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Jun 15, 2008

The Legal Line

Edward Maldonado

Dear Ed:
Our company is concerned about the disclosures and disclaimers that we currently use on our prepaid calling cards. We have used the same disclaimer for about two years now and it was originally drafted by our printer. Our obvious preoccupation is over all the FTC and state Attorney General investigations, and if we are, or are not, doing things correctly. With the economy and market as it is right now, we can’t afford a fine. We have already surveyed a number of our competitors’ cards but this has not helped much. Some are private label cards and some are their own cards that have different disclaimers and disclosures on each branded card. Every card provider seems to use different language to say the same things. We are curious whether there is a standard for disclaimers and disclosures or if we just have to tailor our own and hope for the best. Do you have any suggestions as to where to begin when we re-write our disclosures and disclaimers? Thank you.
Concerned and Confused

Dear CC:
There are several layers to the recent thrust of FTC and state Attorney General investigations that have ensued over false advertising and unfair trade practice claims during the past several months. The first layer is more regulatory in nature as it goes to the practices of calling card companies in what and how they charge consumers. These issues relate to the billing increments per call, what rates or charges are actually assessed and how much per call, and whether charges (or surcharges) have been portrayed as taxes and regulatory fees when they are not. Much of what governs these issues is found more substantively in state law and regulation, as opposed to the Federal Communication Act.

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As you may, or may not know, prepaid calling card services sold within a state’s borders require certification as a provider of Inter-Exchange services and sometimes even as a certified prepaid calling card provider. Most, if not all, such providers file a tariff defining the terms and conditions under which they will sell these services to consumers in that state. Part of the review that the appropriate PUC/PSC performs in certifying that prepaid calling card provider, is to analyze whether the particular rates and charges under the company’s cards are reasonable and whether it comports with state regulation, rules and guidelines. If for some reason it does not, the certification will not be approved until the company changes the practices, rates or charges to conform to state law and regulation. If not approved, you run the risk of being investigated and fined by the state PUC/PSC for providing unlicensed telecommunication services within their jurisdiction. So, the first threshold question you should be asking yourself about proper disclosures and practices is whether you have proper certification for your cards everywhere a consumer purchases your cards, and what your approved tariff permits in that state.
Many industry players have voiced confusion about whether or not they need to file tariffs at the state level because of the FCC De-Tariff Order. There really should be no confusion here. Federal regulation supports the state processes under CRF 42.11 (a) which requires federally de-tariffed non-dominant carriers who provide international service to make available to the public information concerning their existing rates, terms and conditions for all of its international and interstate services. This includes state agencies. So there is really no conflict as to whether or not states are entitled to this information under a tariff or whether certification is optional. It is required.
All of this is important to your prepaid calling card disclosures and disclaimers as state law and regulation about your state tariff(s) should set parameters of what you may charge and what you must disclose in relation to your cards. You need to know the requirements first before any revision of disclosures and disclaimers. It would be wise to engage regulatory counsel at this juncture to review the states where you have card sales to determine what your company may be required to do to be compliant in both your services and disclosures.
The second layer of the recent thrust of FTC and state Attorney General investigations relates to clarity of disclosures. More specifically, what constitutes “clear and conspicuous” disclosures associated with charges on the prepaid calling cards, as found within your promotional and operating materials? It is focused on how effective you are in actually communicating, and not mis-communicating, the policies, rates and charges applicable to end user consumers. An array of issues have arisen related to this, which include: the accuracy of voice prompt dollar or time balances, the use of English versus foreign language disclosures, and whether your company has properly identified governmental taxes and fees or “coined” a catchall term for a variety of other things, including government taxes and charges. However, the issue for agency investigative purposes really boils down to one of transparency and the effectiveness of your stated policies, as well as the actual practices of charges related to your cards and service. Since there were few clear guidelines as to what was “clear and conspicuous” disclosure, aside from state telecom law and regulation, there is a speculative and subjective element of evaluating this. The FTC and state Attorneys General have most definitely retained this subjectivity when investigating cards that had “generic” or “vague” language or which did not clearly reference or comport with federal and state PUC/PSC regulations.
This legal and regulatory ambiguity - as to how to sufficiently communicate to consumers - has also opened up the prepaid industry to class action lawsuits for classes of phone card consumers. The objective of the class action lawsuits is purely the collection of monetary damages to punish the industry under this ambiguity. The problem is whether there will be any semblance of uniformity from the final rulings of all these cases from across the country, and, whether this will produce any clarity as to “clear and conspicuous” disclosures or be fatally fractured and only further complicate matters. Perhaps the FCC needs to step up to the plate and think about establishing minimal requirements for calling card disclosures, like post-paid wireless contract termination policies, that would at least be uniform in application to other regulatory and investigative agencies as well as the calling card providers themselves.
Out of all of this, I have observed a definite migration by some industry players from a single “generic” disclosure and disclaimer, to more custom tailored policy declarations on a per-branded card and even per-state basis. This has been particularly true for private label cards. It also is a significant paradigm shift for calling card providers themselves. Traditionally these providers used a single “generic” version to reduce printing costs associated with cards, posters, marketing materials, scripts and voice prompts. However, many of these same providers have crunched the numbers as to monetary costs, and have found that when text of disclosures and disclaimers are tailored to a particular brand, or series of states, the added costs are minimal. Language can even be tightened (as opposed to reducing font size) to not only be clear but also to reduce run-on verbiage in the disclaimer itself. Likewise, these providers also know exactly where their branded cards are being sold and can hedge disclosure language to match requirements of states in close proximity. It will be interesting to see how this develops, but it is a unique innovation.
With all of this as a backdrop, I believe that the best suggestions I could possibly give would be to engage regulatory counsel to review the states where you have card sales to determine what your company may be required to do to be compliant in both your services and disclosures, and re-think your use of a single disclosure format for all cards and all services. Going forward, prepaid calling card providers will need to think more defensively when offering new card brands targeted to ethic niches and launching new services. Disclosures and disclaimers may need to be reviewed and “tweaked” on a periodic basis to optimize their effectiveness in avoiding false advertising claims. What is clear, is that the issue will not go away with the investigation of a few calling card providers and going forward, prepaid calling card providers will need to be more proactive in their statements to consumers. I hope this helps get the re-write process rolling for your business.
Good Luck and Success in the Industry.

Edward Maldonado is a telecommunication regulatory attorney and consultant. He can be reached


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