The Prepaid Calling Card Scam

November 18, 2008

phoneIt’s the perfect fraud — victims who are defenseless and a scam that only involves a few dollars per calling card.

Here’s how it works. The Prepaid Calling Card advertises 30 minutes, but in reality you only receive 15 minutes. That’s right. According to testimony before the U.S. Senate Commerce Committee the average calling card only delivers 50% of the promised minutes. The Federal Trade Commission purchased 87 different calling cards in order to find out the extent of the fraud. The worst card only delivered 13% of the advertised minutes.

The trick is in the fees that are either not disclosed or are contained in very small print on the back of the card. In fact some cards were advertised in Spanish, but the disclosure was in English. How do these unscrupulous companies (note that not all prepaid calling companies are unscrupulous) steal the minutes?

  • Junk Fees such as a 99 cent “hang up” fee on a card only worth $2 dollars
  • Connection fees on calls that do not go through
  • Calling rates that go up when a card is used more than once
  • Activation and weekly maintenance fees
  • Cards that bill in 3 and 4 minute increments even if they use just a few seconds of calling time
  • Cards that will expire in months or days of purchase

The prepaid calling card fraud has become so prevalent that it was featured on the HBO series, “The Sopranos.” In Episode 26, Tony Soprano discussed the mob’s work with prepaid cards (I cleaned up the language):

What’s this thing? Telephone calling cards. You find a front man …You become Acme telephone card company. “Acme.” You’re now in the business of selling prepaid calling cards. Immigrants especially, no offense. They’re always calling back home to whoever &*#?! And it’s expensive, right? You sell thousands of these cards to the *&%#@!, cards at a cut rate. But you bought the bulk time on credit, remember? The carrier gets stiffed. He cuts off the service to the card holder, but you already sold all your cards. That’s *%$#@ beautiful! It’s a good one.

No one should conclude that the whole industry is controlled by the mob. The episode only showed how easy it is to get into the industry, rip off people, and then disappear.

The prepaid industry used to be small. However, it is now big business. In 1996, U.S. prepaid calling card sales reached $1.1 billion. In 2008, it is estimated that sales will reach $6.4 billion.

The most popular cards are the two and five dollar cards. While losing money on a two dollar card may seem insignificant, it is monumental to the typical purchaser – a low wage earning family.

In the past, users of these cards had little recourse to address this problem, but not now thanks to Senator Bill Nelson of Florida.  Senator Nelson is a leading reform advocate. He is sponsoring a bill that would force prepaid calling card companies to clearly disclose the number of minutes the card will provide as well as any fees or other charges. (The Prepaid Calling Card Consumer Protection Act of 2008)

“The prepaid calling card market is plagued by some operators who engage in unfair and deceptive practices, such as junk fees or cards that expire just days after they’re first used,” says Senator Nelson.   “We need national regulations to get the bad actors and ensure consumers get all the services they paying for.”

This is an example of a prepaid calling card that will be illegal once the bill is passed into law:

Hopefully with full and easy to read disclosure consumers will now be able to protect themselves.