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Post date: April 12 2001

Pre-paid Phone Card Sweep Cleans Up Deceptive Posters

Attorney General Spitzer today announced settlements with five companies accused of deceptively marketing pre-paid telephone cards throughout upstate New York.

Two telecommunications companies, Radiant Telecom, Inc. and GTS Pre-Paid, Inc. and three distribution companies, Americard Systems, Inc., Finkle Distributors, Inc., and Robert Priore doing business as Telecard Dispensing of Western New York, were accused of luring people to buy the cards by promising extremely low per-minute rates without properly disclosing actual costs.

"The goal of this sweep is to rid stores of these deceptive posters that lure unknowing consumers to purchase pre-paid calling cards thinking that their calls will cost only pennies a minute," Spitzer said. "This sweep sends a strong message to the telecommunications industry that deceptive claims that trick consumers into bad purchasing decisions will not be tolerated."

Spitzer's office raised concerns that posters in many retail outlets selling pre-paid phone cards advertise per-minute rates as low as 1.9 cents per minute without clearly disclosing significant fees that greatly increase the rates.

For example, one poster claims that calls cost only 1.9 cents per minute and that $5 would buy 237 minutes of air time. In fact, each call is charged a 48 cents connection fee and a 49 cents surcharge if made from a pay phone. Although not specifically disclosed, each call also is subject to a 20 percent surcharge labeled "applicable taxes" (examples of posters attached).

Thus, a single one minute call actually costs $1.19, allowing the consumer to make only four one-minute calls on a $5 pre-paid phone card.

The settlements bar poster advertisements that highlight the number of minutes on the card if that number is based on one single continuous phone call. Instead, posters and other advertisements must state fees and surcharge information prominently with any stated per minute rate.

The companies also agreed to pay a total of $13,500 for the costs of the investigation.

This sweep represents the on-going efforts of the Attorney General's office at combating deceptive practices in the pre-paid phone card business. In the past three years, settlements have been signed with Trans-Asian Communications, Inc. of New York City and Televend, Inc. of Oneida County regarding deceptive signs in supermarkets and convenience store windows. In 1999, Spitzer's office also settled a case with California-based Destiny Telecomm International, Inc. for an illegal phone card promotion involving a pyramid scheme. The Attorney General's investigation of companies that deceptively market pre-paid phone cards is a continuing one.

While recognizing that many pre-paid phone cards offer convenience and a reasonable alternative to more expensive collect calls, Spitzer offered tips to consumers to help them make good purchasing decisions.

Individuals with complaints about their pre-paid phone cards are encouraged to contact the Attorney General's consumer help line at (800) 771-7755.

This case was handled by James Morrissey of the Buffalo Regional Office.