What the headline giveth

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If you work in the telecommunications field, you’ll want to follow the FTC’s pending lawsuit against Millennium Telecard. But even if telecom isn’t your line, the case illustrates a key principle of FTC advertising law: “What the headline giveth, the fine print cannot taketh away.”

Lots of people appreciate the convenience of prepaid phone cards, but to members of the immigrant community, they can be a vital link to family outside the U.S. Defendants in the FTC action sell phone cards under dozens of brand names, many of which echo an international theme: “Africa Magic,” “Asia Express,” “Hola Amigo,” and “Viva Ecuador,” to name a few.

The defendants advertised their cards on radio and TV, in newspapers, and online. The FTC alleged that the ads typically offered no disclosures — or only vague statements — about additional fees and charges that ate into the card’s value.

In addition, the cards were available at grocery and convenience stores, newsstands, and other retail establishments. Point-of-purchase posters typically touted the name of a country and how much talk time a buyer would get using a card of a particular dollar amount. For example, one poster claimed in large, colorful print that a $2 card would buy 44 minutes of talk time to a landline in Guatemala.

However, don’t settle in for a long chat with a friend in Tegucigalpa just yet because here’s what the fine print said at the bottom of some posters:

  • PROMPTED MINUTES ARE AVAILABLE WHEN USED ON A SINGLE CALL PLACED ONLY FROM A LOCAL ACCESS NUMBER. At the end of each connected call, all of the following fees CAN REDUCE the number of available minutes remaining as well as the value of the card: (1) a post call duration charge of up to $0.49; (2) a maximum service fee of $0.05 per minute (in addition to the base rate per minute). In addition, the following fees will ALSO REDUCE the number of available minutes, as well as the value of the card: (1) a $0.79 fee applied on the first day of use and every 7 days thereafter; (2) a $0.02 additional fee per minute applied to calls made via toll free access numbers and/or $0.99 additional fee when using the toll free access from a payphone. Minutes and/or seconds are billed in three minute increments. Please call our customer service number at 1-800-479-9352 for updates on our current rates. Cards have no cash value and are not returnable or exchangeable. Card expires three (3) months after first use. The prepaid calling service provider is SCT and their twenty four (24) hour customer service number is 1-800-479-9352. NOTE THAT different per minute rates, charges or fees may apply to calls to and from international telephone numbers, international cellular and international wireless telephone numbers.

Having trouble taking all that in? Try grasping the material details while reading them off a convenience store wall. Similar information was often included on the pieces of cardboard to which the phone cards were attached, but since they were about the size of a credit card, the FTC alleges they were virtually unreadable.

So what does the fine print boil down to in dollars-and-cents terms? In this example, in addition to the base rate per minute, users will be docked a “post call duration charge of up to $0.49,” a “maximum service fee” of a nickel a minute, a $0.79 fee on the first day of use and every seven days thereafter, a $0.02 per minute fee for calls made via a toll-free access number, and a $0.99 fee for calls from a pay phone.

Although the text differed slightly from promotion to promotion, there was one constant: Buyers received substantially less than they bargained for. According to the FTC, in 141 tests conducted between August 2010 and March 2011, the cards delivered an average of only 45% of the advertised minutes. Of the 141 tested cards, 139 failed to deliver the number of minutes advertised on the point-of-sale posters. Thirty of the tested cards delivered less than 25% of the advertised minutes, and 9 cards delivered less than 10%. The worst card delivered no minutes at all.

What about that $2 card that promised 44 minutes to a landline in Guatemala? According to the FTC, it cut off after 18 minutes and 27 seconds.

The case remains pending and a federal judge in New Jersey has ordered a temporary halt to the defendants’ deceptive advertising claims.

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