FTC wants to clamp down on prepaid phone card deception

The Federal Trade Commission this week urged congress to adopt pending legislation and bolster the agency's power to further protect consumers from unscrupulous prepaid phone card marketers.

FTC Chairman William Kovacic told US House Subcommittee on Commerce, Trade and Consumer Protection that the agency conducted tests on prepaid calling cards before it filed two recent lawsuits and found that in the first lawsuit, the cards delivered, on average, less than 43% of the advertised calling minutes. In the second suit, the cards delivered, on average, only 50.4% of the minutes advertised.  Calling cards, which retail for anywhere from $2 to $20 each, are generally sold in small retail outlets, including grocery and convenience stores, gasoline stations, and newsstands.

In one of those cases, filed in March, the FTC asked a US district court judge to halt to the alleged illegal practices of CTA or the Clifton Telecard Alliance, a major distributor of prepaid calling cards in the US.  The FTC charged that CTA misrepresents the number of calling minutes consumers get, fails to disclose that consumers' cards will be charged whether or not the calls go through, and charges hidden fees. According to the FTC, CTA is a key player in the prepaid phone card industry that sells approximately $4 billion worth of cards a year - primarily to immigrants looking for a cheap and easy way to call friends and family in other countries. In the last quarter of 2007 alone, CTA's revenue from the sale of cards exceeded $28 million, the FTC said. A recent study said the prepaid calling card industry could rake in some $22 billion by 2012, a number that also includes pre-paid Internet and pre-paid phones.

"Over the last decade, the prepaid calling card industry has grown into a multi-billion dollar a year industry. Prepaid calling cards can provide consumers with a convenient and inexpensive way to call friends and family at home and abroad, " Kovacic testified. "Unfortunately, however, purchasers of prepaid calling cards often do not receive the number of calling minutes advertised for the cards they purchase and are charged undisclosed or inadequately-disclosed fees and surcharges that reduce the value of the prepaid calling cards they have purchased."

The FTC chairman said the agency would continue to take aggressive steps to combat the deceptive marketing of prepaid phone cards, and that pending legislation, known as the Prepaid Calling Card Consumer Protection Act,  would benefit consumers by providing another weapon the agency could use to club some of these vendors into submission.  

The Prepaid Calling Card Consumer Protection Act, which is in the hands of the Subcommittee on Commerce, Trade and Consumer Protection, among other things requires prepaid telephone calling service providers or prepaid telephone calling card distributors to disclose total value in dollars or the number of calling minutes, a description of all terms and conditions, and the service provider's name, customer service number, and hours of service.  It would make it unlawful for any provider or distributor to impose any charge or fee not so disclosed or provide fewer minutes than disclosed. In the end the regulation would treat any violations as an unfair or deceptive act or practice under the Federal Trade Commission Act and requires the FTC to enforce it.

In addition, the FTC's testimony discussed the possibility of the House extending the commission's authority to let it enforce provisions of the Act against common carriers providing prepaid telecommunications services. As the testimony explains, common carriers subject to the Communications Act currently are exempt from the FTC Act's prohibitions on unfair and deceptive acts or practices and unfair methods of competition. This exemption originated in an era when telecommunications services were provided by highly regulated monopolies, and the FTC has testified several times in favor of repealing it, Kovacic said.

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