Court Order Bars Defendants from "Cramming" Prepaid Calling Card Charges onto Consumers' Phone Bills

The Federal Trade Commission today announced a stipulated final judgment and order against an Ohio-based marketer of prepaid calling cards, settling charges that the company "crammed" recurring payments for the cards onto consumers' telephone bills without their consent. Through the order, T2U Co., Inc. ("T2U," formerly doing business as RCP Communications) and its principal Richard C. Peplin Jr. would be barred from a variety of deceptive "telephone billing" transactions, including making false representations about their authority to charge for -- and consumer's obligation to pay for -- any product that consumers did not agree to purchase. The defendants also would be required to specify how consumers will be billed, what the service will cost, whether the billing will be recurrent and how any recurring charges can be cancelled. In addition, they would be subject to a suspended financial judgment of $3.2 million.

"Cramming is a pervasive problem," said Jodie Bernstein, Director of FTC's Bureau of Consumer Protection. "The best advice for consumers is to go over their phone bills with a fine-tooth comb before they pay, and challenge any charges they don't recognize or understand."

According to the Commission's complaint, T2U and Peplin violated the FTC Act through business practices associated with the marketing, sales and billing for prepaid calling cards. The FTC alleges that in many instances the defendants placed charges on consumers' telephone bills for prepaid phone cards that consumers had not ordered or agreed to purchase. According to the FTC, the defendants also failed to mail consumers a phone card for several months, and when the card did arrive consumers discovered that while they had been billed for two or three months of service, the card had already expired and could not be used. Before the card arrived, many consumers had no idea they were being charged for its use.

The stipulated judgment and order covers the advertising and sale of prepaid phone cards - T2U's principal business - as well as any other "telephone-billed" transaction. Under its terms, the defendants would be prohibited from making any misrepresentations regarding their business practices, including: 1) that consumers are obligated to pay for any product or service that they did not purchase; and 2) that the charges for such product or service have been authorized.

Further, the order would prevent the defendants from using solicitation materials in any telephone-billed transaction that fail to clearly and conspicuously disclose - before consumers are billed - the following material terms and conditions of a sale: 1) the cost of the product or service; 2) the amount of any recurring charge; 3) how a recurring charge will be billed; 4) any limitations on the use of a product or service, such as an expiration time for a prepaid phone card; and 5) how a consumer can cancel any recurring charge.

The defendants also would be barred from billing consumers before delivering any product or service whose time or value expires within the billing period. For any other product or service whose time or value does not expire within the billing period, the defendants would be enjoined from failing to disclose that the cost for such product or service will be billed to the consumer's telephone number prior to delivery. In addition, the defendants would be required to get a consumer's express authorization for any telephone-billed transactions.

The order also calls for a $3.2 million judgment against the defendants, which approximates the amount that they defrauded from consumers and have not paid back. However, the judgment would be suspended due to the defendants' financial condition. If the Commission determines in the future, however, that any defendant made false statements or omissions concerning its financial condition, the FTC could seek to obtain the full amount of the judgment.

Finally, the order contains several record-keeping and monitoring provisions designed to ensure the defendants' compliance with its terms.

The Commission vote to authorize staff to file the complaint and stipulated final judgment was 5-0. The complaint and stipulated final judgment were filed in the United States District Court for the Northern District of Ohio, Eastern Division on April 4, 2001. The civil action number for this matter is 101-CV-811

(FTC File No. 982-3628)