Taking Phone Companies to Task on Penalties

Ever since telephone late-payment charges--the first in the nation--were introduced in California a decade ago, they’ve been nothing but trouble.

The state’s two big phone companies, Pacific Bell and GTE, keep putting them on bills that are not paid late. Consumers keep having to protest that they paid on time. And the state Public Utilities Commission must decide this summer whether a $50-million penalty against Pac Bell would improve things.

“The telephone companies are either inefficient or trying to rip customers off,” says GTE customer Roberta Philpy in San Fernando. Half of her bills have been assessed late charges. All were paid on time, she complained to the PUC.

The fees seem negligible--1.5% of unpaid bills over $20. Philpy’s penalties ran from 36 cents to 94 cents. But Pac Bell charged $56 million in late fees last year and GTE $14 million.

To the phone companies, the error issue also seems negligible. GTE sees Philpy as someone with “a long history, who goes to every hearing,” a spokesman says, “and is just looking for things.” Pac Bell, which admits assessing more than $8 million in unjustified late charges from 1988 to 1991, says it was just “a mistake.”

But the San Francisco advocacy group TURN (Toward Utility Rate Normalization), which filed the PUC complaint, calls it “a shocking abuse of power.” And to many customers, it is “the tip of an iceberg,” says Ken McEldowney, director of Consumer Action in San Francisco, “particularly when phone companies are saying, ‘Let us into information services. You can trust us.’ ”

Other industries have assessed late-payment penalties for years, but the phone companies started badly. GTE (then General Telephone) instituted its 1.5% penalty in the summer of 1982 but gave no warning of the charge on its bills and no final date for payment.

In fact, it had no clear system for assessing penalties. Bills had “due dates,” “presentation dates” and “billing dates,” but the last date for payment changed every month, unpredictably, depending when the next month’s bills were prepared. It was a year and a half before the company bowed to repeated regulatory orders and put a cutoff date on bills.

Pac Bell, which adopted the penalties in 1984, didn’t do much better. Last year, it was revealed in the San Diego Union that Pac Bell immediately cashed the checks that customers mailed in, but often put aside the stubs to credit later. Customers who protested the resultant late charges were told that their payments had been lost in the mail.

It wasn’t that Pac Bell didn’t know there was a problem with its late charges. Its customer service representatives had been reporting it for years. An internal investigation found that management had also known of the practice but let it continue, hiring enough workers to process the mail only when the backlog got critical. “The problem would surface, they’d keep fixing it, and they’d get backed up again,” Pac Bell spokesman Lisa Lang says.

The PUC can decide whether such past practices were, in TURN’s words, “deliberate, intentional and unethical.” But we should still worry what the attitudes revealed bode for the future.

Pac Bell promises that henceforth it will process customer payments before assessing any late fees, instead of the reverse. But the company still claims ignorance of its practices over several years, says fewer than 1% of customers were affected and boasts that it has already spent $8.5 million on a refund program--$2 million to cheated customers and $6.5 million on advertisements inviting people to file for refunds if they believe that an investigation will bear out their claim.

If Roberta Philpy’s experience is an example, GTE’s handling of late-payment charges is also problematic. Philpy regularly pays her bills on the 20th of the month--her last possible day. She pays in person at a local GTE center, has her bill stamped “paid” and still incurs a lot of late charges.

GTE at first said this was impossible, then said the particular center used to be run by an authorized agent, and with agents, there’s a 24- to 48-hour lag between payment and crediting. Hence the late charges. Now it is a company-run office, with only a 12- to 24-hour lag. But the system usually catches any erroneous late-payment charges and reverses them the next month and, if it doesn’t, the customer need only call to have the charge reversed.

“If you continually abuse the system,” GTE spokesman Larry Cox says, “paying right on the wire the last day, at least half the time there’d be a late-payment charge.”

This is an odd system and an odd stance, but probably not unique. Maybe all those states that copied the penalties should check their complaints too.

At the very least, somebody better come in and teach these people about business before allowing them to take on more.