Markets Wired

The Federal Trade Commission halted the deceptive advertising claims of a company that markets prepaid phone cards by allegedly misrepresenting the number of calling minutes its cards provide, and failing to adequately disclose additional fees. The company agreed to temporarily stop making claims the FTC alleges are misleading, pending a trial in which the agency will seek to permanently halt the deceptive claims and force the company to give up its ill-gotten gains.

The case against DR Phone is part of an ongoing FTC effort to address deceptive advertising and marketing practices in the prepaid calling card industry, which sells billions of dollars worth of cards a year, many of them to immigrants who depend on them to call friends and family in other countries.

The FTC charged that DR Phone Communications scheme targeted immigrant communities. Using brand names such as “Beautiful Asia,” “Vietnam Best,” and “Pearls of Africa,” the cards were sold in convenience stores, groceries and kiosks across the country and on DR Phone’s website.

According to the FTC, marketing material – typically point-of-sale posters – displayed brightly colored text bubbles touting calling minutes to a particular destination with a card of specified amount – for example, “Philippines 70 min-per $5.” Large letters at the top of the posters claimed, “No Fees,” “No Connection Fee,” and “No Maintenance Fee.” Small print at the bottom of the posters made vague reference to fees without adequately disclosing what those fees would be. One disclosure simply stated “International calls made to cellular phones and calls via toll free numbers are billed at higher rate.” without adequately disclosing what those higher rates would be.

The FTC bought and tested 169 of the company’s cards. The FTC’s complaint alleged that 100 percent of the tested cards failed to deliver the number of minutes advertised. The worst performing card delivered less than one percent of the advertised minutes. On average, the 169 cards delivered only 40.42 percent of the advertised time.

The FTC charged that the deceptive claims about the calling minutes and the failure to adequately disclose additional fees and charges violate federal law. As part of an agreement between the defendants and the FTC, the court ordered a temporary halt to the illegal practices, pending trial.

Defendants named in the FTC complaint are DR Phone Communications, also doing business as Drphonecom.com, and David Rosenthal.

The Commission vote authorizing the staff to file the complaint was 4-1, with Commissioner J. Thomas Rosch voting no. It was filed in the U.S. District Court for the Northern District of California, San Francisco Division.

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 defendants have 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 2,000 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s website provides free information on a variety of consumer topics.  Like the FTC on Facebook, follow us on Twitter, and subscribe to press releases for the latest FTC news and resources.