BILL ANALYSIS
AB 2799
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Date of Hearing: May 6, 2004
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Sarah Reyes, Chair
AB 2799 (Calderon) - As Amended: May 6, 2004
SUBJECT : Telecommunications: billings.
SUMMARY : Requires only the essential terms of an agreement for
telephone services to be disclosed as specified if it
accompanies a written solicitation for a product or service.
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)Requires only the essential terms of the agreement of an
ordering form for a product or service that comes with any
written solicitation material to be clear, conspicuous,
legible in the ordering form, in a minimum of 10-point type,
and written in the same language as the solicitation material.
2)Requires that any customer contract with terms requiring or
authorizing the Telephone Company 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.
3)Defines pattern of usage to mean conduct of a series of acts
over a period of time, however short, evidencing a purpose to
use the product or service.
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'
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
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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.
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.
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In the past deceptive marketing tactics like cramming have been
directed primarily to non-English speaking minority communities
like farm workers 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 farm workers, 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.
The purpose of this bill is to change existing law by making
specific disclosure requirements apply only in the order form.
The sponsors of this bill, Verizon Wireless, wants to change
existing law, which requires that all written materials and
order forms be unambiguous, legible, and in minimum of 10-point
type. This includes written or oral solicitation materials used
to obtain an order for a product or service to be in the same
language as the written order.
What this bill does: This bill requires that only the essential
terms of the agreement be clear, conspicuous, and legible in the
order form and in 10-point type when a telephone carrier mails
written solicitation to a customer that includes an order form
for a product or service. Furthermore, this bill only requires
the essential terms of the agreement to be in the same language
as in the solicitation material.
Some of this bill's requirements are unworkable because it will
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be difficult if not impossible for telephone carriers to track
the language of each solicitation and match it up with the
requirements in this bill and for CPUC to enforce that it is
being done properly.
Having up front clarity in written or oral solicitations is
necessary for consumer protection. By eliminating the
requirement that all written or oral solicitations be
unambiguous and legible this bill creates a situation where it
only applies in a limited number of cases.
In the telephone industry, a consumer initially establishes
service through a service order and credit check. Any further
purchases by the consumer for products or services are
considered amendments to the original contract and do not always
need the consumers written permission.
The process to order services or products is structured in this
way to make it easy and hassle free for customers but this also
opens the door for customers to be taken advantage of by the
telephone carrier cramming unauthorized or unnecessary charges
in a customers bill.
State and federal laws and CPUC and FCC regulations try to
prevent telephone carriers from cramming but it is equally
important that consumers be given as much information as
possible up front in a clear and unambiguous way so that they
can protect themselves as well.
This bill requires that any charge be deemed authorized by a
customer if there is a contract or a pattern of usage of the
product or service. Existing law requires that a process be
developed to expeditiously resolve subscriber disputes over
charges for a product or service that was not authorized by the
subscriber. Existing law specifies that in billing disputes the
burden of proof is on the telephone carrier to show that the
consumer authorized the service.
This bill would shift the burden of proof for the consumer to
prove in a billing dispute process that the charges were not
authorized. This bill effectively reverses the current practice
of supporting the consumer if he/she say's that a charge wasn't
authorized based on the fact that the consumer signed a contract
or that a pattern of usage as defined in the bill can be shown.
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This bill excludes Telephone Carriers that sell services or
products through company stores or franchises to meet the
disclosure requirements. This bill specifies that the
requirements for essential agreements to be clear, conspicuous,
legible in the order form and in 10-point type only applies when
a telephone carrier mails written solicitation materials to a
customer.
Current law requires the disclosure provisions to apply when a
person or corporation obtains a written order for a product or
service regardless of whether it was mailed or picked up by a
customer at a company store or franchise location.
The unintended consequences of this bill would be to place
higher disclosure requirements on landline telephone carriers
because they primarily rely on mail and phone solicitations to
market product or service orders to consumers. Wireless
carriers, who are the ones that use store locations or
franchises, to sell products or services would be exempt from
the requirements of this bill.
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, Statute 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.
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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."
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.
Support
Verizon Wireless (sponsor)
Cellular Telecommunications & Internet Association
Nextel
Verizon Communications
Opposition
TURN
Analysis Prepared by : Daniel Kim / U. & C. / (916) 319-2083
AB 2799
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