Prepaid calling cards: Beware misleading call times and hidden fees

Prepaid calling card troublesDepending on who you ask, prepaid calling cards are either a tremendous rip-off or a fantastic money saver -- but based on an ongoing government crackdown against shady operators, lots of customers are getting far less than they paid for.

In 2007, the Federal Trade Commission created a joint federal-state task force to expose deceptive marketing practices in the prepaid calling card industry. The task force, which includes representatives from the Federal Communications Commission and more than 35 states, has successfully prosecuted a number of prepaid calling card operators and forced them to pay more $4 million to settle FTC charges.

In June 2009, Clifton Telecard Alliance One(CTA) agreed to pay $1.3 million to settle FTC charges that its prepaid cards provided less than half the advertised minutes, charged hidden fees, and failed to disclose that their customers would be charged regardless of whether their calls were actually connected. CTA cards, which are marketed to immigrants under names such as "African Dream" and "CTA Mexico," are sold through retailers, gas stations and convenience stores for $2 to $20.

In February of this year, a number of prepaid calling card companies including Alternatel, Voice Prepaid and Mystic Prepaid agreed to fork over $2.25 million to settle FTC charges they misled customers about the number of minutes on their prepaid calling cards -- only about half the advertised minutes, according to FTC testing. The companies targeted recent immigrants in Florida, Massachusetts, New Jersey, New Hampshire and Rhode Island who rely on inexpensive ($2 to $10) calling cards to stay in touch with family and friends in Latin America, Africa and elsewhere.

The cards also carried hidden fees (despite advertising that claimed "no connection fees"), including "hang-up" and "maintenance" fees, as well as "destination surcharges," that all but negated the value of the cards. These fees, the FTC said, were "disclosed" in tiny type and confusing terms all but incomprehensible in any language.

The ongoing crackdown's latest target was Diamond Phone Card, Inc., which in May agreed to pay $500,000 to settle FTC charges it significantly shorted customers for the number of advertised minutes. FTC testing once again showed Diamond's customers received only about half the advertised minutes on their calling cards. Diamond was also accused of disclosing maintenance and other hidden fees in nearly illegible print.

Like the other companies caught in the FTC's net, Diamond markets its cards to recent immigrants from Latin America, Africa and Asia, and the case included the assistance of authorities in El Salvador, Colombia, Egypt, Mexico, Panama and Peru. In addition to being barred from misleading customers about the talk time on their calling cards, Diamond is required to clearly disclose -- in the same language that they are marketed -- all fees associated with their 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," FTC Commissioners Edith Ramirez and Julie Brill said in a statement. "The time has come to give the FTC more powerful tools to tackle fraud in the prepaid calling card industry."

So what's a consumer to do? For one thing, make sure to read all the fine print -- and if you can't read or make sense of it, look for another provider. Searching for complaints about a company on the Web is always a good bet as well. Finally, the FCC created this useful fact sheet, Pre-Paid Phone Cards: What Consumers Should Know.

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