Congress Takes on Slamming, Cramming, Spamming

Posted: 08/1998

Congress Takes on Slamming, Cramming, Spamming

By Danny E. Adams Partner, Kelley Drye & Warren LLP

On June 23, the U.S. House of Representatives held hearings on a bill introduced in May
by Republican Congressman Billy Tauzin of Louisiana (H.R. 3888) that was designed
primarily to improve the protections afforded consumers against "slamming" by
telecommunications carriers. As everyone knows by now, slamming is the practice of
changing a subscriber’s presubscribed local or long distance carrier without that
consumer’s authorization.

H.R. 3888 is one of a series of bills introduced in both the House and the Senate this
spring in response to an increasing number of consumer complaints regarding slamming.
Indeed, slamming constitutes the single largest source of consumer complaints filed with
the Federal Communications Commission (FCC): In 1997 the FCC Common Carrier Bureau’s
Enforcement Division handled approximately 45,000 telephone-related complaints, of which
20,000 involved allegations of slamming. Members of Congress and federal and state
regulators are losing patience with existing remedies for slamming.

Representative Tauzin’s bill–entitled the Anti-Slamming Amendments Act–would amend
Section 258 of the Communications Act of 1934, which itself was only added in 1996.
Section 258 generally prohibits carriers from switching a customer’s local or long
distance service without complying with verification procedures established by the FCC.
The new Anti-slamming Amendments Act establishes far more detailed change verification
procedures than current Section 258, and expressly imposes penalties for carriers that
engage in slamming that are even harsher than the FCC’s current standard penalty of
$40,000 per slammed phone.

Specifically, the verification provisions of Tauzin’s bill require that a subscriber:
(1) affirm that he or she is authorized to select the service providers for that telephone
number; (2) acknowledge the type of service to be changed; (3) affirm the subscriber’s
intent to select the provider in question as the provider of that service; and (4)
acknowledge that the selection of the provider will result in a change in providers of
that service. In addition, the bill directs the FCC to adopt rules that:

Finally, the bill requires the new provider to send "specific and
unambiguous" written notice to the subscriber, within 15 days of the change,
identifying the new carrier and explaining that the subscriber may request information
regarding the name of the individual who authorized the change and the date on which the
change occurred.

The Tauzin bill would increase the FCC’s authority to assess fines against carriers
that have engaged in slamming, and to assess damages to be paid by those carriers to
slammed consumers. The bill would allow the FCC to award the greater of $500 or actual
damages to slammed consumers, and, at the agency’s discretion, to treble any damages
award. In addition, absent mitigating circumstances, violation of the verification
procedures would be punishable by a fine of at least $40,000 for a first offense, and at
least $150,000 for each subsequent offense. The bill also limits the liability of
consumers for charges for services rendered by slamming perpetrators to the amount the
consumer would have owed the original carrier, and the consumer may choose to pay these
charges to the original carrier rather than the unauthorized carrier.

The bill also would require "switchless resellers" to post a surety bond with
the FCC to pay possible fines or penalties for slamming, and would prohibit carriers or
billing agents from providing billing services for switchless resellers that have not
furnished the bond. This surety bond requirement has become one of the more controversial
provisions of the Tauzin bill. Organizations representing resale carriers argue that the
provision discriminates against switchless resellers, creating barriers to entry for small
resellers that will have severe anticompetitive effects on the telecommunications market.

Cramming Provisions

H.R. 3888 also includes several other significant provisions not directly related to
slamming. New Section 231 of the Communications Act would add provisions addressing
so-called "cramming"–the inclusion on a telephone bill of charges for products
or services not authorized by the consumer. The bill prohibits "billing agents"
from submitting charges to a subscriber if the agent "knows, or should know"
that the subscriber has not authorized the charge. The bill also requires billing agents
to include certain specific information on subscriber’s bills. For example, the bill must
identify:

Finally, the bill must alert the consumer that disputes about charges for these
"additional services" will not result in disruption of local or long distance
telephone services.

Spamming Provisions

The Tauzin bill also includes a section regarding "spamming"–the
transmission of unsolicited commercial e-mail. Title III of the bill requires that persons
initiating unsolicited e-mail include in the message information identifying the sender
and notify the recipient that the recipient may choose not to receive any additional
messages. A violation of Title III may result in a fine of up to $15,000. Although
Internet service providers (ISPs) largely are shielded from liability under Title III,
they may be fined up to $15,000 for "knowingly and intentionally" retransmitting
e-mail in violation of Title III.

Other Legislative Proposals

The Tauzin bill differs in several significant ways from both the slamming bill
recently passed by the Senate (S. 1618) and the slamming bill introduced in the House last
November by Rep. John Dingell (D-Mich.) (H.R. 3050). Perhaps most importantly, the Tauzin
bill contains neither criminal sanctions for slammers, as does S. 1618, nor the
controversial "truth-in-billing" provisions attached to the Senate bill by Sen.
John D. Rockefeller (D-W.V.). Section 403 of S. 1618–called the Consumer Truth in Billing
Disclosure Act–addresses the recently adopted practice of telecommunications carriers of
including preferred interexchange carrier charges (PICCs) and Universal Service Fund (USF)
charges as line items on customer bills. Section 403 generally requires that carriers that
include such line-item charges in customer bills also disclose the corresponding fee
reductions resulting from the Telecommunications Act of 1996, such as reduced access
charges. This provision is highly controversial, both because it seems impossible to
implement and of questionable constitutionality.

Dingell’s slamming bill, which is much less expansive than the Tauzin bill, does not
include provisions addressing cramming and spamming and does not single out switchless
resellers for special regulatory treatment. (It is to be noted, however, that Dingell
recently introduced H.R. 3990–the Anti-Cramming Protection Act of 1998–co-sponsored by
Rep. Bart Gordon (D-Tenn.), which exclusively addresses cramming.) Further, unlike either
the Tauzin bill or S. 1618, the Dingell bill divides the responsibility for dealing with
slamming between the FCC and the Federal Trade Commission. Title I of H.R. 3050, which
would amend Section 258 of the Communications Act, generally is intended to improve the
act’s remedies for slamming. Specifically, it would: (1) release slammed consumers from
liability for up to three months of service from the slamming carrier; (2) prohibit
negative option selection of presubscribed carriers; and (3) provide slammed consumers
with a private right of action against the slamming carrier.

The June 23 House Telecommunications Subcommittee hearing addressed the slamming
problem generally and the Tauzin and Dingell bills specifically. The subcommittee
solicited testimony from representatives from the telecommunications industry and
Congress, including representatives Bob Goodlatte (R-Va.), Charles F. Bass (R-N.H.), and
Christopher H. Smith (R-N.J.) as well as Lawrence E. Strickling, FCC Common Carrier Bureau
deputy chief, and spokespeople from the Telecommunications Resellers Association (TRA),
the American Association of Retired Persons (AARP), America’s Carriers Telecommunications
Association (ACTA), the Center for Democracy and Technology, the Commercial Internet
eXchange, e.spire Communications Inc., Direct Marketing Association (DMA) and the National
Consumers League. The subcommittee expected to complete a markup version of a compromise
bill incorporating key provisions of both bills sometime in late July. The anticipated
introduction later this week by Rep. Edward J. Markey (D-Mass.) of yet another bill
designed to combat slamming, spamming and cramming–entitled the Digital Jamming Act of
1998–could complicate this process.

In the meantime, the FCC seemingly has been prepared for several weeks to issue new
rules implementing the slamming provisions of current Section 258. Although the FCC has
long had slamming rules in effect, those rules are limited in scope. The agency likely
will consider the new rules at its July 9 meeting. They are expected to include new
enforcement approaches to the existing rules that will identify slammers much more quickly
and allow the agency to take swifter and more severe action against them. Such action is
likely to include the adoption of a streamlined complaint procedure and the imposition of
significantly larger fines on carriers that have engaged in slamming.

Whether either Congress or the FCC is able to produce in the near term a definitive
word on slamming–or cramming or spamming, for that matter–remains to be seen. Clearly,
Congress is under severe time constraints if it plans to adopt a consensus law this year.
After the August recess, there are only a few legislative days left due to the election in
November. Certainly, however, both Congressional and FCC action toward these hot-button
consumer issues must be expected at some point in the not too distant future.