[Congressional Record Volume 143, Number 155 (Friday, November 7, 1997)]
[Senate]
[Pages S11992-S11993]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. REED:
  S. 1410. A bill to amend section 258 of the Communications Act of 
1934 to enhance to protections against unauthorized changes in 
subscriber selections of telephone service providers, and for other 
purposes; to the Committee on Commerce, Science, and Transportation.


                     the anti-slamming act of 1997

  Mr. REED. Mr. President, I rise today to make a few comments 
concerning legislation which I am introducing to deal with the problem 
of slamming. Earlier this year, I outlined the remedies necessary to 
deal with this serious consumer problem in a Sense of the Senate 
Resolution which was amended to the Commerce State Justice 
Appropriations legislation. The legislation I introduce today embodies 
those remedies. I would like to take a moment to thank Ranking Member 
Hollings and Chairmen McCain and Burns for the assistance they have 
lent to me on this issue.
  Telephone ``slamming'' is the illegal practice of switching a 
consumer's long distance service without the individual's consent. This 
problem has increased dramatically over the last several years, as 
competition between long distance carriers has risen. Slamming is the 
top consumer complaint lodged at the Federal Communications Commission 
(FCC), with 11,278 reported complaints in 1995, and 16,500 in 1996. In 
the first nine months of 1997 alone, 15,000 complaints have been filed. 
Unfortunately, this represents only the tip of the iceberg because most 
consumers never report violations to the FCC. One regional Bell company 
estimates that 1 in every 20 switches is fraudulent. Media reports 
indicate that as many as 1 million illegal transfers occur annually. 
Thus, slamming threatens to rob consumers of the benefit of a 
competitive market, which is now composed of over 500 companies which 
generate $72.5 billion. As a result of slamming, consumers face not 
only increased phone bills, but also the significant expenditure of 
time and energy in attempting to identify and reverse the fraud. The 
results of slamming are clear: higher phone bills and immense consumer 
frustration.
  Mr. President, we are all aware of the stiff competition which occurs 
for customers in the long distance telephone service industry. The goal 
of deregulating the telecommunications industry was to allow consumers 
to easily avail themselves of lower prices and better service. 
Hopefully, this option will soon be presented to consumers for in-state 
calls and local phone service. Indeed, better service at lower cost is 
a main objective of those who seek to deregulate the utility industry. 
Unfortunately, fraud threatens to rob many consumers of the benefits of 
a competitive industry.
  Telemarketing is one of the least expensive and most effective forms 
of marketing, and it has exponentially expanded in recent years. By 
statute, the Federal Trade Commission (FTC) regulates most 
telemarketing, prohibiting deceptive or abusive sales calls, requiring 
that homes not be called at certain times, and that companies honor a 
consumer's request not to be called again. The law mandates that 
records concerning sales be maintained for two years. While the FTC is 
charged with primary enforcement, the law allows consumers, or state 
Attorneys General on their behalf, to bring legal action

[[Page S11993]]

against violators. Yet, phone companies are exempt from these 
regulations, since they are subject to FCC regulation.
  While the FCC has brought action against twenty-two of the industry's 
largest and smallest firms for slamming violations with penalties 
totaling over $1.8 million, this represents a minute fraction of the 
violations. FCC prosecution does not effectively address or deter this 
serious fraud. To date, state officials have been more aggressive in 
pursuing violators. The California Public Utility Commission fined a 
company $2 million earlier this year after 56,000 complaints were filed 
against it. Arizona, Arkansas, Idaho, Illinois, Kansas, Minnesota, 
Mississippi, Missouri, New Jersey, Ohio, Vermont, and Wisconsin have 
all pursued litigation against slammers. Earlier this summer, public 
officials of twenty-five states asked the FCC to adopt tougher rules 
against slammers.
  As directed by the Telecommunications Act of 1996, the FCC has 
recently moved to close several loopholes which have allowed slamming 
to continue unabated. Most importantly, the FCC has proposed to 
eliminate the financial incentive which encourages many companies to 
slam by mandating that all revenues generated from an illegal switch be 
returned to the original carrier. At present, a slammer can retain the 
profits generated from an illegal switch. Additionally, the FCC 
proposed regulations would require that a carrier confirm all switches 
generated by telemarketing through either (1) a letter of agency, known 
as a LOA, from the consumer; (2) a recording of the consumer verifying 
his or her choice on a toll free line provided by the carrier; or (3) a 
record of verification by an appropriately qualified and independent 
third party. The regulations are expected to be finalized by the FCC 
early in 1998. While this represents a start, I believe that these 
remedies will be wholly inadequate to address the ever-increasing 
problem of slamming. The problem is that slammed consumers would still 
be left without conclusive proof that their consent was properly 
obtained and verified.
  My legislation encompasses a three part approach to stop slamming by 
strengthening the procedures used to verify consent obtained by 
marketers; increasing enforcement procedures by allowing citizens or 
their representatives to pursue slammers in court with the evidence 
necessary to win; and encouraging all stakeholders to use emerging 
technology to prevent fraud.
  Mr. President, let me also thank the National Association of 
Attorneys General, the National Association of Regulatory Utility 
Commissioners which through both their national offices and individual 
members provided extensive recommendations to improve this bill. 
Additionally, I have found extremely helpful the input of several 
groups which advocate on behalf of consumers. I was particularly 
pleased to work with the Consumer Federation of America to address 
concerns which its members expressed, and I am honored that this 
legislation has received the endorsement of their organization.
  Mr. President, let me take a few minutes to outline the specific 
provisions of my bill. My legislation requires that a consumer's 
consent to change service is verified so that discrepancies can be 
adjudicated quickly and efficiently. Like the 1996 Act, my bill 
requires a legal switch to include verification. However, my 
legislation enumerates the necessary elements of a valid verification. 
First, the bill requires verification to be maintained by the provider, 
either in the form of a letter from the consumer or by recording 
verification of the consumer's consent via the phone. The length that 
the verification must be maintained is to be determined by the FCC. 
Second, the bill stipulates the form that verification must take. 
Written verification remains the same as current regulations. Oral 
verification must include the voice of the subscriber affirmatively 
demonstrating that she wants her long distance provider to be changed; 
is authorized to make the change; and is currently verifying an 
imminent switch. The bill mandates oral verification to be conducted in 
a separate call from that of the telemarketer, by an independent, 
disinterested party. This verifying call must promptly disclose the 
nature and purpose of the call. Third, after a change has been 
executed, the new service provider must send a letter to the consumer, 
within five business days of the change in service, informing the 
consumer that the change, which he requested and verified, has been 
effected. Fourth, the bill mandates that a copy of verification be 
provided to the consumer upon request. Finally, the bill requires the 
FCC to finalize rules implementing these mandates within nine months of 
enactment of the bill.

  These procedures should help ensure that consumers can efficiently 
avail themselves of the phone service they seek, without being exposed 
to random and undetectable fraudulent switches. If an individual is 
switched without his or her consent, the mandate of recorded, 
maintained verification will provide the consumer with the proof 
necessary to prove that the switch was illegal.
  The second main provision of my legislation would provide consumers, 
or their public representatives, a legal right to pursue violators in 
court. Following the model of Senator Hollings' 1991 Telephone Consumer 
Protection Act, my bill provides aggrieved consumers with a private 
right of action in any state court which allows, under specific 
slamming laws or more general consumer protection statutes such an 
action. The 1991 Act has been adjudicated to withstand constitutional 
challenges on both equal protection and tenth amendment claims. Thus, 
the bill has the benefit of specifying one forum in which to resolve 
illegal switches of all types of service: long distance, in-state, and 
local service.
  Realizing that many individuals will not have the time, resources, or 
inclination to pursue a civil action, my bill also allows state 
Attorneys Generals, or other officials authorized by state law, to 
bring an action on behalf of citizens. Like the private right of action 
in suits brought by public officials damages are statutorily set at 
$1,000 or actual damages, whichever is greater. Treble damages are 
awarded in cases of knowing or willful violations. In addition to 
monetary awards, states are entitled to seek relief in the form of 
writs of mandamus, injunction, or similar relief. To ensure a proper 
role for the FCC, state actions must be brought in a federal district 
court where the victim or defendant resides. Additionally, state 
actions must be certified with the Commission, which maintains a right 
to intervening in an action. The bill makes express the fact that it 
has no impact on state authority to investigate consumer fraud or bring 
legal action under any state law.
  Finally, Mr. President, my legislation recognizes that neither 
legislators nor regulators can solve tomorrow's problems with today's 
technology. Therefore my bill mandates that the FCC provide Congress 
with a report on other, less burdensome but more secure means of 
obtaining and recording consumer consent. Such methods might include 
utilization of Internet technology or issuing PIN numbers or customer 
codes to be used before carrier changes are authorized. The bill 
requires that the FCC report to Congress on such methodology by 
December 31, 1999.
  Mr. President, I appreciate the opportunity to discuss my initiative 
to stop slamming. I hope that this issue can be addressed quickly. As a 
result, I would urge all my colleagues to cosponsor this legislation.
                                 ______