July 2017 FCC Meeting Recap: FCC Plans to Strengthen and Expand Slamming” and Cramming” Rules

At its July 2017 Open Meeting, the Federal Communications Commission (“FCC”) adopted a Notice of Proposed Rulemaking (“NPRM”) designed to strengthen and expand consumer protections against “slamming” and “cramming.” Slamming is the unauthorized change of a consumer’s preferred service provider, while cramming is the placement of unauthorized charges on a consumer’s telephone bill. As we reported in our Open Meeting preview, slamming and cramming represent a major source of consumer frustration and a common focus of recent FCC enforcement actions. The NPRM is the agency’s first attempt in five years to strengthen the rules around slamming and cramming – and is the first attempt to specifically define cramming in its rules. Moreover, the agency asks whether these rules should apply to wireless carriers (especially prepaid wireless) and to VoIP providers, potentially expanding the reach of the rules significantly. Wireless carriers and interconnected VoIP providers should therefore pay close attention to the potential compliance obligations and marketing restrictions proposed in the NPRM.

The NPRM highlighted abuses of the third-party verification (“TPV”) process, where carrier agents call consumers to “verify” service provider switches. These agents often misrepresented their identity and the purpose of the TPV call, or prompted consumers to answer questions about unrelated matters (e.g., fake package deliveries) to fabricate consumer consents for provider switches.

The FCC proposes five major reforms in the NPRM:

  1. Banning Unauthorized Charges and Misrepresentations: The FCC proposed new rules that explicitly prohibit cramming and misrepresentations by slammers and their sales agents. Although the FCC previously punished violators for such actions under its general consumer protection authority, it stated that clear prohibitions would deter violators, provide clarity to consumers, and aid enforcement. The explicit prohibitions address criticisms from Commissioner O’Reilly of past enforcement actions imposing large fines for cramming and misrepresentations in the absence of clear rules. The FCC indicated that any misrepresentation made during a sales call would invalidate any subsequent consumer consent to switch. The FCC also asked whether cramming and misrepresentations represented enough of an issue for commercial wireless and interconnected VoIP customers to justify expanding the proposed rules to cover these services.
  2. Default Carrier Freezes: The FCC proposed requiring carriers to automatically “freeze” a consumer’s choice of preferred service provider until the consumer affirmatively consents to a switch. Current FCC rules place the burden on consumers to request a freeze. Current rules also require consumers to request a separate freeze for each service they receive from a provider. The proposed rules would eliminate this distinction and impose the freeze on all services received by a consumer. The FCC sought comment on how best to notify consumers of the default freeze and what steps the consumer must take to lift the freeze. The FCC also inquired whether the default freeze would frustrate legitimate provider switches.
  3. Third-Party Billing Block: The FCC proposed requiring carriers to automatically block third-party fees for local and long-distance services – a frequent source of crammed charges. Consumers would need to affirmatively opt-in to be billed for third-party services. The FCC sought comment on the mechanics of the opt-in process, including whether the opt-in should last indefinitely or expire after some time period. The FCC also inquired whether current third-party billing of consumers should be grandfathered or require new subscriber consent. The FCC acknowledged that changes to subscriber billing systems can be expensive and requested information regarding the costs of updating existing systems. The FCC indicated that most cramming complaints do not involve wireless carriers or interconnected VoIP providers and asked whether the third-party billing block should be extended to these services.
  4. Double-Checking Consumer Switches: The FCC proposed lifting the ban on carriers “double-checking” with their subscribers about whether they want to switch providers before processing a switch. This would give consumers another opportunity to avoid slamming. The FCC previously prevented carriers from performing this double-check, worried they would delay processing switches to try and convince subscribers to stay with their current providers. Consequently, the FCC sought comment on whether service providers should be allowed to engage in retention marketing when performing the double-check. The FCC noted that Section 222(b) of the Communications Act prohibits carriers from using “proprietary” information from another carrier for its own marketing efforts and that switch requests represent proprietary information. But Section 222(b) contains an exception permitting the use of proprietary information to combat fraud, and the FCC tentatively concluded that this exception authorized the proposed double-check.
  5. TPV Reforms: The FCC proposed requiring carriers that rely on TPVs to record the entire sales call leading up to a provider switch to discourage misrepresentations. The FCC indicated that such recordings would be a major resource in enforcement actions. The FCC also asked whether it should go further and ban TPVs entirely in light of prior abuses.
Wireless and VoIP Providers To Be Added?

While the FCC’s initial NPRM draft focused on strengthening protections for traditional landline telephone service subscribers, the final NPRM proposes expanding the protections to cover commercial wireless services (including prepaid services) and interconnected VoIP services. As a result, the FCC may significantly increase both the number and types of service providers subject to its slamming and cramming rules.

Looking Ahead

While slamming and cramming have always been illegal, the new restrictions on consumer marketing and billing proposed by the FCC and their potential expansion to new types of services warrants close attention. The Commission’s proposals could reduce the availability of third party billing as an option for information service providers. In addition, for carriers, the Commission proposes several change to telemarketing sales procedures that have been static for nearly two decades now. Finally, the FCC’s proposals could result in significant new compliance obligations and enforcement exposure for wireless carriers and interconnected VoIP providers. However, it remains to be seen how much of a problem slamming and cramming is for these services and whether the FCC will alleviate some or all of the obligations as they apply to these services.

Comments on the NPRM will be due 30 after its publication in the Federal Register and reply comments will be due 60 days after publication in the Federal Register.