NCL’s Savvy Consumer Blog

By Sally Greenberg, NCL Executive Director

Prepaid calling cards—those colorful cards you find at your local convenience store or gas station for $2, $5, $10 that advertise cheap per minute rates for calling countries all over the world—are a $6 billion industry that promises to grow in the years to come. But it turns out that the cheap rates these cards offer—1 or 2 cents a minute to call Nigeria or El Salvador, for example—often fail to deliver the bargain they promise.

Immigrants calling family and friends back home, students, military families, and others who don’t have long distance phone service or a wireless phone often buy these cards because the international rates they offer are cheaper than calling from a pay phone or a home phone. I use these cards to call the friends I made while living in Australia several years ago.

In the last two weeks, I testified on behalf of the National Consumers League before Committees at hearings in both the U.S. Senate and House of Representatives about new legislation introduced to help curtail the abuses in the prepaid calling card industry:

In the Senate, the Commerce, Science and Transportation Committee, had a hearing chaired by the bill’s author, Senator Bill Nelson of FL and in the House, the Energy and Commerce Subcommittee on Commerce Trade and Consumer Protection, chaired by Rep Bobby Rush democrat from Illinois. The problem with many of these prepaid cards are the myriad charges they impose: connection fees, maintenance fees, hang up fees, taxes and extra charges that the per minute rates—when combined with the fees—end up to be much higher than what is promised on posters advertising these cards. At the hearing in Senate, a blow-up poster of one card’s fees elicited laughter from the audience when Senator Nelson read aloud that off peak rates were offered only when calls were made between “2 am and 4 am” in the morning.”

The House hearing proved interesting because Professor Emeritus Julia Marlowe from the Department of Housing and Consumer Economics at the University of Georgia discussed her study of calling cards and what they ultimately deliver. (see link above to Committee hearing and her testimony). She and her colleagues tested more than 200 cards. What Professor Marlowe found is that these cards—though they have dizzying numbers of fees and charges—can indeed be a bargain if used wisely. Her study found that if you buy the cheapest card – $2 or $3—and use it all in one call—you get the best bargain for your money. The problem with these cards is that they often diminish in value quickly after the first use (once the many weekly maintenance fees and other charges kick in), so word to the wise for savvy consumers: use as many minutes as you can your first call.

The League supports both the Senate bill—S. 2998, introduced by Senator Nelson of Florida—and its House counterpart, HR 3402, introduced by Congressman Eliot Engel of New York, to require better disclosure of rates and charges and to allow the Federal Trade Commission to carry out more oversight and investigation of the calling card industry. Passage of both bills looks very promising before Congress adjourns in a few weeks—and without much opposition, we may indeed have a new law curbing prepaid calling card abuses before the year’s end. However, NCL also called for review by the FTC in one year if, after the legislation is in force, the stronger disclosure rules aren’t doing enough to curtail the abuses in this industry. It may be appropriate to take further steps to ensure consumers are getting the bargain they paid for in supporting this billion dollar industry.