FTC Sues Prepaid Calling Card Distributor for Deceiving Consumers

The Federal Trade Commission extended its crackdown in the billion-dollar prepaid calling card industry, asking a U.S. district court to permanently halt 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 alleges that the defendants failed to adequately disclose fees that 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 alleges 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.

The complaint against Diamond Phone Card, Inc., and the company’s principals, Nasreen Gilani and Samsuddin Panjawani, was filed in U.S. District Court for the Eastern District of New York. The Commission vote to file the complaint was 4-0.

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

NOTE: The Commission files a complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the defendant has actually violated the law. The case will be decided by the court.

The Federal Trade Commission works for consumers 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, visit the FTC’s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 1,500 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s Web site provides free information on a variety of consumer topics.

(FTC File No. 082-3038)
(DiamondPhone)