Over the past decade, the prepaid calling card business has exploded into a $4 billion industry that introduces new competition into the market for international phone calls and provided many immigrants the only means with which to connect with family and friends back home. The cards are everywhere – sold in gas stations, newsstands, convenience stores, bodegas and groceries across the country.
But consumer advocates and government officials warn that certain segments of the market are plagued by fraud and deceptive practices that give consumers fewer minutes than they pay for and tack on all sorts of hidden and unfair “junk fees.” Some offer cards that simply do not work.
The problem cards may have connection fees on calls that don’t go through because no one is home or the line is busy; post-call service fees and 99-cent hang-up fees on cards that are only worth a few dollars to start with; calling rates that go up when a card is used more than once; activation and weekly maintenance fees; and cards that bill customers in three- or four-minute increments even if they use just a few seconds of calling time.
These charges and fees often end up leaving buyers with far fewer minutes for calls than advertised. The Hispanic Institute, a nonprofit advocacy group, estimates that the average calling card delivers only 60% of the minutes promised — cheating consumers out of $1 million a day.
Government officials are beginning regulatory steps to protect consumers, forcing card providers to be more upfront about their card terms. But consumer advocates know that better disclosure alone is not enough to protect customers.
Victims include soldiers calling home from abroad and foreign students studying in the U.S. But experts agree that the people most vulnerable to these scams are the newest arrivals who speak little English and don’t have the money or documentation to get a home phone line or cellphone — much less a computer — to communicate with relatives overseas. They are also the people who are least likely to seek redress if they are cheated.
One thing that particularly disturbs industry critics is that many prepaid calling card companies advertise in Spanish, but provide disclosures of card terms and conditions in English only — if at all.
The Federal Trade Commission and attorneys general in Florida, Texas and a handful of other states have cracked down on bad actors in the market, while state and federal lawmakers have begun to craft regulations to clean up the industry.
The Senate is considering a bill that would force prepaid calling card companies to clearly disclose the number of minutes that their cards provide as well as any fees and charges. The House passed similar legislation last month.
But while both measures are an important first step, Sally Greenberg, executive director of the National Consumers League, noted that neither prohibits most “unconscionable” industry practices.
Mirroring abuses in other markets, the prepaid calling card market has become fertile ground for abuse because there has been so little industry regulation — and so little enforcement of the rules that do exist.
Plus, scam artists face a low barrier to enter the market since calling card providers do not need to own their own telecommunications networks. Estimates indicate that it can cost as little as $20,000 to buy the long-distance minutes and back-end computer platform to get into the business. Some companies simply redistribute cards made by others.
No wonder HBO’s Tony Soprano ran a calling card scam.
Now lawmakers are stepping in and not just at the federal level. Roughly a dozen states have passed laws tightening oversight for prepaid calling cards.