Legal Alerts and Articles
FCC Penalizes Prepaid Providers
On September 1, 2011, the Federal Communications Commission ("FCC" or "Commission") released four Notices of Apparent Liability for Forfeiture ("NALs") in the aggregate amount of $20 million for alleged prepaid calling card deceptive activities. The NALs each propose major penalties in the amount of $5 million against four prepaid providers for deceptive marketing materials, ambiguous fees and surcharges, and other related deceptive marketing practices.
Marketing Materials
The FCC examined the posters and marketing materials of the companies and took particular issue with language in the posters indicating that buyers of cards could use hundreds or thousands of minutes to make calls for a few dollars. Particularly, the FCC noted in each of the four cases that advertised minutes were displayed in a large font-size with bright colors (such as "2500 minutes $5; 1000 minutes $2"). This express advertisement was in contrast to fees and surcharges, which were typically difficult to read, not conspicuous, in small-font and displayed at the bottom of the advertising material. The FCC held that because fees and surcharges will quickly deplete an available balance on the card, the express provisions, displayed in large-font and in bright colors, were misleading. For example, the four companies sold a $2 calling card that provided 500 to 1000 minutes. Typically, once a customer made a first call using the card, assessed fees and surcharges would be greater than then the $2 it cost to buy the card. The customer would then be left with a card with no value even though the express provisions in the advertising material indicated that the card would still have hundreds, if not thousands, of minutes remaining. The FCC noted that the only way a customer could utilize the 500 to 1000 minutes would be to make a continuous phone call which, depending on the company, would last 6-16 hours. The FCC found such advertising practices to be unreasonable and unlawful. Finally, voice prompts that disclose minutes per call are inadequate because the information is not available at the point of sale.
Fees and Surcharges
The FCC also held that fees and surcharges must not be difficult to calculate. The FCC held that it is deceptive to have a maximum charge per phone call without having a clear explanation of how and when that charge will be applied. Further, companies must be clear on which fees will be applied and how the fees will affect the number of calling minutes. If a customer cannot determine at the point of sale what fees apply to each destination, or if the customer is only given a range of fees that will apply, then the language will be deemed unclear and ambiguous.
Toll-Free Access Numbers
The FCC also addressed applying higher rates for using non toll-free 800 access numbers. The four companies each advertised on the prepaid calling cards that customers could utilize local and toll-free access numbers. The companies then bolded an 800 number on the card for customers to dial. However, the 800 number, unlike most 800 numbers, was not toll-free, which reduced customer's minutes at a higher rate than a local access number or a toll-free 800 number. The FCC held that the companies were misleading customers because the companies did not disclose the rates for using the non toll-free 800 access number on the cards as compared to the local access number.
Unprecedented Penalties
The FCC's aggregate fine of $20 million against the four prepaid card companies marks a shift in how the Commission assesses fines in such cases. The FCC can fine companies a base amount of $40,000 for each instance of an unjust and unreasonable telemarketing practice. In the past, the FCC has refrained from fining companies for each such instance, and instead assessed a single and often more modest penalty for unreasonable behavior. In the four recent NALs, the FCC stated that it would fine companies for each instance of unjust behavior, which would mean that every individual prepaid calling card in the market associated with unjust or unreasonable disclosures carried a potential $40,000 base fine. Although this would amount to tens of millions of dollars in penalties, the FCC decided upon a $5 million penalty for each of the four companies. In reaching the $5 million penalty, the FCC also factored in the revenue of the company, extent and gravity of the conduct, and the need to deter future behavior to guarantee that "forfeitures issued against large or highly profitable entities are not considered merely an affordable cost of doing business." Clearly, this approach will allow the FCC to impose more severe penalties in the future.
The FCC also concurrently issued an Enforcement Advisory which warns prepaid calling card companies: "[w]e are issuing this Enforcement Advisory to alert companies that we are monitoring prepaid calling card practices, and will continue to take aggressive action against companies engaged in unfair and deceptive advertising to consumers." Prepaid calling card companies are well advised to heed the Advisory, as further enforcement activity is possible.
If you have questions regarding these actions, or if you would like our assistance in reviewing your prepaid marketing materials for FCC compliance purposes, please do not hesitate to contact us.
September 2011