FTC BringsThird Prepaid Card Case This Year

The Federal Trade Commission has sued Diamond Phone Card and two individuals for allegedly(1) misrepresenting the number of minutes provided by the cards and (2) failing to disclose adequately the effect of fees on the number of minutes available. Federal Trade Commission v. Diamond Phone Card, Inc. (U.S.E.D.N.Y. No. 09-3257). The Complaint asks for a permanent injunction to prevent future violations, refunds and restitution for consumers, and the agency’s costs of investigation.

This case was announced on August 5, and follows the FTC’s June settlement with Clifton Telecard Alliance (paid $1.3 million) and the February settlement with Alternatel and Mystic Prepaid (paid $2.25 million). All three cases have been brought against card distributors, not telecom carriers, in deference to the ​“common carrier” exclusion from the FTC’s enforcement jurisdiction. Diamond Phone is based in the New York City area. The FTC News Release announcing the suit thanked authorities in El Salvador, Colombia, Egypt, Mexico, Panama and Peru for their help in investigating the case. The news release and a link to the Complaint can be found here.

It is noteworthy that the Diamond Phone cards included written disclosures on their posters and on the cards themselves, as described in the FTC Complaint. Diamond also had voice prompts. However, the FTC lawsuit alleges the disclosures are inadequate because they are too small (10 point font on posters), are too separated from the larger rate claims (at the bottom of the poster) and were too vague (“connection fee may apply”). The disclosures on the cards themselves were said to be in 5 point font that is ​“nearly impossible to read” and appear on a portion of the card which is below a perforation and discardable. The FTC said it tested several cards and the initial prompts stated different numbers of minutes than that stated on the cards and posters, and that even those minutes were not actually delivered. For example, the FTC said that a 50 minute card initially prompted 37 minutes and then delivered only 20 minutes in a single call. Another card was said to be for 400 minutes to Mexico, but prompted 391 minutes and delivered only 106 minutes in a series of five calls of about 20 minutes each.