FTC Testifies on 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 would continue to take aggressive steps to combat the deceptive marketing of prepaid phone cards, and that 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 would continue to conduct consumer education programs and bring law enforcement actions involving deceptively marketed prepaid phone cards. In two cases filed this spring 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 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 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 testimony also discussed pending legislation called The Prepaid Calling Card Consumer Protection Act. It was generally supportive of the act, which would require prepaid calling card providers and distributors to clearly and conspicuously disclose, among other things,the dollar value of their calling cards, or the number of minutes provided by their calling cards, and conditions pertaining to their cards, such as fees and limitations.

In addition, the testimony discussed the possibility of the House extending the FTC’s authority to enable the agency to enforce provisions of the Act against common carriers providing prepaid telecommunications services. As the testimony explains, common carriers subject to the Communications Act currently are exempt from the FTC Act’s prohibitions on unfair and deceptive acts or practices and unfair methods of competition. This exemption originated in an era when telecommunications services were provided by highly regulated monopolies, and the FTC has testified several times in favor of repealing it.

The testimony states, “The Commission recognizes that the agency and the Committee share the same goal: 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.

(Testimony)