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Prepaid phone card company fined $100,000

Prepaid phone card company fined $100,000 for misleading posters

A company that misled consumers about what it would really cost them when they used their prepaid phone cards has been fined $100,000 in the Auckland District Court for breaches of the Fair Trading Act.

Tel.Pacific New Zealand Ltd pleaded guilty to 33 charges of breaching the Fair Trading Act through its marketing of five prepaid phone cards throughout New Zealand from November 2008 to March 2010. The cards were Hello Asia Pacific, Joy, Island Talk, Friends, and Hello India.

Posters advertising the cards prominently displayed per minute calling rates that users would be charged at, or the number of minutes of calling time available to users. The fine print at the bottom of the posters showed additional costs and surcharges that would apply. In practice, the advertised rates and/or number of minutes of calling time could only be achieved if the card holder made one continuous phone call until all credit was consumed. The additional costs disclosed in the fine print were found to have been inadequately disclosed in relation to the prominent per minute rates or available number of minutes, and an exchange rate levy was not disclosed at all. For example, some of the calling cards had a 20 cent daily service fee which applied once the card was first used.

In sentencing, Judge Davis said the way in which the posters were displayed in-store would make it difficult for even a discerning customer to understand that they wouldn’t receive the full benefit of the advertised minutes.

“Marketing material should clearly and prominently disclose the full cost of any product or service. Disclosing additional costs and conditions of use in the fine print is unlikely to prevent a breach of the Fair Trading Act. It is important that price representations to consumers are clear so that they can shop around for the most competitive service,” said Commerce Commission Competition branch manager, Stuart Wallace.

“Misleading promotions are a problem in the prepaid phone card industry internationally and there has been successful enforcement action taken against phone card companies in Australia, Canada and the United States. In New Zealand an educational seminar run by the Commission for the phone card industry addressed these issues as far back as 2004. In 2008, the Commission wrote to Tel.Pacific cautioning them about the way that they were marketing their ‘Hello’ branded prepaid cards,” he said.

“This successful prosecution demonstrates that the Commerce Commission will follow through with court action where traders continue to breach despite advice from the Commission.” Mr Wallace said.

Background
Tel.Pacific New Zealand Limited is a New Zealand registered company which sells 22 different brands of prepaid phone cards to New Zealand consumers through a network of 743 retailers mostly in Auckland, Hamilton, Wellington, Christchurch and Dunedin. The cards are available in preloaded denominations or face values of $10, $20 or $50. Consumers use the credit on the card to make local and international calls, to both fixed lines and mobile numbers.

The company advertises its products on posters in retail outlets. The posters represent that:
• the card would provide the purchaser with the advertised number of calling minutes to the advertised destinations, or
• calls made with the card to the advertised destinations would be charged at the advertised headline rates.

In fact the advertised number of minutes was only possible if the purchaser made one, continuous call until all credit was used, for example a single 102 minute call to Fiji using a Hello Asia Pacific calling card. If the purchaser tried to use the calling card more than once, then other charges would use the card’s credit and the 102 minutes of time would not be available.

The additional charges could include: daily service fees, surcharges incurred after an initial charging period, connection and disconnection fees and an exchange rate levy, among other charges.

The Commission considered it relevant that the phone cards were frequently targeted at migrants and international students, groups which, in many cases, were unlikely to speak English as a first language. This increased the likelihood of consumers being misled, because such groups were less likely to closely examine the terms and conditions in the fine print and to understand them,
if any consumers read and understood them at all.

In 2009 the Federal Court of Australia recorded the terms of a declaration and consent orders between Tel.Pacific’s Australian parent company, Tel.Pacific Limited and the Australian Competition and Consumer Commission addressing similar conduct in Australia that misrepresented the nature, benefits and value of some of its prepaid phone cards.

Fair Trading Act
Section 11 of the Fair Trading Act states:
No person shall, in trade, engage in conduct that is liable to mislead the public as to the nature, characteristics, suitability for a purpose, or quantity of services.

ENDS

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