Hidden Costs of Calling Cards Weigh Heavily on Immigrant Consumers


An international calling card. (Photo: Eric Kilby/flickr)

NEW YORK— Agha Saleh, a Pakistani merchant in Jackson Heights, Queens, held a bundle of calling cards in his hand. “These calling cards used to be worth $5,000, but now they are garbage,” he said.

“A prepaid phone card company – Rainbow – introduced this calling card in the community, offered attractive deals, more minutes, made money and then disappeared,” he explained, citing an example of how consumers get ripped off by fraudulent calling card companies and distributors.

There are hundreds of ‘ghost and fraudulent calling card companies’ like Rainbow, which come on the market for eight weeks to a year, and then disappear without leaving their footprints. “The main victims of these companies are immigrants,” Saleh said.

Abu Taher, editor of Bangla Patrika, a Bangladeshi American weekly, agreed with Saleh. “The problem is the same in our community, as well as in the whole South Asian American community,” he said.

The main purpose of prepaid calling cards is to make international calls, and most of the consumers who buy them regularly are those who have loved ones in other parts of the world—immigrants.

Prepaid phone cards are a multi-billion dollar industry in U.S. The cards  are sold at grocery stores, gas stations, and department stores. They’re also sold on the Internet.

A recent Consumer Reports investigation of the prepaid phone card industry found that the cards generate many complaints to government agencies and online forums. Among the problems are undisclosed fees, higher-than-advertised rates, charges for calls that never went through, and poor or non-existent customer service.

In May 2010, during a crackdown in the calling card industry, the FTC  barred some companies from misleading consumers about the “talk time” that their calling cards provide, and required them to clearly disclose—in the same language in which they are marketed—all fees associated with their cards. But many problems remain.

In the calling call world, a minute can mean 50 seconds or less. Some cards carry hidden fees, fail to clearly disclose additional charges, such as “hang-up fees” and “weekly fees” that can wipe out the value of the card after even one short call. Such fees are often disclosed in tiny print and in vague terms that are hard to understand in any language.

Some calling card companies use Voice Over Internet Protocol (VOIP), an Internet technology used to deliver voice communications, and many of their customers complain of poor voice quality.

Saleh said that the calling card companies ripping off customers in Jackson Heights were small operations. “What about those ghost companies and distributors who are in large numbers, who are looting the immigrant consumers for the last two decades, in one name or another?” he asked rhetorically.

In June 2009, a leading U.S. distributor of prepaid calling cards agreed to pay $1.3-million to settle Federal Trade Commission (FTC) charges that the calling cards failed to deliver the number of minutes advertised. In tests conducted by the FTC, the calling cards on average provided less than half of the advertised calling minutes.

The FTC does not regulate calling card companies, but the enforcement agency can take action against companies that are engaged in unfair or deceptive practices. The agency has filed several cases against calling card distributors including Diamond Phone card; Alternatel, Inc.; Voice Prepaid, Inc.; G.F.G. Enterprises, LLC;  d/b/a Mystic Prepaid; Voice Distributors, Inc.; Telecom Express, Inc.; and their principals, Nickolas Gulakos, Moses Greenfield, Lucas Friedlander; and Frank Wendorff and many others in recent years.

In a case filed in 2009 against the distributor Diamond Phone Card, the FTC alleged that a calling card claiming to deliver 400 calling minutes to Mexico provided only 106 minutes of calling time, and another one claiming to deliver 50 minutes of calling time to Honduras actually delivered only 20 minutes.

But while the fraudulent companies are on the FTC’s radar, the agency cannot always take action against them. “Although the FTC can take action against companies that are engaged in unfair or deceptive practices, there are some business which are outside of FTC jurisdiction, like telephone carriers, which are regulated by the Federal Communication Commission (FCC),” said Peter Kaplan, a spokesman for the FTC.

In April 2010, the FCC sent inquiries to a number of prepaid calling card providers about their marketing practices.  The action represented the first significant entry by the FCC into this area.

“If there are some regulations at the state or local level, the situation differs from state to state and city to city, said Kristofer Rios, media policy associate at People’s Production House. “But the problem is people do not know where to go to make a complaint.”

“Immigrant communities are particularly vulnerable when it comes to fraudulent calling card companies and distributors because of lack of knowledge,” Rios noted.

The FTC does publish alerts on its website notifying consumers about calling card companies engaged in unfair business practices. “If your pre-paid phone card doesn’t work as advertised – even after you’ve called the customer service number, contact us as well as the Federal Communication Commission (FCC),” said one alert.

“Some calling cards come with fees that can take a big bite out of the calling time you’ve bought. As a result, the cards don’t deliver the call time they advertise. And because you’ve paid in advance, you may be out of pocket – and out of luck. If you’re considering buying a calling card, read the poster, flyer, web site or other advertisement for it – including any fine print – before you buy,” said another.

Many immigrants don’t even know about the existence of the consumer protection agencies, and do not have regular Internet access. “Immigrant communities need more awareness and education about frauds and scams, and they should support calling card companies who are doing business in an unfair manner,” Rios suggested.

“Consumers need to understand that they need to protect themselves,” said Anthony Giorgianni, associate finance editor of Consumer Reports Money Adviser. “I would suggest they use Skype or other technology to make calls.”

Rep. Eliot Engel, (D-NY) introduced a bill, HR 3993, in the 111th Congress designed to protect calling card customers. “Recent reports and studies indicate that consumers spend roughly $4 billion per year on calling cards. The Federal Trade Commission has reported that consumer complaints concerning various hidden charges, which can reduce the number of advertised minutes available for phone call usage, are common,” the bill states. The bill never became law, but Rep. Engle is planning to reintroduce it in the House this year, according to his office.

“Without legislation and regulation, fraudulent calling card companies will continue taking advantage of the current situation of the market and demand, and the consumers who are suffering most are the immigrants,” Rios said.

Feet in Two Worlds coverage of media policy is supported by The Media Consortium.

Fi2W is supported by the New York Community Trust and the John S. and James L. Knight Foundation with additional support from the Mertz Gilmore Foundation.

AboutMohsin Zaheer
Mohsin Zaheer is a Pakistani-American journalist and editor based in New York whose work spans two decades. He won the New York Community Media Alliance’s Ippies Award in 2009 and has been the beneficiary of numerous Pakistani-American awards. Zaheer joined Daily Khabrain, Lahore (the Urdu-language newspaper with the largest circulation in Pakistan) in 1989 as staff reporter, eventually becoming the Deputy Editor of Reporting. Zaheer moved to the U.S. in 1999 and joined the staff of Sada-e-Pakistan, an Urdu-language weekly, as Editor and set a new trend for Pakistani-American media by reporting on local issues and activities taking place in the U.S. He covered the 9/11 attacks, wide raging issues within the Pakistani-American community in a post 9/11 era, and the relationship between the U.S. and Pakistan. Zaheer also launched the Pakistani American community's first online newspaper in 1996, “The Pakistani Newspaper” (www.pn.com.pk), and continues to contribute news stories and columns to Daily Khabrain, Lahore. Zaheer earned his Master degree in Political Science and History from the University of Punjab in Lahore, Pakistan.