FTC Testifies on Prepaid Phone Card Fraud

The Federal Trade Commission today told the U.S. Senate Committee on Commerce, Science, and Transportation that while the FTC will continue its aggressive law enforcement and consumer education programs in the prepaid calling card arena, pending legislation would benefit consumers by providing “an additional remedy to those already available to the Commission.”

FTC Chairman William E. Kovacic told the Committee that the Commission has been bringing law enforcement actions involving deceptively marketed prepaid phone cards since the 1990s. “This spring, the FTC filed two cases against major distributors of prepaid calling cards.” The FTC alleged that the defendants marketed their cards to recent immigrants, misrepresented the number of calling minutes provided by their cards, and failed to disclose adequately fees and charges associated with their cards. The testimony notes that the FTC conducted tests on the cards before it filed the suits. In the first lawsuit, the cards delivered, on average, less than 43 percent of the advertised calling minutes. In the second suit, the cards delivered, on average, only 50.4 percent of the minutes advertised.

The testimony also notes that the agency works closely with other law enforcement partners on the issue of deceptively marketed prepaid calling cards. “In the fall of 2007, the FTC established a joint federal-state task force concerning deceptive marketing practices in the prepaid calling card industry. The task force members include representatives from the offices of more than 35 state attorneys general and other state and local agencies, and the Federal Communications Commission. Working cooperatively allows us to share information and facilitate law enforcement activity in the prepaid calling card area,” the testimony states.

“The FTC Act’s prohibitions on deceptive and unfair practices provide the Commission with a powerful tool to bring enforcement actions against the distributors of prepaid calling cards,” according to the testimony. “‘The Prepaid Calling Card Consumer Protection Act’ is directed at the conduct of prepaid calling card service providers – carriers – as well as distributors, and therefore would implicitly give the FTC jurisdiction over common carriers engaged in the deceptive practices prohibited by the proposed legislation. Consumers would benefit greatly from legislation giving the FTC jurisdiction over such practices by the telecommunication carriers.” The testimony notes that the legislation also would give the FTC authority to seek civil penalties for violations, thus providing an additional remedy to those already available to the Commission.

The testimony states, “The Commission recognizes that the agency and the Committee share the same goals: stopping unscrupulous calling card companies from defrauding vulnerable consumers . . . [and] looks forward to working with the Committee regarding the language of the legislation as the Committee moves forward.”

The Commission vote to approve the testimony was 4-0.

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC's online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 1,500 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC's Web site provides free information on a variety of consumer topics.