Whereas, the practice is one that market forces cannot be expected to correct; and
Whereas, in an effort to curtail and eliminate the practice, federal law (47 U.S.C. § 258) requires the Federal Communications Commission (Commission) to adopt rules prescribing procedures for verification of a consumer’s authorization to change the consumer’s telecommunications service provider; and
Whereas, the rules adopted in 1994 (47 C.F.R. 64.1120) permit companies, as one option, to verify a consumer’s authorization for such a change through a process known as “third party verification,” in which an independent third party undertakes to verify by telephone the consumer’s authorization for a change; and
Whereas, under those rules, the third party verification process, although producing a verification recording of the consumer’s ostensible authorization for a change, does not produce a recording of the telemarketer’s communication with the consumer that precedes the verification portion of the call; and
Whereas, consumers have often complained that telemarketers for companies have, during the unrecorded solicitation or telemarketing portion of a call, fraudulently induced the consumer’s ostensible authorization for a change by misrepresenting material facts; and
Whereas, as one complainant observed several years ago: “It’s just too bad you can’t hear the telemarketer’s end of the conversation. Apparently that is where the real fraud is being committed. I suspect if the telemarketer was being taped there would be no need for third party verification because the consumer could not be misled about the service. If the truth is being told and the service being sold is actually better, then consumers would not be complaining about being switched.” and
Whereas, the alleged misrepresentations have included, but not been limited to, misrepresentations that the telemarketer is calling on behalf of the consumer’s local telephone company, the consumer has overpaid the consumer’s local telephone company and must authorize a credit, the change being solicited is a bill consolidation only and not a change of carrier, and the company’s rates are lower (or other terms of service more favorable to the consumer) than in fact they are; and
Whereas, consumers “may be more easily misled in the telemarketing situation than in a face-to-face meeting;” and
Whereas, the most vulnerable consumers, including the elderly, are commonly targeted for and injured by such fraudulently inducements; and
Whereas, the problem has been a source of complaints about the practices of many companies for many years; and
Whereas, the problem most recently reached distressing proportions with the extraordinarily large number of complaints nationwide against Buzz Telecom Corp. in late 2006 and early 2007; and
Whereas, notwithstanding the allegedly fraudulent inducements, companies commonly seek to avoid liability by denying the validity of the complaints and claiming the third party verifications are compliant with federal law and regulation; and
Whereas, the holding in AT&T Corp. v. Federal Communications Commission, 323 F.3d 1081, 1086-87 (D.C. Cir. 2003), which reversed earlier Commission enforcement efforts, appears to support such company denials of liability by holding that the federal slamming statute “only authorizes the Commission to prescribe verification procedures” and that companies “must comply with Commission verification procedures, and nothing more;” and
Whereas, for the reasons explained above, federal law and regulation do not at present adequately protect consumers from such fraudulent inducements during the unrecorded solicitation portion of the calls; and
Whereas, the resulting gap in federal protection for consumers should be filled through appropriate federal action; and
Whereas, nothing in this resolution shall be construed as limiting states’ authority over slamming,
Now therefore be it RESOLVED, that NASUCA supports reform of the third party verification process, including statutory or regulatory changes, or both, as may be necessary to protect consumers from fraudulent inducements during the solicitation or telemarketing portion of the calls.
Be it further RESOLVED, that the NASUCA Telecommunications and Consumer Protection Committees, with the approval of the Executive Committee, are authorized to approach legislative and executive officials within the federal government, as well as interested persons, including but not limited to industry representatives, for the purpose of discussing possible reforms that would satisfactorily address the problem.
Be if further RESOLVED, that possible reforms to be discussed may include, but need not be limited to, the following: (i) enactment of statutory authority under which the Commission can adjudicate a slamming violation in cases in which a company is shown to have induced a consumer’s ostensible consent to a change of service provider through material misrepresentations during the solicitation or telemarketing portion of a call, including authority for assessment of civil monetary penalties for violation; (ii) requiring companies to record the entire call, including the solicitation or telemarketing portion of the call; and/or (iii) eliminating voice verification altogether, in favor of written verification, under the proper circumstances.
Be it further RESOLVED, that the NASUCA Telecommunications and Consumer Protection Committees, with the approval of the Executive Committee, are authorized to take all steps consistent with this resolution in order to seek and secure the needed reform and protection.
“[O]ur experience in this area leads us to the inescapable conclusion that slamming has become a profitable business for many carriers.” Implementation of the Subscriber Carrier Selection Change Provisions of the Telecommunications Act of 1996 (second report and order and further notice of proposed rule-making), 14 F.C.C.R. 1508, 1998 WL 1064770 ¶ 13 (FCC 1998): See also id. (further notice of proposed rule-making and memorandum opinion and order on reconsideration), 12 F.C.C.R. 10,674, 1997 WL 394884 ¶ 4 (FCC 1997): “Carriers have an economic incentive to slam because they have high fixed costs for network equipment and low marginal costs for providing service to additional consumers. Thus, providing service to additional consumers, even without authorization, adds to a carrier’s cash flow with little additional cost. Moreover, carriers may provide service to slammed consumers for a considerable time before the consumers become aware of the unauthorized . . . change.”
“This practice . . . distorts the telecommunications market by enabling companies that engage in fraudulent activity to increase their customer and revenue bases at the expense of consumers and law-abiding companies.” Id. (fifth order on reconsideration), 19 F.C.C.R. 22,926 ¶ 1 (FCC 2004).
Such misrepresentations are material because consumers commonly trust their local company and because such misrepresentations are intended to and do give consumers a false sense of security.
“[S]ome carriers use misleading telemarketing to induce subscribers to change carriers by, for example, telling them that their long distance and local bills will be consolidated. The third party verifiers then close the deal for the slamming carriers by assuring the consumers that they have merely authorized billing consolidation, rather than any carrier changes.” Id. (third order on reconsideration and second further notice of proposed rule-making), 18 F.C.C.R. 5099, 2003 WL 1209690 ¶ 42 (FCC 2003).