‘Wild west’ prepaid calling cards industry unregulated and preying on poor, immigrant, military consumers – National Consumers League

September 16, 2008

Contact: 202-835-3323, media@nclnet.org

Washington, DC – At a hearing of the U.S. House Energy and Commerce on HR 3402, the “Calling Card Consumer Protection Act” today, Sally Greenberg, Executive Director of the National Consumers League, said the largely unregulated industry was a “Wild West” and spoke in support of greater consumer protections in the purchase and use of prepaid calling cards. Greenberg commended the bill’s lead sponsor, Representative Eliot Engel (D-NY), and other supporters for their leadership in offering HR 3402.

“Prepaid calling cards are already a $4 billion industry, projected to grow to $6.4 billion,” Greenberg said. “Unfortunately, too many of the prepaid calling card companies engage in fraud and deceptive practices with the most vulnerable consumers falling prey. Consumers need more transparency and full disclosure as outlined in Congressman Engel’s bill.”

Greenberg added that the terms found in the fine print on the back of prepaid calling cards are unreasonable and one-sided. “Anytime you have an industry like this, with low barriers to entry and a totally unregulated market, you can be sure there will be unscrupulous operators who will take the money and run,” said Greenberg.

For the full statement submitted by NCL’s Greenberg, which contains a timeline of the growth of the prepaid card industry, examples of the outrageous fine print found on the backs of real prepaid calling cards, and more detailed policy recommendations.

Excerpts follow:

“The rapid growth of the prepaid calling card industry combined with, until recently, a lax enforcement of consumer protection statues at the state and federal levels, has enabled consumer fraud to flourish. Like so many other scams, the most frequent victims of the fraud and deception are the most vulnerable consumers: immigrants and the working poor; military families, and those lower income Americans who often cannot afford or obtain regular phone service, relying on calling cards to stay in touch with friends and loved ones in the US and abroad. Sadly, along with immigrants, military families are so often targeted for many scams and rip-offs we see at the National Consumer League’s Fraud Center.

Hispanic consumers may be losing up to $1 million per day because of fraudulent phone cards. Examples of fraudulent practices used by the prepaid companies include “hang-up fees,” periodic maintenance fees, destination surcharges, and high billing increments. Companies that try to “play by the rules” are often punished by a loss of market share due to fraudulent carriers.

While some state attorneys general have taken the lead in prosecuting fraudulent prepaid card companies, and the Federal Trade Commission has done commendable investigations and brought important cases against individual prepaid phone card providers, we need basic federal protections to stem the ongoing tide of the many deceptive practices in this industry. Only 11 states, including California, Connecticut, Florida, and Illinois, currently have laws pertaining to calling card fraud, specifically.

While HR 3402 requires disclosure of the name of the prepaid calling card service provider, we recommend that this section of the bill be expanded to include requiring the address of card originator and a toll free number, and that operators answering the phone be able to speak the language in which the card was advertised. The requisite disclosures should be in the same language. We also support requiring that the disclosure text on the calling card itself, packaging, or other promotional material (including online) be in same language used to advertise the card.


About the National Consumers League

Founded in 1899, the National Consumers League is America’s pioneer consumer organization. Its mission is to protect and promote social and economic justice for consumers and workers in the United States and abroad. NCL is a private, nonprofit membership organization. For more information, visit www.nclnet.org.