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Prepaid Calling Card Distributor Sued For Deceiving Consumers

Consumers got fewer calling minutes, were charged hidden fees

By James Limbach
ConsumerAffairs.com

August 7, 2009
The Federal Trade Commission (FTC) has extended its crackdown in the billion-dollar prepaid calling card industry -- asking a U.S. district court for a permanent halt to the illegal practices of a major calling card distributor and its principals.

The FTC has charged Diamond Phone Card, Inc., a distributor of prepaid calling cards based in Elmhurst, New York, and its principals with advertising that the calling cards they sold provided more minutes than they actually delivered. The complaint also accuses the defendants of failing to disclose adequately that fees could reduce the value of the calling cards. The FTC is seeking to force the defendants to give up the money they made through their deceptive tactics.

Diamond Phone Card marketed the cards to recent immigrants, many of whom rely on calling cards to stay in touch with family and friends in other countries. The defendants' advertisements made bold claims about the number of minutes the cards would provide for calls to a wide range of international locations, including the Dominican Republic, El Salvador, Mexico, India, Pakistan, and Guatemala.

But the FTC charges that consumers didn't receive the number of minutes advertised. For example, a calling card claiming to deliver 400 calling minutes to Mexico provided only 106 minutes of calling time, and one claiming to deliver 50 minutes of calling time to Honduras actually delivered only 20 minutes.

The FTC's complaint also claims that the defendants failed to properly disclose "maintenance" and other fees. For example, the defendants' ads trumpeted in large, colorful text the number of calling minutes their cards purportedly would provide. Less obvious to consumers, however, was a 79-cent "maintenance" fee that applied to $2 and $5 cards, and was "disclosed" in nearly illegible print on the very bottom of the advertisement.

This complaint follows two recent FTC actions against distributors of prepaid calling cards. In February 2009, Alternatel, Voice Prepaid, and Mystic Prepaid agreed to pay $2.25 million to resolve FTC allegations that they had deceived consumers. In June 2009, another leading distributor of prepaid cards, Clifton Telecard Alliance, agreed to pay $1.3 million to settle similar FTC charges.

The FTC has established a joint federal-state task force to address deceptive advertising and marketing practices in the prepaid calling card industry.

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