FTC Testifies on Aggressive Efforts Against Deceptive Marketing of Prepaid Phone Cards

The Federal Trade Commission today told the U.S. House Subcommittee on Commerce, Trade and Consumer Protection of the Committee on Energy and Commerce that the FTC has cracked down on the deceptive marketing of prepaid phone cards, and that pending legislation would benefit consumers by giving the agency stronger tools to combat the problem.

Lois Greisman, Associate Director of the FTC’s Division of Marketing Practices, told the Subcommittee that in 2009 the FTC obtained court orders settling two cases against major distributors of prepaid calling cards. The orders impose judgments totaling more than $3.5 million and bar the companies from deceiving consumers about the number of calling minutes that their cards provide. The orders also require the defendants to undertake a strict compliance and monitoring program. A few months ago, the Commission sued another major player in the industry for allegedly using the same kinds of deceitful tactics. As the testimony explains, in all three of these cases, the companies’ prepaid calling cards delivered only roughly half the advertised calling time in the FTC’s extensive testing of the cards.

The testimony also notes that the FTC works closely with other law enforcement partners to fight fraud in the prepaid calling card industry. The FTC has established a joint federal-state task force, which includes representatives from the offices of more than 35 state attorneys general and other state and local agencies, to combat deceptive marketing practices in the prepaid calling card industry.

In addition, the testimony reiterates the FTC’s support for repeal of a statutory provision that limits the FTC’s authority to take action against telecommunications service providers. As the testimony explains, common carriers subject to the Communications Act currently are exempt from the FTC Act’s prohibitions on unfair or deceptive acts and practices. This exemption dates back to a time when highly regulated monopolies provided telephone services, and no longer makes sense in today’s competitive telecommunications marketplace, the testimony states.

The testimony also discussed the Prepaid Calling Card Consumer Protection Act pending in the House of Representatives. The FTC supports the goals of the legislation, which would require prepaid calling card providers and distributors to provide better disclosures to consumers. The legislation would partially repeal the common carrier exemption and give the FTC the authority to sue both prepaid telecommunications service providers and distributors, as well as the power to fine companies that violate the proposed law. These new tools would assist the FTC’s efforts to crack down on the deceptive marketing of prepaid calling cards.

The Commission vote approving 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 1,700 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.