TESTIMONY BEFORE THE SENATE COMMITTEE
ON THE JUDICIARY SUBCOMMITTEE ON ADMINISTRATIVE
OVERSIGHT AND THE COURTS

Mr. Chairman and members of the Subcommittee, the National Consumers League appreciates the opportunity to comment on the rising problem of "slamming," the unauthorized switching of consumers' telephone carriers. NCL is a private, nonprofit organization that has represented consumers in the marketplace and the workplace since its founding in 1899.

NCL's Role in Fighting Telephone-Related Fraud and Abuse

NCL has taken an active role in educating consumers and advocating for appropriate consumer protections concerning telephone-related fraud and abuse. In 1992, NCL created the National Fraud Information Center, a unique hotline service, 1-800-876-7060, which consumers can call for advice about telephone solicitations and report possible fraud and deception. The NFIC's services were expanded in 1996 with the launch of its web site, , through which consumers can make inquiries and report fraud. In a little more than a year, we have received 4.2 million hits on this very popular web site. With the advent of scams in cyberspace, the NFIC now also offers advice about and takes reports of fraud perpetrated through online services and the Internet.

Consumers' fraud reports are uploaded daily by the NFIC to the data base maintained by the Federal Trade Commission and the National Association of Attorneys General. The NFIC also relays selected fraud reports to over 160 individual federal, state and local law enforcement agencies, including the FCC.

NCL also coordinates the Alliance Against Fraud in Telemarketing, which is comprised of approximately 100 of consumer groups, law enforcement and regulatory agencies, trade associations, telephone carriers, credit card companies, and other business interests. The AAFT conducts meetings and produces materials designed to educate its members and the public about telephone-related fraud, including unauthorized or misrepresented carrier switching. In addition, NCL works with the media, and in partnership with other groups, to raise public awareness about the benefits of telephone competition and deceptive practices of which to be wary.

Complaints about Carrier Switching Reported to the NFIC

Increasing Number of Complaints

Consumers can report telephone-related fraud to the NFIC by calling its toll-free hotline, using its online reporting form, by e-mail, or by writing. Over the first nine months of 1997, we have seen an alarming increase in carrier switching complaints. By the end of July we had received 221 reports about carrier switching, but by the end of September, just two months later, the number had risen to 509. Carrier switching is now the 6th most frequent subject of fraud reports made to the NFIC.

However, we know that what we are hearing is just the "tip of the iceberg." A Louis Harris & Associates survey commissioned by the League to look at the effects of telephone competition in three Midwest markets, Chicago, Detroit/Grand Rapids, and Milwaukee, revealed that nearly one-third of the respondents had been slammed themselves or knew someone who had. Only 7 percent complained to a government agency, 2 percent to a group such as ours. Most consumers complained to the slammer, the original carrier, or the local exchange carrier.

Nature of Carrier Switching Complaints

A small number of the carrier switching reports made to the NFIC, less than 10 percent, are from consumers agreed to switch their service based on alleged false promises of lower rates or other incentives that were never delivered. Most of those incidents involved major, well-known long distance carriers.

However, in the vast majority of the reports made to the NFIC, consumers complained that they never authorized their service to be switched. Most of the complaints concern long-distance service, but some consumers also reported unauthorized switching of local telephone service in areas where competition now exists. Complaints about unauthorized service switching were made against dozens of different companies. Many consumers noted that they'd never even heard of these companies until the names appeared on their phone bills. In fact, the Harris survey showed that 80 percent of the respondents with slamming experience found out when they received their bills.

Some consumers are mystified by how their service was switched, since they contend that they never had any conversation or other contact with the companies. In other cases, consumers said that they believed they were switched as a result of:

• receiving calls from companies claiming to be their regular carriers, or to be affiliated with their regular carriers, offering to consolidate their billings;

• signing up to receive coupons for products such as cigarettes;

• being offered discount plans by companies falsely claiming to be their regular carriers;

• entering car raffles or other contests at malls, county fairs, etc.;

• someone in the household who was not the account holder signing a promotional form;

• a minor in the household calling a pay-per-call number;

• receiving a call from someone supposedly conducting a survey;

• using a calling card to make calls from a hotel phone.

The creativity of slammers is boundless. In one case, the consumer said that he was contacted by someone who told him that he had reached his credit limit with his regular carrier and had to switch to another in order to keep making long distance calls. More than one consumer reported service being switched after someone who was purportedly from the FCC called to notify them about "new telephone regulations." In one especially inventive scam, the consumer was lured to calling a number in response to an advertisement for doing telemarketing work at home. He later received a notice that his service was switched and that, in addition to his calling charges, he would be assessed a $10 monthly fee for "tracking" his work. We have also received a few reports recently from consumers who say that they have been contacted by companies claiming to have purchased their old debts, unrelated to phone services, and threatening to proceed with collection unless they switch their phone service to those companies.

Consumers report being slammed multiple times -- one man was slammed by the same company seven times. Some also report being billed by the unauthorized carrier for other unwanted services, such as voice mail and paging. Most consumers were unaware that their service had been switched until they received their bills, and some did not realize it until several billing periods had transpired. Even after they thought that they had resolved the problem and gone back to their original carriers, they were slammed again.

Difficulty Reaching the "Slammer"

Consumers report having difficulty reaching the companies to which they have been switched. Either there is no answer at the company's number, or the consumer simply gets a recording, or the company hangs up on the caller. When they ask their local exchange carriers for the slammers' addresses, they are sometimes refused that information. This makes it difficult for consumers to lodge written complaints or to report the incidents to agencies and organizations such as ours.

Problems with Proof of Authorization

If the consumer does manage to reach the company and questions the authorization for switching, the proof that is offered is often fabricated. For instance, consumers report that:

• the signature on a written authorization form was forged;

• the claim that someone else at their business authorized the switch was false;

• on the date that the company said the switch was authorized, the consumer did not even have service at that number;

• the switch was purportedly authorized by someone who was deceased;

• the taped authorization was not the voice of the account holder;

• if they agreed to switch initially and then canceled, they were switched again without their permission and the original agreement was presented as authorization;

• the taped response to a so-called survey was presented as authorization;

• the person from whom authorization was obtained was not the account holder;

• the consumer received a "negative-option" notice of switching but did not understand that failure to respond constituted authorization.

Difficulty Resolving Billing Disputes

In addition to being charged exorbitant amounts, consumers have reported to the NFIC that they were charged for the same time period by more than one company, that they had difficulty getting adjustments for overcharges, and that they were threatened with collection or loss of telephone service for refusal to pay disputed charges. If they already paid the charges, they could not get refunds.

Consumers have also complained about inability to be reinstated in special calling plans or programs by their original carriers, and losing other premiums as a result of unauthorized service switching. In some cases, they also have difficulty getting switched back to their original carriers, and are required to pay switching fees, even though the FCC rules provide that they should be able to switch back at no charge. Furthermore, many of the consumers who contact the NFIC say that when they called their interexchange carriers about charges from unauthorized carriers, they were not informed that they had the right to pay only the amount that their original carriers would have charged.

In our Louis Harris survey, 80 percent of the respondents said that their slamming problems were resolved, but a third described the process as very difficult or somewhat difficult. Twenty-six percent said it was somewhat easy, while another third said it was very easy.

Victims of slamming are outraged and frustrated. People rely on their home and business telephone service and they feel strongly that their right to choose their carriers should be protected. They do not believe that they should have to spend their time and energy going around in what often seems like endless circles to resolve problems that are not of their making. Obviously, legitimate carriers also suffer from unauthorized switching of their valued customers.

Suggestions for Fighting Slamming

Verification
Based on the consumer complaints that the NFIC has received, it is clear that there are problems with each of the present verification procedures. In light of this and in anticipation of even more competitive pressure as the market for telephone services expands, we believe that stronger measures are needed. In our comments recently filed with the Federal Communications Commission we said that the "negative option" notice of carrier switching should be banned. Consumers fail to grasp the fact that this is not just another solicitation.

We also suggested that consumers be issued PIN numbers by their interexchange carriers when they first obtain service. The FCC could then prohibit changing consumers' service, no matter what verification procedures are used, unless the consumers have provided their PIN numbers to their desired new carriers, who would submit them for confirmation to the interexchange carriers. To reduce the potential problem of consumers' service being repeatedly switched once their PIN numbers become known, consumers could be given new PIN numbers, which would be automatically provided by their interexchange carrier, each time after changing their service.

We also told the FCC that the same verification procedures should be required no matter whether the initial contact with the consumer was an in-bound or outbound call. We are aware of instances in which unauthorized carrier switching resulted from calls that consumers made, and we believe that protection is just as necessary in that case as with inbound calls.

Carrier Freezes

Carrier freezes give consumers the choice of having added protection in regard to their desired phone service. We believe that the option to freeze one's service, local and long-distance, should be freely promoted, as long as it is described fairly and accurately. We also suggested to the FCC that consumers' carrier freeze requests must be honored and strong penalties levied on companies that fail to do so.

Liability for Payment

None of this is enough, however. We believe that the most effective way to deter slamming is to prevent companies that change consumers' service without authorization from being able to reap the financial reward for doing so. While we support the idea that payments consumers have made to unauthorized carriers be passed back to their original carriers, we are not convinced that this would remove entirely the economic incentive for carriers to slam, or that it would make consumers whole. Consumers will continue to pay, fearful of losing their telephone service. And like other fraudulent telemarketing operators, some slammers will undoubtedly hide their ill-gotten gains in off-shore bank accounts, change their company names, and continue in the same or some other illegal activity. Ultimately, recovery by the consumer or the original carrier may not be possible, or could be greatly delayed.

A stronger incentive is needed, one that puts consumers' interests first. Consumers should have the right to refuse payment for charges assessed by unauthorized carriers. While some consumers may fraudulently claim that they were slammed to avoid payment, we do not believe this would be a significant factor. Moreover, the small possibility that consumers would abuse the option to refuse to pay is far outweighed by the damages they suffer from unauthorized carrier switching. At the same time, we believe that making it more difficult for slammers to obtain payment from consumers would greatly reduce the incentive for unauthorized switching.

Dispute Resolution

In addition, we have suggested to the FCC that the entities who contract to bill for telephone carriers must take responsibility for assisting consumers when they claim that those carriers switched their service without their consent. Those entities should be required to accept consumers' complaints and relay them to the carriers for whom they are billing (if different from themselves). If satisfactory authorization cannot be shown and the consumer continues to dispute the charges, the carrier that assessed them can always pursue the matter through collection or other lawful means.

Conclusion

Finally, as our Harris survey shows, consumers are barraged by telephone, mail and advertising solicitations for telecommunications products and services. They need more objective information about their choices and they need education about their rights.

The problem of slamming has reached critical proportions. If adequate action is not taken to curb it, the marketplace for local and long distance telecommunications services will be a quagmire instead of the cornucopia that was envisioned as a result of increased competition. We look forward to working with the Congress and others to ensure that the telecommunications marketplace is fair and offers the benefits that consumers expect and deserve.

Thank you for holding hearings on this very important consumer issue.