Orange is the New Green

In Prisons, Sky-High Phone Rates and Money Transfer Fees

By STEPHANIE CLIFFORD and JESSICA SILVER-GREENBERG JUNE 26, 2014

Inside the razor wire on Eagle Crest Way, in rural Clallam Bay, Wash., telephone calls start at $3.15. Emails out, beyond the security fence, run 33 cents. Money transfers in, to what pass for bank accounts, cost $4.95.

Within that perimeter lies the Clallam Bay Corrections Center, a state prison — and an attractive business opportunity. One private company,JPay, has a grip on Internet and financial services. Another, Global Tel-Link, controls the phones.

These companies are part of a new breed of businesses flourishing inside American jails and prisons. Many of these players are being bankrolled by one of the most powerful forces in American finance: private equity. Private investment firms have invested many billions of dollars in the prison industry, betting — correctly — that it is a growth business.

Wall Street previously championed companies like Corrections Corporation of America, the nation’s largest private corrections company. But unlike companies that have thrived by running prisons, the likes of Global Tel-Link and JPay are becoming de facto banks, phone companies and Internet service providers for inmates and their families across the nation.

It is a lucrative proposition, in part because these companies often operate beyond the reach of regulations that protect ordinary consumers. Inmates say they are being gouged by high costs and hidden fees. Friends and families say they have little choice but to shoulder the financial burden.

Donna Starkey, of Nashville, Tenn., said that even dropped calls eat up money when she calls her son, who is serving a three-year sentence at Lois M. Deberry Special Needs Facility.

But private enterprises are not the only ones profiting. Eager to reduce costs and bolster dwindling budgets, states, counties and cities are seeking a substantial cut in return for letting the businesses into prisons, a review of dozens of contracts by The New York Times found. In Baldwin County, Ala., for instance, the sheriff’s department collects 84 percent of the gross revenue from calls at the county jail. A Texas company has guaranteed the county at least $55 a month per inmate, according to a copy of the contract.

Similar stories are playing out in places like the Emanuel Women’s Facility in Swainsboro, Ga.; MacDougall Correctional Institution in Ridgefield, S.C.; and the New Jersey State Prison in Trenton, The Times found. Some corrections departments use the commissions to provide services, said Steve Gehrke, a spokesman for the Washington State Department of Corrections. In Washington State, all commissions go toward compensating victims and improving services like libraries.

But even some industry executives see problems with the current setup, saying the commission system encourages providers to charge inmates more, not less, for services. Companies often win contracts based on how much they will offer states via commissions, rather than the rates they charge inmates.

Global Tel-Link, of Reston, Va., has contracts with 2,200 correctional operations serving at least 1.1 million inmates. It argued in recent comments to the Federal Communications Commission that the more states and cities demand in commissions, the more it will charge inmates. “There is no free lunch,” the company said.

“It is clear that it drives up the prices for these services and the commission system should be modified,” said Ryan Shapiro, the chief executive of JPay, which is based in Miami. Doing that, he added, can be difficult because many state budgets are strained.

Not that JPay is shying away from the business. It has deals in 33 states to provide money transfers, and contracts in 17 states to provide email, along with other services in states across the country. Now, it is offering a $50 tablet that allows inmates to download MP3s and get limited access to email, educational videos and books. The response from corrections departments has been overwhelming, Mr. Shapiro said.

The response from inmates and their families has been less enthusiastic.

Ely Peterson often wires a small amount of money each month to the commissary account of his fiancée, who is serving a 15-year-sentence at the Tennessee Prison for Women in Nashville for acting as an accomplice to murder. But transferring $25 costs Mr. Peterson $6.90. Mr. Peterson, who is 72 and a retired Marine, said that some months he can barely afford to send $15 to his fiancée, who uses her commissary account to buy food.

Walter Chruby, who has served 19 years of a life sentence for murder, calls such rates “unjust and unreasonable.” Mr. Chruby, 51, who is at State Correctional Institution-Laurel Highlands, in Somerset, Pa., argued in a lawsuit filed in federal court in Alexandria, Va., in April against Global Tel-Link that prisoners had no choice but to pay the high rates.

Mr. Chruby’s sentiment was echoed in dozens of lawsuits filed by inmates against Securus, Global Tel-Link and other providers. While the F.C.C. capped interstate telephone rates at 25 cents a minute earlier this year, after agitation from prisoners’ rights advocates, local phone rates can still be steep and other fees vary widely from state to state. For instance, using a phone to transfer $10 into an inmate’s account via JPay to the Southeast Correctional Center in Charleston, Mo., costs $3.95, while a similar transfer to the Illinois Youth Center in Chicago runs $5.95.

Placing a 15-minute in-state call from a Union County, N.J., jail costs $8.50, according to the New Jersey Institute for Social Justice, which recently filed a petition asking for lower in-state rates. In New York State, which does not accept commissions from providers, a 15-minute phone call costs just 72 cents.

Donna Starkey, of Nashville, Tenn., said that even dropped calls eat up money when she calls her son, who is serving a three-year sentence at Lois M. DeBerry Special Needs Facility.

Securus, Global Tel-Link, another company,CenturyLink, as well as corrections departments in Arizona, Mississippi and South Dakota, have challenged the F.C.C.’s rules in court. The companies say they need to charge high rates for security concerns — inmates’ access to financial services, telephones and the Internet is limited and, in most cases, monitored by providers. Even after prisoners are released, high fees can be difficult to escape. Rather than giving released inmates checks for the money they had when they were incarcerated, as well as any prison earnings, many prisons are putting the money on prepaid debit cards, which often come with high fees.

On its EZ Exit prepaid card, for instance, EZ Card & Kiosk of Irvine, Calif., charges $15 to replace a lost card, $4.95 a month to maintain it, $4 to receive a paper statement and $2.99 to withdraw money from an A.T.M.

Ronald Hodge, the company’s chief executive, said that EZ Card tries to keep fees low but must balance that with administrative costs. “We, along with our jail customers, are very concerned about the cost and impact of the card,” he said.