District sues AT&T over unused portions of prepaid cards
Tuesday, January 5, 2010
The District of Columbia is suing telecommunications giant AT&T to redeem the unused balances on prepaid calling cards -- a lawsuit that could generate funds for the city and trigger legal claims in other jurisdictions and against other companies that sell prepaid calling cards.
Under the lawsuit filed last week in D.C. Superior Court, the city wants the card balances -- known in the industry as "breakage" -- to be treated as abandoned property that could be claimed by the District if unused after three years. The money would go into the city's general fund, not to consumers, Attorney General Peter Nickles said.
"Breakage is pure profit for calling-card companies," Nickles said, pointing to estimates that an unused portion of a card could be as much as 20 percent of a total card balance. "It is 20 percent, and you have thousands of people who have cards for years. AT&T knows who you are."
In an e-mail, Michael Coe, an AT&T spokesman, declined to comment. But industry insiders said Monday that the lawsuit could have national implications.
"You're talking about a lot of money," said Gene Retske, who worked for AT&T for 20 years and is now editor of Prepaid Press, a trade publication. "You buy a card for a trip. Your trip gets canceled. You throw it in drawer and just forget about it."
"In times when governments are hurting for money, I think they are going to seize on this," Retske added.
Several states have made similar successful claims on unused gift cards on behalf of consumers and their governments if they are never claimed by the owners. In the District, the council is considering legislation that would prohibit gift cards from expiring or incurring fees for four years.
Specific to calling cards, other jurisdictions have been looking into consumer protection issues, such as whether a company has adequately informed consumers of all charges and fees, industry experts said.
Nickles said he was inspired to sue AT&T by an unsuccessful lawsuit brought by Rep. Alan Grayson (D-Fla.) against AT&T, MCIWorld Communications, Sprint and Verizon Communications.
Grayson, the first president of telecommunications company IDT, sued the companies as an attorney practicing in the District in 2002. He called it a "whistleblower action" and claimed that they were defrauding city government by failing to report the unused calling cards as unclaimed property under law and sought to recover the money for the District.
In September, the Court of Appeals upheld a dismissal of the case because Grayson, who was elected in 2008, was not directly affected, according to court documents.
Nickles said he focused on AT&T because he has learned that the company has the last known addresses of the owners of the cards. "I'm going to add other carriers as I get information," he said.
Retske said the identification of owners could prove difficult, although some of AT&T's programs retain owners' addresses. "About 75 to 80 percent of the time, they don't have the address," he said. "If you go to the kiosk at [Reagan] National Airport, they don't know who you are."