The Enforcement Bureau began its investigation of CenturyLink back in 2016, focusing on charges included on customer bills for services provided by third-party resellers. Consumers alleged that they never authorized such charges and encountered challenges when seeking refunds with CenturyLink. Under the Consent Decree, CenturyLink agreed to pay $550,000, to cease nearly all third-party billing, and to implement a refund process for affected customers.

The settlement with CenturyLink is notable for several reasons.

First, this is the first pure cramming case of current Enforcement Bureau Chief Rosemary Harold’s tenure, and the first one involving third-party charges since a series of actions against major carriers between 2014 and 2016. Prior enforcement actions under this Bureau Chief have addressed entities that engaged in both slamming and cramming. In those cases, the accused carrier was billing its own charges and was accused of cramming because the underlying switch was itself unlawful, meaning that the charges were not authorized. The CenturyLink action, by contrast, returns to carrier billing of third-party charges. Third-party charges on telephone bills have been controversial since at least 2011, and the investigation here once again proceeded on the theory that improper billing of third-party charges can be an unjust and unreasonable practice under Section 201(b) of the Communications Act. Along with the 2018 rule change adding cramming as a rule violation, the Commission’s action underscores that carriers have a responsibility to ensure that third-party charges placed on telephone bills are properly authorized.

Second, many of the compliance plan obligations in the CenturyLink Consent Decree will last for four years (instead of the regular three-year term), likely reflecting the long-term structural changes to billing processes required from the company.

Finally, unlike past Consent Decrees under the previous Enforcement Bureau Chief, the CenturyLink settlement contains no admission of liability by the company and instead affirmatively states that it does not represent any finding of noncompliance. This suggests that the former Bureau Chief’s steadfast (and controversial) insistence on admissions in prior FCC settlement negotiations may be waning and that the current Enforcement Bureau may be more open to consider alternative Consent Decree provisions in cramming-related and other enforcement actions in the future.

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.

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.

OneLink. On February 12, 2016, the FCC announced a $29.6 million proposed fine against four related companies — OneLink Communications, Inc.; TeleDias Communications, Inc.; TeleUno, Inc.; and Cytel, Inc. (“the Companies”) — for apparently fraudulent, deceptive, and manipulative practices targeting consumers with Hispanic surnames. The FCC alleges that the Companies “slammed” consumers by switching their long distance carrier without the required authorization and “crammed” unauthorized charges after switching carriers onto consumers’ bills. Notably, the NAL alleges that the Companies fabricated recordings and then submitted these false recordings to the FCC as proof that consumers authorized the change in long distance carriers. The FCC reviewed more than 200 consumer complaints against the Companies, 142 of which alleged apparent “slams,” “crams,” and misrepresentations within the 12 months prior to the release of the NAL. Bureau staff also contacted 50 consumers to discuss their complaints.

The NAL proposes to fine OneLink $8,020,000; TeleDias $7,660,000, TeleUno $9,620,000, and Cytel $4,300,000, totaling $29.6 million. The FCC finds the Companies apparently liable for violating Section 201(b) by making misrepresentations in connection with marketing calls to consumers, submitting falsified audio “verification” recordings, and placing unauthorized charges on consumers’ telephone bills. The FCC also finds the Companies apparently liable for violating Section 1.17 of the Commission’s rules for providing the Commission with false or misleading material information as well as Section 258 of the Communications Act of 1934, as amended (in addition to Section 64.1120 of the Commission’s rules) for submitting requests to switch consumers’ preferred long distance carriers without the proper authorization or verification.

Notably, the NAL also states that in light of the Companies’ “egregious misconduct,” the Commission would consider initiating proceedings against the Companies to revoke their FCC authorizations once the Companies had an opportunity to respond to the NAL. The Commission has revoked a carrier’s authorization in only two instances, once in the late 1990s for entities accused of slamming and once last year for a company’s failure to comply with its National Security Agreement with the US Government. If the FCC proceeds down this path with OneLink, it will be a significant action by the agency.

Calling 10 and TelSeven. On February 18, 2016, the FCC issued Forfeiture Orders imposing a $1,680,000 fine against Calling 10, LLC, Telseven, LLC (“Calling 10” or “the Companies”), and the Companies’ joint owner, for “cramming” charges for their service on consumers’ local telephone bills and for deceptively marketing an “Enhanced Number Assistance and Directory Assistance” service. Separately, the FCC issued a Forfeiture Order against Telseven and the Company’s owner, proposing a monetary penalty of $1,758,465 for failure to contribute fully to the USF, the cost recovery mechanisms for local number portability (“LNP”) and the North American Numbering Plan (“NANP”), failing to pay regulatory fees, and failing to provide good faith estimates of its revenues in its Quarterly Telecommunications Reporting Worksheet filings (“Form 499-Q”).

The Forfeiture Orders are notable for their pursuit of personal liability against the owner of the two companies. The Forfeiture Order confirms the penalty proposed in a 2012 NAL, and finds Calling 10 and its owner apparently liable for violating Section 201(b) for “cramming” charges on consumers’ bills, as well as misleading and deceptive practices. Both Calling 10 and Telseven were in bankruptcy at the time of the NAL and thus did not respond. However, the Companies’ owner timely responded to the Commission in his individual capacity, stating that the Commission should rescind the proposed Forfeiture Order as to him because the Commission incorrectly applied the “piercing the corporate veil” test. The Commission disagreed. As a result, Calling 10, Telseven and their owner were found jointly and severally liable for the entirety of the forfeiture proposed in the NAL.

DSM Supply, LLC and Somaticare, LLC. On February 18, 2016, the FCC released a Forfeiture Order imposing a monetary penalty of $1,840,000 against DSM Supply, LLC, Somaticare LLC (collectively, “DSM Companies” or the “Companies”) and the Companies’ owner for sending 115 unsolicited faxes to 26 consumers. As with the Calling 10 and Telseven orders, the agency’s action includes a finding of personal liability by the company’s owner. The Forfeiture Order affirms the 2014 NAL which found the DSM Companies and its owner apparently liable for violating Section 227(b)(1)(C) of the Communications Act of 1934, as amended. Under the Forfeiture Order, the DSM Companies and its owner are also apparently liable for violating Section 64.1200(a)(4) of the Commission’s rules for sending fax advertisements without the prior express invitation or permission of the recipients, and failing to meet the requirements for advertisements faxed under an established business relationship. None of the parties filed a timely response to the NAL, but the DSM Companies sent the Commission a response seven months after the filing deadline. The Companies’ NAL response contested certain facts in the NAL, sought a retroactive waiver, and also asked the FCC to remove the Companies’ owner from the current action. The FCC rejected these arguments and found the Companies (as well as the owner) jointly and severally liable for the full penalty proposed in the NAL.

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.

The FCC has an inconsistent history in addressing cramming -- it still does not have any required verification rules for placing charges on telephone bills, for example. Yet the FCC has taken occasional enforcement actions, proposing significant fines or settling cases for significant amounts. This public notice provides an opportunity for the FCC to clarify, for carriers and third-party providers alike, the extent of a service provider's duties with respect to charges billed on telephone invoices.

The FCC's action comes after its April 2012 Further Notice of Proposed Rulemaking in the cramming docket. In that FNPRM, the FCC sought comment on two primary issues: (1) whether to require consumer "opt-in" to permit third party charges on telephone bills, and (2) whether to adopt rules to address cramming on wireless bills. Comments were received last summer on these two issues.

In April and May of this year, both the FCC and the FTC held workshops to discuss cramming issues. In addition, Vermont commissioned a study of wireless charges that it claims indicate the problem of cramming is widespread on wireless invoices. (Wireless carriers, not surprisingly, do not agree).

The FCC's public notice seeks comment on the Vermont study and other recent developments. The public notice asks for additional comment on the "extent to which consumers may continue to be unaware that third-party charges can appear on their wireline and CMRS bills and about their ability to successfully resolve disputes regarding unauthorized third-party charges." The comment date will be set after publication of the notice in the Federal Register. Most likely, comments will be due in late October, by which time most observers expect Chairman Wheeler to have assumed office.

For wireless carriers and app developers using carrier billing, this proceeding could be very important. Check back here for updates on this proceeding.

2011 has been highlighted by an active FCC using Section 201(b) of the Act to engage in consumer-focused enforcement. Although the FCC's authority to use 201(b) in this way is in doubt, the lesson for carriers is clear, especially in the prepaid market. Carriers should clearly and conspicuously disclose all material terms and conditions of their services. Failure to do so risks claims of deceptive marketing or cramming.

The latest Notice of Apparent Liability was issued against Simple Network, Inc. The NAL largely tracks the previous four NALs. Simple Network's disclosure is slightly different than the disclosure in the other four cases, but the FCC reaches the same conclusion that the disclosure is not prominent enough (para. 9) and is too vague (para. 10). The NAL also dismisses Simple Network's listing of a toll-free number to obtain rate information, stating that this information is not available at the point of sale.

In the end, the FCC appears most skeptical of any assertion of a large number of minutes available only on a single call. The five carriers identified so far have all explained how those minutes may be obtained by consumers, but the NALs conclude that the explanations are not sufficient. Prepaid card providers should compare their disclosures with the five disclosures found insufficient so far.