in the 1990s, and was an unintended consequence of regulatory action that opened telephone bills to other charges. Following a spike in complaints, regulatory agencies opted for a voluntary approach to end the practice, but current evidence indicates that telecommunications companies place approximately 300 million third-party charges on customers' telephone bills, equaling over $2 billion per year. In one example, a woman who disputed charges on her phone bill was told that her husband authorized the service, but he had been dead for 13 years. MR. PRESLEY said that cramming occurs by never interacting with customers or by using abusive marketing techniques to get customers' telephone numbers. The consumer's phone number then becomes a form of tacit authorization. He said that charges for satellite TV and long distance coverage are legitimate, and these services contract directly with telephone companies. The process for contracting cram services onto bills is different. Of 500 people who responded to inquiries about cramming charges, not a single person or business had authorized the charges. Unauthorized charges occur for bank vaults, elevators, 911 systems, fire alarms, governmental agencies and schools. Obvious examples are of a modem incurring charges for voice mail and of an emergency line incurring charges for online diet services. MR. PRESLEY said a telephone auditing company found more than 800 third-party vendors placed unauthorized charges on their clients' telephone bills. Consumers described their experience using words like fraud, theft and stealing. A Federal Communications Commission (FCC) graphic indicated that 15 to 20 million American households receive cram charges on their landline bills each year, but only 1 in 20 customers are aware of the charges. MR. PRESLEY presented a graphic to illustrate the complexity of cramming charges. One third-party vendor, My S&S, showed only 975 unique numbers dialed into its voice mail service, yet it was charging at least 97,000 customers for the service. Another third-party vender enrolled 64,000 telephone customers in an on- line photo storage service, yet less than 2 percent of the customers took advantage of the service. In another instance, U.S. Senate committee staff was the first to log onto a casual gaming service offered by Easy Phone Bill, despite its having enrolled more than 20,000 customers and having earned almost $1 million. He explained that hub companies subcontract enrollment and authorizations. The hub companies receive the phone numbers and pass them along to billing aggregators through third-party vendors, and the charges are forwarded to telephone bills. Third-party vendors offer services like electronic fax, photo storage, and online backup. To gain access to bills, they contract with billing aggregators. Despite their offers, many third-party vendors are actually front companies. This relationship allows hub companies to shift enrollments to other vendors to mask large numbers of complaints. Billing aggregators act as intermediaries between phone companies and third-party vendors. A hub company called DaData claimed to provide support services to 40 third-party vendors, but eventually admitted that it controlled the actual electronic fax service offered by 25 clients. He provided a list of the 45 companies that offer electronic fax service yet appear to be operated exclusively by DaData. He said the U.S. Senate staff interviewed the president of WVM Network who admitted that he "only signed his name to documents and knew nothing about the company." Having a hub company with smaller entities beneath it makes it easy to shift the complaint threshold and difficult to track, dispute and remove charges. MR. PRESLEY reiterated that disputing cram charges is difficult and costly. One retail chain reported $550,000 in unauthorized charges on its telephone bills over the past decade and another estimated it spent $400,000 battling unauthorized third-party charges. One customer said each of the five times that charges were added to his bill it took at least a half hour to get the services removed. MR. PRESLEY said Section 1 of SB 138 enforces truth in billing guidelines. It requires carriers to disclose detailed information on bills, precludes carriers from billing customers without including details of third-party services, and forbids a carrier from discontinuing service to customers that use the contact information to dispute or contest a charge. Section 2 adds a paragraph to the list of unlawful acts and practices under the Consumer Protection statutes. Section 3 creates a new section that precludes a carrier from billing for another vendor without express authorization. Section 4 adds the new unlawful act or practice from Section 2 to the exclusive jurisdiction of the state, a regulatory board or a commission. MR. PRESLEY said recent events include that Verizon two days ago announced it would discontinue charging third-party enhanced billing services to phone bills. Senator Rockefeller from West Virginia said he would introduce federal legislation to ban all third-party billing on phone bills. Illinois two days ago unanimously passed a total ban on third-party billing. He said this is different from SB 138, which allows express authorization of third-party services. MR. PRESLEY said that the recent opposition letter from Alaska Communication Services (ACS) specifically complains about the possibility of customers short paying disputed charges. However, all local exchange carriers operate under truth in billing guidelines so there is no opportunity to shortchange a local carrier by not paying an unauthorized charge. 3:00:30 PM MARIE DARLIN, AARP, stated that AARP supports SB 138, a consumer protection bill that addresses the deceptive marketing practice of cramming. She noted that AARP submitted written testimony to the previous committee and a letter would be forthcoming to this committee. 3:02:09 PM CHAIR FRENCH announced he would hold SB 138 in committee.