The problem

Today, companies have little to no incentive not to overbill. If they attempt to overcharge, one of two things happen: either the attempt goes undetected, in which case they profit from it, or the attempt is detected and corrected, in which case they lose nothing. Given that over a broad customer population the outcomes will be statistically distributed among both of these scenarios (i.e. not every overbilling attempt is detected), on average companies profit from overbilling.

The proposed solution

I propose changing this pitiful state of affairs by introducing the Honest Billing Law. The Honest Billing Law would penalize a company that overbills by imposing a penalty on the company (in addition to mandating them to credit back for detected overcharging).

The details

The penalty should be proportional to the overbilling detected --otherwise companies will still be able to profit from overbilling enough. The proportionality constant needs to be enough that the average effect of overcharging is negative. For example, if only 20% of overcharging is detected, the penalty needs to be at least 5 times the amount of the overbilling.

There should perhaps be a cap to the amount of any specific instance of the penalty, to avoid an involuntary but massive overbilling error from having catastrophic effects on the company. This need not favor overcharging, as massive overbilling is less likely to go undetected. This cap could be set at a factor (e.g. 12X) of the corresponding bill: if a monthly bill includes overbilling, the penalty should not exceed 12 times what the corresponding monthly bill should be. This is equivalent to saying that a company should be able to make good on any billing error by foregoing no more than one year's revenues from that account.

Who should the penalty be paid to? One view (the "damages" view) is that it should go to the aggrieved party who would have suffered from the overcharging had it gone undetected. In addition to providing a measure of justice, this would provide an added incentive for careful monitoring of bills that would allow the emergence of an industry of third party bill auditors who work for consumers, detect any billing errors and file the claims to process the reimbursements, all for a portion of the penalties awarded through their efforts. This would increase detection rates, among other things because it is much easier to detect errors and patterns when analyzing many bills at once.

Who would be the arbitrator of whether a billing mistake has been made?

A government entity could be created to that effect. It could be financed by a portion of the penalties. The process should be streamlined, include a website for fast and easy claim submission. But note that most billing mistakes are agreed upon by both parties after they are pointed out, so an arbitrator may not be needed for most cases.

Getting the law passed

It is clear that billing should be honest, and that a law like this would be fair. The problem is that most lawmakers need corporate sponsorship to get elected (or re-elected), and since a law like this would harm companies that make a profit by systematically overcharging, it could cause some opposition. But honest companies would benefit from such a law, by leveling the playing field, penalizing dishonest companies and allowing honest companies to better compete. Law-makers with a conscience should have no difficulty supporting the Honest Billing Law.

Would you like the Honest Billing Bill to get proposed and passed into law? Write your elected representatives today.