FCC Proposes Fining Prepaid Calling Card Company $5 Million for Deceptive Practices
The FCC proposed a $5 million fine against NobelTel for deceptively marketing its prepaid calling cards to consumers. The commission said NobelTel violated its rules against “unfair and deceptive” marketing practices by offering cards promising hundreds of minutes of international calls that, in practice, could be depleted after just a few minutes (http://xrl.us/bnscpn). NobelTel did not respond to our requests for comment. The American PrePaid Phonecall Association (APPPA), of which NobelTel is a member, defended the company and warned of litigation to challenge the forfeitures.
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NobelTel sells cards in denominations of a few dollars, and proclaims “in large font size” the number of minutes of international calling available on that card, the commission said. But a series of disclosures, not appearing on the card itself, reveals several additional fees that “may apply,” the notice of apparent liability approved by commissioners said: a daily fee, a permanent charge for toll-free calls, and hang up fee, and rates for subsequent calls that “may be 100 percent higher than the rate of the initial call.” The company also retained the right to “change terms and conditions and/or the prices charged at any time without notice.” The mélange of fees can quickly deplete the card of its value, the commission said, saying NobelTel had violated Section 201(b) of the Communications Act’s prohibition against “unjust and unreasonable” practices.
The proposed fine “makes clear” such activity “is a big deal” to the FCC intent on cracking down on it, Chairman Julius Genachowski said. The Enforcement Bureau is “so committed to catching and stopping the bad guys, and deterring the next bad guys -- it’s what we have to do,” he said at a Tuesday event at the agency on Hispanics. (See separate report in this issue.) The commission will continue “to be vigilant” about such activity, and “let me put this very simply, will not tolerate” such “schemes,” Genachowski continued. It “will not hesitate to take decisive action when warranted,” so “if you think you can rip people off ... you won’t get away with it,” whether through pre-paid calling cards or other Internet or telecom products, he said.
As an example of a deceptive practice, the commission discussed a $2 NobelTel card advertising 400 minutes, which could be depleted after one 10-minute phone call. “The only possible way a consumer could use all of the 400 advertised minutes would be to make a single six-hour 40-minute call,” the commission wrote. But APPPA Executive Director Gene Retske said he didn’t see anything wrong with that. “It seems fair to me if the disclosure is made up front,” he told us. Companies differentiate themselves by showing the highest number of minutes consumers can get on a card, Retske said. In a competitive market with a low barrier to entry, it’s impractical for prepaid card companies to offer a “clean card” -- a card with no fees whatsoever -- because then the advertised rate per minute would be too high for the card to be competitive, he said. As long as the terms have been fully disclosed and fairly applied, and there’s at least one scenario in which customers can make a 400-minute call, “then yes, it is fair,” he said.
"We question whether the NAL is the appropriate mechanism for this sort of thing,” Retske said of the notices of apparent liability. “In a lot of ways, it’s antithetical to what we expect in America about [being] innocent until proven guilty.” APPPA has been urging members not to pay such fines, nor to settle with the commission, he said, cautioning against “a dangerous precedent.” Retske expects the NALs to be challenged in court by the targeted companies, and anticipates APPPA will file amicus briefs. The NAL process is “an inappropriate way to accomplish a laudable goal,” he said. They're “selective enforcement” of rules that aren’t very clear, Retske said. “Where is the clear statement of the law that the FCC is relying upon for these NALs? I don’t see anything in the FCC rules that have specific requirement about disclosures, that specifically state in there what these companies can and cannot do."
Since September 2011, the commission has proposed $30 million in forfeitures against six carriers. The Enforcement Bureau found in each instance that the carrier targeted immigrant populations, falsely promising hundreds or thousands of minutes in calls to their native countries for just a few dollars. The agency released an “Enforcement Advisory” warning customers to “carefully read the instructions” and ask friends and family for recommendations of cards they have “used and liked” (http://xrl.us/bnscp9). A version was translated into Spanish (http://xrl.us/bnscwq).