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FCC: Prepaid calling cards remain 'a trap'

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Once again, after years of exposes and regulatory actions, federal officials and leading consumer advocates are cautioning purchasers to be wary of prepaid telephone calling cards. The reason: Some calling card marketers are still duping consumers, connecting them to not much more than long-distance deception and disappointment.

The Federal Communications Commission on Wednesday issued a special Enforcement Advisory, warning that "prepaid calling card schemes remain a trap for unsuspecting consumers."

Among the many problems, particularly when it comes to some international calling cards, which the commission called "predatory":

FCC: Prepaid calling cards remain 'a trap'
  • Access numbers or PINs that don't work or are perpetually busy.
  • Undisclosed post-call or per-call hang up fees, "maintenance" fees and other largely hidden fees that can quickly dilute the value of the card.
  • Per-minute rates that are unclear or higher than advertised.
  • Short-fuse expiration dates.

"Every day, millions of Americans -- many from our most vulnerable minority and immigrant communities -- rely on prepaid calling cards to stay in touch with family and friends around the world," said P. Michele Ellison, chief of the FCC's enforcement bureau. "Sadly, these consumers often don't get what they paid for."

She spotlighted one card that advertised hundreds of international calling minutes. "But what the unsuspecting consumer didn't know is that a caller could only get all of those minutes by making a single, 13-hour call," Ellison said.

The federal alert, the latest in a series of "buyer beware" warnings about international calling cards, was issued in conjunction with release of a new calling-card study by Consumer Reports. Funded by a grant from the settlement of a previous multi-state investigation of phone-card companies, the study involved more than 130 cards bought in about two dozen stores in New York.

The bottom line: Consumer Reports found a veritable horror show of apparent and potential abuses. "Generally, you get all the minutes claimed for a card only when you use it for a single call," the report said. "Otherwise, the value of the cards can be eaten up in fees and surcharges instead of actual time spent calling friends and family."

Though some international calling cards, primarily those from large, well-known firms, provide genuine value, especially for immigrants with limited financial resources or communications options, the industry is largely populated by smaller, little-known companies that appear to have lower standards.

The study found these problems:

  • Poor disclosure. Some 75 percent of the purchased cards did not disclose per-minute calling rates -- the rate at which each card's value would decline.
  • An often impenetrable swamp of undisclosed or vaguely disclosed fees. Post-call fees. Periodic fees. Uncompleted call fees. Other surcharges. "Some cards were so crammed with fees and disclaimers we had to use a magnifying glass to read them," the study reported. "One card's disclaimer ran to more than 500 words."
    In some cases, weekly "maintenance" fees imposed after the first call -- even if the call was just to the card's issuer to determine calling rates -- ate up the card's entire balance within three weeks. The report's conclusion: "Given the multitude of murky fees and surcharges imposed by many of the cards, being an informed buyer is nearly impossible."
  • Sloppy and misleading sales practices. Some cards were improperly activated at the store. The PIN numbers required by some cards were printed on separate receipts, which, if lost, rendered the cards unusable. Some cards had short expiration dates, in several cases only 30 days from the date of activation. One card's expiration date already had passed, though it worked anyway.
  • A wide range of calling rates, even to the same country. Want to call Mexico City? One card offers more than 20 hours for $5. Another offers five minutes for $2.
  • Questionable rounding practices. Most cards rounded call time to the next minute, but some rounded up to the next five-minute increment, substantially diminishing the value of those cards.
  • Here today, gone tomorrow. Some smaller companies suddenly went out of business, leaving card purchasers holding the bag.

These issues are not new. The FCC and other federal officials have had the calling card industry in their sights for years.

In September 2008, witnesses told a U.S. Senate committee that victims of these marketing scams have been easy pickings, because of inconsistent state laws, the industry's low barrier of entry and the relatively small dollar amounts taken from each victim.

In addition, in February 2011, Consumer Reports printed a similar study, also suggesting widespread abuses.

"While the cards are popular, they also prompt many complaints to government agencies and online forums," the publication said in that report. "Searching the Web, we found customer peeves focused on call quality, access numbers and personal identification numbers (PINs) that don't work, undisclosed fees, higher-than-advertised rates, charges for calls that never went through, and poor or non-existent customer service."

A representative of a newly formed prepaid calling card trade association told Consumer Reports that most elements of the industry, which sells billions of dollars worth of cards every year, were honorable and that most cards are used for a single call, making them a good value.

Ellison, the FCC's enforcement director, said formation of the trade group was a good sign, but -- when it comes to consumer affairs -- the calling-card industry has a lot of work to do and the commission "will remain vigilant in its pursuit of those who seem to mislead and deceive consumers."

During the past nine months, the commission has taken enforcement actions against at least four calling card companies, accusing them of deceptive advertising -- particularly regarding the true number of usable calling minutes -- and proposing $25 million in fines.

"The FCC is committed to strong, consistent enforcement action in this area," Ellison said. "We have sent a clear message that misleading consumers doesn't pay and won't be tolerated."

See related: Tips to avoid problems with prepaid calling cards, 6 things to know about reloadable prepaid cards

Published: May 11, 2012


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