BILL ANALYSIS
AB 2799
Page A
Date of Hearing: May 3, 2004
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Sarah Reyes, Chair
AB 2799 (Calderon) - As Introduced: February 20, 2004
SUBJECT : Telecommunications: billings.
SUMMARY : Exempts disclosure requirements in certain
circumstances for consumers who are solicited or request
products or services from their telecommunications provider.
This bill also establishes payment obligations for customers as
a result of contractual obligations or usage of the product or
service. Specifically, this bill :
1)Exempts requirements for written materials or customer
ordering forms to be a certain font size, and to be
conspicuous and legible and written in the same language as
the solicitation material:
a) If the telephone company has mailed written solicitation
materials that allow an existing or prospective customer to
order a product or service by filling out an enclosed but
non binding ordering form, and/or
b) If a customer has requested the information about the
product or service, which can be done to meet the
conditions of the exemption by sending in the ordering form
in (a).
2)Requires telecommunication carriers to only provide disclosure
for the essential terms of the agreement that the customer
signs for a product or service.
3)Requires that any customer contract with terms requiring or
authorizing the telephone corporation to provide the product
or service, or the existence of a pattern of usage of the
product or service, is prima facie evidence of authorization
by the customer.
EXISTING LAW:
1)Requires telephone carriers to furnish their customers with
sufficient information to make informed service and provider
choices. This includes information regarding the providers'
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identity, service options, pricing, and terms and conditions
of service.
2)Requires that customers be able to access a live operator by
dialing the numeral "0" as an available free option.
3)Requires telecommunication carriers to provide customer
service that includes reasonable statewide service quality
standards, including standards regarding network technical
quality, customer service, installation, repair, and billing.
4)Specifies that a telephone bill may only contain charges for
products or services that have been authorized by the
customer.
5)Requires written orders for products and services to be in a
separate document from any solicitation material. Written
orders and solicitations are to be unambiguous, legible, and
in a minimum of 10-point type.
6)Requires any written or oral solicitation materials used to
obtain an order form for a product or service from a customer
must be in the same language as the order form.
7)Requires that a process be developed to quickly resolve
subscriber disputes over charges for a product or service that
was not authorized by the customer. In the case of a dispute
there is a rebuttable presumption that a customer is not found
responsible for the charge if the charge is unverified and not
authorized.
FISCAL EFFECT : Unknown.
COMMENTS :
This bill changes existing law protecting consumers against
cramming by telephone carriers. Existing law requires that a
telephone bill may only contain charges for products or services
that the customer has authorized. Furthermore, existing law
requires telephone carriers to separate a written order form
from any solicitation material and for both of them to be
unambiguous, legible, and be in a minimum of 10-point type.
Existing law requires that all written or oral solicitation
materials used to obtain an order of a product or service to be
in same language as the written order form.
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The code section that this bill seeks to alter originated from
concerns by the Legislature over cramming complaints by
consumers. Cramming is a result of charges that were not
authorized by consumers that were added to their telephone
bills. These unauthorized charges can be added on through
deceptive marketing techniques or through complicated billing
ordering forms.
In the past deceptive marketing tactics like cramming have been
directed primarily to non-English speaking minority communities
like farmworkers to force them to pay for products and services
that they don't need or in some cases never received.
Prior examples of marketing abuses that led to the passage of
legislation preventing cramming was in 1987 where SBC/Pacific
Bell was forced to pay $83 million in fines and consumer refunds
for engaging in deceptive marketing practices. In that case the
California Public Utilities Commission (CPUC) found that the
company had unfairly targeted farmworkers, recent immigrants and
other limited English speakers that could not read their bills
proficiently enough to know that they were being charged for
expensive custom calling features that they neither wanted or
needed.
In the case of other telephone carriers like WorldCom (now MCI)
in 2000 at least seven states filed consumer protection lawsuits
against it for misleading and deceiving consumers with its
advertising and other marketing practices. The Attorney General
of California at that time said that WorldCom's "Five Cents
Everyday" calling plan and other services had misleading
advertisements and that the company was billing customers for
services that were not specifically authorized.
This bill seems to establish different types of disclosure
requirements for consumers depending upon how the consumer
ordered the product or service. This bill, as it reads,
requires that telephone carriers only have to provide proper
disclosure for the essential terms of the agreement that the
customer signs for a product or service.
This bill narrows the requirements of existing law by excluding
proper consumer disclosure under the following conditions, which
are mainly in reference to written or oral solicitations and/or
product or service ordering forms:
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a) If a customer who has received a written solicitation
for a product or service mails back an order form that is
not binding to the telephone carrier. The written
solicitation or the ordering form is not subject to the
disclosure requirements of this bill.
b) If a customer has first requesting more information on a
product or service, which can be satisfied by filling out
the ordering form in the written solicitation that was sent
to them. Anything pertaining to the request for
information or the subsequent information and ordering form
sent by the telephone company would be exempt from the
disclosure requirements in this bill.
Having up front clarity in written or oral solicitations or in
order forms is necessary for consumer protection. Current
industry practice is to have the consumer sign an initial
contract for a product or a service. For example, in the
landline industry a consumer calls the telephone company to
initiate service which entails a credit check and other billing
processing requirements if the consumer has never been with them
before. After receiving the initial service the consumer may
upgrade or purchase new services or products like digital
subscriber service (DSL) by simply calling their telephone
company and ordering the service over the phone without ever
having signed a contract. This can conceivably apply to
ordering any type of service or product as long as the
telecommunication company has your initial billing information.
By eliminating any requirement that written or oral
solicitations or order forms be unambiguous and legible this
bill creates a situation where the consumer is only able to be
protect themselves from deceptive marketing tactics during the
initial contract agreement process.
This bill requires that the burden of proof lay with the
consumer regarding whether a product or service was authorized
through a contract or through a pattern of usage. This bill
puts the onus on the consumer to know before signing the
contract on what the financial consequences may be for any
violation.
Existing law specifies that in the case of a dispute regarding
an unverified charge for a product or service not being
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authorized the consumer is assumed to not be responsible for the
charge unless the telephone carrier can rebut the claim. This
doesn't apply to consumers who use direct dialed
telecommunication services because the fact that they dialed the
number shows they authorized the service.
This bill only requires contracts to be in same language as the
solicitation materials, which doesn't help minority communities
to better understand what they are agreeing to purchase. This
bill deletes the requirement that telephone carriers be required
to provide written order forms for products or services in the
same language that was used to market them, regardless of
whether the marketing was done through mail or phone. This was
enacted to prevent marketing abuse by telephone carriers against
minority communities who were sold a product or service in their
native language but received the order form in English, which
prevented them from being properly informed before filling it
out.
This bill does require a consumer to be provided with a contract
in the same language as the solicitation materials but doesn't
specify whether this requirement should apply to just written
solicitations or all types.
Landline carriers are concerned that the change in existing law
to require that contracts must be in the same language as the
solicitation might be too cost prohibitive and unworkable. Some
landline carriers have expressed concern regarding the language
in this bill that requires contracts signed by the consumer to
be in 10-point type and in the same language as the
solicitation. The concern stems from how a multinational
telecommunications company who markets to a broad range of
ethnic communities is going to be able to track what language
the marketing solicitation was in and match it with the contract
sent to a existing or prospective customer.
If this bill were passed the end result may be to force
telecommunications companies to only market in one language,
which would be English, to prevent not being in compliance with
the statute. If this results it would hurt minorities and
non-English speaking communities because they would not be able
to accurately decipher or comprehend the details of products or
services that are being offered to them possibly creating more
opportunities for deceptive marketing tactics.
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The main intent of this bill is to remove constraints that are
imposed on wireless service providers as a result of existing
law or proposed CPUC regulations. Wireless carriers currently
operate under a competitive market with minimal state regulatory
interference. The statute that this bill is trying to amend has
been in place to govern consumer disclosure requirements for
telecommunication services and products since the passage of SB
378 (Peace), Chapter 1041, Statutes of 1998, which established
rules to prevent cramming.
The wireless carriers are seeking to target this section of the
Public Utilities Code because of a quasi-legislative regulatory
proceeding under way at CPUC. In 2002 CPUC issued a draft
decision and a proposed general order on " Rules Governing
Telecommunications Consumer Protection" that used as one of its
foundation the code section that this bill seeks to alter.
Currently, CPUC has yet to vote on the revised draft decision on
the Consumer Bill of Rights but according to the wireless
industry the costs that are likely to be associated with
compliance of the rules is estimated to be about $5.74 per
subscriber per month. Given that the average revenue per
customer per month for the wireless industry was about $53.76 in
2002, the costs associated with compliance is equivalent to 20
percent of revenues for the companies.
The industry points out that this bill makes clarifying
technical changes to existing law to provide for reasonableness
and pragmatism with regard to its application. Under existing
law Section 2890 (b) requires all forms of advertising, whether
it be on buses, billboards or on television, to be in 10-point
type. The industry points out that the font size requirement
defeats the purpose of advertising, which is to provide
information to the public to assist them in making choices.
Key point to note is that existing law doesn't preclude
advertisements from being larger than 10-point type. The
proponents argue that existing law limits their ability to
advertise to customers because of the 10-point type requirement.
While it is understandable that any statute requiring
advertisement on billboards, buses, or other venues to be
10-point type is ridiculous the existing law specifically says
the following, "written orders and written solicitation
materials shall be unambiguous, legible, and in a minimum of
10-point type."
AB 2799
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Opponents argue that proper disclosure requirements and other
rules of the road are necessary in even the most competitive
marketplace. The opponents point out that already the sales of
most products and services - such as food, appliances, airline
seats, financial services, stocks and bonds, and health care -
are governed by consumer protection and disclosure regulations.
These regulations give consumers better information about price
and service quality and allow them to easily move from one
competitor to another, making markets more competitive and
efficient.
The statutory construction of this bill should be made better.
Committee staff recommends that Section 2890 (b) of this bill be
broken into separate paragraphs to make it more legible.
REGISTERED SUPPORT / OPPOSITION :
Support
Verizon Wireless (sponsor)
Cellular Telecommunications & Internet Association
Opposition
None on file.
Analysis Prepared by : Daniel Kim / U. & C. / (916) 319-2083