Harsher Penalties for Slamming

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No legal area related to telemarketing has been more active this year than laws aimed at the prevention of "slamming," the unauthorized change of telecommunications service providers. Congress has considered no less than five new laws proposing harsher penalties, additional disclosures, stronger verification procedures, etc. Federal activity, however, is relatively staid and conservative when compared to the barrage of new bills and laws regulating sale of telecommunications services at the state level. So far in 1998, more than 20 states have considered or adopted new laws or revised existing laws regulating the sale of telecommunications services.


As is usual in consumer protection statutes, a telecommunications provider soliciting customers throughout the nation must comply with each consumer's state's laws, not just the federal requirements or the laws of the state where the company is located or headquartered.


<B>FCC Requirements.<B> The Federal Communications Commission has adopted rules that act as the baseline for sales of telephone services. Long distance providers may not submit changes of a customer's primary provider generated by telemarketing unless that change can be confirmed by one of four methods:


*The telecommunications company has obtained the customer's written authorization in the form of a letter of agency (LOA) containing specified disclosures regarding the change.


*The telecommunications company has obtained the customer's electronic authorization placed from the telephone number to be changed to a toll-free number used exclusively for this purpose.


*An appropriately qualified and independent third party operating in a location physically separate from the telemarketer has obtained oral authorization for the change.


*A mail package is sent to the customer within three business days of the request for change that contains specified information and contains a postage paid postcard, which the consumer can use to confirm or deny the change. This provision includes the use of negative options where the consumer must return the postcard to cancel, otherwise approving the change.


Many telemarketing campaigns have used the third party verification method due to its convenience, reliability and immediacy. It involves a live telephone transfer rather than a mailed authorization.


Some questions have arisen, however, regarding the exact meaning of some facets of the rule especially the meaning of the word "independent." My conversation with an attorney at the FCC confirmed that no further explanation of the term exists. The goal of the requirement is that the verifier has no incentive to approve or disapprove a given change request. Therefore, he said, the TPV provider should not be paid based on confirmed sales. He could offer no guidance, however, on if a separate company with similar ownership being on a non-commission basis could qualify as "independent."


This lack of federal guidance has been noticed by some state legislatures, which have, in some cases, stepped forward with their own laws.


<B> Differing State Requirements <B> Most of the new laws considered and passed by the states change, limit or qualify the four verification methods allowed by the FCC, especially with regard to the contents of LOAs and the identity and script content of TPV.


In the past year, the following states have passed legislation affecting the transfer of telecommunications service providers including changing or limiting the federal methods with regard to sales to their citizens: Alabama, California, Connecticut, Florida, Georgia, Idaho, Illinois, Kentucky, Louisiana, Massachusetts, Minnesota, New Hampshire and New York.


Some notable provisions found in these laws include:


*California: as of Sept. 21, Assembly Bill 1096 requires that sales of residential service by verified by TPV, only. The law specifies that the third party must be independent from the provider of telecommunications services and further defines independent to mean that the third party not be "directly or indirectly managed, controlled, or directed, or owned wholly or in part, by the telephone corporation that seeks to provide the new service or by any corporation, firm or person who directly or indirectly manages, controls, or directs, or owns more than 5 percent of the telephone corporation."


*Illinois: as of July 1, Public Act 90-610 requires that TPV contain certain disclosures including the names of the new and old providers, that the consumer may have only one primary provider for the applicable type of service (i.e. local or long distance) and that a fee may be charged for the change in provider. Verifications that do not contain these disclosures are void. The law also bans the use of "sweepstakes boxes" to generate LOAs and prohibits the use of any form intended to enter a drawing, contest or sweepstakes from being used to change providers or render any telecommunications service.


*Massachusetts: as of Sept. 11, S.B. 2291 requires registration for providers of TPV with the department of telecommunications and energy.


*Minnesota: as of March 31, H.F. 3042 provides that consumers have a right to "freeze" their telecommunications providers by requiring their current companies to receive express authorizations before a change will be processed. Companies are to notify their current customers of this right in a billing insert. The law also prohibits the use of negative options even if allowed by federal law, thus precluding the use of a method of verification of change using a mailing that contains a postcard the consumer must return to cancel the change in provider.


*New York: as of Jan. 20, Public Service Law §92-e provides that the acts of any persons acting as agents or representatives of telecommunications providers are legally deemed to be the acts of the telecommunications providers themselves.


<B>Bills Before U.S. Congress<B> Of the various bills introduced to Congress this year, the "Anti-Slamming Amendments Act" is closest to becoming law, having passed both houses, albeit in different versions. It contains important restrictions on how telecommunications providers will be able to market their services by telephone.


First, the law would require that the sellers of telecommunications services require the consumer to: affirm that the consumer is authorized to select the provider of telecommunications service for the telephone number in question; acknowledge the type of service to be changed; affirm his or her intent to select the seller for that service; acknowledge the selection will result in a change of providers as well as provide any additional information the FCC determines is necessary to protect the consumer.


Next, the law would ban the use of negative options to sell telecommunications services and require that verifications of change in providers be retained and made available to consumers upon request. The law also bars the FCC from adopting a "freeze" or hold device as a method to protect consumers.


Finally, the seller is required to notify consumers by mail that they have changed their provider and that the consumers may request information about that change.


In light of this flurry of legislative activity, any business making this type of solicitation on its own behalf or as a service bureau should pay careful attention to scripting and other requirements and cannot rely solely on compliance with the FCC regulations.


<I> William E. Raney is an attorney in the Kansas City, MO, office of Copilevitz and Canter, P.C.<I>
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