FCC Proposes $5.2 Million Forfeiture for Cramming, Slamming and Billing Violations

For the second consecutive year, the FCC has increased the fines it proposes for slamming and related violations. On January 24, 2014, the FCC proposed to fine U.S. Telecom Long Distance, Inc. (USTLD) over $5 million for deceptive marketing and billing practices. The USTLD Notice of Apparent Liability alleges that the company engaged in (1) misleading marketing practices, (2) slamming (unlawful switching of presubscribed carriers without authorization), (3) cramming (unlawful billing of services without authorization) and (4) Truth-in-Billing rule violations. Although the NAL addresses practices that are not new, the NAL is noteworthy in its use of increased fines (called upward adjustments” in FCC enforcement practice). As discussed below, the FCC proposes substantial upward adjustments for extensive violations” and for violations that cause substantial harm” to consumers and the elderly. These upward adjustments for slamming violations appear to be part of a trend to increase the overall size of FCC enforcement actions in recent years.

In the USTLD NAL, the allegations are not too uncommon. The FCC alleges that USTLD telemarketers misrepresented the nature of the call, alleging that USTLD representatives falsely claimed to be with the consumer’s current long distance provider and were offering a new service or new package to the consumers. The FCC also alleged that USTLD did not obtain authorization to change carriers, but only authorization to switch services. (See our prior post on the FCC’s stance on such statements in third-party verifications (TPVs)). In addition, the FCC alleges that USTLD billed customers for services after they cancelled service (and thus engaged in cramming), and that USTLD’s invoices did not sufficiently describe the services which were being billed (and thus violated the Truth-in-Billing rules). The FCC’s fines for these violations are in line with the fines it has proposed in the past -- generally, $40,000 per slamming, cramming or Truth-in-Billing violation, with $120,000 fines for egregious” violations.

The FCC’s use of upward adjustments, however, is new and noteworthy. Following an approach it first proposed in late December in a case that is very similar factually, the FCC proposes two large upward adjustments in the USTLD NAL.

First, the FCC proposes an upward adjustment of $2 million because USTLD’s actions were egregious and repeated” practices. The Commission cited to its previous warnings that it might impose substantial and significant penalties in order to deter improper conduct as justification for the increased penalty in this case.

Second, the FCC proposed an additional upward adjustment of $750,000 for conduct that caused substantial harm” to consumers and, in particular, to the elderly or disabled. Citing to complaints alleging that USTLD deliberately exploited elderly and disabled consumers’ obvious confusion and inability to understand the sales pitch they heard,” the FCC proposed an upward adjustment to reflect the substantial harm that is caused by such practices.

These two upward adjustment are similar to adjustments the FCC made in a December 2013 NAL against Consumer Telcom, Inc. for similar practices. The size of these fines are larger than in Consumer Telcom, apparently due to the sligthly larger number of violations alleged in USTLD. It appears to this observer at least, that the FCC does not have a set formula for these upward adjustments. However, the amounts appear to be chosen to increase the fine while keeping the overall forfeiture below levels that might exceed the statutory maximum for a single violation (of $150,000 per violation). For example, the USTLD NAL discusses a total of 45 alleged violations (3 slams, 32 crams and 10 Truth-in-Billing violations); the maximum penalty for these 45 violations would be $6.75 million, and the upward adjustments bring the total penalty to $5.23 million.

Finally, the USTLD NAL contains yet another warning of potential increased fines in the future. In a footnote, the FCC notes that it asserts a violation only for a slam” in which the customer is actually switched. In the future, the FCC warned, it intends to assert violations both for successful slams” and for instances where the provider submits an unauthorized carrier change order but the order does not go through or is reversed by the local carrier. In other words, look for even more violations, and thus larger fines, in future enforcement situations.