[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
H.R. 3402, THE CALLING CARD CONSUMER PROTECTION ACT
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON COMMERCE, TRADE,
AND CONSUMER PROTECTION
OF THE
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
SECOND SESSION
__________
SEPTEMBER 16, 2008
__________
Serial No. 110-147
Printed for the use of the Committee on Energy and Commerce
energycommerce.house.gov
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COMMITTEE ON ENERGY AND COMMERCE
JOHN D. DINGELL, Michigan, Chairman
HENRY A. WAXMAN, California JOE BARTON, Texas
EDWARD J. MARKEY, Massachusetts Ranking Member
RICK BOUCHER, Virginia RALPH M. HALL, Texas
EDOLPHUS TOWNS, New York J. DENNIS HASTERT, Illinois
FRANK PALLONE, Jr., New Jersey FRED UPTON, Michigan
BART GORDON, Tennessee CLIFF STEARNS, Florida
BOBBY L. RUSH, Illinois NATHAN DEAL, Georgia
ANNA G. ESHOO, California ED WHITFIELD, Kentucky
BART STUPAK, Michigan BARBARA CUBIN, Wyoming
ELIOT L. ENGEL, New York JOHN SHIMKUS, Illinois
GENE GREEN, Texas HEATHER WILSON, New Mexico
DIANA DeGETTE, Colorado JOHN B. SHADEGG, Arizona
Vice Chair CHARLES W. ``CHIP'' PICKERING,
LOIS CAPPS, California Mississippi
MIKE DOYLE, Pennsylvania VITO FOSSELLA, New York
JANE HARMAN, California ROY BLUNT, Missouri
TOM ALLEN, Maine STEVE BUYER, Indiana
JAN SCHAKOWSKY, Illinois GEORGE RADANOVICH, California
HILDA L. SOLIS, California JOSEPH R. PITTS, Pennsylvania
CHARLES A. GONZALEZ, Texas MARY BONO MACK, California
JAY INSLEE, Washington GREG WALDEN, Oregon
TAMMY BALDWIN, Wisconsin LEE TERRY, Nebraska
MIKE ROSS, Arkansas MIKE FERGUSON, New Jersey
DARLENE HOOLEY, Oregon MIKE ROGERS, Michigan
ANTHONY D. WEINER, New York SUE WILKINS MYRICK, North Carolina
JIM MATHESON, Utah JOHN SULLIVAN, Oklahoma
G.K. BUTTERFIELD, North Carolina TIM MURPHY, Pennsylvania
CHARLIE MELANCON, Louisiana MICHAEL C. BURGESS, Texas
JOHN BARROW, Georgia MARSHA BLACKBURN, Tennessee
BARON P. HILL, Indiana
DORIS O. MATSUI, California
______
Professional Staff
Dennis B. Fitzgibbons, Chief of Staff
Gregg A. Rothschild, Chief Counsel
Sharon E. Davis, Chief Clerk
David L. Cavicke, Minority Staff Director
(ii)
Subcommittee on Commerce, Trade, and Consumer Protection
BOBBY L. RUSH, Illinois, Chairman
JAN SCHAKOWSKY, Illinois ED WHITFIELD, Kentucky
Vice Chair Ranking Member
G.K. BUTTERFIELD, North Carolina CLIFF STEARNS, Florida
JOHN BARROW, Georgia CHARLES W. ``CHIP'' PICKERING,
BARON P. HILL, Indiana Mississippi
EDWARD J. MARKEY, Massachusetts VITO FOSSELLA, New York
RICK BOUCHER, Virginia GEORGE RADANOVICH, California
EDOLPHUS TOWNS, New York JOSEPH R. PITTS, Pennsylvania
DIANA DeGETTE, Colorado MARY BONO MACK, California
CHARLES A. GONZALEZ, Texas LEE TERRY, Nebraska
MIKE ROSS, Arkansas SUE WILKINS MYRICK, North Carolina
DARLENE HOOLEY, Oregon JOHN SULLIVAN, Oklahoma
ANTHONY D. WEINER, New York MICHAEL C. BURGESS, Texas
JIM MATHESON, Utah MARSHA BLACKBURN, Tennessee
CHARLIE MELANCON, Louisiana JOE BARTON, Texas (ex officio)
JOHN D. DINGELL, Michigan (ex
officio)
C O N T E N T S
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Page
Hon. Bobby L. Rush, a Representative in Congress from the State
of Illinois, opening statement................................. 1
Hon. Ed Whitfield, a Representative in Congress from the
Commonwealth of Kentucky, opening statement.................... 2
Hon. Joe Barton, a Representative in Congress from the State of
Texas, opening statement....................................... 4
Hon. George Radanovich, a Representative in Congress from the
State of California, opening statement......................... 4
Hon. Eliot L. Engel, a Representative in Congress from the State
of New York, opening statement................................. 31
Hon. Edolphus Towns, a Representative in Congress from the State
of New York, prepared statement................................ 70
Hon. Marsha Blackburn, a Representative in Congress from the
State of Tennessee, prepared statement......................... 70
Witnesses
William E. Kovacic, Chairman, Federal Trade Commission........... 5
Prepared statement........................................... 8
Sally Greenberg, Executive Director, National Consumers League... 34
Prepared statement........................................... 36
Yvette Zaragoza, Small Business Program Manager, Latino Economic
Development Corporation........................................ 49
Prepared statement........................................... 50
Julia Marlowe, Professor Emeritus, Department of Housing and
Consumer Economics, University of Georgia...................... 51
Prepared statement........................................... 54
John Eichberger, Vice-President, Government Relations, National
Association of Convenience Stores.............................. 60
Prepared statement........................................... 62
H.R. 3402, THE CALLING CARD CONSUMER PROTECTION ACT
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TUESDAY, SEPTEMBER 16, 2008
House of Representatives,
Subcommittee on Commerce, Trade,
and Consumer Protection,
Committee on Energy and Commerce,
Washington, DC.
The subcommittee met, pursuant to call, at 10:07 a.m., in
room 2322 of the Rayburn House Office Building, Hon. Bobby Rush
(chairman) presiding.
Members present: Representatives Rush, Schakowsky, Barrow,
Whitfield, Radanovich, and Barton (ex officio).
Also present: Representative Engel.
Staff present: Consuela Washington, Judith Bailey,
Christian Tanotsu Fjeld, Valerie Baron, Shannon Weinberg, and
Chad Grant.
OPENING STATEMENT OF HON. BOBBY L. RUSH, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF ILLINOIS
Mr. Rush. The hearing will come to order. The chairman will
recognize himself for 5 minutes for opening statements and then
will recognize other members including my friend, the ranking
member, for 5 minutes of opening statement.
In this advanced age of telecommunications, many Americans
might be surprised to find out that pre-paid calling cards is
an estimated $6 million a year business, and this business is
still growing. Calling cards offer consumers an informal means
of long-distance communications and play a prominent role in
the telecommunications sector, particularly with immigrant
populations and those who need to place phone calls overseas.
Unfortunately, the waters of the calling card business are
infested with sharks, meaning calling card companies, whether
they are distributors or telecommunications carriers, practice
outright fraud on unsuspecting consumers by deceiving them with
false information. These bogus cards are sold at gas stations,
bowling alleys, or out of boxes on the streets; and some are
also sold in prominent retail chains.
No matter which population is served or where they are
sold, these fraudulent calling cards have all one common theme:
they misrepresent an outright lie to consumers about the rates,
charges, and terms that apply to their products. Consumers too
often buy cards that are advertised as having 500 minutes only
to discover that they really only have 200 minutes or that they
face a battery of hidden fees and connection charges that
significantly reduce their minutes. Unfortunately, these
fraudulent practices are widespread and have a disproportionate
impact, mostly on poor and immigrant communities, as well as
the elderly.
To combat this plague on communities, my friend from New
York, Mr. Engel, introduced H.R. 3402, the Calling Card
Consumer Protection Act. H.R. 3402 will require providers and
distributors of calling cards to accurately and fully disclose
all the rates, all the charges, and all the terms to consumers
at the point of purchase. Calling card companies that do not
comply with these disclosure requirements shall be in violation
of a deceptive act or practice as prohibited by rule under
Section 18 of the Federal Trade Commission Act.
Lastly, in addition to the FTC, the bill empowers the
States' Attorneys General with the authority to enforce this
new federal law. Today's legislative hearing will deliberate on
the merits of H.R. 3402. It is my intention to hold a
subcommittee markup on this bill later on this afternoon. I
hope members of the subcommittee will be informed by our panel,
including the distinguished chairman of the FTC, for the
purpose of us all working together in a bipartisan fashion to
report effective legislation. As I have stated in other
hearings and markups, this subcommittee has a proud tradition
of producing quality, bipartisan bills, and I hope to continue
that trend this afternoon. With that, I yield back the balance
of my time.
It is now my pleasure and privilege and honor to recognize
the ranking member of this subcommittee for 5 minutes for
opening statement.
OPENING STATEMENT OF HON. ED WHITFIELD, A REPRESENTATIVE IN
CONGRESS FROM THE COMMONWEALTH OF KENTUCKY
Mr. Whitfield. Chairman Rush, thank you very much, and we
appreciate this hearing today on the Calling Card Consumer
Protection Act; and as you stated, this is a large industry in
this country: $4 to $6 billion a year. And the appalling thing
is that it is estimated that up to $2 billion of that revenue
is obtained by fraud each year, and unfortunately, over the
last few years, more and more companies it appears have been
selling cards that actually do not contain the number of
minutes for which the card buyer has paid. This practice has
become so common that consumers of these cards now expect to
get much less for their money than advertised, and that is
simply unacceptable.
While we all agree that something must be done to stop such
blatant fraud, I know that many of us have reservations about
this bill. First thing is that the FTC does not currently have
jurisdiction over common carriers, and I know that they have
suggested maybe a carve out to take care of a part of that
problem; but I myself am concerned about that because we have
not had a deliberation of the consequences of doing that,
either in this subcommittee or jointly with our colleagues on
the Telecommunications and Internet Subcommittee.
I am also very much concerned about how the requirements of
this bill will function in the real world. We require a number
of disclosures which is certainly a good thing. We need
transparency on the packaging of the card. The problem with
packaging is that it is typically thrown away as consumers walk
away from the retail store, and then the problem with the card
is the size. There is simply not enough room to list all of the
fees and rates as they apply to each country for which a single
card is valid.
And that leads me to a third issue, and that relates to
preemption. Without preemption, the disclosure requirements
will only become, in my view, less manageable. We have
essentially no preemption on the bill as it was introduced. I
think it is essential that we require a strong federal
preemption standard, and unless we have that, states are going
to be free to go beyond the minimum standards set by the
Federal Government and in doing so, we are going to have
potentially 50 different disclosure statements, perhaps
required in multiple languages on each card. On top of that,
these disclosure statements will likely need to change on a
monthly basis due to changing fees and rates as is the nature
of this market.
Finally, Mr. Chairman, I am curious to find out whether
legislative action is really necessary. The FTC has taken
action against a number of distributors in this arena under
their current jurisdiction, and while the FTC may not currently
pursue actions against common carriers, it is my understanding
that the FCC, the Federal Communications Commission, has all
the jurisdiction necessary to proceed against any allegations
of wrongdoing. Why that agency has not acted in this arena, it
seems to me it is an issue ripe for the subcommittee of
jurisdiction to investigate, and I would encourage Chairman
Markey and Ranking Member Stearns to look at that.
Beyond that, Mr. Chairman, I would say that we stand behind
you 100 percent in your efforts to stem the tide of fraud,
particularly when directed at vulnerable populations and
undeserved communications; and as always, we appreciate your
strong leadership in all these issues. I yield back the balance
of my time.
Mr. Rush. The gentleman would just like to acknowledge that
with friends like that, I don't need enemies.
The chair now recognizes the gentleman from the great State
of Georgia, my home State, Mr. Barrow, for 5 minutes of opening
statement.
Mr. Barrow. I thank the chair, and I thank him for
acknowledging our home State. It just goes to show that many
fine things claimed by others were first conceived of in
Georgia.
I don't want to take any time. I want to get to the
witnesses, but I do want to acknowledge the presence of a
representative of my alma mater, Dr. Julia Marlowe, who is a
leader in this field who will be a part of the second panel. I
want to thank you for being here and bringing your expertise to
bear on this.
Mr. Chairman, thank you for your acknowledgment, thank you
for your leadership in calling this hearing, and I yield the
balance of my time.
Mr. Rush. The chair thanks the gentleman for the brevity of
his comments.
The chair now recognizes the ranking member of the full
subcommittee, my friend from the great State of Texas, Mr.
Barton, for 5 minutes of opening statement.
OPENING STATEMENT OF HON. JOE BARTON, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF TEXAS
Mr. Barton. First of all, Mr. Chairman, it is good to see
you back in the chair.
Mr. Rush. Thank you.
Mr. Barton. Secondly, as Mr. Whitfield said, the
Republicans are behind you. The question is, how far behind
you? We do support the basic purpose of the bill. We certainly
want to prevent fraud. We think you and Mr. Engel have put
together a good bill. We do need to perfect it. We need to work
together between now and whenever you mark it up on preemption
and the scope of the bill. To be really effective, it is going
to have to apply to common carriers, and you and your staff
know that. So we have got several outstanding issues, but if we
can resolve those as Mr. Whitfield said, we know that you have
addressed an issue that needs to be addressed, and you have
been a great chairman in looking some of these issues straight
up and trying to address them. So hopefully we will have some
bipartisan staff agreements and member agreements before we go
to markup so we can be not only behind you but standing beside
you in moving the bill.
Mr. Rush. Thank you very much. Now, the chair recognizes
the gentleman from the great State of California, Mr.
Radanovich for 5 minutes for opening statement.
OPENING STATEMENT OF HON. GEORGE RADANOVICH, A REPRESENTATIVE
IN CONGRESS FROM THE STATE OF CALIFORNIA
Mr. Radanovich. Thank you very much, Mr. Chairman, Mr.
Ranking Member. I do want to thank you, Mr. Chairman, and also
Mr. Engel for introducing this legislation and bringing
attention to this important issue.
The abuse of pre-paid calling cards harms consumers across
the Nation. Consumers have a right to receive the services and
calling card minutes for which they pay, and fly-by-night
companies seeking to make a quick buck must not be allowed to
rip them off.
The federal regime governing pre-paid calling cards and
services would provide clarity and consistency and would be the
most effective method to address the problems and confusion
surrounding pre-paid calling cards. These calling cards are
primarily used for domestic long distance, international
calling, completely transcending state boundaries and
jurisdictions. So ensuring that disclosure requirements are the
same for one state to another not only makes sense from an
enforcement perspective but will also be most beneficial to the
consumers who utilize these products. states should be able to
enforce a federal regime, but inconsistent state laws or rules
on pre-paid calling cards and services would undermine the very
purpose of having a federal standard.
As a member of the Telecommunications Subcommittee, I have
reviewed this issue extensively in the context of regulation on
the wireless phone industry, and I have learned that with a
product that so clearly exceeds any state boundaries, the most
sensible and consumer-friendly approach is to create a single
federal standard. As is, the legislation before us simply adds
another layer of regulation at the federal level without
addressing the need to create and ensure consistency.
We need one set of rules governing disclosures for these
credit card services, and if Congress permits, multiple
jurisdictions to create rules, law-abiding pre-paid calling
card service providers and distributors would spend countless
resources just trying to figure out what rules apply in every
state, rather than focusing on improving services to consumers.
The unnecessary costs stemming from the compliance with
potentially 50 regimes instead of one would undoubtedly be pass
onto consumers, and we should be trying to make these credit
cards more accessible.
I am also concerned about how a pre-paid calling card
company would provide all the disclosure forms on an item the
size of a credit card and avoid creating even more confusion.
This would be completely contrary to the authors' worthwhile
goal with this bill.
I strongly believe that there is a need for this
legislation. I just want to make sure that in addressing that
problem that we create the most effective system possible that
will both protect and benefit users of pre-paid calling cards.
I commend the author of the bill and the subcommittee for
bringing this up and look forward to working with my colleagues
on both sides to address these concerns and create a bill that
we can all support because it utilizes a federal standard for
disclosures that will ensure that calling cards are as safe,
affordable, and user-friendly as possible.
Thank you so much, Mr. Chairman, Mr. Ranking Member. I
yield back.
Mr. Rush. Thank you so very much. Now it is time for us to
hear from the chairman of the Federal Trade Commission, the
Honorable William E. Kovacic. Chairman Kovacic was sworn in as
Commissioner of the Federal Trade Commission in January of
2006, and President Bush designated him as chairman on March
30, 2008. This is his first time testifying in front of this
subcommittee as chairman.
Mr. Chairman, we certainly want to welcome you to this
subcommittee. We know that you will be very informative and
enlightening to the subcommittee in your testimony, and we look
forward to hearing from you. We promise to be on the best of
behavior during this, your first testimony as chairman. Can't
promise you the second one, now, but the first one we will be
nice to you. You are recognized, Mr. Chairman, for 5 minutes of
opening statement.
STATEMENT OF WILLIAM E. KOVACIC, CHAIRMAN, FEDERAL TRADE
COMMISSION
Mr. Kovacic. Thank you, Chairman Rush, Ranking Member
Whitfield, and members of the subcommittee. I am not only
enormously grateful to be here for the first time for what I
hope is one of many conversations with this subcommittee but
also to talk about a matter that all of you have described this
morning as being a matter of great pressing concern.
We are concerned with the phenomenon you have described for
two reasons. First, serious instances of deceit and
misrepresentation are among the greatest offenses in our
commercial system. If consumers cannot have confidence in the
fairness and truthfulness of representations that suppliers of
goods and services make, that is a serious blow to our system
of commerce, and misrepresentations with respect to the number
of minutes that a card provides or the charges that will be
imposed are extremely serious limitations on the operation of
the pre-paid calling card system.
The second reason is one that several of you have mentioned
as well, and that is the victims of the misconduct in this
instance I think overwhelmingly are individuals who might be
characterized as being beset by serious economic disadvantage.
I regard a special responsibility of our agency is to deal with
victims who fall in exactly that classification. These are
individuals who frequently are not able to identify what their
rights are in advance, and for a variety of historical and
social reasons might not feel inclined to report to public
agencies of any type the fact of wrongdoing. So our efforts in
this area are part of a larger program at this agency to ensure
that victims of serious economic disadvantage are not exploited
in the marketplace.
For both of those reasons, this is a high priority. I would
like to shortly describe for you what our program now entails
and to comment briefly on the bill that you will be
considering.
The first element of our program is litigation. For
basically over a period of a decade now, we have been bringing
cases to deal with this phenomenon. Earlier this year, we
brought two cases, the Clifton Telecard Alliance case and
Alternatel, which deal with major distributors of pre-paid
calling cards dealing with precisely the forms of misconduct we
allege and that you have been describing at the hearing today.
It is our hope that if we are successful in these matters that
this will have a significant effect beyond the distributors
involved and will demonstrate to the industry as a whole
standards that ought to be abided by by service providers in
this field.
The second element of our program is to deepen cooperation
with other public authorities that have responsibility in this
field. We established last year a Federal-State task force that
engages the energies of my agency, the Federal Communications
Commission, State Attorneys General, state Public Utilities
Commissions, and other government bodies. The reason for doing
this is the realization that individually, if we do not
collaborate effectively with other public instrumentalities, we
will not solve the problem. This is a series of problems that
has great cross-border features, across jurisdictions, within
our own republic and outside of the United States; and the only
way to achieve a truly effective resolution to this problem and
related forms of misconduct is to have an effective form of
cooperation.
And I would add that the two matters that I described a
moment ago profited enormously from a measure that this
committee was deeply involved in promoting and that is the
SAFEWEB legislation that was adopted in December of 2006. We
were able to develop our cases because we could work with
foreign consumer protection authorities in countries such as
Panama, Peru, Mexico, and others to identify the fact of the
misconduct and to formulate specific allegations to challenge
it.
So I want to thank this committee for their efforts less
than 2 years ago to give us a platform on which we could build
a more effective program.
The last element is education. We have been working to
improve outreach materials, both in English and Spanish, for
users of calling cards to educate them to be wiser consumers,
and, very importantly, to tell them what they can do if they
think they are the victims of fraud and to inform us or other
public institutions about the fact of fraud. If we can be
alerted to instances of misconduct by reason of a variety of
reforms that this committee has sponsored well over the past
decade, we now have the capacity to respond almost in real time
to instances of misconduct. So encouraging victims of fraud to
tell us about fraud is an extremely important element of our
program and we use consumer education as a means to do it.
Last, I want to thank the Committee for its proposal, H.R.
3402. We think there are a number of very useful measures that
will improve enforcement in this area. We do have specific
improvements which we welcome the opportunity to discuss with
you and your staff in any form that you wish involving the
jurisdictional limits involving common carriage where we think
it would be very useful to be permitted to enforce the law
against the complete range of actors in this area.
Other measures dealing with pre-paid wireless services, the
knowledge requirement for obtaining injunctions, there are a
variety of areas in which again we would be quite happy to work
with your staff and continue the discussion we have had with
the Committee about areas of possible improvement.
We look forward to working with you as this measure
advances through the Congress, and I welcome your comments and
your questions. And again, I thank you very much for the chance
to be part of the hearing today.
[The prepared statement of Mr. Kovacic follows:]
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Mr. Rush. Thank you very much, Chairman Kovacic. The chair
recognizes himself now for 5 minutes for questioning.
Mr. Kovacic, H.R. 3402 as introduced leaves the FTC's
jurisdiction as is currently stated in the FTC Act, which
exempts common carriers from FTC jurisdiction. How effective
would the bill be in cleaning up industry if the FTC can't
enforce violations against common carriers? I have two
questions. Secondly, is there a precedent given the FTC
jurisdiction to enforce and screen consumer protection laws
against common carriers?
Mr. Kovacic. Chairman Rush, there are of course a number of
other public institutions that would be able to enforce the law
if we were not involved. We think of ourselves because we have
unsurpassed experience in identifying and challenging unfair
deceptive practices--to leave us off the field is to leave
someone with a good batting average and a lot of production on
the bench. We think that would be a serious limitation, and we
do urge you and your colleagues to consider the possibility
that if we are engaged in the enforcement process, the
enforcement of these measures will be greatly enhanced by
reason of this larger body of experience that we would bring to
the process.
There are specific instances in which the Congress has
given us specific ability to work in areas involving common
carriage. A number of specific statutes that Congress has
adopted have allowed us for specific purposes to address the
behavior of common carriers. For example, in the area of
unauthorized billing. If the billing for non-common carrier
services is included on a consumer's bill, even if the bill is
provided by a common carrier, Congress many years ago
recognized that it would be useful for us to address
unauthorized billing in that context. I would be happy to
provide for the Committee a full description of the specific
areas in which Congress has permitted us to be active.
So I think there are good illustrations where this has
worked, and again, I think to allow us with our experience, and
I would say our good batting average, to come off the bench and
be in the lineup, I think the team would be a lot stronger.
Mr. Rush. I have a few more moments on my time. Should
wireless services be included on the bill for required
disclosures or is that service somehow different because of the
disclosures, when the consumer signs up for that service
initially?
Mr. Kovacic. Our serious concern is that if wireless is
excluded, that that will become an attractive avenue to which
wrongdoers migrate over time. We are seeing already in the
course of our law enforcement that firms engaged in misconduct
have identified this as a promising possibility and that that
is where they will move their business in the future. My
concern would be that this would be a seam through which the
misconduct that the Committee is so wisely seeking to address
would ultimately flow so that to eliminate that possible carve-
out from the bill we think would be a useful thing for the
Committee to consider and adopt.
Mr. Rush. We have heard concerns that Federal law and State
law could require different and even inconsistent disclosures
on these pre-paid phone cards, all to fit on, as was indicated
earlier, a small wallet-sized card. This could cause confusion
for the industry and, even worse, for the consumer. Should we
consider a narrow preemption of state requirements on specific
disclosures for these cards?
Mr. Kovacic. I think, as you and your colleagues have
pointed out already this morning, the question of preemption is
a difficult matter. There are unmistakably costs for business
operators to have to respond to an array of different commands
from both national and state regulators. At the same time, the
states have often been a stimulus for providing ideas that I
think have given great vitality to our system. It has often
been the states that have provided the ideas that have moved us
ahead, and in my conversations with my colleagues, I would say
that my view, though I speak for myself in this capacity in
speaking with our staff, I am not sure that we know enough
about the likely effect of preemption in this specific instance
to suggest that Congress adopt a measure that would achieve
preemption. I would say that in approaching specific preemption
measures, it would be very useful to study carefully how
states, through their own policymaking, have contributed to the
formulation and development of ideas that we now accept as
being useful. To freeze in place any single solution runs the
risk that the innovation that the states have provided would be
forestalled. We would see this as a very important measure to
be pursued, and of course, the bill itself does continue to
provide dual enforcement at the state level and the federal
level. That seems to be a consensus position within the
Committee. We certainly endorse that part of the enforcement
regime in the bill, too.
Mr. Rush. Thank you. My time is up. The chair now
recognizes the ranking member, Mr. Whitfield, for 5 minutes for
questioning.
Mr. Whitfield. Thank you, Chairman Rush.
Mr. Chairman, you had mentioned that the FTC has engaged in
litigation on this issue in at least a few cases. I was just
curious. What is the maximum penalty that you can impose on a
company that is found to have violated these fraudulent
practices?
Mr. Kovacic. We can achieve injunctive relief which tells
firms to stop the misconduct. The other existing monetary
penalty for most purposes that we can obtain is to seek the
disgorgement of ill-gotten profits and, where possible, to
return ill-gotten gains to consumers. In many instances, that
is very difficult to do. It is hard to recover the funds. In
some instances, it is hard to identify the precise amount of
the funds that ought to be surrendered. We think that a very
useful part of H.R. 3402 is that it would give us the ability
to obtain civil penalties for each offense. It would allow us
to achieve a much more powerful deterrent for individual
offenses so that rather than being pressed to go through the
expense of identifying the specific harm attributable to each
specific violation, it would permit us, as Congress has allowed
us in a number of other settings, to obtain civil penalties for
individual offenses. I think that would be a very useful
addition to the injunctive relief and the equitable relief in
the form of disgorgement and restitution that we can now seek
to pursue.
Mr. Whitfield. But as of this time, you have not been able
to obtain disgorgement profits from any of these firms?
Mr. Kovacic. We are seeking them in the matters that we
have before us now. I would like to consult my memory better,
if you permit, in our previous cases, to see if we actually
obtained funds that have been recovered for consumers. This is
something we typically seek. We are seeking them in the cases
that we have now.
Mr. Whitfield. One of the concerns expressed about this
bill is the inability to go after a common carrier because you
all do not have that jurisdiction. You did point out where
unauthorized billing, you have been able to do that an so
forth. But has the FCC been vigorous in trying to address this
issue from your knowledge?
Mr. Kovacic. I would say that they have an interest in this
area. We have been the one who has been bringing the cases.
Mr. Whitfield. OK.
Mr. Kovacic. That is, I think that whatever the combination
of effort that would be provided, we are the ones who have had
the most experience in the field. A difficulty I would mention
in the two cases that I have referred to before is that already
the defendants in those cases have raised the argument that the
cases cannot be tried unless telecommunications carriers are
joined in the action, that they are indispensable parties. We
believe we will prevail in those arguments. We think their
arguments are incorrect. They are being urged against us. Even
in areas where we think we are not dealing with true common
carrier exemptions, we have to spend a lot of resources in the
routine execution of our business trying to deal with these
specific matters.
So I would say even for the things where we think we are
clearly on side, but as well for other areas where telecom
services providers are involved, we think we have the wealth of
experience. Unashamedly, we would say we are the experts in
litigating these cases and devising the remedial scheme. That
is why we would urge that we would be a useful addition to the
mix, and in doing it, we would use all of the cooperation
approaches we have used with other federal and state agencies
in which we share jurisdiction to make sure we are not crossing
wires.
Mr. Whitfield. So you support this legislation? You think
the Federal Government should take steps in this area?
Mr. Kovacic. Yes, sir.
Mr. Whitfield. But would you just quickly elaborate some
suggested changes that you would make to this bill to make it
more effective from your perspective?
Mr. Kovacic. Very specifically, we would eliminate any
indication in the bill that the FTC cannot enforce its
provisions against common carriers.
Mr. Whitfield. OK.
Mr. Kovacic. That is, we would seek to make absolutely
clear that the Federal Trade Commission has authority to
enforce the provisions of the bill with respect to any actor,
be it a common carrier, be it a non-common carrier. That is our
first recommendation. The second is that the bill now includes
a knowledge standard that would require the FTC to show that
alleged wrongdoers had actual knowledge of misconduct as a
precondition for obtaining injunctive relief. I am only talking
about relief that says stop the practice. And we would suggest
that for injunctive relief that this provision be eliminated.
The whole body of law that we enforce now dealing with
deceitful advertising does not require us to show actual
knowledge in order to get an injunction and say stop it. We
have to show knowledge when it comes to getting money. That's a
different issue. But with respect to obtaining injunctive
relief, telling the firm whether you knew it was wrong or not--
you have to stop the behavior because we can show that it
involves misrepresentation--that requirement I think would
hopefully be withdrawn from the bill.
The third is the matter that the chairman asked me about
before and that is the treatment of prepaid wireless services.
We think it is not healthy for the bill to leave that out. Why?
That will become a gap through which those bent on misconduct
will travel, that is, it will create an inviting opportunity
for firms to move their business in the direction of wireless
services so that we think to create the fence that we think the
Committee is trying to build around the bad practices, that
would be a hole in the fence and we suggest that you consider
eliminating it.
Mr. Whitfield. My time has expired, Chairman.
Mr. Rush. The chair thanks the gentleman. The chair
recognizes the fine gentleman from Georgia, Mr. Barrow, for 5
minutes for questions.
Mr. Barrow. I thank the chair, and thank you, Mr. Chairman,
for coming and testifying today. I certainly understand your
point about wanting to eliminate the knowledge requirement as a
precondition for getting injunctive relief. You know, where I
come from we know that even a dog knows the difference between
being kicked and being tripped over. So intent is important for
some purposes.
Mr. Kovacic. It certainly is.
Mr. Barrow. But if you are constantly getting tripped over,
constantly, over and over and over again, you want to do
something about that, too. It is not a matter of no consequence
whatsoever. It seems to me also that if you bring the action,
the knowledge requirement ought to be satisfied at least from
that point forward. So I want to explore that issue a little
bit further when circumstances permit. You might want to
address that later on because while knowledge before you bring
the action might be something that might be difficult to prove
or might be missing. Once you bring the action, it seems to me
that you have brought notice of the conduct to the fore and it
is certainly out in the record now. So certainly there ought to
be a basis for injunctive relief from that point forward at
least.
But I want to return to the subject you made about trying
to assess the situation the way things are working currently
right now because in order to assess where we ought to go, we
have to have a better understanding of how we are actually
doing things. In other testimony, both today and elsewhere, you
have made the point that your agency is working with the FCC,
with Attorneys General, with other state agencies to try and
divvy up responsibility for working with the patchwork of
regulations and laws we have in place right now. I want to
know, how are you all doing that? How are you dividing up these
responsibilities in a way to avoid duplication of effort? How
actually are you working with the existing patchwork of
regulators and regulations? How do you all do that?
Mr. Kovacic. If I can start, Congressman Barrow, just with
a comment about the knowledge requirement. I think you and I
agree completely that if you have this recurring type of
behavior and there is some notice from an enforcement agency or
from some other source that this is considered to be improper,
you can't smack yourself on the forehead afterwards and say,
oh, my goodness, I had no idea.
Mr. Barrow. More importantly, you can't say from that point
on, I don't know about it now so therefore there is no basis
for a court telling me I can't continue to do this.
Mr. Kovacic. Exactly right, and I think if we were to pull
out the first year tort law framework of knowledge, reckless
disregard, and lack of knowledge, we would say that this would
easily be called reckless disregard and we would put it in the
knowledge basket. We are also interested in cases in which
people innocently transgress and those happen. But they have
transgressed. They weren't aware of it, but they did. We would
like in those instances as well to be able to go to a court and
say, tell them to stop.
Mr. Whitfield. What I am saying, when you bring the action,
though, you are serving them with notice----
Mr. Kovacic. Yes.
Mr. Whitfield [continuing]. So they can argue they did not
know about it before, but they can't say they don't know what's
in the pleading.
Mr. Kovacic. Quite so. Quite so. Just a----
Mr. Whitfield. The fact that they didn't know before is not
a safe harbor for continuing to engage in this after you bring
notice.
Mr. Kovacic. No question. A couple of comments about the
cooperation effort.
Mr. Whitfield. Right.
Mr. Kovacic. One thing we do through the task force is to
make sure that we are all aware of what the other party is
doing so that in the first instance, we don't take action that
would in some way frustrate or impede the completion of a
useful investigation or enforcement matter that is now in
progress. Second, where we can combine efforts, sometimes we
carry out programs called sweeps where on a single day we will
announce a bundle of enforcement matters that all of our
agencies have pursued. We had one of these earlier this year
involving telemarketing. The collective announcement of those
matters can make a much bigger impact in imprinting on the
minds of the public but in providing deterrents to wrongdoers,
that a certain form of conduct will not be tolerated.
A third thing we can do and we pursue through this process
is to see how we can improve any single enforcement action by
sharing information, by reformulating the specific allegations
that any one of us might have pursued so that we can identify
instances in which a particular case or matter can be brought
more effectively; and last, by sharing information that comes
from our investigations we are able to identify patterns of
conduct. It goes back to the point we were touching upon before
about the importance of being able to identify complaints and
patterns of misconduct as fast as we possibly can. If we pull
the body of complaints that we all have and encourage the
sharing of information, we are likely to be in the courtroom
much faster than we would have been otherwise.
Mr. Whitfield. Do you rely on a consensus model within the
task force to decide who is going to bring what action where?
And are there any instances where that consensus model is
broken down? Were there turf disputes or disagreements about
how best to proceed?
Mr. Kovacic. I think there are always some instances in
which tensions associated with organizations that have a great
deal of pride in what they do, a great deal of confidence in
their abilities that those tensions arise. We haven't seen them
arise in a significant way in this instance, that is, this has
been a very healthy form of collaboration. I think in many ways
it is coming from the fact that we all see, given the resources
that we have, that if we want to stand alone and try and
address the relevant behavior in question, if we want to have
an archipelago of public institutions that do not have good
ferry service and that do not connect the individual islands in
the archipelago, we are going to fail. I think that has created
a perceived imperative to cooperate in ways that will achieve
good, collective solutions. That is a very heartening side of a
force that will perhaps overcome the impediments you described
before.
Mr. Whitfield. Thank you, Mr. Chairman. Mr. Chairman, I
yield back.
Mr. Rush. The chair thanks the gentleman. The chair now
recognizes the gentlelady from the great State of Illinois, the
vice-chair of this subcommittee, Ms. Schakowsky, for 5 minutes
of questioning.
Ms. Schakowsky. Thank you, Mr. Chairman. I am proud to
represent a district that is incredibly diverse. In fact,
almost a third of my constituents speak a language other than
English. I think it is actually even more. At home, about 40
percent of the districts speak another language other than
English. So all of them are calling to their home countries,
and it is not just Spanish we are talking about, at my high
schools, maybe 60 languages that are spoken.
So there is a very short section in your written testimony
about consumer education and media outreach. So if you could
tell me what the FCC has done and is doing and if it is
realistic to think that these immigrant communities under
current law at least are going to actually protest the problem.
Mr. Kovacic. Let me mention a couple of things we are doing
right now and a couple of things we are working on to deal with
this phenomenon. We have taken in the case of Spanish language
material, Spanish language speakers to begin producing our
materials in Spanish as well as English. So we have begun to
develop and we have now electronic and print versions of our
brochures and our consumer alerts that are now in Spanish as
well as English. This is part of the Spanish language
initiative that we started about 5 years ago. Another is to
make sure that our materials reach media that are most likely
to reach the affected populations, that is----
Ms. Schakowsky. And what is the remedy that you are
suggesting to them?
Mr. Kovacic. First and foremost to be wise shoppers when
they use the services. Second----
Ms. Schakowsky. What does that mean?
Mr. Kovacic. To be very careful about representations, to
look at what the merchants are saying they will do; and if they
don't do what they are supposed to do, to make readily
accessible complaint communications links to us or to our
counterparts. We have an excellent consumer response center
where by phone and by Internet individuals can complain to us.
The more complaints we get----
Ms. Schakowsky. But before purchasing, how does a consumer
beware? If the card says 250 minutes, how do you beware before
you purchase a card that it is going to do what it says it
does?
Mr. Kovacic. Some of the cards contain--in what is
admittedly fine print that would probably defeat my
prescription--some disclosures. And one step that we recommend
is to go through the difficult and laborious process of
actually looking at that card because if one has the patience
to do it, and I am not saying that the disclosures they provide
are adequate, by any means, Madam Vice-Chairman, but if one
looks at the disclosures, one identifies that these cards have
charges that will be imposed that dramatically diminish the
value of the card. So one thing that we suggest is that people
have the patience to look and see exactly what they are saying
they will do. But because we regard those disclosures as being
inadequate because they are often provided in fine print, one
cannot reasonably be expected in the ordinary course to see
them. What we regard as a critical strategy now is for
consumers to tell us when they have been cheated, because we
have greatly increased our ability from the time of the first
complaint to the day we are in the courtroom to do something
about it and again, by working with our counterparts at the
state and local level, to learn what they are learning about
patterns of misconduct as well and perhaps to formulate better
education programs. Again, a thing we are doing looking ahead
is we are expanding our program to work with community groups
that work with especially disadvantaged communities, non-
English speakers, immigrant communities, that ordinarily are
not going to pay a great deal of attention----
Ms. Schakowsky. How many complaints do you get and have you
seen them increase as a result of your educational outreach
efforts?
Mr. Kovacic. It is hard for me to link them to the outreach
efforts themselves, but something we are asking as part of this
effort is how do we measure the effectiveness of the outreach
programs.
Ms. Schakowsky. Well, how many complaints do you get?
Mr. Kovacic. I would say this year, and I can check this
for the record, I think in this calendar year we received
several hundred, probably on the order of 500 or 600
complaints. I can get you a more specific accounting of that
but that is something we regard as a lot of complaints.
Ms. Schakowsky. And how many were from Spanish language as
a result of your Spanish language outreach?
Mr. Kovacic. I don't know offhand but I can check that for
you.
Ms. Schakowsky. I would be interested in that, and
certainly would encourage that you do outreach in other
languages as well. I can't see the time. Am I out of time? OK.
Thank you.
Mr. Kovacic. And I think that is an excellent suggestion
for us, and I think to take the Hispanic language program and
to use that as a template for building out in other directions
would be very helpful.
Ms. Schakowsky. Well, make sure that it is working, too.
Mr. Kovacic. Absolutely. I think the assessment of actual
effects is very important. My general impression of the
Hispanic language program is that when we look in all areas in
which we have been active, many of the cases we have been
bringing are directly related to the pursuit of that program.
Mr. Rush. The chair asks for unanimous consent to recognize
the author of the legislation, who is a member of the full
committee but not a member of the subcommittee, Mr. Engel. The
specific unanimous consent request is that Mr. Engel be allowed
5 minutes for questioning. Is there any objection? Hearing
none, Mr. Engel is recognized for 5 minutes of questioning.
OPENING STATEMENT OF HON. ELIOT L. ENGEL, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF NEW YORK
Mr. Engel. Thank you very much, Mr. Chairman, and I want to
just say how very happy I am to see you back here leading this
panel. It is good to see you, and we are delighted you are
feeling so much better. Thank you for holding this hearing on
my legislation, H.R. 3402 which for all the reasons that
everyone has said on both sides of the aisle is important
legislation. I want to also say hello to my friend, the
chairman of the FTC. He and I testified before the Senate
Committee on this bill last week, and I think it is fair to say
that we are really in sync.
I just want to tell you that the suggestions that you have
made for changing the bill I have no real objections to. My
concern would be passing this bill identically in both houses
and get it signed by the end of the session which is only
obviously 2 weeks more. And my only concern would be that if we
start complicating it by changing it, it may imperil the
passage of it and the signing of it because I wouldn't want it
to wait another year until the new Congress and then we are
just way behind. So I was just wondering if you could comment
on that because that is a major concern of mine. And again, not
that I objected to anything that you said because I think you
want to strengthen the bill and so do I, and the bill is not
identical with the Senate bill, although it is very, very
similar. And I do agree with Senator Nelson, who is the sponsor
of the bill in the Senate. We all want the same thing. I just
don't want it to get embroiled in what always happens in
Congress and we wind up not getting it done because we have
been too busy crossing every T and dotting every I.
Mr. Kovacic. I think you know better than I that some of
our greatest legislative achievements have come from
incremental improvements and that waiting for the perfect
complete bill is sometimes the equivalent of waiting forever.
So I would never discourage you from--I would respect your
judgments about the appropriate balance between pursuing the
greater complexity and making the changes and having the
simpler text that could be adopted. I would only suggest,
Congressman Engel, and thank you for your question on this,
that with respect to the specific matters that I had in mind
that those involve very modest drafting adjustments and that
those could be accomplished with I think a great measure of
simplicity. Those who think my ideas are wrong-headed would
probably say they could only be achieved with enormous
complexity, impossible complexity. But I think they do involve,
a slogan I will use, precise surgical adjustments that would
not damage the healthy tissue at all but would leave the body
of the bill in much better shape.
Mr. Engel. Well, thank you. I am glad to hear you say that
because I think that is certainly something with which we all
agree. Mr. Chairman, I would like to ask unanimous consent to
have my opening statement entered into the record.
Mr. Rush. Granted.
Mr. Engel. Thank you. And I just want to highlight some of
the things I know that has been said here. But I introduced
this bill because some of my constituents had been complaining
to me, and then I went and purchased my own card and found that
everything they said was true. If a company advertises that
they give 60 minutes of time for calls, the consumer has a
right to believe when he or she purchases the card that they
are getting the full 60 minutes. When they don't, because there
are so many hidden clauses where it can take away three or four
units just for a connection fee, even if the line is busy or
somebody hangs up or the card expires 2 months after it is used
or there is more charging for peak hours and the only hours
that are not peak are from 2:00 a.m. to 4:00 a.m., or as Ms.
Schakowsky points out, things are done in a language--they may
be marketed, for instance, in Spanish but then clauses on the
card are in English and the person obviously cannot understand
it and it is marketed in poor communities, this should not
happen. And the other point I want to raise as well is that it
undermines legitimate companies who are legitimately issuing
these cards and legitimately give 30 or 60 minutes of time
because the card of the dishonest company appears to be cheaper
and the consumer will buy that card thinking they can save a
dollar or two when in reality that card is much more expensive
because if you are paying $1 less but you are getting only half
the time, it is actually a more expensive card.
So these are the things that we have found from time to
time, and I just hope we can pass this in this Congress, have
the Senate do it as well, and have the President sign it. Thank
you very much, Mr. Chairman, for letting me speak at this
subcommittee.
Mr. Rush. The gentleman is quite welcome. The chair is
going to entertain the unanimous consent request from the
ranking member for one additional question. Are there any
objections? Hearing none, the chair recognizes the ranking
member for an additional question.
Mr. Whitfield. Mr. Chairman, thank you very much and this
won't take but a minute. Mr. Chairman, in the technical
comments of the Federal Trade Commission to this legislation,
you specifically asked for rule-making authority, provide more
flexibility, and so forth. My question would be with that rule-
making authority, would that reduce your concern about a strong
federal preemption standard because you are dealing with the
states on a regular basis anyway, and if they come forth with
some way to better protect against consumer fraud, wouldn't
this rulemaking authority diminish your objection to a federal
preemption standard?
Mr. Kovacic. I think it does help, Representative
Whitfield. I think it does help because that interaction is
likely to continue. I would say that one thing that is also
often informative to us in the rulemaking process is to see
that an experiment has been tested and has worked elsewhere.
And the experiment often involves a state measure to actually
apply a specific standard and come back to us and say, you
don't have to take the idea on faith alone. We have got some
data to show that it works. I would certainly count on the
states to be bringing us their ideas. But I would also say that
some of the best ideas they bring us comes from actually having
tested something on their own, which is why I hesitate to jump
in the direction of thinking complete preemption would be
right. It is a consideration that I ask you to consider.
Mr. Whitfield. Thank you.
Mr. Rush. Thank you. The chair thanks the chairman, Mr.
Kovacic, for your fine testimony. We certainly will take your
statements to heart in the markup this afternoon, and if you
have any additional insights or any additions to your
testimony, would you please provide them to the chair as
quickly as you can? We intend to go to markup this afternoon.
Thank you very much, and you are dismissed.
Mr. Kovacic. Thank you very much again for the opportunity
to be here, and I look forward to many, many more. Thank you,
Mr. Chairman.
Mr. Rush. I think excused is a better word. The chair now
invites the second panel to appear to take a seat at the
witness table. The witnesses on the second panel, we welcome
you before this subcommittee.
I am going to introduce the witnesses from my left to
right, and the first witness is Ms. Sally Greenberg. She is
Executive Director of the National Consumers League. She has
testified before this committee before in a different capacity,
so I hope this is a promotion that you received, and welcome
again. The National Consumers League is the oldest consumer
organization in the United States. It is active in the area of
consumer financial fraud and operates a national fraud center.
Our second witness is Ms. Yvette Zaragoza, Small Business
Manager for the Latino Economic Development Corporation. Ms.
Zaragoza has personal knowledge of the pre-paid calling
business, both as an active user of the cards and as a former
business manager for a phone card wholesaler. Ms. Zaragoza
should not be under the burden of identifying the company that
she used to work for, and I admonish all members to not try to
pinpoint through her testimony the name of the company that she
worked for.
Next witness is Dr. Julia Marlowe, who is Professor
Emeritus for the University of Georgia, another fine Georgian.
Dr. Marlowe is an academic with a background in consumer
economics and has done research and published articles on
deceptive marketing of pre-paid calling cards.
And last but not least, Mr. John Eichberger, who is the
Vice-President of Government Relations for the National
Association of Convenience Stores. The National Association of
Convenience Stores is an international trade organization
representing the convenience store industry. Many retail
outlets are major sellers of pre-paid calling cards worth $350
million in sales of the cards in the year 2007.
Again, we welcome you. We will ask that you restrict your
opening statements to 5 minutes, and we will begin the opening
statements with Ms. Greenberg. Ms. Greenberg, you have 5
minutes.
STATEMENT OF SALLY GREENBERG, EXECUTIVE DIRECTOR, NATIONAL
CONSUMERS LEAGUE
Ms. Greenberg. Thank you, Mr. Chairman, and I really
appreciate the opportunity to be here today representing the
National Consumers League.
This area of pre-paid calling cards is what we have
described in testimony as a really wild west of sellers and
merchants who too often prey upon the most vulnerable
consumers, consumers who are promised minutes that are not
redelivered. They are loaded with hidden fees and charges,
undisclosed charges, that not even a savvy consumer--I consider
myself one of them, a savvy consumer. I use these cards, and I
have no idea what kind of value I am going to get from them. I
picked up a few from my gas station yesterday, and I know that
when I use those cards I am not going to get the value that I
expect, and I think many consumers have gotten accustomed to
not getting the value that they expect.
I want to commend Congressman Engel and other sponsors of
the bill for the leadership in offering H.R. 3402, the Calling
Card Protection Act of 2008. Consumers rely on all of you as
outspoken defenders of consumers' rights and protections to
look out for their interests.
This is an industry that is notorious for shady practices,
so much so that the writers of The Sopranos, the HBO series,
had Tony Soprano discussing how to defraud consumers through
the sale of pre-paid calling cards. In episode 26, Tony Soprano
says, so, telecommunications once again fails to disappoint.
What is this thing? Telephone calling cards. You find a front
man who can get a line of credit, you buy a couple million
units of calling time from a carrier. You become Acme Telephone
Card Company. Then he laughs. Acme. Now you are in the business
of selling prepaid calling cards. Immigrants especially, no
offense. They are always calling back home to whoever, word
deleted, and it is expensive, right? You sell thousands of
these cards to the, word deleted, 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 cardholders but you
already sold all your cards. That is, word deleted, beautiful,
laughing. It is a good one.
Now, we aren't suggesting the pre-paid calling card
industry is controlled by organized crime. We have no such
evidence. But this vignette from The Sopranos demonstrates how
easy it is to get into the industry, rip off consumers, and
disappear with no accountability whatsoever. And that must
change. This is a $6 billion industry. Those are the projected
revenues for 2008. The average calling card delivers only 60
percent of the minutes promised with hang-up fees, periodic
maintenance fees, destination charges, and high billing
increments. Lax enforcement and rapid growth from the industry
has enabled consumer fraud to flourish, and the most frequent
victims are the most vulnerable consumers, immigrants, the
working poor, students, military families, and those lower-
income Americans who either can't afford or obtain regular
phone service. They rely on these cards to stay in touch with
family and loved ones.
Yes, the cards provide users with an alternative means of
calling home, but they use false and deceptive practices in the
process. Fraud is fraud. If a car is sold with the promise of a
sun roof and chrome wheels, it better have a sun roof and
chrome wheels. If a phone card promises 500 minutes to call El
Salvador, it should deliver those 500 minutes.
So we support H.R. 3402's requirement that pre-paid calling
card providers and distributors disclose the terms and
conditions of the cards, including per-minute rates, preferred
international destinations, and any fees or surcharges in its
advertising.
Transparency and full disclosure would help to level the
playing field. With all these rules in place, I think we would
have a minimum floor of requirements stating what practices
won't be permitted. But we also support strongly H.R. 3402's
preservation of the right of individual states to provide
further protection for their residents. That provision
acknowledges that states have been the incubators for
groundbreaking legislation. NCL recommends that once this
legislation is enacted, and I do hope it will be marked up by
the House and passed before Congress goes out, within some
period of time, perhaps a year, we recommend that the FTC
report to Congress whether full disclosure is actually working
or more needs to be done to protect consumers.
Many of the fees and charges on these cards we believe are
unconscionable. The text and the fine print on the back of my
Africa Sky card says, all the following fees will reduce the
number of available minutes: use of a toll-free number from a
pay phone, incur 99 cents per calling fee. Some of these cards
are $2 cards. You take a 99 cent fee out, it is gone, and I use
them, as I said, myself all the time and find that I don't get
the value that I am looking for.
I have also had the experience of using these cards in
other countries. I lived in Australia for a year. The cards
there actually deliver the value. They don't have connection
fees, they are not loaded on with a bunch of other fees.
Consumers have no real way of predicting. So we like the bill,
I think there is a lot in here that will be really useful to
consumers. I think certainly we should extend the additional
jurisdiction to the FTC, but I am just not convinced that
disclosure is enough. It is a minefield out there. I think we
really have to crack down on this industry, and I, even what I
regard as quite a savvy consumer, I have no idea what I am
getting from any of these cards. So this industry needs to be
cleaned up. Thank you very much, Mr. Chairman. I appreciate
being here.
[The prepared statement of Ms. Greenberg follows:]
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Mr. Rush. Ms. Zaragoza, you have 5 minutes.
STATEMENT OF YVETTE ZARAGOZA, SMALL BUSINESS PROGRAM MANAGER,
LATINO ECONOMIC DEVELOPMENT CORPORATION
Ms. Zaragoza. Good morning, Mr. Chairman, and thank you
very much for the opportunity to support this bill.
In my previous place of employment I was a business
manager, and we bought pre-paid cards from distributors and
sold them to more than 100 convenience stores, retail stores,
Laundromats, music places. Ninety percent of them, more than 90
percent of them, were owned by Latino or immigrants; and the
majority of them that were located in what you would consider
lower-income neighborhoods. So I am here to provide an insight
on the field, the reality of the field, which is very complex
and pretty different from any other industry.
So part of my duties as a business manager was to handle
complaints from end consumers and from the small businesses
every month. I would visit stores, maybe 10 to 15 stores every
week. And part of our role was to educate end consumers and
also business owners on the rules of the game, so to speak,
because there are several good companies in the industry, and
we know specifically who those companies are. But there are
other bad companies. As Mrs. Greenberg said, they tend to
appear and disappear without any notice. So the way it works
basically is that a card will be launched with the introductory
fees. It would be heavily advertised in Latino or Spanish-
speaking TV or radio shows and also posters, the big posters.
And after a while, this is a word-of-mouth business. People
tend to speak to each other and they recommend each other the
cards. So at the beginning they offer what they promise, but
then when they are at the peak of their demand, basically, then
we know that that is when the cards will start having hidden
fees. They will lower their minutes. So that is when they
really make all their money, the distributors.
So most of the consumers can't really keep up with that,
even savvy consumers. They sort of wait and some of them know
what is the process, but most of them really don't and they get
ripped off. And many times just the channel for complaint is so
burdensome because for a $2 card, for example, the convenience
store probably was sold the card at 1.56 and then probably the
wholesaler was sold the card at 1.52. So sometimes it is not
even worth claiming or putting a claim on the calling card.
Some retail stores would take the card and some of them
wouldn't, but then the end result is that the distributors
never lose. They never lose the money. They never give credit.
So I think I outlined in my written testimony some of the
suggestions which included stop the use of deceptive marketing
practices, disclosure of terms and fees, and then use of the
Spanish language for the fine print. Why? Because from the 200
or 300 cards that the wholesaler would manage at any given
moment, which could be up to 500, they are all different. They
all have their own cycle. And you know exactly which ones are
for Africa, which ones are for Latin American countries. So I
think the issue that was brought up about languages, I think
you can really do it because some of them would be specially in
French, some of them would be specifically in Spanish.
Then of course, compliance with advertised minutes and stop
using the hidden fees. But then one thing that I think would
work pretty well is to register each brand of pre-paid calling
card and have that company be accountable. Some of them
sometimes don't even print the name of the company.
So that would be all, and thank you very much for your
attention.
[The prepared statement of Ms. Zaragoza follows:]
Statement of Yvette Zaragoza
Good Morning, Mr. Chairman.
My name is Yvette Zaragoza and I am a Small Business
Program Manager at the Latino Economic Development Corporation.
I would like to thank you for the opportunity to give testimony
in favor of more regulation of the calling card industry before
the House subcommittee on Commerce, Trade and Consumer
Protection, because this is a real problem affecting the Latino
community in the Washington, DC metropolitan area. My testimony
will be based on my inside knowledge of the industry through my
previous job as well as my personal experience.
In my previous place of employment, I was a Business
Manager for a phone card wholesale company in the metropolitan
area. We bought prepaid phone cards from distributors and sold
them to more than 100 mini-markets, neighborhood stores, and
convenience stores in Maryland, District of Columbia, and
Virginia. At least 95% of the businesses were owned by Latinos
and other minority groups; the majority of them were located in
low-income neighborhoods and their customers represented a wide
range of nationalities, mostly recent immigrants.
The reality in the field is very complex and pretty
different from any other industry. The target market for
prepaid calling cards is composed by some of the most
vulnerable consumer groups, including low-income workers and
non-English speakers. The marketing efforts are directed to
this target market in Spanish but vital information, such as
the terms and conditions of use, are disclosed in English. When
using the calling cards, customers face hidden fees, rounding
the time up to four minutes, and a lower number of minutes than
those advertised or even mentioned by the phone card operator
system before making the connection. Roughly half of the cards
sold have a face value of $2, making it almost worthless for
the customer to spend 10 to 15 minutes to talk to a customer
representative of the company, if they can reach them. Even if
it was worth the time, there are no clear channels to place
formal complaints and no reason for the customer to believe
their complaint will be heard.
As a Business Manager of the wholesale company, I received
numerous complaints from end customers and business owners
every month. Part of our role as responsible wholesalers was to
give small business owners an insight on the ``rules of the
game'' in the industry, and educate the end customers on the
``good'' and ``bad'' cards in the industry, which changed from
month to month, or sometimes from week to week.
On one hand, there are several ``good'' companies in the
business. They launch prepaid calling cards that offer a
reasonable number of minutes for the money. They charge small
or no connection fees and when the customer makes the phone
call, the connection is pretty good, and therefore, they can
talk for the time that was advertised. Most of these companies
have been in the industry for many years.
On the other hand, the ``bad'' companies usually offer
``introductory fees.'' These are outrageous amount of minutes
for very little money with no connection fees when they are
launched, and these terms are heavily advertised, usually in
Spanish TV, radio shows and posters. The ``introductory fees''
hold true usually for a certain period of time and then, at the
peak of their demand and without notice, the number of minutes
decreases and the connection fees increase. Some cards might
even disappear completely from circulation leaving the
customer, the convenience stores and the wholesalers with
``invalid'' or disconnected cards and therefore bearing the
loss.
Some retail stores would give their customers credit and
pass the ``bad'' calling cards to the wholesaler. When the
wholesaler tries to pass the credit to the distributor, at
least 40% of the time, it wouldn't work. The wholesaler
wouldn't get credit for those cards and consequently take the
loss.
Most of the customers can't keep track of the change of
terms on the new cards. They purchase the most popular cards
that either give them much fewer minutes than advertised or no
minutes at all because the connection is so bad that they have
to hang up after a couple of minutes, and when they call again,
they are charged a connection fee. These customers are
frustrated and helpless because there is no clear way to get
their money back or a channel to make a formal complaint, and
no certainty that the complaint would even be heard. In
addition to that there are language barriers and lack of
knowledge of the US system.
A very small portion of the consumers are knowledgeable of
the prepaid calling card scams and call the same country
frequently so they have a good idea of how many minutes $2
should give them for their call. They complain about specific
cards but know how the ``system'' works, so they take the time
to inquire about the ``good'' cards at the moment for their
country. These consumers try different cards until they find
one that works for their country, at least for some time. When
they realize the conditions change, they look for a new card.
The general perception of this small group of consumers is
that, at the end of the day, they got their money's worth in
minutes.
As a native Peruvian, for years I used to communicate with
my family using prepaid calling cards and I have been a victim
of the scams. Every Spanish speaking relative, neighbor, friend
and client that I had the opportunity to talk to about the
subject has had the same experience. This is especially true
not only for low-income families who cannot afford a land line
and standard international rates; it is also true for other
groups such as military families and ex-Peace Corps volunteers.
Personally, once I stopped working in the calling card
industry, it was very hard for me to keep up with the new cards
and their reputation and I finally opted for the international
services of a reputable firm such as Nextel.
In summary, prepaid calling cards are an invaluable
resource for the immigrant community and low-income workers to
communicate with their loved ones. However, based on my
personal and professional experience with the Latino community,
the industry needs to be regulated, especially in the following
aspects:
Use of deceptive marketing practices
Disclosure of terms and fees charged to the
consumer and their expiration date (if that is the case)
Use of the Spanish language for the fine print
Compliance with the advertised minutes
Use of hidden fees
Registration of each prepaid calling card (issuing
company, customer service line and address) and expected time
of circulation in the market
Thank you, Mr. Chairman for giving me the opportunity to
speak on behalf of the Latino community and express our strong
support of the Prepaid Calling Card Consumer Protection Act of
2008.
----------
Mr. Rush. Thank you so very much. Dr. Marlowe, you are
recognized for 5 minutes.
STATEMENT OF JULIA MARLOWE, PROFESSOR EMERITUS, DEPARTMENT OF
HOUSING AND CONSUMER ECONOMICS, UNIVERSITY OF GEORGIA
Ms. Marlowe. Thank you very much, and I appreciate this
opportunity to address the Committee on the subject of pre-paid
telephone cards.
In my role as professor at the University of Georgia in the
Department of Housing and Consumer Economics, my most recent
research has been with pre-paid telephone cards. In our
investigation, we used over 250 cards in two different funded
studies, and that information has been published in a number of
scholarly and lay publications.
The cards are convenient. They are a low-cost way to call,
but there are problems. And I just want to say that we found in
using these cards many of the things that Mrs. Zaragoza
mentioned to be the case.
The biggest problem has to do with these fees. They often
are unclear. They may be deceptive. There is no standardization
of terminology. One of the most common practices is for a card,
such as this one, to say no connection fee. However, the back
of this card says--this card is in English and Spanish, the
fine print is also in English and Spanish--it says a post-call
fee applies after each call. What is the difference between a
connection fee and a post-call fee? It is really the same
thing.
So what they do is they have these per-call fees. They may
call them connection fees, post-call fees, hang-up fees, long-
talking fees, communication fees. They have all kinds of
things.
The other fee that is often given is some kind of periodic
fee, and these can be assessed daily, weekly, semimonthly,
monthly, sometimes a combination. This much for the first few
days and this much for the next month, and whatever.
The periodic fees have a lot of different terminology, too.
The most common one is a maintenance fee. But they may call it
a maintenance fee, they may call them administration fees, they
may call them a tax, they may call it a service fee. And I
didn't mention, some cards have a service fee per call and then
a service fee per month. So some of them have numbers of
these--they will have a maintenance fee and an administrative
fee and so forth. So that is a problem.
Standardization of terms would help to alleviate some of
the confusion. We have been talking a lot about having fees
disclosed. We actually found a lot of the fees disclosed, and
even when fees are disclosed, problems persist. Now, let me
give you one example we encountered in our study. It is also in
my written testimony.
A card was advertised as providing 1.9 cents a minute. It
cost $5. The consumer expects to receive 263 minutes. In the
fine print on the same poster where the 1.9 cents a minute was
advertised, the fine print says there will be a 49-cent monthly
maintenance fee, a 69-cent connection fee. We made two calls
with the card. The second call 5 weeks after the first one.
Deducting the 26 minutes for the maintenance fee and the 36
minutes twice for the connection fee, we would expect to get
163 minutes. That is what we got. The fees were disclosed. They
were accurate. However, our actual cost was 3.1 cents a minute,
not 1.9 cents a minute which was advertised.
How many consumers would do all these calculations? Should
these consumers have to do these calculations? Why do these
fees exist? Some cards don't have fees. We used several cards
that say, no hidden surcharges, no monthly fees, and we found
that in fact you got all the minutes they said you were going
to get.
So my basic point is it is impossible to say how much the
cost per minute is, it is impossible to say how many minutes
you are going to get as long as you have the fees because the
cost depends upon the way the consumer uses the cards. And in
our second study, we purchased three cards of each brand. We
used three different methodologies, and when we used the card
all at once for one call, we were more likely to get all the
minutes. But if you don't, then all these things happen. So I
don't see any need for the fees.
I think I have said enough.
[The prepared statement of Ms. Marlowe follows:]
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Mr. Rush. Mr. Eichberger, you are recognized now for 5
minutes.
STATEMENT OF JOHN EICHBERGER, VICE-PRESIDENT, GOVERNMENT
RELATIONS, NATIONAL ASSOCIATION OF CONVENIENCE STORES
Mr. Eichberger. Thank you very much, Mr. Chairman, members
of the subcommittee. As the chairman said, I am John Eichberger
with the National Association of Convenience Stores. We are an
international trade association representing the convenience
petroleum retailing industry. In the United States, our
industry operates about 145,000 locations, 60 percent of which
are owned by single-store operators, which means we are a very
small, business-dominated industry but we have a significant
impact. In fact, in 2007, we employed about 1.7 million workers
and generated more than half a trillion dollars in sales
through our channel of trade.
I want to begin this morning by commending the sponsors of
H.R. 3402 for their efforts in protecting the rights of
consumers to have their reasonable expectations fulfilled when
they purchase pre-paid calling cards. We strongly support
efforts that promote consumer confidence by reducing deceptive
and fraudulent practices with respect to the sale of any
product, pre-paid calling cards or whatever else may sell
through our stores.
Over the past decade, calling cards have become a much more
significant part of our industry. In 2007, our industry sold
more than $350 million worth of these products. It is important
for our members that the products they sell fulfill the promise
to the customers, especially since the bulk of our customers
are repeat customers. We have a relationship with them that we
depend upon for our survival. These relationships can be
damaged if a customer believes she has been ripped off by
buying a product that did not live up to its advertised value.
This is why NACS supports efforts to ensure that the calling
cards we sell meet the customers' reasonable expectations.
It is important to note that neither NACS nor its members
are in a position to understand the intricacies of the
telecommunications industry. My purpose today, however, is to
simply explain how our industry is involved in the business and
to support the efforts of the bill's sponsors to eliminate
consumer deception and fraud. We applaud the provisions in the
bill to protect honest retailers from liability associated from
any deceptive practice employed by the card issuers. This is an
appropriate and welcome component. As the Committee prepares
for the consideration of the bill, we ask that you would
consider a couple other minor modifications that will build
upon these provisions that are currently in place for the
retailers.
In our industry, many convenience stores are supplied by
multi-product distributors, and we use the term distributors as
the wholesale deliveries. I believe some of the terminology
using distributors may have a slightly different connotation,
so I apologize if there is any confusion. I hope to clarify it
here. These companies to which I am referring may deliver
products as diverse as potato chips, candy bars, car
fresheners, or pre-paid calling cards at the same time to their
retail customers. These third-party distributors are not the
companies who issue the cards. They do not provide the service,
nor do they produce the accompanying materials that come with
those cards. They simply act as middle men between the service
provider and the retailer. NACS believes that these individuals
should not be held liable for practices over which they have no
control, similar to where the bill already protects retailers.
We also suggest there be a clarification of liability in the
Advertising and Other Promotional Materials section of the
bill.
We fully support the requirement that all terms and
conditions be properly and clearly disclosed on all promotional
materials. My colleagues on the panel pointed out several
different components. We agree with that. The consumer should
know exactly what they are buying and have no concerns or
confusion about what product and value they are getting for
their purchase. However, it is important that the legislation
recognize the fact that neither retailers nor third-party
distributors should be held liable for violations of these
disclosure requirements on point-of-sale materials unless they
themselves produced the material. Keep in mind, retailers do
not have the ability to read the promotional material they have
and assure that it satisfies statutory requirements, neither do
the third-party distributors. Therefore, unless they are
altering the materials, we do not believe they should be held
liable for those provisions. We have provided staff with some
suggested language for the bill that we believe would address
these areas of concern. We hope the Committee will see fit to
include these modifications as the bill moves forward.
Mr. Chairman, the victims of deceptive practices in this
business are frequently those who can least afford it and have
the smallest ability to protect themselves or obtain remedy.
NACS applauds the interest of this subcommittee on this topic,
and I appreciate the opportunity to share our views and I look
forward to your questions. Thank you.
[The prepared statement of Mr. Eichberger follows:]
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Mr. Rush. I thank the gentleman, and I thank all the
witnesses for their fine testimony. The chair recognizes
himself now for 5 minutes for questioning.
Ms. Greenberg, you referred to a ``floor'' for disclosure
requirements on these pre-paid calling cards. But could it be
the case here that conflicting or inconsistent state and
federal requirements all which is designed to fit on a wallet-
sized card could cause consumer confusion? Is this is an area
where one set of tough but extreme line and economical
disclosure requirements might make more sense?
Ms. Greenberg. Mr. Chairman, I do think certainly when
there are states taking action, there can be some confusion
within the industry, but I think it would be a terrible mistake
to preempt state activity. And I think this is a classic case
where the States were ahead of the Federal Government. States
have been working on this, passing legislation, Attorneys
General across the states. I think there are 18 states at this
point who have taken action. They have taken it upon themselves
early on, including in your State of Illinois, where the
Attorney General likened the industry to if there were Olympic
awards for fraud, this industry would be right up there.
In 2004, the State of Illinois took very strong steps to
curtail the abuses of this industry. So what we believe is that
it is really important that the Federal Government set some
basic standards, both for disclosure and then as I said in my
statement, come back and look at whether disclosure is working
because as we can see, sure, you can disclose some terrible
terms but in my view they are unconscionable terms and they rip
consumers off. So disclosure only takes you so far in
protecting consumers.
So the States just have been a great engine for consumer
protection, and it is always our policy to ask the Federal
Government to set a minimum standard so all states have to
comply with that, and then let states who are interested in
providing more protections for their citizens have the
opportunity to do that.
Mr. Rush. You stated that until recently there has been lax
enforcement against pre-paid calling cards at both the federal
and state level. Can you explain to us what changed to improve
enforcement and are there still roadblocks to robust
enforcement and will this bill fix it?
Ms. Greenberg. Well, I think this bill has many important
provisions in it. It does give the FTC the ability to go
forward in some areas and give the federal agency jurisdiction
that it doesn't now have. It would also call attention to the
fact that the Federal Government and Congress is taking this
area of consumer fraud very seriously.
So I think that is a very good start. You have a patchwork
of enforcement. That has already been referred to. You have
some States that have acted, other States haven't. You have the
FTC, they have taken some good stands. There has been a very
good class action suit which has resulted in a $20 million
settlement. So it is patchwork. There are some consumers that
have absolutely no protection. So I think we are going in the
right direction with this bill. I do think it will set a floor,
and I hope that answers your question. Thank you, Mr. Chairman.
Mr. Rush. Thank you. Dr. Marlowe, do you have any sense of
how abuse in the marketing of these cards affects the Latino
community in particular?
Ms. Marlowe. Yes, I do. The first study we did, we only
purchased cards that were in the Spanish language. They may
have been in English and Spanish, but we purchased over 250
cards and we were actually able to use 236 of them. Some of the
abuses were, I have a card that says cargos no de conexion, no
connection fee. But the fine print on the back in Spanish says
los cargos conexion applicara, connection fees apply. So I
suppose they could read the fine print and know that there is
some discrepancy here, but obviously those kinds of things were
happening.
The other thing that we did is we called the customer
service number for every single card. Our data collectors were
fluent in English and Spanish, and they called and talked in
Spanish. In some cases, the person that answered the number
couldn't speak Spanish. One-third of the time customer service
was not there. I can document. In fact, it is in the
publications that there are some abuses.
Mr. Rush. Thank you. The chairman's time is up. The chair
now recognizes the ranking member for 5 minutes.
Mr. Whitfield. Thank you, Mr. Chairman, and thank you all
for your testimony this morning. Could you tell us which states
have the most effective laws or regulations relating to this
issue to protect the public from the fraudulent sale of these
phone cards?
Ms. Greenberg. Yes, I can speak to some of that. I know
that Texas and Florida in particular, the Attorneys General in
both states have taken pre-paid calling card companies to court
and assessed a number of penalties and arranged for various
injunctive relief to stop certain activities to do much better
in forward disclosure. But the last time we checked, it was
about 18 states who had taken some action. The State of
Illinois, 2004, passed legislation. The governor signed it. And
they require certification of calling card companies which is
an important consumer protection. I got a couple of more----
Mr. Whitfield. So 32 states have not acted----
Ms. Greenberg. Something along those lines, yes.
Mr. Whitfield. Dr. Marlowe?
Ms. Marlowe. My colleagues, Mark Budnitz, who is a consumer
law professor, and Martina Rojo who is also a consumer law
professor, did a review of state legislation and administrative
regulations and it is in this publication and I will leave this
for the Committee. There is a review of all states.
Mr. Whitfield. And for those of you familiar with the
action taken by the 18 states, how does our bill that we are
considering today compare with the provisions in those laws? Is
there a glaring weakness in this bill or is it stronger than
those or is it about the same or do any of you----
Ms. Marlowe. I can't comment on that. My colleagues
probably could, but I can't.
Mr. Whitfield. Ms. Greenberg?
Ms. Greenberg. Yes, one of the features that you see in
some of the state settlements and bills is a requirement for
certification or a licensing requirement for some of these
operators.
Mr. Whitfield. In order to sell these cards you have to be
licensed?
Ms. Greenberg. Yes, and the toll-free numbers have to be
available. That is included in this legislation, too. And of
course, this has the other feature of giving the Federal Trade
Commission additional jurisdiction. But there are some
similarities and there is very specific focus on disclosure in
this bill, and that is also required in the state laws.
Mr. Whitfield. Now, you mentioned in your testimony I
believe the $20 million class action.
Ms. Greenberg. There was class action brought by attorneys
in New York City that resulted in a settlement. It was a $20
million settlement with some money set aside for compensating--
and some other provisions. And I don't know if that has been
finalized, but it certainly appears in the news.
Mr. Whitfield. I take it there must be thousands of
companies that are distributing these cards. Would that be
correct?
Ms. Greenberg. I don't know if it is thousands.
Ms. Marlowe. I met with Howard Segermark who was head of,
for a while, a now-defunct trade association for pre-paid
cards. That was about 8 years ago or so. And he estimated over
500 companies at that time. Given that the industry has grown,
there may be more than that now.
Mr. Whitfield. Over 500? OK. Now, Ms. Zaragoza, what are
some reasons that people are using these cards? So many people
have cell phones today but why would they use these cards?
Ms. Zaragoza. Well, most of these people, they really
don't--some of them can access the Internet and buy cards from
the Internet. They are not computer savvy, they don't have
Internet at home, they don't have a land line, they don't have
cell phones, or if they do, their minutes are very limited. So
one of the features of these cards is that you can call from a
phone booth, so you are not wasting your minutes.
Mr. Whitfield. Yes. OK. And Mr. Eichberger, would you just
mention once again the two issues that you are concerned about,
you recommended some changes in this legislation about?
Mr. Eichberger. Specifically I can summarize it in one main
point. If you are not responsible for issuing the cards,
servicing the cards, or printing the promotional materials, you
should not be held liable for complying with the statute. If
you have any culpability in it, then you stand the test of the
law. But you should have the protection of the law so that you
can go about your business the way you usually do.
Mr. Whitfield. OK. Mr. Chairman, my time is expired.
Mr. Rush. The chair will recognize himself through
unanimous consent for one additional question. Ms. Zaragoza, I
just want to know, in your experiences working in this
industry, can you think of one time that a consumer has been
repaid, gotten their money back, because of either they weren't
given the minutes advertised or their minutes hadn't been used
up or the money hasn't been used up by hidden fees? Can you
think of one instance where they would have returned the money?
Ms. Zaragoza. From the distributor, no, but some retail
stores would, to preserve the relationship with the customer,
they would give credit to the customer; and then they will pass
on that credit to the wholesaler which, if they wanted to
preserve their account, they will have to give them the credit.
But then when they go to the distributor, they, more than 40
percent of the time because I used to do that, too, like they
wouldn't grant you the credit, so it is very difficult.
Mr. Rush. Thank you very much. The chair really thanks the
witnesses for taking the time out of their busy schedule to
appear before this committee. Your testimony has been very
helpful to us, and we intend to take the heart of your
testimony into account as we proceed this afternoon in the
markup of this bill. We really want to thank you so much, and
you are now excused. Thank you again for your participation.
[Whereupon, at 11:20 a.m., the subcommittee was adjourned.]
[Material submitted for inclusion in the record follows:]
Prepared statement of Hon. Edolphus Towns
Thank you Chairman Rush and Ranking Member Whitfield for
holding this important hearing today on the Calling Card
Consumer Protection Act. I look forward to the testimony of
both panels of witnesses. They all have long records of service
in their fields and will offer important insights for us to
consider.
The Calling Card Consumer Protection Act would be an
important step in protecting some of our most vulnerable
citizens from unscrupulous practices. In New York City and all
over the country, calling cards are vital lifelines to
immigrant communities and their families back home. There is a
great deal of trust that goes into buying one of these cards.
You have to trust that it will have the proper amount of
minutes and that you are actually getting what you thought you
paid for. There are major opportunities for fraud and abuse and
that is why I cosponsored this bill. I hope this hearing can
illuminate some of the ways this bill can improve. I look
forward to working with my colleagues and commend Congressman
Engel on his dedication to this issue.
Thank you and I yield back the balance of my time.
----------
Prepared statement of Hon. Marsha Blackburn
I thank the chairman for holding this important hearing
today, and for scheduling an open markup on H.R. 3402 this
afternoon. Every member of this subcommittee will agree that
calling-card fraud is a heinous act perpetrated often against
vulnerable populations throughout the United States.
In tests conducted by the FTC, prepaid calling cards
delivered only 50% of the average advertised time in 87
separate tests. The Commission also found cost-per minute rates
can skyrocket up to 87% higher than a customer might expect.
Worse still, many cards marketed directly towards non-
English speaking customers offer strikingly poor performance,
leading to an estimated $1 million in everyday loss for
Hispanic customers.
``Bad actors'' peddling fraudulent cards to vulnerable
communities not only damage the families they seek to rip off,
they also limit market share for corporate citizens who play by
the rules and respect the rule of law. These companies pay
taxes, employ working Americans, and produce a service millions
depend on to communicate internationally. They deserve market
protection no less than the customers seeking a quality product
in exchange for an honest buck.
H.R. 3402 takes a well-intentioned step to ensure customers
receive the service they paid for. The FTC clearly needs
additional regulatory authority to enforce appropriate market
standards. I don't say that very often, but in this case basic
statutory language can vastly improve consumer protection.
The FTC should, for example, be able to promulgate limited
regulations to require card distributors to disclose agreement
terms on the back of a calling card. This is a common sense
tool that will empower consumers to make sound decisions, and
will prevent bad actors from ``hiding the ball'' and
withholding critical information.
However, new regulatory power at the FTC may not solve
anything if a patchwork system of state regulations competes
with a Federal standard. H.R. 3402 would therefore benefit from
a federal preemption amendment to streamline existing
regulations in eleven states. While no doubt well-meaning, each
regulatory system creates additional and potentially
unnecessary costs for calling-card distributors.
A strong Federal standard need not weaken state standards.
In fact, it is likely to improve state standards lacking
appropriate consumer protections.
Mr. Chairman I applaud your willingness to tackle this
important issue, and respectfully yield back the balance of my
time.