FTC Backs Crackdown on Pre-Paid Phone Card Abuses

Agency wants legislation against deceptive marketing tactics

September 16, 2008

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The Federal Trade Commission is urging Congress to approve legislation to protect consumers from abusive sales tactics when it comes to pre-paid phone cards. The agency told the U.S. House Subcommittee on Commerce, Trade and Consumer Protection that a pending bill would be helpful to the FTC's efforts in that area.

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 FTC said it 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," Kovacic said.

Kovacic testified in support of the Prepaid Calling Card Consumer Protection Act. The bill 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.

The FTC also repeated its recommendation that Congress allow the agency to enforce provisions of the FTC Act against common carriers providing prepaid telecommunications services. Currently, 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.

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