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Will new Illinois phone card law make a difference?
By Robin Tobias & Arlene Hauben |
A new state law, unanimously passed by the Illinois legislature,
will make it more difficult for companies that sell prepaid calling
cards to shortchange customers. The Phone Card Fraud Act was signed
into law on Monday, August 30th. It will require companies that
provide calling card services in the state of Illinois to be certified
by the Illinois Commerce Commission.
Attorney General Lisa Madigan said it was necessary to regulate
calling card companies that operate in Illinois because too many
people are paying for time and services they aren’t getting.
This certification will ensure that the calling card provider has
sufficient technical, financial and managerial resources to provide
calling services. Distributors will be required to present a copy
of the provider’s certification to partnering retailers to
protect legitimate provider, distributor and retailer interests.
The law is scheduled to go into effect next July and requires that
calling card packaging must display information about the maximum
charge per minute, the expiration policy, and any additional surcharges
that apply. The calling card must display the full name of the provider,
toll-free customer service and network access numbers, the authorization
code, and a disclosure as to where the remaining terms, refund policy,
and conditions can be found.
Lack of regulation has resulted in numerous artificial fees that
include hidden charges, which reduce the value of the card without
proper disclosure. Some of the hidden charges include disconnection
fees, connection fees, operation fees, cellular phone fees and payphone
fees.
“The Phone Card Fraud Act is a much needed consumer protection
law that will safeguard users from being shortchanged by the calling
card industry,” says Illinois Lt. Gov. Pat Quinn. “Consumers
are entitled to know what they pay for, and when calling family
members in other countries, every minute is important.”
Quinn states, “Many fake phone cards advertise their service
to entice consumers, and then do not provide the promised services.”
“My office has found that some of the prepaid calling cards
are not worth the plastic they are printed on,” explains attorney
general, Lisa Madigan. “If E.T. tried to phone home today,
he would probably go broke after all the surcharges, fees, fake
claims and outright lies associated with some of these cards. If
you gamble with playing cards, you know you might lose. Buying a
phone card should not be a gamble.”
Len Bittner, president of Maverick Telecom Consultancy & Brokerage,
says, “Most of the phone card providers/carriers are either
selling below cost or are forced to rely upon various tricks in
the form of numerous hidden fees and surcharges in order to be competitive.
The exceptions are Tier One carriers like AT&T, Sprint, &
MCI because they’re constantly on the radars of the feds and
the states. Since the federal government and the states’ feeble
attempts to police the Tier Two and smaller carriers are going un-checked,
those carriers who are trying to offer honest pricing and service
are at a disadvantage — they can’t compete. Many carriers/providers
have taken the approach of ‘if you can’t fight ‘em,
join ‘em’ by using the same tactics.”
Edward Maldonado, Esq., a Miami-based telecom attorney, and contributing
writer to The Prepaid Press, provided much of the consultation in
the drafting of the Phone Card Fraud Act. “What this law will
do is even the playing field for prepaid rates,” says Maldonado.
“It will induce legitimate companies to compete better, and
diminish artificially low rates set by out fly-by-night companies
that are uncertified in the Illinois phone card market.” He
explains that the prepaid phone card market is quite often unstable
due to fraudulent or unrealistic providers who devalue their rates
so low it’s difficult to maintain good service. “In
an unregulated and unlicensed environment, it is too difficult for
legitimate providers to compete with such practices. The Illinois
certification and consumer disclosure requirements force providers
to keep things real in the marketplace, not only for consumer but
also each other.”
FOLLOWING THE LEAD
Bittner explains that several states have already put legislation
into play requiring phone card companies to become certified. “In
such states, it hasn’t had any effect upon the real issue
at hand, which is the fact that the consumer is not receiving the
minutes quoted by the providers on their posters and other sales
collateral. This is because no one is policing these providers.
Plus, it’s relatively easy to get certified. In the states
requiring certification, if you can ‘fog a mirror’,
you can get certified/licensed to offer phone cards.”
Illinois, in fact, is now the 11th state to enact legislation to
stop the prepaid calling card industry from fraudulent and misleading
practices. Other states are Alabama, Alaska, California, Connecticut,
Florida, Louisiana, Missouri, New York, Texas and Washington.
What makes this law different from similar laws in other states
is that retail vendors will also be held accountable. Those stores
that sell cards from uncertified companies could face fines and
other penalties. “By making the retailer accountable, IL stands
a better chance of knocking the bad cards out of the marketplace,”
says Maldonado. “Without making the retailer accountable,
the retailer can (and does) carry the cards that are ‘under
the radar’, which sometimes amount to 50% or more of his inventory.
With the new IL law, carrying hefty potential fines for selling
uncertified product, retailers will be less likely to take chances
on those cards.”
Rishi Garg, policy advisor to the Lieutenant Governor, believes
that the phone card laws enacted by other states have been beneficial
to consumer protection. Florida was one of the states the IL law
was modeled after. “With the help of Ed, we studied Florida’s
bill and also their administrative rules when we were drafting our
legislation. But we really surveyed all existing legislation. The
industry was helpful in parsing through the ten other states with
similar legislation, but I would say Florida was the most influential
from a consumer protection standpoint.” When asked why Florida
continues to be known as one of the worst states regarding phone
card fraud, Garg attributed it to the state’s lenient bankruptcy
laws, not the lack of phone card regulation. “Florida has
strong Sunshine Laws, enabling consumers to readily gain information
about any utility service in the state – rates, customer service
information, and more – right online.” Illinois took
this law a step further by imposing penalties for not only the first
link in the distribution chain, but also the last.
Bill Kelly, director of marketing for Excel Switching, a prepaid
platform provider, says, “It might slow down card sales because
retailers will try to avoid the risk of carrying uncertified cards.
Some providers may fall out, but if they are running successful
businesses, they have nothing to be afraid of.” Andy Tan,
national sales manager for Total Call International, agrees saying,
“Carriers with good reputation would then be clearly differentiated
from the carriers with less respectable reputations. Customers would
win out in the end because they would choose to buy the cards that
have consistent minutes, high quality and help reduce the fraudulent
cards in the marketplace.”
ENFORCING THE LAW
Illinois already has consumer fraud laws in place, but the newly
enacted Phone Card Fraud law explicitly gives the Attorney General
enforcement authority, and structured measures, for combating deceptive
phone card practices.
Howard Segermark, executive director for the International Prepaid
Communications Association (IPCA), says, “The new law reiterates
current law concerning fraud related to phone cards that don’t
deliver what they promise. But, whether they will enforce the law
now remains to be seen.” Garg agrees, “The law is only
as effective as the agencies enforcing it.” To that end, over
the next few months the Illinois Commerce Commission will engage
in rulemaking sessions to further define the bill, and parse out
the fine schedule.
Garg says that they do not intend to begin a crusade against retailers,
and will predominantly be working off of consumer complaints. He
explains that the law puts providers and retailers on notice, and
that once an investigation takes place over a complaint, fines/penalties
will apply.
The state has also launched an aggressive consumer campaign to raise
awareness for the law. “We have developed a significant outreach
and consumer awareness program, that has garnered a lot of media
attention,” says Garg. “While nothing has been decided
yet (since the bill was just signed) each party will do their part
to educate the community about this bill. We are asking leaders
in the Asian and Latino communities, including the two sponsors
of the bill (Sen. Martin Sandoval, Rep. William Delgado), to help
educate their constituents. We are also promoting the Attorney General’s
consumer protection toll-free number. The Lieutenant Governor’s
office will be working with the ICC to pass rules that protect and
inform consumers by establishing a website.”
“If other states follow Illinois lead it will make for some
big changes in our industry,” says John Gill, president of
Phoenix Telecommunications Group, a long-time prepaid provider.
“In theory it sounds great, this will weed out any of the
bad apples as they will find it difficult to get certified. But
in practice I think it will complicate things with the consumer
as many of them who don’t understand the disclosures will
be returning cards at a rapid pace. It will also open the door to
dishonest consumers who just want to get a free calling card. If
the retailers are going to held accountable then they wont think
twice when refunding a consumer, whether the complaint is valid
or not.”
A big hurdle to enforcement, according to Bittner, is that “the
state of Illinois ultimately only has jurisdiction over calls that
originate in Illinois and terminate in Illinois. The bulk of the
phone cards sold in the USA are for making international and interstate
calls, which is under the jurisdiction of the FCC. The FCC already
requires that phone card companies get licensed. Again, if you can
fog a mirror, you can get your FCC 214 license, which authorizes
you to provide interstate and international long distance calls.
The issue at hand here also is that the FCC does not police the
phone card companies they have licensed. It’s probably a funding
issue for them.”
“The bill’s sponsors adopted some of the changes IPCA
recommended but I wonder how they will enforce the new rule that
as of July 1 of next year, retailers must have a copy of the Illinois
registration certificate of every company whose phone cards they
sell,” says Segermark. It may be no easy task, but according
to Maldonado, between the recent FCC crackdown on authorized 214
holders and increasing state regulation, card issuers should pay
close attention. Bittner, however, is not so convinced, stating,
“It’s time the Feds and the States stepped in and cleaned
this business up for the benefit of the consumer. Turning retailers
into the Phone Card Police is not the answer.”
ON THE WEB
State of Illinois: www.illinois.gov
IL Phone Card Fraud Law: www.legis.state.il.us/legislation/publicacts/fulltext.asp?Name=093-1002
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