Federal Trade Commission

Press Release – May 3, 2013

FTC COMPLAINT:

  • The Federal Trade Commission (“FTC”) brought an action against defendant DR Phone Communications, a company that markets and sells prepaid calling cards, and its principal.
  • These calling cards are typically available for sale in such places as convenience stores, kiosks and grocery stores.
  • The FTC has indicated that many people in immigrant communities purchase and utilize these cards in order to communicate with family members in foreign countries.
  • The crux of the complaint is that these cards were found to have significantly less calling minutes than promised in the promotional materials associated with the cards.
  • The FTC actually purchased samples of these cards at two (2) different points in time and tested 169 cards to determine the calling minute-value.
  • The FTC found that every one of the cards failed to provide the advertised number of minutes.
  • Overall, defendants’ cards delivered just 40% of the calling minutes promised, while 52 cards provided less than 25% of the advertised minutes and 25 cards had less than 5% of the time promised.
  • Based on these numbers, the FTC charged defendants with violating the FTC Act by misrepresenting the number of calling minutes that the cards would provide, and for failing to adequately disclose fees that would reduce the value of the cards.

SETTLEMENT ORDER:

  • Defendants are permanently barred from making any material misrepresentations in association with the marketing and sale of prepaid calling cards, including the number of minutes provided and the per-minute rates.
  • Defendants are also expected to pay a judgment in the amount of $61,597.
  • The settlement order requires defendants to clearly and prominently disclose any material limitations relating to their prepaid calling cards including:
  1. The existence of all fees and when they will apply;
  2. That the advertised calling minutes are available only on a single call, if applicable;
  3. Any limit on the time during which the advertised rates or number of minutes are available; and
  4. When the calling card expires, if it does.
  • Defendants are required to put into place procedures to ensure the accuracy of their marketing materials and to prevent retailers from displaying outdated information.
  • Finally, defendants must end relationships with any distributors that fail to display accurate marketing materials.

TAKE AWAY:

  • The FTC is looking to protect innocent and vulnerable consumers who may be unaware of the duplicitous sale of mis-marketed calling cards.
  • Part of the order suggests that distributors may be part of the problem, as defendants are not permitted to sell the cards to those businesses that do not accurately market the products.