A group of prepaid calling card companies will pay $2.25 million to settle charges by the Federal Trade Commission (FTC) that they misled customers about the number of minutes their cards contain.

It is the first big settlement in the FTC’s campaign to curtail deceptive marketing tactics in the sector. An FTC staff attorney said the agency is still pursuing a number of other similar cases, including one in litigation and several more under investigation.
"We're by no means done," the staff attorney said. "This is an issue of great concern to us because we know there is a significant problem in this industry with fraud."

Instances of fraud have grown with the market, which is now a multibillion-dollar industry in which cards are sold in grocery and convenience stores nationwide. Practices targeted by the FTC include weekly maintenance and other hidden fees that eat up minutes, or cards that bill in three- or four-minute blocks for calls that only take a few seconds.

The agreement reached last week settles a complaint filed last May against Alternatel Inc., Voice Prepaid Inc., and G.F.G. Enterprises LLC, as well as principals Nickolas Gulakos, Moses Greenfield, Lucas Friedlander, and Frank Wendorff.

According to the FTC, the defendants’ ads included a prominent claim that their 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 FTC said tests revealed that customers received just 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 defendants were also charged with targeting non-English-speaking immigrants with their misleading ads. Immigrants often rely on calling cards to talk to friends and family abroad.

The card companies did not acknowledge any wrongdoing as a part of the settlement.