Marketer of Pre-Paid Phone Cards Agrees to Settle Charges of Failing to Disclose Actual Cost of Using Card

PT-1 Communications, Inc., a New York City-based marketer of pre-paid telephone cards, has agreed to pay $300,000 in monetary relief as part of a settlement of Federal Trade Commission charges alleging the company regularly advertised its pre-paid phone cards as providing 19 cents per minute calling within the United States, while imposing undisclosed connect fees on card users. The FTC also charged that PT-1 imposed a 25 cents maintenance fee on all cards outstanding for more than a month without disclosing that fee. The proposed settlement would prohibit PT-1 from failing to disclose the existence and amount of any connection, service, or other fees or charges that are to be paid by the consumer in addition to the represented price.

Most pre-paid phone cards display a toll-free access telephone number and a personal identification number (PIN). Pre-paid phone card companies have computers that use your PIN to keep track of your card usage -- how much phone time you have on your card in minutes or units. To make a phone call, you dial the access number, enter your PIN, and at the voice prompt, enter the phone number of the party you're trying to reach. A computer tells you how much time -- or how many units -- you have left on your card, and how to use other features your card may offer. Typically, each unit equals one domestic minute. If your pre-paid phone card can't be recharged -- that is, if you can't buy additional minutes by phone for the card - you'll need to buy another card once you've used up the time or minutes.

According to the FTC, PT-1 marketed and sold its prepaid phone card, the "PT-1 Card," for resale to consumers throughout the United States. The card is typically available in $5, $10, and $25 denominations, and is usually sold at newsstands, grocery stores, pharmacies, etc. The complaint detailing the FTC's charges alleges that PT-1, in connection with the advertising and marketing of its prepaid phone cards, disseminated to consumers and distributors through its World Wide Web site on the Internet, point-of-sale and other materials, advertisements that touted the low cost of using the PT-1 card:

"LOWEST INTERNATIONAL RATE CARD

CALL THROUGHOUT THE US FOR ONLY 19¢ PER MINUTE

24 HOURS 7 DAYS SAME LOW RATES "

The complaint alleges that PT-1 imposes a connection charge on all domestic long distance calls equal to the cost of one minute of calling time, without disclosing this charge to consumers.

In addition, the FTC's complaint alleges that PT-1, since April, 1996, imposed a service fee, reducing the value of its pre-paid phone cards 25 cents per card for each month after the first month of active use, without disclosing this fee to consumers.

The FTC charged that PT-1's failure to disclose such material facts to consumers was deceptive, violating Section 5 of the FTC Act.

In addition to requiring the defendant to pay $300,000 in monetary relief, the proposed settlement would prohibit PT-1 from falsely representing that the value of its prepaid phone cards will be reduced only at the advertised per minute (or other per unit) price. The defendant would be prohibited from failing to disclose, clearly and prominently, the existence and amount of any connection, service, or other fees or charges that must be paid by the consumer in addition to the price represented. The defendant also would be prohibited from reducing the value of any prepaid phone card or related product or service at a rate greater than the advertised per minute (or other per unit) rate.

The settlement also contains a number of recordkeeping and reporting requirements designed to assist the FTC in monitoring compliance with the order.

The Commission vote to authorize staff to file the complaint and proposed settlement was 4-0. The case was filed in the U.S. District Court for the Southern District of New York, in Manhattan, on February 25, 1999. This matter was handled by the FTC's New York Regional Office.

NOTE: A stipulated final judgment is for settlement purposes only and does not constitute an admission by the defendant of a law violation. The judgment is subject to the court's approval and has the force of law when signed by the judge.

Copies of the complaint and proposed settlement, and a consumer brochure about prepaid phone cards, are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-FTC-HELP (202-382-4357); TDD for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.

(Civil Action No. 99 CIV 1432)
(FTC File No.: 972 3072)