February 18, 1998
The National Consumers League, America's pioneer consumer organization, appreciates the opportunity to provide the Senate Permanent Subcommitee on Investigations with insight into the dark side of telephone competition -- slamming. The rising problem of unauthorized carrier switching is a nightmare for the victims and threatens to undermine the benefits of increased competition for telephone services. NCL is a private, nonprofit organization that has represented consumers in the marketplace and the workplace since its founding in 1899.
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, http://www.fraud.org, through which consumers can make inquiries and report fraud. 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 database 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 who have arranged to receive them. This alerts them to scams they may wish to investigate and provides the documentation needed to shut down fraudulent operations.
The free consumer and law enforcement services that we provide are supported by the members of the National Consumers League and contributions from corporations and trade associations that are concerned about consumer fraud and fairness in the marketplace.
NCL also coordinates the Alliance Against Fraud in Telemarketing, which is comprised of representatives from 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 carrier switching. In addition, NCL works with the media, and in partnership with other groups, to raise public awareness about how to navigate the new telecommunications marketplace.
Last year, the number of reports made to our National Fraud Information Center about problems with carrier switching increased steadily. In the first six months of 1997, we received 221 reports; by the end of December, the total was 810, making carrier switching the fifth most frequent problem reported to the NFIC. Of those, fewer than 5 percent concerned situations in which consumers voluntarily switched service on the basis of what they contended were price misrepresentations. The vast majority of reports were about unauthorized switching.
However, we know that what we are hearing is just the "tip of the iceberg." According to a Louis Harris & Associates survey commissioned by the League last September to look at the affects of telephone competition in three Midwest markets, Chicago, Detroit/Grand Rapids, and Milwaukee, 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 complained to the slammer, the original carrier, and/or the local exchange carrier.
In fact, the local telephone companies are probably the best sources of statistics on slamming, since they provide the switching and billing services for other telephone service providers. For example, according to Ameritech, which offers local exchange services in five states in the Midwest, the company received 115,958 slamming complaints in 1997. From January to June of 1997, the number of slamming complaints was 45,754, nearly double the 25,285 slamming complaints the company received during the same period in 1996. In the last six months of 1997 Ameritech received 70,204 additional slamming complaints. And in January of 1998, the company received more than 15,000 slamming complaints, the most in any single month so far. These escalating numbers, while alarming, probably do not include every unauthorized switch, since not all consumers complain or even realize that they have a problem.
In reviewing the reports we received in 1997 about unauthorized carrier switching, I found that fewer than 10 percent involved the major, well-known carriers. One reason why slamming occurs, even with legitimate telephone service providers, is that they may hire other companies to market on their behalf. Since those marketers are often compensated on a commission basis, there is obviously an incentive to claim that consumers agreed to switch, even when they did not.
More than 90 percent of the slamming reports we received last year were against resellers of telephone service or the billing aggregators, or middlemen, who sometimes act on their behalf. While of the slamming reports concerned long-distance service, some consumers reported unauthorized switching of local toll and local telephone service where competition for those services exists.
Anyone can be a telephone company now. It is not necessary to build your own infrastructure; you can simply purchase telephone service in bulk and resell it to consumers. That is undoubtedly creating more choices and, in some cases, more competitive pricing. But because the telephone system is based on faith, the faith that change orders and orders for optional services submitted to the local exchanges truly reflect consumers' decisions to purchase those services, it also creates a wonderful opportunity for crooks to fraudulently bill consumers, and to use their local telephone companies to collect the money for them.
In most cases, consumers have never heard of the companies that slammed them. Our Harris survey confirmed that 80 percent of the respondents with slamming experience did not even know that they had been victimized until they received their bills. And sometimes it is not obvious that there is a different company name on part of the bill, especially since telephone bills now run several pages. Because the rates that slammers charge are invariably much higher than the consumers' original carriers, the first tip-off that there may be a problem is often the fact that the bill seems unusually high. Another way that consumers may discover they have been slammed is if their original carriers contact them to say "goodbye." In some cases, consumers only find out that they've been switched when their calling cards or other optional services no longer work.
Many consumers have no idea how their service was switched, since they do not recall having any conversation or other contact with the companies that now appear on their bills. They are forced to reconstruct what might have happened or to ask the slammer how authorization was supposedly given.
The most common ploy appears to be the billing consolidation pitch: a call is placed to a residence or business by someone purporting to be from AT&T or the local telephone company in that area. Whoever answers the phone, whether he or she is the telephone account holder, is informed that it is now possible to get all telephone carriers consolidated on one bill -- in fact, in some cases, the caller says that it is now mandatory under FCC regulations or federal law for bills to be consolidated. The person answering the phone says, "sounds good to me," not realizing that, in most cases, telephone services usually consolidated on one bill already, and never intending to switch service. In fact, the consumer is often explicitly assured that this will not change anything regarding your service.
Another variation on this scheme is the discount plan scam, where again the callers pretend to be consumers' existing carriers and announce that because they are such good customers, they are eligible for special discounted rates. Again, the consumers say, "great," only to be hit later with much higher rates by companies with whom they never agreed to do business. There are many other ways that consumers are unwittingly switched, including:
The creativity of slammers is boundless. In one instance, 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.
In another 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 received other reports from consumers about slamming that occurred as a result of responding to ads for employment.
We have also heard from some consumers who said that they were contacted by companies claiming to have purchased their old debts, unrelated to phone services, and threatening to proceed with collection unless the consumers switched their phone service to them.
Finally, consumers can be victims of "phantom switching." The Illinois Attorney General's Office brought action against one company that was accused of picking consumers with Latino names out of the phone directory and submitting change orders with their names and numbers to the local exchange carrier, without having any contact with those consumers at all.
Many 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 additional unwanted services, such as voice mail and paging.
When consumers discover they have been slammed, they are shocked and outraged. But that is only the beginning of their ordeal. If they call the company listed on that section of the bill, it may be the slammer or a billing aggregator acting on behalf of dozens of telephone service providers to make billing arrangements through the local telephone company and supposedly handle disputes. However, many consumers report that there is no answer at the number listed on the bill, or the line is always busy, or they just get a recording, or the company representatives are abusive and hang up on them. They do not know what to do next, and they do not even know for sure who their complaints are against, because the fact that there can be more than one company name involved is very confusing. Furthermore, there is no address on the bill for either the slammer or the billing aggregator, if there is one. This makes it difficult for the consumer to notify the company of the dispute and to report the fraud to an agency or organization such as ours.
In addition, consumers have complained that there were assured the charges will be adjusted and their service switched back, only to find out later that those promises were false.
When consumers do manage to reach the slammers or their representatives and question the authorization for switching, the proof that is offered is often fabricated. For instance, consumers report that:
Frequently, the companies claim to have audio tape recordings of the agreement but refuse to play them. One consumer said that the company eventually said there was a problem with the tape and it was blank. Another contended that he was out of town on business and there was no one else home when the conversation supposedly occurred. In some cases the people named as agreeing to switch were children, who clearly had no authority in that regard.
In addition to being charged exorbitant amounts, slamming victims reported that they were charged for the same time period by more than one company, that they had difficulty getting adjustments or refunds for overcharges, and that they were threatened with collection or loss of telephone service if they refused to pay disputed charges. Consumers also complained that they were unable to get reinstated in special calling plans or programs with their original carriers and lost other premiums as a result of being slammed.
In some cases, slamming victims also reported that they had difficulty getting switched back to their original carriers, and were required to pay switching fees, even though the FCC rules provide that they should be switched back at no charge. Furthermore, many consumers who contacted us about slamming were unaware that they had the right to pay only the amount that their original carriers would have charged for the calls in question.
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.
Consumers who talk to our fraud center counselors express the strong belief that their right to choose their telephone carriers should be protected. They feel that it is unfair to have to spend their time and energy going around in what often seems like endless circles to resolve problems that were not of their making. Obviously, legitimate carriers also suffer from unauthorized switching of their valued customers.
Consumers have lost control over their telephone service. The promises of telecommunications competition are outweighed at this point by the potential for fraud and abuse. We cannot go back to the days of one phone company, nor should we. But in anticipation of even more competitive pressure as the market for telephone services expands, stronger measures are needed to protect consumers and ensure a level playing field.
We believe that there are several crucial steps that must be taken to stop slamming and create a fair competitive environment.
One idea that we have suggested is that consumers be issued PIN numbers by their local exchange carriers when they first obtain service. Consumers' service could be switched only if the they provided their PIN numbers to their desired new carriers, who would submit them for confirmation to the exchange carriers with the change orders. To avoid the potential problem of consumers' service being repeatedly switched once their PIN numbers become known, consumers could be given new PIN numbers by their local exchange carriers each time they changed any of their telephone service providers.
Alternatively, there could be a requirement that consumers be notified in writing by their local exchange carriers whenever change orders have been submitted. Consumers would have to respond affirmatively within a certain time period or the change would not be made.
There seems to be a disconnect between the telephone services and the billing services. An analogy is 900 number blocking, another free service that consumers can choose. While 900 number blocking physically prevents 900 numbers from being dialed from a consumer's home, it does not prevent fictitious bills for 900 number calls from being submitted through the local telephone company for payment.
Considerable time and energy is being devoted to developing new types of telephone services for which consumers can be charged. Surely research should also be conducted to develop better ways to protect consumers from unauthorized carrier switching and other telephone-billed abuses.
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 their legal rights. Government and the private sector should initiate and support more educational efforts. The National Consumers League is leading the way with materials such as our "Make the Call" survival guide for consumers, available free in English and Spanish on the League's web site at http://www.natlconsumersleague.org or by calling (800)355-9NCL and specifying the English or Spanish version.
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.
Respectfully submitted by:
National Consumers League
1701 K Street NW, Suite 1200
Washington, DC 20006
(202) 835-3323
| PRINT PREVIEW |
| SEARCH THIS SITE |
Links for Non-Frames Version | Current News & Views | | Subject Index of Past Articles | | Chronological Index of Past Articles | | About NFIC | About the National Consumers League | | About the Alliance Against Fraud in Telemarketing | | Telemarketing Fraud | Internet Fraud Watch | | Fraud Against the Elderly | | News & Views | Links | For the Media | | How to Report Fraud & Ask Questions | | Back to Welcome Page (Frames Version) |
NFIC is a project of the National Consumers League. All rights reserved. © 1998.