Legal, Regulatory, and Privacy Issues

At Senate hearing, prepaid phone cards get minute scrutiny


Got a minute? Too many prepaid cards don’t deliver the ones they promise, witnesses told a U.S. Senate committee.

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Got a minute? Too many prepaid phone cards don’t deliver the ones they promise, witnesses told a U.S. Senate committee Wednesday.

The Senate’s Committee on Commerce, Science and Transportation heard testimony from five witnesses, all of whom backed pending legislation that would crack down on companies that issue prepaid phone cards that short their buyers of the time they’ve paid for.

“Prepaid calling cards can provide consumers with a convenient and inexpensive way to call friends and family at home and abroad,” Federal Trade Commission Chairman William Kovacic said in his prepared testimony. “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 purchased.”

The hearing shed light on what has become a $4 billion dollar a year alternate payment system, with much of the money paid by poor people and immigrants who don’t have access to regular phone service. One study by the Hispanic Institute estimated that as many as 60 percent of the prepaid phone cards sold in the U.S. give too few minutes.

Cards are typically sold in small retail shops for $2 to $10.

The victims have been easy pickings. Regulation of the industry is spotty, the witnesses told the senators, and repayment rare. Among the reasons they cited:

  • An inconsistent patchwork of state laws in 18 different states.
  • A low barrier to entry — in other words, it’s an easy business to get into.
  • The small dollar amounts taken from each victim, likely too minute to interest any lawyer.
  • The fact that the scam’s usual victims are among those least likely to trust authority and complain.

The FTC’s Kovacic says his agency has been stepping up its enforcement efforts lately, establishing a network of law enforcement officials who have access to a database of complaints available to local law enforcement agencies. It also filed two suits this year against prepaid calling card companies.

The bulk of the companies are legitimate, he said, but the bad apples are threatening to ruin the bunch. “If consumers believe this is a bad commercial neighborhood, they’ll stay out entirely,” he told the committee.

Others testifying were Sally Greenberg, executive director of the National Consumers League; Gus West, president of the Hispanic Institute; Patricia Acampora, commissioner of the New York State Public Service Commission; and Rosemary O’Brien, director of marketing for the Military Marketing LLC, a New York-based firm that helps businesses market their products to the military. Their written testimonies may be found on the committee’s website.

The hearing came as part of the Senate’s consideration of the “Prepaid Calling Card Consumer Protection Act of 2008,” introduced by Sens. Bill Nelson (D-Fla.), Olympia Snowe (R-Maine), John Kerry (D-Mass.) and Mel Martinez (R-Fla.). A similar bill has been introduced in the House by Rep. Eliot  Engel (D-N.Y.).

Nelson chaired Wednesday’s hearing. At its conclusion, he said, “This has been very enlightening. Thank you, and we’re going to proceed with this legislation.”

The FTC invites those who feel they have been defrauded by a prepaid calling card to file a complaint, in English or Spanish, at the FTC’s online Complaint Assistant or call (877) FTC-HELP ((877)-382-4357).

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