We’ve been saying it for years: “What the headline giveth, the footnote cannot taketh away.” The same holds true for the dense block of text, the hidden-away reverse side, the vague hyperlink, or any other place the FTC has warned advertisers may not meet the standard for “clear and conspicuous” disclosure. A recent settlement involving long distance phone cards emphasizes what’s not so fine about fine print.
DR Phone Communications markets and sells prepaid phone cards. You’ve probably seen the cards for sale at convenience stores, grocery stores, and at kiosks displayed by other retailers. Eye-catching headlines like “Cheap Talk” or “1¢ Per Minute World” draw the buyer in and posters tout bargain per-minute rates to different countries. Not surprisingly, calling cards are a popular way for immigrants to keep in touch with family and friends overseas.
But according to the FTC, the cards delivered substantially less than met the eye. FTC staff bought samples of the cards over a 14-month period. (We just told you we were running down to the Kwik-E-Mart for a quart of milk and some OJ.) Of the 169 cards tested, how many delivered the advertised number of minutes? Zilch. Zippy. Bupkis. On average, the cards delivered only 40% of the minutes promised. 52 cards delivering less than 25% and 25 cards delivering next to nothing — less than 5% of the advertised minutes.
The stipulated order bars future material misrepresentations in connection with the marketing and sale of prepaid calling cards. It also requires clear and conspicuous disclosure of a bunch of material terms, including the existence of all fees and when they kick in; that the advertised minutes must be used all in one call, if that’s the case; any limit on when the advertised rates or minutes are available; and any expiration date.
If you’ve ever had questions about the relationship between the company selling a product and retailers or distributors, the settlement includes some provisions worth a second look. An interesting wrinkle in this case is that in certain instances, distributors buy cards in bulk from the defendants and then market them through an additional layer of sub-distributors and retailers. But no matter how complicated the business model or distribution scheme, the most important thing from the FTC’s perspective is that consumers have accurate information before they buy. That’s why the order sets up a comprehensive monitoring program that puts the onus on the defendants to make sure that promotional materials not in keeping with the order are pulled, regardless of who’s actually advertising and selling the cards. What if a retailer, carrier, or distributor refuses to comply? The order requires the defendants to cut ‘em off.
What about the talk minutes, rates, or additional charges assessed by telecom carriers? Under the order, the defendant must put procedures in place to make sure there are no additional charges imposed and that the talk minutes and rates are accurately disclosed to consumers for the period the card remains valid.