New York – A group of prepaid calling card companies have agreed to pay a $2.25 million to settle a civil suit brought by the Federal Trade Commission, the first major settlement in the government’s effort to curb deceptive marketing tactics in the industry.
The FTC charged the companies with misleading customers about the number of minutes their cards provide, a practice consumer watchdog groups say is rampant.
Janis Kestenbaum, a staff attorney with the FTC’s bureau of consumer protection, said the agency has similar cases lined up, including one in litigation and several more under investigation.
“We’re by no means done,” Kestenbaum said. “This is an issue of great concern to us because we know there is a significant problem in this industry with fraud.”
Government officials and consumer advocates say unscrupulous card companies lure buyers with hidden fees that eat up their minutes — weekly maintenance fees, for instance, or cards that bill in three- or four-minute blocks for calls that only take a few seconds.
Instances of fraud have emerged as the industry ballooned in recent years into a multibillion-dollar market, with cards appearing in super markets and convenience stores across the country.
The companies involved in the case settled Tuesday were also accused of targeting non-English speaking immigrants with their deceptive advertising. Recent immigrants often depend on calling cards to communicate with friends and family outside the country.
The FTC said the companies claimed prominently in their ads that the cards had no connection charges, while disclosing “hang-up” fees and “destination surcharges” only in fine print and in “terms that were incomprehensible in any language.”
The agency said their tests showed customers got only about half the amount of calling time advertised. The cards retailed for $2 to $10 at stores in Florida, Massachusetts, New Jersey, New Hampshire and Rhode Island.
The card companies did not have to acknowledge any wrongdoing as a part of the settlement but agreed to a court order barring them from misrepresenting the number of minutes on their cards.
The suit was filed in May against Pembroke Pines, Fla.-based Alternatel Inc., Medford, Mass.-based Voice Prepaid Inc. and G.F.G. Enterprises LLC, based in Hoboken, N.J. Kestenbaum said the companies are set up as separate corporations but have overlapping ownership and officers.
Listed as principals in the case were Nickolas Gulakos, Moses Greenfield, Lucas Friedlander and Frank Wendorff.
Lawyers for the men did not immediately return calls for comment Tuesday. A person reached at Alternatel, who declined to give his name, said the company had no comment. A call placed to Voice Prepaid was not immediately returned Tuesday and an e-mail to Friedlander, listed as chief operating officer of Mystic Prepaid, a business of G.F.G. Enterprises LLC, was not returned.