PUC to Launch Crackdown on Prepaid Phone Card Abuse

Hoping to halt an increase in fraud associated with the $3.2-billion prepaid phone card industry, state investigators this week will step up their scrutiny of companies that sell the cards without disclosing key information.

The new requirements are designed to clamp down on hidden fees, misleading rate claims and outright rip-offs that have plagued the booming industry for the cards, which allow users to pay in advance for blocks of minutes.

Under a new state law that takes effect Thursday, all prepaid phone cards sold in California must include information ranging from expiration dates to prices and how to access customer service.

“This industry has produced a number of frustrating scams,” said Larry McNeely, chief litigation and resolution officer in the Public Utilities Commission’s enforcement branch. “We received about 5,000 serious complaints within a 12-month period about prepaid phone card abuses--and we were disturbed by what we were hearing.”

California lawmakers, reacting to a surge in complaints about the cards, have also beefed up the enforcement staff at the PUC to help catch violators.

Prepaid phone cards are widely available and are typically given away as promotions or sold in fixed denominations ranging from $5 to $100. The cards are sold by phone companies but are also available from vending machines, gas stations and convenience and retail stores.

Customers use the cards to pay for long-distance phone calls, typically when they are away from home or using a pay phone. Most prepaid cards are sold for use on traditional phones, but some companies also sell prepaid cards for use with special wireless phones.

“This is a big deal because a lot of people use these cards, and often they are used by people who maybe can’t afford a telephone,” said Regina Costa, a telecommunications analyst at the Utility Reform Network, a San Francisco-based consumer group.

To use the card, a caller dials a toll-free number, then punches in a unique code printed on the card. With each use, the call’s cost is deducted from the remaining balance on the user’s card.

Many recognizable phone companies issue their own cards, among them AT&T;, MCI WorldCom and Sprint. But smaller carriers also sell cards, as do companies that are not in the phone business.

Within the industry, there is little enthusiasm for the new regulations, which are being added in a growing number of states.

“But I think the legitimate companies knew that some regulation was needed, because they were getting a bad rap and having a harder time selling their cards,” said Lara Zuehlke, managing editor of TeleCard World, a Houston-based trade publication.

California’s new law stems from a 1998 bill by state Sen. Debra Bowen (D-Marina del Rey), who said she was responding to a rising number of complaints about prepaid cards.

“If someone was buying one of these cards, it was very difficult to figure out what you were buying,” Bowen said. “Some companies would advertise a certain low per-minute rate, and then apply a high per-call surcharge or some other hidden fees.”

Until Bowen’s bill was signed into law last year, prepaid card companies were not regulated by state law. A separate law, also passed in 1998, requires prepaid phone card service providers to register with the PUC and be bonded.

“I think many of the companies are already complying with the law, because there has been a significant increase in disclosures on the cards and packaging,” Bowen said.

Bowen’s law requires that:

* Any advertisement of a prepaid phone card’s price, rate or unit value disclose applicable geographic limitations, as well as all fees, call setup charges and surcharges.

* All prepaid cards include--in legible print--the name of the service provider, a toll-free customer service phone number, a toll-free network access number (if required for the service) and any expiration date or policy.

* The card or packaging include information on surcharges, such as monthly fees, per-call access fees or rate information for domestic or international calls. It also must disclose any minimum per-call charges, the charge for calls that do not connect, the refund policy, the expiration policy, the 24-hour customer service number and the billing increment (for each 30 seconds or minute).

* Prepaid card companies provide a refund to customers affected by a network failure or poor service. The refund must be provided within 60 days of a customer request.

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Staff writer Elizabeth Douglass can be reached at elizabeth.douglass@latimes.com.