Phone cards don't always deliver as advertised

NEW YORK (7/30/07)--Some providers in the $4 billion prepaid phone card business are under attack that their marketing tactics may short-change consumers (Business Week July 23).

Newark, N.J.-based IDT Corp. is charging that nine of its rivals are marketing 100-minute prepaid cards but delivering products that deliver only about 60% of the time. IDT Telecom estimates the practice may be costing consumers $1 million a day while cutting into IDT's sales.

Prepaid phone cards are particularly popular among new immigrants, older people, and other low-income consumers who are least able to afford conventional phone service.

They are used mostly by travelers, students and those without long-distance telephone service. Pre-paid phone cards are sold at many locations, including newsstands, post offices, travel agencies, retail stores, and grocery and convenience stores. Some are used as incentive giveaways.

Some pre-paid phone cards can be refilled, usually by charging the additional cost to your credit card. And some cards have features like speed dialing for frequently called numbers and an activity report of called numbers, which can be handy for business purposes. Hispanics may be particularly vulnerable to deceptive practices since many are unable to show the documentation needed for conventional phone service.

Of concern are unmentioned fees that may reduce the value of these cards, trimming off 10% to 20% or more of the minutes a consumer may buy. According to a 2005 study by Associate Prof. Julia Marlowe at the University of Georgia, typically connection, service and maintenance fees are hidden in the hard-to-read fine print on the back of phone cards. But there are often other undisclosed fees as well.

Already, three providers have settled out of court with IDT. Epana Networks, Dollar Phone and Locus Telecommunications denied any liability and made no payments, but they agreed to change their marketing messages.

Only 11 states have laws on calling cards. Most states rely on generic consumer protection regulations.

The Federal Trade Commission offers these tips (http://www.ftc.gov/bcp/conline/pubs/products/buytime.shtm:):

• Ask whether the retailer will stand behind the card if the telephone service is unsatisfactory.
• Look for the rate for domestic and international calls on the card's package or on the vending machine. These may vary, depending on where you call. If you can't find the rate, call the card's customer service number.
• Be cautious of very low rates, particularly for international calls, which may indicate poor customer service.
• Look for disclosures about surcharges, monthly fees, per-call access, and the like, in addition to the rate-per-minute or unit. Some cards add a surcharge to the first minute of use. Others charge an activation fee for recharging cards.
• Check the expiration date. Most cards expire one year after first use. If there is no expiration date, a card usually is considered "live" until all phone time is used.
• Look for a toll-free customer service number. If the customer service number isn't toll-free or displayed, it may be difficult to contact the company if you have a problem with the card. A repeated busy signal on the customer service line may be a tip-off to a rip-off.
• Be sure the card comes with instructions that you understand.
• Make sure the card comes in a sealed envelope or has a sticker covering the PIN.
• Otherwise, anyone who copies the PIN can use the phone time you've already paid for.
  Ask friends and relatives about their experiences with the card you're thinking of buying.

For more information about your recourse if you have phone card problems, read "State Consumer Protection Agencies Look Out for Your Best Interest" in Home & Family Finance Resource Center.

courtesy of cuna.org