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LEGAL LINE
By Ed Maldonado, Esq., Maldonado & |
Dear Legal Line,
Do I have a news flash for you! I just read news reports about the
consumer “Bill of Rights” (see page 16 for details)
for wireless carriers recently enacted in California. Apparently
it places a lot of new obligations on the wireless carriers on disclosures
and billing. I provide my own prepaid cards, long distance services
(mostly ANI recognition) and distribute cellular in California for
a national provider. It’s a big market for me. It looked very
ominous in the way the CPUC passed this on a mere 3-2 vote, so I
was wondering why now. The issue has been hanging around the CPUC
for years and we didn’t anticipate that they would move on
it. Can they do this or can prepaid cell providers fight this still?
Better yet, tell me how this may affect my cost in doing business
because I can’t afford to lose the business.
-- Need2know & Need2grow
Dear Need2grow,
Well… you may want to sit down because I also have a news
flash. The May 27th 2004 California Consumer Bill of Rights is not
limited to just wireless companies. It applies to all telecom service
providers operating in California, including prepaid calling cards.
If you read the full Order, you can see the CPUC was crystal clear
on the issue: “The rules approved today apply to all forms
of telecommunications service: local and long-distance, wire line
and wireless, and prepaid phone cards and services” (CPUC
Docket#R-00-02-004). So as far as its effect in California, the
Consumer Bill of Rights, and its new rules on providers, will definitely
touch upon prepaid local, prepaid long distance, and prepaid cellular.
Exactly how the CPUC will apply the Bill and to whom are currently
the pressing questions, and, the source of some confusion.
Issues surrounding the enactment of the Consumer Bill of Rights
have been somewhat blurred by media attention to a lawsuit filed
by two CA consumers against AT&T Wireless. The gist of that
lawsuit is that AT&T oversold their network capacity to the
extent that user service was horrible, and then charged an exorbitant
early termination fee (up to $175USD) under their service agreements
when consumers bailed because of the bad service. The suit is based
on California “citizen attorney general” type of claim
wherein private citizens can initiate litigation on behalf of California
consumers similar to the attorney general. While the lawsuit and
the Bill are separate events, both went public on the same day and
literally fed-off one another like a California brushfire. For this
reason, most media commentary on the Bill has focused on cellular
consumers aspects of the Bill. However, the language of the order
enacting the Bill of Rights concerns “all forms of telecommunications
services” and specifically mentions prepaid.
In a nutshell, the California Consumer Bill of Rights addresses
five basic areas that carriers must adhere to for consumer protection
purposes within the next six months. By carriers, the CPUC refers
to prior CPUC orders that define most providers of telecom services
in California as IXC carriers or resold service carriers. Specifically,
the Bill addresses: Carrier Disclosure Requirements on Service Agreements;
Prohibition on certain Marketing Practices; Protocol and Prohibitions
on Billing; Late-Payment Penalties; Rules on Back Billing, and Prorating;
and Procedures for Tariff Changes, Contract Changes, Transfers,
Withdrawals and Notices. Obviously, not all of these requirements
touch upon the prepaid services offered by most prepaid providers.
However, there are a few requirements that should be paid close
attention because of their likelihood of impacting prepaid: Carrier
Disclosures, Marketing Practices, and Billing of Regulatory Fees
and Taxes.
Let’s begin with Carrier Disclosures on Service Agreements.
The Bill of Rights Order generally places a prohibition on consumer
“service” agreements wherein carriers may not incorporate
any other information (rates and surcharges) by reference, except
for the terms and conditions from a CPUC-approved tariff, information
contained brochures (written in a minimum of 10-point type) when
provided simultaneously with the service agreement or contract,
and information that is used with formulae identified in the agreement
in order for the consumer to calculate the applicable rate or charge.
The use of “service” agreement is open ended enough
to apply to contracts for prepaid services, either local or long
distance prepaid services, where and when you use a written agreement
with your California consumer. The key point for compliance here
is that rate disclosures must be made in a single unified manner
on the service agreements. If you are not doing this, you need to
re-evaluate your practices, contracts or policies.
Also related to Disclosures and your practices as a carrier, you
must now post your current tariffs, any pending changes, and key
rates, terms and conditions on the Internet to keep consumers updated.
While the Bill specifically refers to an Internet posting, it is
not entirely clear where that Internet posting will be. Will it
be a CPUC site or the carrier’s site? Currently, most California
carriers opt to be de-tariffed, with only a few tariffs filed with
the CPUC, so this is a potential and significant regulatory change
for the CPUC. Since the rules were just passed, I expect that more
clarification on this will be available after July 1, 2004. Keep
your eye out for this.
Also under the Bill’s Disclosure requirements, this posting
must include all service offerings for which there are current customers,
and those which are no longer available to others must be clearly
indicated as such. You also must now provide the address and toll-free
telephone number of the CPUC's Consumer Affairs Branch and a toll-free
number and address for the carrier that the consumer can call or
write to reach the carrier regarding inquiries, disputes, and complaints.
Additionally, you must provide a description of customers' privacy
rights and how you handle confidential consumer information, and
provide information regarding state and federal laws that protect
the privacy rights of residential telephone consumers with respect
to telephone solicitations. Again, if you are not doing this, you
need to re-evaluate your practices and make some business decisions.
Now let’s talk about the Bill’s prohibitions and requirements
on Marketing Practices because I believe that these requirements
will have a greater impact on your prepaid businesses. Related to
general marketing of telecom services, the Bill prohibits any solicitation
offer by a carrier that is deceptive, untrue, or misleading, and
statements, in any form, about rates and services. What constitutes
the substance of this is open for interpretation. What is clear
though is that the Bill applies CPUC regulation over licensed carriers
for misleading and untrue statements in solicitation. Two possible
consequences of this could be that the CPUC will more actively regulate
this type of activity or that it may be used in private causes of
action to show a breach of regulatory responsibility (probably in
California “citizen attorney general” types of claims).
Also contained in the Marketing Practices section of the Consumer
Bill of Rights is a mandate that any written authorization for service
must be a separate document from any solicitation materials, and
may not constitute entry forms for sweepstakes, contests, or any
other program that offers prizes or gifts. Many Prepaid Providers
in the industry have used contests with promotional prizes and gifts
as a part of their cards as a means of generating business, or,
keeping ongoing customers. While the Bill does not eliminate such
promotions, the requirements now mandate that contests with prizes
must be separate from the solicitation and written authorizations
for service.
Not many prepaid service providers offer their customers with actual
bills or service statements. There are, however, instances where
a prepaid provider may give a statement or a bill to a consumer.
The online sale of PINs paid with a credit card is a good example
of a statement that is arguably a bill. Likewise, certain services
such as POS and POSA give receipts that itemize prepaid services,
charges, fees and taxes, and are arguably much like a bill for a
prepaid service. This leaves application of the Bill elements of
the CPUC rules open for application to the prepaid industry.
In relation to Billing, the California Bill of Rights requires that
bills must be clearly organized and may only contain charges for
products and services authorized by the consumer. All mandated government
taxes, surcharges, and fees required to be collected from consumers
and to be remitted to federal, state, or local governments must
be listed in a separate section of the telephone bill entitled "Government
Fees and Taxes," and all such charges must be separately itemized.
This section of the bill must not include any charges for which
the carrier is not required to remit to the government the entire
amount collected from customers. Carriers must not label or describe
non-government fees or charges in a way that could mislead consumers
to believe those charges are remitted to the government.
Now that I’ve discussed some of the possible ways the CPUC
Consumer Bill of Rights may affect your prepaid business, let’s
talk about challenges from the industry against the Bill. Unlike
the state legislature enacting a new law governing the topic, the
CPUC is introducing the Bill under its rulemaking powers to regulate
Disclosure. This is a topic within the scope of the CPUC’s
authority primarily because it is not regulating charged rate or
quality of interstate service, it is regulating what is disclosure
by carriers to California consumers. States are not preempted from
regulating the consumer disclosure and fraud issues of prepaid phone
cards or services. In this case, the California Consumer Bill of
Rights does not regulate the reasonableness or lawfulness of phone
card rates or charges. It merely regulates disclosures to consumers
when services are sold in their jurisdiction.
In this case, the Consumer Bill of Rights seems likely to pass constitutional
muster if challenged in court. There is no conflict with this Bill
and IXC disclosure requirements of the FCC under 47 CFR Sec. 63.21
or 47 CFR Sec. 42.10(a) for non-dominant reseller, a category which
the majority of Prepaid Phone Card companies fall into. In fact,
the Internet posting elements seem to reinforce the spirit of these
federal regulations. It also appears that when it comes to disclosures
and fraud, the FCC seems to avoid the responsibility of policing
prepaid calling cards and consumer issues. Test it out: Try contacting
the FCC 1-800 consumer line with a complaint about a prepaid card’s
disclosures or misleading sales. The FCC actually refers the consumer
back to their local State Attorney General and Public Utility Commission.
While a consumer can make a complaint against a common carrier (a
214 holder) that can result in fines levied by the FCC, there are
few documented cases of FCC forfeiture fines against prepaid phone
card companies. So the Disclosure elements of the Consumer Bill
of Rights seem to balance with the scope of authority of the CPUC,
and subject matter consumer disclosures under supplemental jurisdiction.
Therefore, legal constitutional challenges in the courts may not
be the way for the industry to address the whole matter. This, however,
does not leave out lobbying efforts.
Since the Bill is basically rulemaking by the CPUC, as opposed to
a new law, there are two methods of lobbying that could be initiated
to curb or limit the application to the prepaid industry. One is
lobbying the CPUC directly. Since much of the Bill is open-ended,
the exact interpretation and application of the Bill into the prepaid
industry is still yet to be defined. Active participation in Public
Comment can be quite important for participants in the prepaid industry.
The second method is to lobby the California legislature to carve
out some distinctions via a law specifically geared to prepaid phone
card disclosures. The caveat with this type of activity is that
the consumer interest lobby is relatively strong in California and
this could result in more problems than advantages for prepaid businesses.
The Bill, as written, does provide for many protections in required
disclosures that consumers have been demanding for years. This,
in itself, will be hard to beat. However, an industry driven initiative
would definitely place the issue in the minds of legislators and
the regulators in California as something worth more debate and
consideration. In any event, I think that if the prepaid cellular
industry and the prepaid calling card industry where to join forces
to lobby, now would be the time and California would be the place.
So it is not too late to organize and respond, Need2grow, the question
is simply - who will take the first step, if anyone?
Good Luck & Success in the Industry!
•• Ed Maldonado is a Partner of Maldonado & Glenn.
He can be reached at emaldonado@4counsel.net.
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