Legislature(2011 - 2012)BELTZ 105 (TSBldg)
02/02/2012 01:30 PM Senate LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| SB122 | |
| SB138 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SB 122 | TELECONFERENCED | |
| *+ | SB 138 | TELECONFERENCED | |
| + | TELECONFERENCED |
SB 138-THIRD-PARTY CHARGES ON TELEPHONE BILLS
1:58:12 PM
CHAIR EGAN announced SB 138 to be up for consideration [SB 138,
version 27-LS1002\D, was before the committee].
1:58:23 PM
SENATOR WIELECHOWSKI, sponsor of SB 138, said this bill would
ban the practice of placing unauthorized charges on telephone
bills. Many people don't know about this, and he didn't either
until it was brought to his attention, but this is a multi-
billion dollar industry that harms small businesses, governments
and individuals. He said this is a consumer protection bill to
protect people from unauthorized cramming of charges onto their
telephone bills.
He said the intent of this bill is not to ban all cases of third
party billing; there are legitimate cases when people want to
place other bills on their telephone bill. The intent of this is
to target those services and vendors who do not obtain approval
from customers before charging their bill.
SENATOR WIELECHOWSKI explained that the industry for
unauthorized charges on telephone bills is large. The process
for charging bills is often made intentionally complex, and the
dispute process is extremely difficult. They will hear stories
about people who have had charges placed on their phone bills
who have spent hundreds of thousands of dollars trying to remove
companies and who have taken months to have those charges
removed.
He said this is a big problem in the Lower 48 and doesn't seem
to be as big in Alaska where this is more of a preventative
measure. But it is probably happening here to some extent, and
he said people should check their phone bills. Vermont,
Minnesota, New York and Virginia have passed similar laws.
2:01:12 PM
THOMAS PRESLEY, Intern for Senator Wielechowski, said SB 138
bans the practice of adding unauthorized third-party charges to
consumers' telephone bills. He explained that cramming began in
the 1990s and it 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 by telecommunications companies to end the practice.
However, current evidence indicates that telecommunications
companies place approximately 300 million third-party charges on
customers' telephone bills, equaling over $2 billion per year.
One example of cramming is of a woman who noticed charges on her
phone bill, and when she called to dispute them, she was told
her husband authorized the service, but he had been dead for 13
years. Clearly authorization was not obtained.
MR. PRESLEY said that cramming occurs either by never
interacting with customers or by using abusive marketing
techniques to get customers to give them their telephone
numbers. The consumer's phone number then becomes a form of
tacit authorization.
2:02:44 PM
He said that satellite TV and long distance coverage charges are
legitimate, but these services contract directly with telephone
companies. The process for contracting cram services onto bills
is different. Of 500 people with crammed charges who responded
to inquiries, not a single person or business stated they had
authorized 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. PRESELY said a telephone auditing company found more than
800 third-party vendors placed unauthorized charges on its
clients' telephone bills. Consumers used words like fraud, theft
and stealing to describe their experience. An FCC graphic
indicated that 15 to 20 million Americans households receive
cram charges on their landline bills each year, but very few
customers, 1 in 20, are aware of the charges.
MR. PRESELY presented a graphic of the complexity of cramming
charges. One third-party vendor, My S&S Voice Mail Service
showed only 975 unique numbers dialed into their service. At the
time at least 97,000 customers were enrolled in their service.
Another was an on-line photo storage service with 64,000
telephone customers enrolled and less than 2 percent of them
uploading their photos or took advantage of the service. And the
US 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 earning almost $1
million.
He said the way it works is that hub companies subcontract out
enrollment and authorization to lead generators, companies paid
exclusively to obtain enrollments. The lead generator passes a
phone number along to the hub companies who in turn pass these
onto the billing aggregators through third-party vendors.
Charges are only then forwarded onto 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 which can have hundreds of front companies beneath
them to shift enrollments to other vendors to mask large numbers
of complaints. Billing aggregators, the entities which contract
with phone companies to access bills, act as intermediaries
between phone companies and third-party vendors.
2:06:02 PM
DaData, one hub company interviewed by the US Senate staff,
appears to have inter-relatedness with 40 third-party vendors
for which they claim to provide "support services including
marketing, quality control, customer service, billing regulatory
and accounting services." DaData eventually admitted that they
controlled the actual electronic fax service offered by 25 of
their clients. He provided a list of the 45 companies who offer
electronic fax service yet appear to be entirely operated by
DaData.
2:06:59 PM
He said the US Senate staff interviewed the president of WVM
Network and he admitted that he "only signed his name to
documents and knew nothing about the company." By having a hub
company with smaller entities beneath it you can shift the
complaint threshold making it difficult to track, dispute and
remove charges.
MR. PRESELY reiterated that disputing cram charges is difficult
and cost consuming. A national retail chain reported $550,000 in
unauthorized charges on its telephone bills over the past
decade. The retail chain estimated it had spent $400,000 in
resources battling unauthorized third-party charges. One
customer said it was his fifth time having charges added to his
bill and every time he has spent at least a half hour getting
the services removed.
Of the almost 20,000 customer calls for another third-party
vendor, More International, about 9,000 were categorized as
"issue credit" and 4,000 as "cancelation." Of the calls to
DaData-related vendors, about 202,000 were categorized as
"cancelation."
2:07:53 PM
MR. PRESLEY said section 1 of SB 138 enforces truth in billing
guidelines; it requires carriers to disclose detailed
information on the bill, precludes carriers from billing
customers without including details of third-party billing
services and forbids a carrier from discontinuing service to
customers who 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 of goods and/or services unless the
services fall under a list of exemptions. 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.
2:09:10 PM
CHAIR EGAN said he was a victim of this practice when he
answered a travel questionnaire and started getting charges on
his VISA bill; he had a heck of a time getting it off his bill.
SENATOR GIESSEL moved to bring CSSB 138( ), labeled 27-LS1002\E,
before the committee.
CHAIR EGAN objected to take public testimony.
2:10:49 PM
MARIE DARLIN, AARP, noted their letter of support for SB 138.
She said consumer protection is one of the things they are
concerned about and a lot of this kind of activity is directed
toward seniors and retirees who aren't necessarily paying that
much attention to their telephone bills. Getting ahead of it is
a good idea.
2:12:50 PM
NORMAN PHIPPS, CFO, Billing Services Group (BSG), San Antonio,
Texas, said they are the country's largest provider of third-
party billing services and work closely with service providers
and local telephone companies to have charges aggregated onto a
single phone bill for consumers. He said he was joined by BSG's
general counsel, Kelly Cubetta, whose responsibilities include
overseeing regulatory and compliance matters for the company.
He stated that BSG shares the committee's commitment to
protecting consumers from cramming. He said as this bill is
considered, it is important to understand how third-party
billing works and the steps industry has already taken to
prevent cramming.
MR. PHIPPS explained that third-party billing is fundamentally
about consumer choice. Each year thousands of Alaskans choose to
have charges for various services provided by multiple
competitors aggregated onto a single phone bill. The services
include long distance, operator services, collect calling,
computer technical support and charitable contributions. There
are many reasons consumers make this choice; for one, it
provides them with access to the services of many different
competitors to which they wouldn't otherwise have access. This
means they have more choices among service offerings and
providers. This broader market place leads to greater cost
competition and lower prices for services. He said consumers
appreciate the simplicity and convenience of viewing, paying and
managing a single bill rather than many different bills from
many different providers. They can see all of their charges in
one place and pay for all services through a single check or
other method of payment. And unlike credit cards, this method of
payment is free of interest.
He explained when consumers buy a service, they authorize the
provider of that service to have charges placed on their
telephone bill. The provider then submits the charge to a third-
party billing services company, like BSG (also called a billing
aggregator), which works with the local phone company to have
charges included on the consumers' telephone bill. The billing
aggregator is responsible for accounting, record formatting and
data transmission to have charges included on a consumer's phone
bill. He is also responsible for reviewing sales, marketing,
verification, fulfillment and inquiry processes. The phone bill
is sent to the consumer and the consumer sends payment back to
the phone company. The phone company works with the billing
aggregator to ensure service providers are paid. Without third-
party billing, consumers would have access to fewer services and
fewer providers; their costs would likely go up and they would
suffer the headache of having to manage multiple bills. Just as
shop keepers fight hard to stop shoplifters from pillaging their
stores, BSG has fought hard to stop crammers since incorporation
almost 23 years ago. They have many checks and balances in place
to thwart cramming.
2:16:22 PM
He said their efforts to prevent cramming begin as soon as a
provider applies to become an approved merchant with BSG. With
their initial application BSG begins a 100-point review process,
which includes an evaluation of the provider's board and
executives, a visit to its locations and an evaluation of the
provider's sales processes. They also ensure that the provider
has a system in place to supply consumers with terms and
conditions of each sale and to document consumers' consent to
the purchase of these services. It is a very extensive process
which often takes up to nine months to complete.
After a provider is approved, they closely analyze the first
file of transactions they send for inclusion on consumers' phone
bills. From this first file, they select a random sample of
charges and confirm that every charge in the sample was
authorized. If they are unable to confirm authorization for any
charge in that sample, they reject the provider, and no charges
are submitted to the telephone company. Even after a provider is
accepted, they continue to monitor its performance each month,
evaluating inquiries they receive through their customer service
centers, regulatory bodies, and the local telephone companies.
Any provider that exceeds their inquiry thresholds is closely
evaluated and their most recently refunded transactions are
tested. If a provider fails these tests, the relationship is
terminated immediately.
MR. PHIPPS said in addition to their own processes, they are
committed to helping consumers recognize and join their fight
against cramming. In that effort, BSG spearheaded a coalition
that launched Knowyourphonebill.org that educates consumers
about how to read their phone bills and how to investigate any
charges that may be unfamiliar to them. With these best
practices, they have achieved remarkable results. Of the 8
million households for which they provide third-party billing
nationally, less than .25 percent inquired about charges
included on their bill. Additional investigation frequently
finds that charges were in fact authorized, so that actual
cramming is a very small portion of the total number of these
complaints. In Alaska, the incidence of inquiries is even lower.
In 2011, BSG processed 13,536 transactions; of that number they
receive just 14 inquiries and from consumers and about charges
on their bill, .10 percent of all records. Of these 14
inquiries, not a single customer claimed they had no knowledge
of the charge that was included on their bill.
MR. PHIPPS said they applaud the Senate's goals of stopping
cramming and as the industry leader they have fought hard
against it and they have been successful. They would applaud
other third-party billing companies who would adopt the same
best practices to achieve the same results.
However, Mr. Phipps said, a portion of the Senate's bill does
raise concerns. While SB 138 appears to permit third-party
billing for telecommunications offered under tariff, customer
initiated direct dial, dial around services and operator
assisted calls, the legislation would prohibit billing for other
services unless "the vendor has provided the telecommunications
carrier with verification of the customers express
authorization." Such a requirement would be contrary to how
third-party billing works. They work with hundreds of service
providers that are too small to maintain their own billing and
collection platforms and do not have systems that connect
directly with local exchange carriers. Creating the
infrastructure necessary to comply with this bill would be
extremely costly for these small businesses and would either
negate the cost savings they are able to provide to consumers or
result in these small business being forced to shut down. In
addition, the local telephone companies are not equipped with
the resources to receive and review the authorizations prior to
billing. In the end there would be little to no consumer
protection added as a result of this legislation. Thousands of
consumers across Alaska, many of whom depend on these services
to connect with their loved ones and save money, would lose the
benefits of competition, a greater variety of services, lower
costs and convenience. This is simply too high a cost to ask
Alaska's citizens to pay.
He said there are unscrupulous actors out there and BSG supports
the goal of preventing them from engaging in cramming, but the
best way to do that would be to have the industry investigate
new ways to adopt proven best practices and not through
legislation that would needlessly punish Alaska's consumers and
businesses.
CHAIR EGAN asked if he opposed SB 138.
MR. PHIPPS answered yes, in its current form.
2:22:11 PM
MATT WALLACE, Executive Director, Alaska Public Interest
Research Group (AKPIRG), Anchorage, said they supported SB 138.
He said that cramming is insidious, because people are often
unaware of these charges. Many of these charges are very easy to
miss, like a voice mail service. Those services often provide no
real value to the consumer, and because they look like they may
be part of the regular phone bill, they are easy to miss.
2:23:46 PM
He emphasized that many consumers have great difficulty in
disputing charges that are either unauthorized or whose
authorization is in question, another reason that addressing
this practice head on is important. He said this bill focuses on
eliminating the practice and not just on additional disclosures
which would have a more limited impact.
2:24:34 PM
STUART GOERING, Assistant Attorney General, Commercial and Fair
Business Section, Department of Law (DOL), said his primary
responsibility is advising and representing the Regulatory
Commission of Alaska (RCA), and it has responsibility for
overseeing telecommunications carriers in Alaska among other
things. His primary reason for being online was to answer
questions as they might relate to RCA duties, but not to take a
position. He said he had been working with the sponsor for a
long time and he had been very responsive to his comments. The
CS reflects a number of his comments.
2:26:03 PM
SENATOR GIESSEL said she understood that the Federal
Communications Commission (FCC) has an open docket on this issue
and asked if he knew what the timeline for their decision was.
MR. GOERING replied that he was aware that the FCC has a docket,
but he didn't think they had a timeline for its resolution. He
noted that the Federal Trade Commission (FTC) has also opened an
investigation of this practice, as well, but he didn't know of a
timeline for that either.
2:26:55 PM
CINDY DRINKWATER, Assistant Attorney General, Consumer
Protection Unit, Department of Law (DOL), said she was available
to answer questions on SB 138.
HOWARD WALTZMAN, partner, Mayor Brown LLP, outside counsel to
BSG, Washington, D.C., said the presentation refers to the US
Senate Commerce Committee report on cramming. That report was
rather limited in scope and relied on a lot of anecdotal
evidence. A telephone survey that was limited to customers of
three third-party service providers and their affiliates who
were the ones that had been accused of cramming. So, the notion
that anything discerned from it is indicative of industry as a
whole is not accurate. He also said the FCC's 15 to 20 million
person figure for cramming seems to be extremely high given the
number of people who subscribe to third-party billing services.
2:29:15 PM
CHAIR EGAN commented as an FCC licensee for over 40 years, it
seems to him that when the FCC opens a docket there's an issue;
and in this case the FTC had opened a docket as well. Obviously
consumers have complained, and they are trying to get a handle
on unscrupulous people.
MR. WALTZMAN said there are unscrupulous actors in this field as
in others. He explained the FCC opened a docket largely to
refresh an activity that had been going on since the early 90s.
It hasn't had any major action since 1999. With the existence of
cramming, the FCC decided to seek comment on a number of
proposals, some of which they specifically endorsed as to
whether or not these proposals would help reduce cramming even
further. He said the FTC doesn't have a formal open proceeding
and both have gone after specific bad actors and brought
enforcement action against them. He didn't view the existence of
the FCC docket as indicative of an epidemic in this area.
Looking at the evidence presented during the FCC's comment cycle
in 2011, he saw that the actual incidents of cramming were
extremely low.
2:31:31 PM
SENATOR WIELECHOWSKI said he wanted to make it clear that he
supports legitimate third-party charges, and it's not his intent
to ban them. He was trying to get to the unauthorized ones.
However, a gentleman from San Antonio suggested that industry
adopt best practices, but that was tried and didn't work. So,
it's up to the legislatures of the states to protect the people.
Many charges are legitimate, but he has seen evidence that many
aren't.
He said this bill does two things: it requires phone companies
to clearly identify where charges come from because that is one
of the big problems, and it requires express authorization for
specific charges rather than if you accept that free sample and
they take that as an authorization to charge you $49.95 a month
under something that says voice mail or electronic fax
servicing. That is inappropriate and should not be tolerated.
SENATOR WIELECHOWSKI said he is happy to work with legitimate
third-party agents who have concerns and he is not trying to
harm any legitimate small businesses. On that subject, he said
someone said this would hurt small business because they don't
have the accounting practices set up, but that's the point. They
have seen evidence that dozens of small businesses have been set
up, and it's all a ruse. The purpose is to go out and use them
as shields so you can't identify who is actually charging you.
SENATOR GIESSEL asked how many states are enacting this
legislation.
MR. PRESELY replied Vermont, Virginia, New York and Minnesota.
SENATOR GIESSEL asked the status of the FCC and FTC dockets.
SENATOR WIELECHOWSKI replied they would get that for her.
CHAIR EGAN held testimony open until the next hearing.
SENATOR WIELECHOWSKI said he didn't object to that.
[SB 138 was held in committee.]