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Press Releases & Advisories

30 September 2011
Regulatory Advisory: FCC Proposes $20 Million in Penalties for Deceptive Marketing of Prepaid Calling Cards

Earlier this month, the Federal Communications Commission issued Notices of Apparent Liability for Forfeiture ("NALs") totaling $20 million against four companies for allegedly using deceptive marketing practices to sell prepaid calling cards, primarily to immigrant communities, in violation of section 201(b) the Communications Act.  The Commission found that the companies – STi Telecom Inc. (formerly Epana Networks, Inc.); Lyca Tel, LLC; Touch-Tel USA, LLC; and Locus Telecommunications, Inc. – had made claims that consumers could use their inexpensive cards to make calls totaling hundreds if not thousands of minutes, when, in fact, consumers could use only a fraction of those minutes due to various fees and surcharges assessed.

The Commission found that the companies apparently did not clearly and conspicuously disclose the fees to consumers.  For example, the Commission noted that while an accused company purported to disclose its fees and surcharges, its fine print disclosures contradicted the express – and more prominent – claims on the front of cards and main portions of marketing materials such as posters.  In addition, even in instances where disclosure claims were not directly contradictory, the Commission highlighted that the fees and surcharges were in small, difficult-to-read print that was "dwarfed" by the font size of the advertized minutes and rate information.  The Commission also pointed to a number of other instances as examples of failure to meet the "clear and conspicuous" standard: (1) a lack of qualifying language in advertisements (e.g., no explanation that the consumer will receive "up to" the specified number of minutes); (2) the placement of disclosures on portions of hang tags that are meant to be torn away from a calling card; (3) a lack of specific rate information in connection with language suggesting that "higher" rates would apply, and (4) failure to disclose rate information for use of non-toll free, 800 access numbers on cards. 

Altogether, the Commission did not focus on the specific types of fees and surcharges imposed by the accused companies, but rather the lack of "clear and conspicuous" disclosures of material information that would enable consumers to make informed choices when purchasing prepaid calling cards.  The proposed forfeiture against each company is $5 million.  The companies will each have until October 3, 2011 to either pay the full forfeiture amount or file a written statement seeking a reduction or cancellation of the forfeiture. 

In view of what it considers to be an apparent widespread pattern of deceptive activity, the Commission has issued an Enforcement Advisory to alert consumers and to warn companies that it will continue to take "aggressive action" against those companies engaging in such deceptive marketing. 

For more information regarding the NALs or our telecommunications practice, please contact John Nakahata ((202) 730-1320 or jnakahata@wiltshiregrannis.com) or Brita Strandberg ((202) 730-1346 or bstrandberg@wiltshiregrannis.com).

This advisory is not intended to convey legal advice.  It is circulated as a convenience and is not intended to reflect or create an attorney-client relationship as to its subject matter.

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