Free Cell Phones Coming to California, Minus Federal Fraud Protection

Free Cell Phones Coming to California, Minus Federal Fraud Protection

The California Public Utilities Commission has expanded its Lifeline program to include free cell phones. The Commission has also won approval to be exempted from the federal fraud detection network associated with the program.

The new cell phone program will offerless than $14,702. A minimum-wage employee working full time makes$15,080 in a year.

The CPUC was already offering low-income individuals the option of signing up for special Lifeline subsidized landlines which cost half what local service normally costs. Some customers, including those on tribal lands, pay just $1 a month. Last week, CPUC expanded the program to include free cell phones and free monthly service.

Lifeline is a federal program paid for by a tax on phone bills called the Universal Service Charge. Enrollment in the program has skyrocketed since free cell phones were offered. The FCC has estimated the program will cost $3.3 billion by 2014.

An FCC survey also found a significant fraud problem associated with Lifeline. An average of 9% of those who received free phones were ineligible under the program’s guidelines. In some states, the rate of fraud was double that. In addition, as many as a quarter of those enrolling in the program refused to respond to queries about their eligibility, making it possible the rate of fraud is even higher.

To combat fraud, the FCC created a database designed to identify recipients of cell phones on an annual basis to ensure they were not receiving multiple service plans. But on Monday, the state of California received conditional permission to opt out of the central verification database despite concerns that California’s verification system is presently at a “heightened” risk for fraud:

The Bureau finds that, subject to the conditions explained below, the CPUC has demonstrated that its system is comprehensive and at least as robust as the system adopted by the Commission, and is capable of detecting and eliminating duplicative support…

The Bureau is concerned, however, that until the planned third party identity verification process is in place in California, it may be possible for prospective subscribers to receive duplicative support by intentionally or inadvertently providing incorrect information in their Lifeline applications. This risk is heightened in California because, unlike the other state administrators seeking opt out approval for their states, the CPUC does not utilize an eligibility database. 

In addition to verifying eligibility, such databases often provide an additional means of preventing consumers from falsifying their identity because they generally require that a name be associated with another piece of identifying information in the database, such as a social security number, address and/or the qualifying benefit. If this association cannot be made, the consumer is denied the Lifeline benefit. No such check exists in California. [Emphasis added.]

The FCC decision is conditional on the promise that CPUC “will utilize a third party identity verification service in the future.” The document gives California until August 1, 2013 to reach full compliance or lose the right to opt out without further action from the FCC.


Please let us know if you're having issues with commenting.