The Federal Communications Commission has imposed a penalty of $1.44 million against interexchange carrier Preferred Long Distance, Inc. (Preferred LD) for violating the FCC’s slamming rules.[1] Preferred LD changed the long distance telephone carriers of 14 consumers without proper authorization, including by having telemarketers misrepresent that that they were calling on behalf of the consumers’ current carriers when, in fact, they were not.

The FCC’s Enforcement Bureau initiated an investigation of Preferred LD after reviewing numerous complaints from consumers alleging they had been slammed by the carrier. The Bureau ultimately issued a Notice of Apparent Liability (NAL) in December 2012 based on 14 consumer slamming complaints.[2] In the NAL, the Bureau alleged Preferred LD violated Sections 201(b) and 258 of the Communications Act and Section 64.1120 of the FCC’s rules, and proposed a monetary forfeiture of $1.44 million.

Here’s some background to start. Section 258, the slamming statute, prohibits any telecommunications carrier from submitting or executing an unauthorized change in a subscriber’s selection of a provider of telephone exchange service or telephone toll service.[3] “Slamming” is the illegal practice of switching a consumer's traditional wireline telephone company for local, local toll, or long distance service without permission. Slamming distorts the telecommunications market by enabling companies that engage in fraudulent activity to increase their customer and revenue bases at the expense of consumers and law-abiding companies.

In response to the FCC’s slamming NAL, Preferred LD argued that: (1) it did not violate Section 258 of the Act or Section 64.1120 of the FCC’s rules because the NAL’s findings are not based on the actual substance of consumer complaints and, in any event, it materially complied with the rules; (2) it did not violate Section 201(b) because no misrepresentations were made, and even if they were made, Section 201(b) does not reach advertising claims in the absence of implementing rules; and (3) the FCC should radically reduce the forfeiture in light of Preferred LD’s history and culture of compliance.

The FCC was not impressed by Preferred LD’s responses to the NAL. Each one was shot down. First, the FCC rejected Preferred LD’s argument that it did not violate Section 258 of the Act or Section 64.1120 of the FCC’s rules because the NAL’s findings are not based on the actual substance of consumer complaints. The FCC explained that Preferred LD’s argument fails because Section 403 of the Act gives the FCC authority to initiate an inquiry on its own motion as to any matter. Meaning, the Preferred LD slamming NAL is not required to be based on the content of consumer complaints. Duh.

In the NAL, the FCC’s Enforcement Bureau found that Preferred LD’s telemarketers, in phone calls to 11 consumers, lied by telling those consumers that their current carriers were affiliated with Preferred LD. These misrepresentations constituted an unjust and unreasonable practice in violation of Section 201(b) of the Act. In its response, Preferred LD argued that there is no violation because Section 201(b) does not reach advertising claims in the absence of implementing rules. The FCC disagreed, explaining that the Communications Act is the law, meaning “its provisions apply to carriers whether or not the Commission has adopted implementing regulations.” The FCC then went on to further educate Preferred LD on communications law and FCC policy by explaining that it “is well-settled that the Commission may choose between adjudication and rulemaking to develop the law.”[4]

Preferred LD claimed that it did not violation Section 201(b) because if any misrepresentations were made, those misrepresentations were made by third parties outside the scope of their contracts. The FCC rejected this argument, explaining that “[a]s a carrier, Preferred is responsible for the conduct of third parties acting on its behalf, including third-party marketers.”

Finally, Preferred LD argued that, in the alternative and because of the “great lengths” it goes to in order to comply with the FCC’s rules, the FCC should “radically reduce any proposed forfeiture to the extent the Commission truly believes that Preferred has inappropriately changed a consumer’s service (which it has not).” The FCC rejected this argument because it found “Preferred’s actions egregious, as evidenced by the fact that it repeatedly engaged in misrepresentation and changed consumers’ preferred long distance providers without properly verifying their authorization.” The FCC further justified its decision to impose the full $1.44 million penalty by explaining that “[c]arriers have long been on notice that such misrepresentations to consumers may result in substantial forfeiture amounts.”

This Type Of Stuff Happens More Often Than You Would Think

Companies that engage in slamming often use misrepresentation to trick consumers into changing their long distance provider. It’s very common, unfortunately. Consumers that have been slammed usually don’t find out about it until they discover the change after reviewing a bill. And the amount they owe on the bill is usually much larger than what they have ever paid before that. Basically, slamming is lying and stealing.

The description of Preferred LD and its tactics provided by the FCC in the NAL and Forfeiture Order provide a look into the evil world of slammers. The FCC found “that Preferred’s telemarketers misrepresented Preferred’s affiliation with the consumers’ then-current carriers, and that the quickly posed questions during the TPV process did not provide enough information to consumers to make clear that Preferred was actually a separate entity from those providers.” 

What do local service providers do to protect themselves and their subscribers against slammers?  Many things. Having a good relationship with customers can help carriers react quickly to slamming attacks. Customers often call their local service provider after being solicited to change their long distance provider by a third party claiming to be affiliated with the local provider. This allows a carrier to confirm that it is not affiliated with the slamming carrier, and these calls serve as an alarm that customers are being targeted by a slammer. Some carriers go on the offensive by encouraging customers to file a complaint at the FCC, and by having legal counsel send a cease-and-desist letter.

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[1] Preferred Long Distance, Inc., File No.: EB-TCD-12-00003409, NAL/Acct. No.: 201332170008, FRN: 0003757473, Forfeiture Order, FCC 15-147 (rel. Nov. 18, 2015) (Forfeiture Order).

[2] Preferred Long Distance, Inc., Apparent Liability for Forfeiture, File No.: EB-TCD-12-00003409, NAL/Acct. No.: 201332170008, FRN: 0003757473, Forfeiture Order, FCC 12-159 (rel. Dec. 20, 2012).

[3] 47 U.S.C. § 258.

[4] Forfeiture Order at ¶11.