Prepaid phone card industry under attack

Herb Weisbaum • Profile • E-mail

Gus West uses prepaid calling cards to keep in touch with friends in Nicaragua. Other than the Internet, this is the cheapest way to call internationally.  “But you never know how many minutes you’ll get out of a card. Some don’t even work,” he says.

As president of The Hispanic Institute, a non-profit based in Washington, D.C., West knows a lot about calling cards. His group tested hundreds of phone cards and found that on average they deliver about half the minutes promised. West says international calling cards “swindle” Hispanics in the U.S. out of close to $1 million dollars a day.

“Go to any store where these cards are sold and talk to anyone who uses them,” he suggested to me, “and you will find that 100 percent of the people will tell you they’ve been victimized.”

He was right. I went to a little convenience store in a mostly immigrant neighborhood in Seattle and had no problem finding unhappy customers.

"Sometimes you try to dial the number and it doesn't work,” said Luis Garcia who buys prepaid cards to call family and friends in Mexico.

Griselda Valencia Sanchez said she often gets fewer minutes than promised. “You’re in the middle of an important conversation and you get cut off.”

Delia Osorio, who works at the store, told me customers frequently complain that they were cheated out of minutes. She uses the cards, too, and has the same problem.

An industry plagued by fraud
Americans spent about $4 billion on prepaid calling cards in 2007. That figure is expected to surpass $6 billion this year.

These cards are used by military families, foreign exchange students, recent immigrants and people with friends overseas. You can buy them at grocery stores, gas stations, newsstands, kiosks and over the Internet.

Prepaid calling cards tips — Check the card’s package or in-store advertising for domestic and international rates. If you can’t find the rate, buy a different card. — Look for disclosures about surcharges, maintenance fees, and fees for making calls from a pay phone, to a cell phone or using a toll-free access number. — Check for an expiration date. — Make sure you understand the instructions on the card. — Ask the retailer if they will stand behind the card if it doesn’t deliver the number of minutes advertised. More information: Buying Time: The Facts about Prepaid Calling Cards Source: Federal Trade Commission

Complaints are not limited to the Hispanic community. Sally Greenberg, executive director of the National Consumers League, uses prepaid calling cards and finds them “frustratingly unsatisfying.”

“”It’s a jungle out there,” she says. “The industry really needs to be cleaned up because there’s a lot of deception.”

Fees and more fees
Consumer groups and government regulators claim the bad actors in this industry use false or misleading advertising and ding customers with all sorts of junk fees – which may or may not be disclosed.

There are connection fees, hang-up fees, and maintenance fees. Some card companies charge 99 cents per call if you dial from a pay phone. Others round the charge up to the nearest three- or four-minute increment. Make a 30-second call and you could get whacked for four minutes. That’s outrageous!

Most of these cards typically sell for between $2 and $10, so after all the fees are included; one short call can wipe out the value.

Do people who buy these cards really know about all these junk fees? Here’s what William Kovacic, the chairman of the Federal Trade Commission told Congress last month: “The disclaimers are frequently so small as to be nearly illegible and in language so vague as to be effectively incomprehensible.” I've seen the fine print and in many cases you literally need a magnifying glass to read it.

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