Washington D.C. is suing AT&T for the unused minutes on consumers' old calling cards -- a novel approach to generating revenue that, if successful, could catch on in other cities and states.
The suit, filed last week by D.C. Attorney General Peter Nickles, says that the balance of cards older than three years is essentially abandoned property that should be turned over to the city. Nickles told the Washington Post that, under the current system, any unused balance (or "breakage") "is pure profit for calling-card companies."
Nickles' assertions, if successful, would allow the city to collect up to 20 percent of the minutes on thousands of calling cards.
If Nickles prevails, the money will go to the city's general fund, not to its citizens. Like most cities and states, D.C. is hurting as a result of the prolonged economic recession. In July 2009, Mayor Adrian Fenty announced that the city would be forced to use emergency cash reserves to help close a $666 million two-year budget gap.
Nickles' suit is based on the long-standing legal concept of escheat. Under common property law, abandoned or unclaimed property typically reverts, or escheats, to the state. The rule exists to ensure that ownerless property is put to use.
A common escheat scenario occurs when a landowner dies without a will and has no surviving spouse, descendants, or ancestors. In this situation, his property will escheat to the state, which can either use or sell it.
Critics claim that gift and calling cards were created solely because unused balances revert to the seller after a given amount of time. The Senate has taken action to curb that trend with regard to gift cards.
The Fair Gift Card Act of 2009, introduced by Senator Charles Schumer of New York, would require gift cards to remain active for at least five years, giving consumers an ample chance to use up their balance before the retailers snatch it back. The bill also sets more stringent regulations on fees that punish consumers for not using their cards soon enough.
According to Schumer's Web site, studies show that at least 27 percent of gift cards go unused, in part due to early expiration dates and excessive fees and penalties.
Nickles' argument, while creative, has been made before. In 2002, attorney Alan Grayson brought a similar suit against AT&T, MCI, Sprint, and Verizon. Grayson's action, brought on behalf of D.C., said that the companies' failure to report the unused minutes on calling cards constituted fraud on the city.
Grayson, now an outspoken Democratic congressman from Florida's Eighth District, saw his suit dismissed by the Court of Appeals in 2008 for lack of standing.
