Watchdog warns on prepaid phone card fees

Buyers using prepaid phone cards to contact friends and family are being hit with sneaky fees, prompting a Commerce Commission clamp-down and a plea to read the fineprint.

The prepaid card industry is under scrutiny after two prosecutions and a string of complaints from people claiming they were mislead by deceptively cheap headline calling rates.

The popular cards allow people to pay in advance for local or international phone calls and are sold at supermarkets, dairies and online.

But hidden fees and surcharges can multiply the headline calling rates boldly displayed on posters and promotional materials.

One customer bought a $10 phone card made a single 62c call to the UK before daily fees ate the rest of the money.

The Commerce Commission today issued new guidelines for card makers, warning of big fines if costs were found to be misleading.

Dairies and other retailers could also be liable for displaying promotions for cards that did not comply, said Commerce Commission competition manager Stuart Wallace.

The most common complaint was that the number of calling minutes did not match the rate advertised or implied by the headline rates, said the watchdog.

Wallace said "nasty add-ons" remained a problem and advised people to shop around.

Late last year Compass Communications was convicted and fined $140,000 for misleading customers about the cost of using its cards.

The watchdog chalked up a similar win with a $100,000 fine against Australian-owned Tel.Pacific.

It then set about drafting explicit guidelines, said Wallace.

"We issued draft guidelines earlier in the year and then reworked them significantly after industry comment to bring in specific examples and make it crystal clear what was expected."

"We'd be looking at the companies creating the representations as the first trader we would approach." But retailers such as dairies could also be liable, he said.

The Commission said shoppers should beware of picking the card with the cheapest headline rate and "shop around and make sure they do read up on company's website as to terms and conditions. But the legal onus is on the company."

"Consumers should not have to carry out a mathematical exercise to work out which card offers the best rate."

"If companies use fine print to disclose fees and conditions that materially affect the headline rate, they are likely to breach the Fair Trading Act."

The commission started investigating prepaid phone cards in 2009 after complaints of dodgy marketing on both sides of the Tasman.

In the TelPacific case the Fair Trading Act breaches related to posters the company had placed in retail outlets advertising the cards which displayed in large print per minute calling rates, or the number of minutes of calling time.

But the fine print at the bottom of the posters showed additional costs and surcharges that would apply.

The cards were targeted at people who spoke English as a second language.

In sentencing, Judge Greg Davis said the way 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.

The Commerce Commission said the rates advertised were misleading because a caller could only avoid the additional fees if they made one continuous call until all the credit had been used up, such as a single 102 minute call to Fiji using a Hello Asia Pacific calling card, for example.