House Subcommittee Approves Calling Card Consumer Protection Act

March 24, 2010. The House Commerce Committee's (HCC) Subcommittee on Commerce, Trade and Consumer Protection amended and approved HR 3993 [LOC | WW], the "Calling Card Consumer Protection Act". The Subcommittee approved a manager's amendment by voice vote, and then approved the bill as amended by voice vote. The bill next goes to the full Committee. This bill requires that prepaid calling cards disclose certain information.

See, bill as introduced [16 pages in PDF] on November 3, 2009, manager's amendment [5 pages in PDF] approved on March 24, 2010, and TLJ edit of bill [HTML] showing changes made by the manager's amendment.

Rep. Eliot Engel (D-NY) introduced this bill on November 3, 2009. The Subcommittee held a hearing on December 3, 2009.

S 562  [LOC | WW], titled the "Prepaid Calling Card Consumer Protection Act of 2009", is a related bill in the Senate. Sen. Bill Nelson (D-FL) introduced it on March 10, 2009.

HR 3402 [LOC | WW] was a related bill in the 110th Congress that did not become law.

Rep. Engel (at right) stated in a release that "Calling cards are an invaluable resource for people without long distance telephone, or those who make frequent overseas calls. Students, military, those with family abroad, and others who cannot afford long distance service can save a great deal of money with the cards".

He added that "Calling card fraud harms those who are among the most vulnerable; poor, minority, and immigrant populations as well as our military serving overseas"

The HCC's Memorandum [PDF] of March 22, 2010 regarding this markup states that this bill "is intended to prevent fraud and abuse in the prepaid calling card industry and to provide consumers with accurate and understandable information about the rates, fees, terms, and conditions associated with particular cards".

It continues that "many of the prepaid calling cards sold in the marketplace today have numerous hidden costs such as connection fees, maintenance fees, disconnect fees, and inconsistent rate-per-minute surcharges, and they fail to deliver the full number of advertised calling minutes. One study found that consumers could expect to receive only 60% of the minutes promised on the card. In short, consumers often find that because of misleading information, inconsistent claims, and hidden fees, they do not get the minutes they were promised and essentially are left with a worthless piece of plastic, without any recourse." (Footnotes omitted.)

Bill Summary. This bill, as amended, provides that "Any prepaid calling card provider or prepaid calling card distributor shall accurately disclose" certain information regarding "the terms and conditions of the prepaid calling card", including the name and customer service telephone number of the card provider.

It also requires disclosure on the card of "The number of domestic interstate minutes available from the prepaid calling card and the number of available minutes for all international preferred destinations served by the prepaid calling card at the time of purchase; or ... the dollar value of the prepaid calling card, the domestic interstate rate per minute provided by such card, and the applicable per minute rates for all international preferred destinations served by the prepaid calling card at the time of purchase."

It also requires disclosure of "Any applicable fees", "A description of any additional charges ... and the amount of such charges", "Any limitation on the use or period of time for which the promoted or advertised minutes or rates will be available", "A description of the applicable policies relating to refund, recharge, and any predetermined decrease in value of such card over a period of time", and "Any expiration date applicable to the prepaid calling card or the minutes available with such calling card."

The bill also requires that for prepaid calling cards purchased via the internet, the above described disclosures must also be displayed "in a clear and conspicuous manner and location on the Internet website that the consumer must access prior to purchasing such card".

The bill also contains a ban on "false, misleading, or deceptive representations relating to the terms and conditions of the prepaid calling card".

This bill gives rulemaking and civil enforcement authority to the Federal Trade Commission (FTC), and provides an exception to common carriers' exemption from FTC regulation for the purposes of this bill.

The bill requires the FTC to write implementing regulations within one year of enactment, and directs that the FTC follow the rulemaking procedure set forth in the Administrative Procedure Act (APA), rather than the Magnusson Moss Act procedure that governs many FTC proceedings. APA rulemaking procedure, which the Congress periodically directs the FTC to follow in specific proceeding, provides for less openness and procedural fairness to the public and affected parties.

The bill provides that the FTC can write rules regarding the format of the disclosure, but rates, terms and conditions.

It states that the FTC "may prescribe requirements concerning the order, format, presentation, and design of disclosures required by this Act and may establish and require the use of uniform terms, symbols, or categories to describe or disclose fees and additional charges, if the Commission finds that such requirements will assist consumers in making purchasing decisions and effectuate the purposes of this Act. The Commission shall not issue regulations that otherwise specify the rates, terms, and conditions of prepaid calling cards."

What constitutes "rates, terms and conditions" is not always clear to regulators and judges. Neither the bill's section on FTC authority, nor the definitional section, provide any clarification.

In addition to FTC rulemaking and enforcement, the bill leaves numerous other entities with authority to engage in potentially redundant activities.

First, the bill does not preclude the Federal Communications Commission (FCC) from conducting a redundant rulemaking proceeding under the Communications Act. It merely requires that if the FCC does so, it "shall coordinate with the Federal Trade Commission to ensure that any such requirements are not  inconsistent with the requirements of this Act and the regulations issued under" it.

Second, the bill gives states, including their public utility commissions and consumer protection agencies, authority to enforce this Act. It provides that states "may bring a civil action on behalf of the residents of that State in a district court of the United States of appropriate jurisdiction, or any other court of competent jurisdiction to --- (A) enjoin that practice; (B) enforce compliance with this Act; (C) obtain damage, restitution, or other compensation on behalf of residents of the State; ..."

It further provides that if a state brings an action under this Act, the FCC may intervene, participate, and remove to federal court, but not block the action. However, if the FCC is the first to file an action, then no state may initiate an action under this Act during the pendency of the FCC action against the defendants named in the FCC action.

This limitation language in the bill is weak. If the FCC initiated an action against one company, a state could act against a parent or subsidiary company, or officers, for the same underlying conduct. If the FCC proceeds against a card provider, a state could proceed against a card distribution for the same underlying conduct. Also, states are free to proceed before or after the pendency of a federal action.

The bill could have given the FCC authority, in its discretion, upon the filing of its own action, to direct the court to dismiss the state action. But, it did not.

Also, the bill does not preempt state laws. The bill merely precludes a state from establishing or continuing a law "that contains requirements regarding disclosures to be printed on prepaid calling cards or packaging unless such requirements are identical to the requirements of section 3." States are free to write laws that create state causes of action, and set state remedies.

The bill is silent on private rights of action for violation of the bill, or state law.

Finally, the bill requires studies to be conducted by the Government Accountability Office (GAO) and FTC, in consultation with the FCC.

The manager's amendment made numerous changes to the bill. Among the more important changes are the preemption language, and the addition of a ban on false, misleading, or deceptive representations.