FTC Settlement Reins in New York-based Prepaid Calling Card Distributor

The Federal Trade Commission reached its third settlement as part of a recent agency crackdown on fraud in the prepaid calling card industry that has forced companies to pay more than $4 million. The agreement requires New York-based Diamond Phone Card, Inc. and its principals to pay $500,000. It also bars them from misleading consumers about the talk time that their calling cards provide, and requires them to clearly disclose – in the same language that they are marketed – all fees associated with their cards.

The FTC’s July 2009 complaint against Diamond Phone Card – like the FTC’s complaints against other calling card companies – alleged that the company made false claims about the number of calling minutes their cards deliver, and that it failed to properly disclose “maintenance” and other hidden fees. Some fees were “disclosed” in nearly illegible print on the bottom of the company’s advertisements. The FTC’s testing showed that consumers received only about half the advertised minutes from Diamond prepaid calling cards.

“Unlike Diamond Phone’s ads, the FTC’s message here is clear,” said FTC Chairman Jon Leibowitz. “If you deceive consumers about the prepaid calling cards you’re selling, we will take you to court and force you to give up the money you made through deceptive sales tactics.”

The complaint named the company and its principals, Nasreen Gilani, Samsuddin Panjawani, and Faiez Farishta. The FTC alleged that they marketed calling cards to recent immigrants for calls to a wide range of international locations, including the Dominican Republic, El Salvador, Mexico, India, Pakistan, and Guatemala.

The FTC has established a joint federal-state task force in 2007 to deal with deceptive marketing practices in the prepaid calling card industry. The task force also includes representatives from the Federal Communications Commission and more than 35 states. The settlement has been filed with the U.S. District Court for the Eastern District of New York.

The Commission vote to approve the settlement was 5-0. Commissioners Edith Ramirez and Julie Brill issued a joint concurring statement, in which they urged Congress to expand the FTC’s authority to take action and seek fines against telecommunications carriers and distributors that engage in unlawful conduct by deceptively marketing prepaid calling cards.

“For immigrants from Latin America, Africa, Asia and elsewhere around the world, American military families, and other consumers, prepaid calling cards can serve as a critical lifeline to friends and family,” Commissioners Ramirez and Brill said. Noting the widespread deceptive practices in the marketing of these cards, the Commissioners said, "the time has come to give the FTC more powerful tools to tackle fraud in the prepaid calling card industry.”

The case was brought with the invaluable assistance of El Salvador’s Defensoría del Consumidor, Colombia’s Superintendencia de Industria y Comercio, the Egyptian Consumer Protection Authority, Mexico’s Procuraduría Federal del Consumidor, Panama’s Autoridad de Protección al Consumidor y Defensa de la Competencia, and Peru’s Instituto Nacional de Defensa de la Competencia y de la Protección de la Propiedad Intelectual.

NOTE: This stipulated final order is for settlement purposes only and does not constitute an admission by the defendant of a law violation. A stipulated final order requires approval by the court and has the force of law when signed by the judge.

Copies of the stipulated final order are available from the FTC’s Web site at http://www.ftc.gov and from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, click: http://www.ftc.gov/ftc/complaint.shtm or call 1-877-382-4357. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to more than 1,800 civil and criminal law enforcement agencies in the U.S. and abroad. For free information on a variety of consumer topics, click http://ftc.gov/bcp/consumer.shtm.