Legislature(2011 - 2012)BELTZ 105 (TSBldg)

03/26/2012 02:00 PM JUDICIARY

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
Heard & Held
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
         SB 138-THIRD-PARTY CHARGES ON TELEPHONE BILLS                                                                      
2:13:48 PM                                                                                                                    
CHAIR  FRENCH announced  the  consideration of  SB  138, "An  Act                                                               
relating to the inclusion of the  charges of a vendor of goods or                                                               
services  on the  bills of  certain telecommunications  carriers;                                                               
and adding an  unlawful act to the Alaska  Unfair Trade Practices                                                               
and Consumer Protection Act."                                                                                                   
He asked  Mr. Presley  if the bill  affected just  landlines, not                                                               
THOMAS PRESLEY,  Intern to Senator Bill  Wielechowski, sponsor of                                                               
SB 138, explained that cramming  affects both, but SB 138 focuses                                                               
on landlines.                                                                                                                   
CHAIR FRENCH asked how prevalent the problem is in Alaska.                                                                      
MR.  PRESLEY   replied  it's   difficult  to   ascertain  because                                                               
consumers are generally unaware of the problem.                                                                                 
2:15:18 PM                                                                                                                    
CRAIG  GRAZIANO,  Attorney,  Office of  Consumer  Advocate,  Iowa                                                               
Department  of  Justice, and  Chair  of  the Consumer  Protection                                                               
Committee,  National   Association  of  State   Utility  Consumer                                                               
Advocates,  stated  that  in  1999  Iowa  passed  a  statute  and                                                               
regulations      prohibiting     unauthorized      changes     in                                                               
telecommunication service, including  cramming. He confirmed that                                                               
the  problem  is  not  confined   to  wire-line  billings.  Civil                                                               
penalties of  up to $10,000  can be assessed for  each violation,                                                               
although the average  penalty is just $1,500. The  belief is that                                                               
the penalties take  the profit out of the practice  and appear to                                                               
have a sentinel effect throughout  the industry. He said that the                                                               
regulatory  efforts   have  reduced  the  volume   of  complaints                                                               
markedly. He  described four complaints and  commented that these                                                               
were probably the tip of  the iceberg, because most consumers did                                                             
not  notice unauthorized  charges.  He highlighted  that the  FCC                                                               
issued a $3  million penalty against one  company for instituting                                                               
an  Internet  order  validation  system  that  did  not  validate                                                               
MR.  GRAZIANO offered  his belief  that  states are  in the  best                                                               
position to stop  the problem. They're close  to the complainants                                                               
and  often  have  the  resources  to  assist  victims,  institute                                                               
enforcement   proceedings,   force    restitution,   and   assess                                                               
2:20:13 PM                                                                                                                    
SENATOR PASKVAN  asked if the  companies that engage  in cramming                                                               
are generally U.S.-based, offshore, or international.                                                                           
MR.  GRAZIANO  said that  most  of  the  companies that  put  the                                                               
charges on bills  have domestic addresses, but he  didn't know if                                                               
their operations were located in the U.S.                                                                                       
SENATOR PASKVAN asked how the  $3 million penalty compared to the                                                               
amount of money that the companies collected by cramming.                                                                       
MR. GRAZIANO said  he didn't know the correlation,  but that same                                                               
day the  FCC issued  similar penalties  to three  other companies                                                               
for similar violations.                                                                                                         
2:22:05 PM                                                                                                                    
CHAIR FRENCH  asked if  he believes  that crammers  target states                                                               
randomly or based on the strength of their anti-cramming laws.                                                                  
MR. GRAZIANO  opined that there was  a good deal of  awareness of                                                               
enforcement efforts.                                                                                                            
2:22:44 PM                                                                                                                    
MATT   WALLACE,  Executive   Director,  Alaska   Public  Interest                                                               
Research Group (AKPIRG), stated that a  key focus of AKPIRG is to                                                               
stop  marketplace practices  that  track consumers  and get  into                                                               
their pocketbooks.  He highlighted that the  practice of cramming                                                               
is  extremely  widespread  and  that  to  some  extent  telephone                                                               
companies  generate revenue  from  cramming by  charging fees  to                                                               
third parties and third-party aggregators.                                                                                      
He described  SB 138 as  a proactive  step to stop  scammers from                                                               
ripping off Alaskan  consumers. He said that a  growing number of                                                               
states  are passing  legislation  to ban  this practice,  federal                                                               
legislation   was    pending   introduction,   and    the   large                                                               
telecommunications  carrier,  Verizon,  had pledged  to  end  the                                                               
practice of  unauthorized third-party charges. He  agreed that it                                                               
was difficult  to surmise  the impact of  the problem  in Alaska,                                                               
but that AKPIRG  had received a number of calls  since it started                                                               
its investigation.  He concluded that  this is a huge  first step                                                               
and  AKPIRG looks  forward  in the  future  to investigating  the                                                               
problem in the wireless market.                                                                                                 
CHAIR  FRENCH  noted  that attorney  Cindy  Drinkwater  with  the                                                               
Department  of Law  consumer protection  was available  to answer                                                               
2:26:37 PM                                                                                                                    
DEBORAH COOK,  Senior Manager,  Billings and  Collections, Alaska                                                               
Communications  Systems,  said  the   vice  president  of  legal,                                                               
regulatory,  and  government  affairs   asked  her  to  read  the                                                               
following letter into the record: [Original punctuation                                                                         
     Alaska  Communications  discourages further  action  on                                                                    
     CSSB 138.  However, if further  action is taken  by the                                                                    
     Senate   Judiciary  Committee,   Alaska  Communications                                                                    
     recommends  a few  amendments,  which  are attached  to                                                                    
     this letter.                                                                                                               
     If  enacted,  CSSB  138  would  place  new  burdens  on                                                                    
     telecommunications providers  that provide  third party                                                                    
     billing  services. Alaska  Communications opposes  this                                                                    
     legislation because  there is no evidence  of a problem                                                                    
     in this  area that  needs fixing. We  are not  aware of                                                                    
     any consumer rebellion tied to  third party billing, we                                                                    
     do not have a large  in-box filled with complaints, and                                                                    
     we  are not  aware of  this  being an  issue for  other                                                                    
     telecommunications  providers  in   Alaska.  For  these                                                                    
     reasons, we  see no need  for legislation such  as CSSB
     Alaska  Communications does  bill  customers for  third                                                                    
     parties  at  the  same  time   it  bills  for  its  own                                                                    
     services. Customers  do short  pay bills and  when they                                                                    
     inform  us   of  the  reason  we   allocate  the  funds                                                                    
     submitted appropriately. Too  often, however, customers                                                                    
     fail to explain  why [their] bill is short  paid or how                                                                    
     to allocate  the funds they  submit. in the  absence of                                                                    
     any    information    from   the    customer,    Alaska                                                                    
     Communications  applies a  rational  allocation of  the                                                                    
     funds between  itself and the  third parties.  This can                                                                    
     lead to nonpayment of telephone  bills through no fault                                                                    
     of the telephone provider.                                                                                                 
     Alaska  Communications  takes   its  responsibility  to                                                                    
     provide  quality  services  very  seriously.  Customers                                                                    
     too, however,  need to be  responsible and  explain why                                                                    
     they have  short paid  a bill and  how to  allocate any                                                                    
     funds    submitted.    Therefore,    although    Alaska                                                                    
     communications  sees no  need for  this legislation  at                                                                    
     all,   we  submit   the  attached   proposed  amendment                                                                    
     providing   for   customer  responsibility   for   your                                                                    
2:29:02 PM                                                                                                                    
MS. COOK reviewed the amendments suggested by ACS. In Section 1,                                                                
add to subsection (b) a new paragraph (5) that says that                                                                        
telecommunications  carriers  may  recover  reasonable  costs  of                                                               
implementing the bill. To subsection  (c) add a new paragraph (1)                                                               
that says that customers must explain  in writing that there is a                                                               
dispute  and how  to allocate  their  payment if  they are  short                                                               
paying their bill.  In Section 3, add to subsection  (c)(4) a new                                                               
subparagraph (C)  that says that telecommunications  carriers are                                                               
not obliged to verify the accuracy of third-party charges.                                                                      
2:30:17 PM                                                                                                                    
SENATOR PASKVAN  asked if ACS  monitors billings for  evidence of                                                               
potential cramming.                                                                                                             
MS. COOK answered yes; ACS validates  billings as they go out and                                                               
is careful about  who can be third-party  providers. Disputed 800                                                               
calls are returned to the third-party provider without question.                                                                
SENATOR PASKVAN asked what process  ACS follows to allow a third-                                                               
party vender to place a charge on a customer's bill.                                                                            
MS. COOK  explained that ACS requires  a contractual relationship                                                               
with its  venders so it knows  where the billing is  coming from.                                                               
ACS is  the customer's  advocate for  questions to  third parties                                                               
and the fraud  department can validate charges  for the customer.                                                               
However, she  emphasized, it is the  customer's responsibility to                                                               
let ACS know if there is a disputed charge.                                                                                     
SENATOR   PASKVAN  asked   if   ACS  substantively   investigates                                                               
providers and if it profits from third-party charges.                                                                           
MS. COOK  replied there are  costs associated with  billings, but                                                               
ACS does  background checks and  validates providers  before they                                                               
are allowed to place charges on ACS billings.                                                                                   
SENATOR  PASKVAN said  he  was  trying to  find  out whether  the                                                               
contractual relationship  includes a  substantive inquiry,  or if                                                               
the provider simply has to sign a boilerplate agreement.                                                                        
MS. COOK  explained that the inquiry  includes credit validation,                                                               
validation  of  previous  services, and  contractual  obligations                                                               
once ACS  does billings  for someone. She  noted that  ACS rarely                                                               
signs new third parties for wireless billings                                                                                   
2:35:32 PM                                                                                                                    
CHAIR FRENCH  asked for some  mainstream examples  of third-party                                                               
vendors, other than sex hotlines.                                                                                               
MS. COOK replied  ACS regularly does third-party  billing for 800                                                               
lines, people  who are  incarcerated, and  directory advertising.                                                               
She reiterated that these are all thoroughly vetted.                                                                            
CHAIR FRENCH  asked the  volume of  business that  these billings                                                               
represent and if ACS makes money on third-party billings.                                                                       
MS. COOK said the directory contract  is the largest and a signed                                                               
contract  is required,  but  she  would have  to  follow up  with                                                               
specific information about volume.                                                                                              
2:38:00 PM                                                                                                                    
SENATOR  WIELECHOWSKI  asked  if  ACS  charges  for  third  party                                                               
enhanced services that  are not telephone related.  He cited diet                                                               
services as an example.                                                                                                         
MS.  COOK  said that  about  five  years  ago ACS  saw  potential                                                               
problems and told providers they  would no longer bill for things                                                               
like diet services and magazines.                                                                                               
SENATOR  PASKVAN said  he was  looking  for reasonable  assurance                                                               
that ACS was working in  the consumer's interest to eliminate the                                                               
potential for cramming.                                                                                                         
MS. COOK  responded that it is  in the best interest  of both the                                                               
consumer and ACS to eliminate inappropriate billing.                                                                            
SENATOR COGHILL  asked if  ACS would  move away  from third-party                                                               
services if  the bill  were to pass  without the  amendments that                                                               
ACS suggested.                                                                                                                  
MS. COOK replied ACS is  already moving away from these services.                                                               
The amendments  would help make  the customer aware  that without                                                               
their  input it  is difficult  for ACS  to know  that there  is a                                                               
problem. As a  general policy, ACS takes action as  soon as it is                                                               
aware that there is an issue.                                                                                                   
2:41:27 PM                                                                                                                    
CHAIR  FRENCH  summarized  that  ACS  customers  have  supposedly                                                               
agreed to each of the charges on their bill.                                                                                    
MS. COOK answered that's correct.                                                                                               
SENATOR PASKVAN asked if all the agreements are in writing.                                                                     
MS. COOK responded that the agreements  can be verbal if there is                                                               
some  capture  of  a  voice recording,  but  ACS  prefers  signed                                                               
written   contracts.  Verbal   contracts   are  more   thoroughly                                                               
SENATOR  PASKVAN  asked  how quickly  ACS  pays  the  third-party                                                               
vender after it sends the bill to the customer.                                                                                 
MS. COOK  said it was probably  between 60 and 120  days, but she                                                               
would have to confirm that.                                                                                                     
SENATOR WIELECHOWSKI asked to hear from Ms. Drinkwater.                                                                         
2:45:32 PM                                                                                                                    
CYNTHIA DRINKWATER,  Assistant Attorney General,  Civil Division,                                                               
Commercial/Fair  Business  Section,   Department  of  Law  (DOL),                                                               
introduced herself and offered to answer questions.                                                                             
CHAIR FRENCH asked if the administration supports the bill.                                                                     
MS. DRINKWATER replied she wasn't  in a position to offer support                                                               
or not;  she was prepared to  address legal issues that  might be                                                               
of concern to the committee.                                                                                                    
SENATOR  WIELECHOWSKI asked  her to  discuss the  memo the  state                                                               
attorney general signed regarding the FCC action.                                                                               
MS. DRINKWATER explained  that in October 2011 a  number of state                                                               
attorneys general, including  Alaska, signed a letter  to the FCC                                                               
commenting on  proposed rulemaking regarding  telephone cramming.                                                               
The letter  urged the FCC to  consider either an outright  ban on                                                               
cramming or a ban with  exceptions for telephone-related services                                                               
such as collect  calls and inmate calls.  Another alternative was                                                               
for a system  where consumers would opt in to  certain charges on                                                               
a  vender-by-vender basis  as opposed  to  the current  situation                                                               
where  consumers essentially  have to  opt out  by calling  their                                                               
carrier to have charges removed from their bills.                                                                               
2:48:34 PM                                                                                                                    
SENATOR WIELECHOWSKI asked if SB  138 addresses the concerns that                                                               
the administration advocated for in the letter to the FCC.                                                                      
MS.  DRINKWATER replied  the  intent is  consistent  and it  does                                                               
require venders  or billing aggregators  to provide proof  to the                                                               
carrier of express authorization. This  would be of assistance in                                                               
an investigation  because it is  sometimes difficult to  find the                                                               
party  that placed  the charge  on  the bill.  However, the  bill                                                               
still  leaves  room  for  abusive  practices  such  as  doctoring                                                               
telephone  recordings  and  failure  to verify  that  a  consumer                                                               
agreed to a service.                                                                                                            
2:51:00 PM                                                                                                                    
SENATOR  PASKVAN asked  if the  bill would  be beneficial  to the                                                               
extent that it  would authorize the attorney  general's office to                                                               
take  action under  AS  45.50.471(b) if  a  cramming company  was                                                               
abusing Alaskans.                                                                                                               
MS. DRINKWATER said the attorney  general's office would probably                                                               
have  some authority  to proceed  with  a cramming  investigation                                                               
under any  circumstances, but  the bill would  make it  easier to                                                               
obtain  records  of customers'  authorization  if  it was  indeed                                                               
SENATOR PASKVAN asked how she would  proceed as to an unlawful or                                                               
deceptive act unless it was under AS 45.50.471(b).                                                                              
MS.  DRINKWATER responded  that there  is benefit  to a  specific                                                               
listing  because it  makes it  easier to  show there  has been  a                                                               
violation, but the unlawful acts  listed in subsection (b) aren't                                                               
SENATOR   WIELECHOWSKI   asked   what   rationale   the   Parnell                                                               
administration and  other state attorneys general  gave when they                                                               
urged the FCC to outright ban third-party cramming.                                                                             
MS. DRINKWATER  replied it  was to  stop those  practices whereby                                                               
customers are billed for services  they didn't authorize or agree                                                               
SENATOR COGHILL asked  if, under the present law,  DOL would take                                                               
action  against  the carrier  or  the  third-party vender  if  it                                                               
became  aware of  unauthorized  charges  on consumers'  telephone                                                               
MS. DRINKWATER  replied DOL  currently has  the ability  to issue                                                               
subpoenas  or civil  investigative  demands,  but the  difficulty                                                               
with cramming  investigations is  that it is  sometimes difficult                                                               
to find the party that is placing the charges on the bills.                                                                     
SENATOR COGHILL asked whose fault that is.                                                                                      
MS.  DRINKWATER  said that  in  her  somewhat limited  experience                                                               
there is more problem finding the vender.                                                                                       
SENATOR  COGHILL  asked if  cramming  might  not become  an  even                                                               
larger issue for cellphones.                                                                                                    
MS.  DRINKWATER  offered  her   understanding  that  cramming  on                                                               
cellphones  would increase  in the  future. She  agreed with  Mr.                                                               
Presley's comment  that as cellphone use  increases, people would                                                               
probably pay less attention to their landline bills.                                                                            
SENATOR COGHILL  asked if  it was reasonable  for ACS  to request                                                               
that  customers  take  responsibility in  notifying  the  carrier                                                               
about unauthorized charges.                                                                                                     
MS. DRINKWATER said  she wasn't in a position  to comment because                                                               
this was  the first  she'd heard  that customers  weren't passing                                                               
that information along to their carriers.                                                                                       
2:58:48 PM                                                                                                                    
SENATOR  PASKVAN asked  if  she believes  that  carriers have  an                                                               
obligation to screen third-party venders.                                                                                       
MS.  DRINKWATER  said that  consumers  should  not have  to  face                                                               
charges  on their  phone bills  for  services that  they did  not                                                               
agree to, and it makes sense  that carriers should have a process                                                               
to ensure that doesn't happen.  She reiterated that one advantage                                                               
of  the  bill  is  that  it  would  require  venders  or  billing                                                               
aggregators  to produce  proof of  express  authorization to  the                                                               
carriers.  That would  seemingly  help carriers  ensure that  the                                                               
consumer really  did agree  to a service  before they  are billed                                                               
for it.                                                                                                                         
MR. PRESLEY spoke to ACS's objection  to the bill by pointing out                                                               
that   the   truth   in   billing   guidelines   recommend   that                                                               
telecommunications carriers  separate on  the bill  those charges                                                               
that will  result in  loss of  service and  charges that,  if not                                                               
paid,  will not  result in  loss of  service. He  noted that  two                                                               
judges  have  found   that  consumers  should  not   have  to  be                                                               
investigators of their own phone bill.                                                                                          
In  conclusion, he  quoted from  a letter  that talked  about the                                                               
state   attorneys   general   recommendations   regarding   phone                                                               
cramming. He read the following:                                                                                                
      Because the majority of customers do not want third-                                                                      
     party charges on their bills  and most are unaware that                                                                    
     their telephone  bills are vulnerable to  such charges,                                                                    
     all wire  line telephone  companies should  be required                                                                    
     to  block  third-party  billing for  all  existing  and                                                                    
     newly  enrolled  customers  by  default.  The  customer                                                                    
     should  not be  burdened  with requesting  a block,  as                                                                    
     most customers will not understand  [the need] for such                                                                    
     protection until after being victimized by a crammer.                                                                      
CHAIR FRENCH announced he would hold SB 138 in committee.                                                                       

Document Name Date/Time Subjects
SB 168 Letter Alaska Court System 03.23.12.pdf SJUD 3/26/2012 2:00:00 PM
SB 168
SB 168 version M.pdf SJUD 3/26/2012 2:00:00 PM
SB 168