House Subcommittee Passes Calling Card Reform Bill

“The common carrier coverage needs to be addressed,” Rush said: “We are all well aware that there are existing precedents for common carrier inclusion in FTC law enforcement.” The common carrier exemption was one of a handful of sticking points that divide members. One main area of contention is the proper balance between federal and state enforcement of the bill. Ranking member Ed Whitfield, R-Ky., said he was “quite positive” both sides could reach agreement on what the bill should say.

In a hearing earlier that day, the Federal Trade Commission, consumer groups and others mainly supported the calling-card bill. But, FTC Chairman William Kovacic and an official of the National Association of Convenience Stores raised red flags. Republicans supported a change to allow the federal government to preempt states on disclosure requirements.

Kovacic supported the bill but said the FTC must be given jurisdiction over common carriers. The bill provides “an additional remedy” to the FTC’s tools for combating deceptive marketing in prepaid phone cards, he said. Among other things, Kovacic praised the bill for allowing the FTC to seek civil penalties, which he called a “powerful deterrent” to deceptive and unfair practices. The commission now may seek only injunctions and the confiscation of ill- gotten revenue, Kovacic said. But the bill should also override an exemption in the FTC Act prohibiting the agency from taking action against common carriers, he said. The FCC has jurisdiction, but the FTC has more experience with calling cards, Kovacic said. “We are the experts in litigating these cases,” he said.

Kovacic also asked the subcommittee to change the bill to allow the FTC to seek an injunction against a company without first proving that it had knowledge of wrongdoing, he said. The FTC should need to prove that only to win forfeitures of money, Kovacic said. He proposed another revision to allow the agency to take action against wireless prepaid services. Without that provision, wireless prepaid could become an “attractive avenue” for wrongdoers to move to, he said.

Rep. Eliot Engel, D-N.Y., who wrote the bill, said he had “no objections” to Kovacic’s suggestions. But he expressed concern that complicating the bill might prevent its passage this year, particularly with parallel legislation in the Senate. That shouldn’t be a worry, said Kovacic, saying “some of our greatest bills” have come from small improvements. The chairman described his proposed edits as “very modest drafting adjustments” that would strengthen the bill.

Democrats and Republicans agreed that legislation on calling cards is needed. The $6 million industry is “infested with sharks,” victimizing immigrants and others who commonly place calls overseas, said Rush. A problem exists, said Ranking Member Whitfield, saying $2 billion of the industry’s annual revenue comes from fraud. Republicans support the bill’s “basic principle … but we do need to perfect it,” said House Commerce Committee Ranking Member Joe Barton, R-Texas. To be effective, Barton said, the bill needs to apply to common carriers and provide for federal preemption of states.

Whitfield said he had several concerns. Disclosures are good in theory, but people often throw out packaging, and there may not be enough room on a calling card to fit a full disclosure, he said. He also urged a “strong federal preemption standard” so the federal government, not states, would define how disclosures should read. Preemption would create consistency in disclosures across the U.S., he said. Whitfield also raised a red flag about giving the FTC jurisdiction over common carriers. He said he worried that “we have not had a deliberation on the consequences.” Perhaps the subcommittee should investigate why the FCC, which has jurisdiction, isn’t acting vigorously on deceptive calling-card practices, he said.

Kovacic disagreed that states should be preempted. He acknowledged that 50 disclosure set-ups would create “unmistakable costs” for businesses but said “states have often been a stimulus for providing ideas.” Preempting them would remove a valuable test ground for innovative types of disclosure requirements, he said. Preempting states would be a “terrible mistake,” said Sally Greenberg, National Consumers League executive director. Many states are ahead of the federal government on the issue, and 18 states have taken action, she said.

Less time was spent on a concern raised by the National Association of Convenience Stores. John Eichberger, a vice president of the group, said a provision in the bill protecting retailers from liability should also apply to third-party distributors. Distributors are “simply middlemen” and take no part in the creation or marketing of deceptive calling-card schemes, he said.

Congress needs to go beyond disclosure requirements and “clean up” the calling-card industry, Greenberg said. But the bill is a good “first step,” she said. Yvette Zaragoza of the Latino Economic Development Corp. also supported the bill, but suggested that the government require calling-card companies to get certification before selling service.

Meanwhile, state regulators raised a separate preemption issue in a letter sent Tuesday to the subcommittee. A provision in the bill allowing state attorneys general to help enforce the bill might preclude state utility commissions and other state consumer protection agencies from acting, the National Association of Regulatory Utility Commissioners said in the letter. The subcommittee should revise the bill to mirror the Senate bill, which allows for those bodies to assist, NARUC said. Without that edit, the bill “effectively takes some state consumer cops off the beat” and requires some states to “waste taxpayer funds to restructure existing enforcement mechanisms,” it said.