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Prepaid Phone Cards Not The Bargain You Might Think

Prepaid phone cards may seen like the convenient and frugal way to place calls when other options are not available, but a slew of recent lawsuits launched by telecom communications companies themselves are claiming that the actual minutes available for calls on the cards are often much less than advertised.

The main accuser in the industry court fight is Newark-based IDT Corp. (IDT ), the largest player in the business, with total sales last year of $2.2 billion. In March its IDT Telecom unit filed suit against nine rivals, alleging that they market inexpensive cards that offer as many as 100 minutes apiece but deliver only about 60% of what they promise. IDT Telecom estimates that fraud by its competitors costs consumers more than $1 million a day and cuts into IDT’s sales. “What makes this insidious scheme especially abhorrent is that it preys on a repeated basis on vulnerable segments of the immigrant population, including the Hispanic community,” the IDT complaint alleges. “These guys belong in jail,” the company’s founder and chairman, Howard S. Jonas, adds in an interview.

In a sign that IDT is onto something, three of the nine have settled out of court, while the remaining six companies are fighting the charges. This is a 4-billion dollar a year industry, much of it apparently sucked from consumers in the form of charges and fraud. There’s little in the way of state regulations, generic consumer protection doesn’t apply to the cards, and the current administration’s FCC… well, let’s just say they aren’t getting all Naderish over it.

If you can avoid these cards, we recommend you do so until some form of oversight exists that regulate them fairly, state to state. If you can’t avoid them, read the fine print carefully and know what you’re paying for.


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