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Apr 15, 2005

New York Considers Prepaid Telephony Bill
Maldonado Solicits Comments on Proposed Legislation

The New York State Legislature is considering a bill, Senate Bill 803 (see excerpt below), which would require distributors of long distance prepaid phone cards to escrow money in a federal depository account, until the cards are used. The purpose of the bill is to protect consumers by preventing carriers from getting the consumer’s money until the cards are used.
Attorney Edward Maldonado of Miami, Florida has written a letter to the chairman of the New York Senate committee on telecommunications voicing his concerns about the proposed legislation. In the letter, dated March 23rd, 2005, Maldonado says that the legislation may not help alleviate the problem for several reasons:

1. The Bill targets only distributors and does not consider the role of the other players, including the service provider. He points out that the distribution chain is not flat, but may have two, or more, layers. Requiring the distributor to escrow the money will disrupt the market economics. He points out that prepaid service providers must register with the New York PSC, but distributors do not, placing an undue burden on them.

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2. The Bill only addresses the hard card market, and not POSA. Maldonado thinks that this is not only unfair, but it also disregards the evolution of the marketplace to electronic PIN distribution.

3. The bill would alter the concepts used in the regulation of prepaid telephony cards, and force them to operate more like “stored value” products, which are different. As an example, Maldonado points out that stored value cards have a cash equivalent, which prepaid telephony cards do not. Prepaid calling cards represent discounted telephone services, not cash. Granting property rights or interests to users of prepaid telephony services would dramatically alter the nature of the business.
Maldonado, who was instrumental in the drafting of the Illinois “Phone Card Fraud Act,” offered his final thoughts on the proposed New York legislation, “The purpose this letter is to bring the concerns of the prepaid industry to your attention and open the avenue for industry participation. It is hoped that the points of concern and opposition presented here are not taken as pure criticism. They are instead an invitation to incorporate industry feedback into the legislative process so that a well-crafted and proper form of consumer protection may be enacted. I would be glad to discuss this matter further with your or your staff and bring phone card providers and distributors into the process. I am also encouraging distributors and prepaid phone card providers to write and express their interests and concerns in Senate Bill 803.”

Interested readers should send their comments to:

The Hon. Carl Kruger, Senator
608 Legislative Office Building
Albany, NY 12247

The Hon. The Hon. Jim Wright, Chairman
Senate Standing Committee on Energy and Telecommunications
Room 811 Legislative Office Building
Albany, NY 12247


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