Please Deposit All of Your Money: Kickbacks, Rates and Hidden Fees in the Jail Phone Industry

A Prison Policy Initiative Report
by Drew Kukorowski, Peter Wagner and Leah Sakala
May 8, 2013

Executive Summary

At a time when the cost of a phone call is approaching zero, one population is forced to pay astronomical sums to stay in touch: the families of incarcerated people. For a child to speak with her incarcerated parent, a family member or friend is forced to pay almost $1 per minute, plus a long list of other fees that easily double the total cost of the call. Faced with phone bills that can total hundreds of dollars, many families have to choose between paying for calls and paying for basic living expenses.

Social science research shows that strong community ties are one of the best predictors of success after release from prison or jail, but the prison telephone market threatens those ties because it is uniquely structured to create a counter-productive cycle of exploitation: prison systems and local jails award the monopoly contracts to the phone company that will charge the highest rates and share the largest portion of the profits. The prisons and jails get their commissions, the phone industry gets the fees, and the families get the hefty bills.

While previous research has documented the unjustifiably high calling rates in the prison phone industry, this report is the first to address in depth the many fees prison phone customers must pay. We find that meaningful regulation of the prison phone industry must stem from a comprehensive analysis of the customers' whole bills, rather than limiting the discussion to addressing the high per-minute calling rates alone.

This report finds that fees have an enormous impact on prison phone bills, making up 38% of the $1 billion annual price of calling home. This report details the fees that prison phone companies charge for "services" such as:

  • accepting customers' money (deposit fees of up to $10/deposit)
  • holding on to customers' money (monthly account fees as high as $12)
  • closing customers' accounts (refund fees of up to $10)

This report reveals that these fees are but the tip of the iceberg, though, as many other charges are far less transparent. For example, some companies operate "single call programs" that charge customers who do not have preexisting accounts up to $14.99 to receive a single call from a prison or jail. Some companies have hidden profit-sharing agreements with payment processors such as Western Union, which are not disclosed to the correctional systems that award contracts. Other companies give their fees government-sounding names, even though the fees are not required by the government and may not even be paid to the government.

Unlike in most industries, bad customer service is a key source of revenue for prison phone companies. For example, most of the industry finds it economically advantageous to use poorly calibrated security systems to drop phone calls and trigger additional connection charges. Other companies show no hesitation to triple the cost of a call made to a local cellphone by charging consumers the more expensive long distance rate.

Previous research has generally focused on the price to call home from state and federal prisons, but we find that limiting the scope to prisons only significantly understates the sheer number of families that must bear the burden of exorbitant phone bills. This report expands the discussion to also include the families and friends of the more than 12 million people who cycle through 3,000 local jails across the country every year. To our knowledge, almost no local jails refuse commission payments in order to make calling home more feasible.

Because the opportunities for consumer exploitation in this broken marketplace are almost endless, regulation by the Federal Communications Commission (FCC) is the only permanent, nationwide solution that would remove the inherent conflicts of interest between the facilities that award monopoly contracts, the companies that execute them, and the families that pay the price.

The FCC should craft a regulatory solution that is based on a comprehensive view of the prison phone industry, taking into account each of the components that contribute to customers' high bills, including fees.

The report urges the Federal Communications Commission to:

  1. Impose reasonable rate and fee caps that apply to all prison and jail telephone calls;
  2. Ban commission payments in all prison and jail telephone contracts on the grounds that such payments necessarily lead to inflated calling rates and incentivize pernicious fee-collecting practices;
  3. Ban all illegitimate fees in the prison and jail phone industry; and
  4. Audit legitimate fee collection by prison phone companies to ensure compliance with FCC policy.

Additionally, the report recommends that state and local contracting authorities take measures of their own to rein in the cost of phone calls from jails and prisons.

County sheriffs, county contracting authorities, and other state prison systems should:

  1. Refuse to accept commissions from telephone companies;
  2. If commissions will be accepted, ask the companies hard questions about how their fees are determined before awarding a contract to ensure that fees are fairly assessed and that income that should be subject to the commissions is not hidden as a "fee";
  3. Refuse to contract with any company that is not fully transparent about how fees and commissions are calculated.
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