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.