Calling card company oversight ratchets up

On Sept. 16, 2008, the U.S. House Subcommittee on Commerce, Trade and Consumer Protection of the Committee on Energy and Commerce unanimously approved the Prepaid Calling Card Consumer Protection Act of 2008 designed to manage the conduct of prepaid calling card service distributors.

If passed into law, the act would give the Federal Trade Commission jurisdiction over card carriers reportedly engaged in deceptive practices that defraud consumers. It would also require accurate and reasonable disclosure of the terms and conditions of prepaid telephone calling cards and services.

Testimony from FTC representatives noted the act would give the FTC the authority to penalize calling card companies found to be engaged in fraudulent practices.

FTC Chairman William E. Kovacic told the committee the FTC had filed two cases against major distributors of prepaid phone cards in the spring of 2008. One case was against Clifton Telecard Alliance One LLC; the other was against Alternatel Inc. and affiliated companies.

Allegations

In both cases, the FTC alleged the companies engaged in deceptive advertising and promotional activities that potentially ripped off consumers to the tune of millions of dollars.

The phone cards, Priced at $2 to $10 each, were marketed to immigrant communities in the United States. Available at news stands, self-service kiosks, convenience stores and gas stations in several East Coast states, the cards offered hundreds of minutes each to Panama City, Panama, Rio de Janeiro, Brazil, as well as Cuba and the African nation of Nigeria.

But according to the FTC, 88.5 percent of cards the FTC tested did not give test callers the amount of calling time minutes promised on posters displayed at the POS where the cards were purchased.

Furthermore, the FTC contends the cards carried hidden fees, such as "hang-up," "maintenance," and other fees that could gobble up the minutes on the cards. The fees were disclosed to consumers in tiny, hard-to-read print on the cards and in wording the FTC called "incomprehensible in any language."

The prepaid calling card market is big business. Boston-based Mercator Advisory Group, a payments industry research and consulting firm, projects that approximately $3.7 billion will be loaded onto long distance prepaid calling cards in 2008.

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