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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 

COMMITTEE ON ENERGY AND COMMERCE 

JOHN D. DINGELL, Michigan, Chairman 

HENRY A. WAXMAN, California 

EDWARD J. MARKEY, Massachusetts 

RICK BOUCHER, Virginia 

EDOLPHUS TOWNS, New York 

FRANK PALLONE, JR., New Jersey 

BART GORDON, Tennessee 

BOBBY L. RUSH, Illinois 

ANNA G. ESHOO, California 

BART STUPAK, Michigan 

ELIOT L. ENGEL, New York 

GENE GREEN, Texas 

DIANA DEGETTE, Colorado 

Vice Chair 

LOIS CAPPS, California 

MIKE DOYLE, Pennsylvania 

JANE HARMAN, California 

TOM ALLEN, Maine 

JAN SCHAKOWSKY, Illinois 

HILDA L. SOLIS, California 

CHARLES A. GONZALEZ, Texas 

JAY INSLEE, Washington 

TAMMY BALDWIN, Wisconsin 

MIKE ROSS, Arkansas 

DARLENE HOOLEY, Oregon 

ANTHONY D. WEINER, New York 

JIM MATHESON, Utah 

G.K. BUTTERFIELD, North Carolina 

CHARLIE MELANCON, Louisiana 

JOHN BARROW, Georgia 

BARON P. HILL, Indiana 

DORIS O. MATSUI, California 

JOE BARTON, Texas 

Ranking Member 

RALPH M. HALL, Texas 

J. DENNIS HASTERT, Illinois 

FRED UPTON, Michigan 

CLIFF STEARNS, Florida 

NATHAN DEAL, Georgia 

ED WHITFIELD, Kentucky 

BARBARA CUBIN, Wyoming 

JOHN SHIMKUS, Illinois 

HEATHER WILSON, New Mexico 

JOHN B. SHADEGG, Arizona 

CHARLES W. ‘‘CHIP’’ PICKERING, 

Mississippi 

VITO FOSSELLA, New York 

ROY BLUNT, Missouri 

STEVE BUYER, Indiana 

GEORGE RADANOVICH, California 

JOSEPH R. PITTS, Pennsylvania 

MARY BONO MACK, California 

GREG WALDEN, Oregon 

LEE TERRY, Nebraska 

MIKE FERGUSON, New Jersey 

MIKE ROGERS, Michigan 

SUE WILKINS MYRICK, North Carolina 

JOHN SULLIVAN, Oklahoma 

TIM MURPHY, Pennsylvania 

MICHAEL C. BURGESS, Texas 

MARSHA BLACKBURN, Tennessee 

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) 

(III) 

SUBCOMMITTEE ON COMMERCE, TRADE, AND CONSUMER PROTECTION

BOBBY L. RUSH, Illinois, Chairman 

JAN SCHAKOWSKY, Illinois 

Vice Chair 

G.K. BUTTERFIELD, North Carolina 

JOHN BARROW, Georgia 

BARON P. HILL, Indiana 

EDWARD J. MARKEY, Massachusetts 

RICK BOUCHER, Virginia 

EDOLPHUS TOWNS, New York 

DIANA DEGETTE, Colorado 

CHARLES A. GONZALEZ, Texas 

MIKE ROSS, Arkansas 

DARLENE HOOLEY, Oregon 

ANTHONY D. WEINER, New York 

JIM MATHESON, Utah 

CHARLIE MELANCON, Louisiana 

JOHN D. DINGELL, Michigan (ex officio) 

ED WHITFIELD, Kentucky 

Ranking Member 

CLIFF STEARNS, Florida 

CHARLES W. ‘‘CHIP’’ PICKERING, 

Mississippi 

VITO FOSSELLA, New York 

GEORGE RADANOVICH, California 

JOSEPH R. PITTS, Pennsylvania 

MARY BONO MACK, California 

LEE TERRY, Nebraska 

SUE WILKINS MYRICK, North Carolina 

JOHN SULLIVAN, Oklahoma 

MICHAEL C. BURGESS, Texas 

MARSHA BLACKBURN, Tennessee 

JOE BARTON, Texas (ex officio) 

(V) 

C O N T E N T S 

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 

(1) 

H.R. 3402, THE CALLING CARD CONSUMER 

PROTECTION ACT 

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 

2 

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 

3 

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. 

4 

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 regulaVerDate Nov 24 2008 13:48 Jan 07, 2011 Jkt 037690 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 P:\MY DOCS\HEARINGS\110-147 CHRIS
5 

tion 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 

6 

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. 

7 

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 narVerDate Nov 24 2008 13:48 Jan 07, 2011 Jkt 037690 PO 00000 Frm 00030 Fmt 6633 Sfmt 6633 P:\MY DOCS\HEARINGS\110-147 CHRIS
25 

row 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 

26 

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 difVerDate Nov 24 2008 13:48 Jan 07, 2011 Jkt 037690 PO 00000 Frm 00032 Fmt 6633 Sfmt 6633 P:\MY DOCS\HEARINGS\110-147 CHRIS
27 

ferent 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 

28 

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 

29 

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 

30 

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 ViceChairman, 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. 

31 

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 

32 

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? 

33 

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 prepaid calling cards. 

And last but not least, Mr. John Eichberger, who is the VicePresident 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 

34 

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 prepaid 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, 

35 

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 

50 

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. 

51 

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. 

52 

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. 

53 

[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 multiproduct 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 

61 

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. 

68 

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. 

69 

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 

70 

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 cus- tomers 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 reguVerDate Nov 24 2008 13:48 Jan 07, 2011 Jkt 037690 PO 00000 Frm 00076 Fmt 6633 Sfmt 6633 P:\MY DOCS\HEARINGS\110-147 CHRIS
71 

lations 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. 

Æ