The Changing Landscape of Gift Card and Unclaimed Property Laws and Their Impact on Banks, Retailers and Consumers

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1 The Changing Landscape of Gift Card and Unclaimed Property Laws and Their Impact on Banks, Retailers and Consumers Tuesday, April 12, 2011 Robert Andalman Partner and Co-Chair, Litigation Department Emily Haus Associate, Litigation Department LOEB & LOEB LLP

2 Agenda Overview Federal law State laws Unclaimed property issues 3

3 Overview Federal law Credit Card Act and Federal Reserve regulations Expiration dates Service and dormancy fees Disclosures Relationship to state law State laws Expiration dates Service and dormancy fees Disclosures Distinction between store-issued and bank-issued cards Other requirements (cash balance, recording) Unclaimed property issues Identity of the holder Expiration dates and private escheats Third priority and the New Jersey law / court challenge Promotional or loyalty cards 4

4 Federal Law Credit Card Accountability, Responsibility and Disclosure Act of 2009 Effective date January 31, 2011 Federal Reserve regulations, 12 C.F.R

5 Federal Definitions (12 C.F.R ) Gift certificate means a card, code, or other device that is: Issued on a prepaid basis primarily for personal, family, or household purposes to a consumer in a specified amount that may not be increased or reloaded in exchange for payment; and Redeemable upon presentation at a single merchant or an affiliated group of merchants for goods or services. Store gift card means a card, code, or other device that is: Issued on a prepaid basis primarily for personal, family, or household purposes to a consumer in a specified amount, whether or not that amount may be increased or reloaded, in exchange for payment; and Redeemable upon presentation at a single merchant or an affiliated group of merchants for goods or services. General-use prepaid card means a card, code, or other device that is: Issued on a prepaid basis primarily for personal, family, or household purposes to a consumer in a specified amount, whether or not that amount may be increased or reloaded, in exchange for payment; and Redeemable upon presentation at multiple, unaffiliated merchants for goods or services, or usable at automated teller machines. 6

6 Federal Law Key Provisions Expiration dates Cards cannot expire earlier than 5 years after date of issue or last date on which funds were loaded onto the card Expiration date disclosures Expiration dates must be clearly disclosed If expiration of the funds and expiration of the card differ, this must be disclosed If funds do not expire until after card expires, must provide toll-free number (and website if available) where cardholders can obtain a replacement card Service fees Allowed if there has been no activity for 12 months and if properly disclosed and if only one fee is charged in any month Service fee disclosures Must clearly and conspicuously state if fee is charged, amount of such fee, how often fee is assessed, and that such fee may be assessed for inactivity 7

7 Federal Law Key Provisions (continued) Other fee disclosures For all other fees, card must disclose the type of fee, the amount of fee or an explanation of how the fee will be determined, and the conditions under which the fee will be imposed General disclosure requirements Disclosures must be made before purchase Disclosures must appear on the physical card concerning expiration date, fees (including amounts and conditions for imposition) and a tollfree number (and website address if available) to obtain information about fees and terms If a card is a promotional card, that must be disclosed on the front of the card Disclosures on accompanying documents, on packaging, or on a sticker or label affixed to the card do not suffice Relationship to state law Floor, not ceiling 8

8 State Laws Gift card statutes Unclaimed property statutes Consumer protection statutes Defining gift card Typical provisions Expiration dates May prohibit expiration dates, require that cards not expire before a certain time, and/or require disclosures about expiration dates CT and ME prohibit expiration dates on all cards NH prohibits expiration dates on cards with a balance of $100 or less CA, CO, FL, MN, MO, OR, RI, and WA prohibit expiration dates on certain types of gift cards 10

9 State Laws (continued) Typical provisions (continued) Dormancy and service fees CT prohibits all fees Some states limit fees - may limit amount of fee or when fee may be imposed Disclosures Content terms and conditions; expiration date; fees; changes to terms and conditions Timing of disclosure Format of disclosure Placement of disclosure Cash balances VT, CA, CO, MA, ME, MT and SC require cash redemption in certain circumstances Record keeping 11

10 State Laws (continued) Exemptions and exclusions for promotional and loyalty cards Expiration dates Fees Disclosures 12

11 Consumer Litigation Increase in putative consumer class actions relating to gift cards Legal theories Gift card statutes Unfair and deceptive practices statutes Other statutes NJ TCCWNA 13

12 State Unclaimed Property Statutes Overview of statutes Applicability to unused balance on gift cards States with inclusive language States with exclusive language Catch-all provision Key UCP issues that come up for gift cards Identity of the holder Expiration dates and private escheats Third priority and the New Jersey law / court challenge Promotional or loyalty cards 14

13 Identity of the Holder Uniform Unclaimed Property Act (1995) "Holder" means a person obligated to hold for the account of, or deliver or pay to, the owner property that is subject to this [Act]. Young America litigation Can holder liability be joint and several? 15

14 Expiration Dates and Private Escheats Uniform Unclaimed Property Act (1995), Section 19 The expiration, before or after the effective date of this [Act], of a period of limitation on the owner s right to receive or recover property, whether specified by contract, statute, or court order, does not preclude the property from being presumed abandoned or affect a duty to file a report or to pay or deliver or transfer property to the administrator as required by this [Act]. An action or proceeding may not be maintained by the administrator to enforce this [Act] in regard to the reporting, delivery, or payment of property more than 10 years after the holder specifically identified the property in a report filed with the administrator or gave express notice to the administrator of a dispute regarding the property. In the absence of such a report or other express notice, the period of limitation is tolled. The period of limitation is also tolled by the filing of a report that is fraudulent. 16

15 Third Priority and the New Jersey Law / Court Challenge Texas v. New Jersey Applicability in dispute between the holder and the single state Third priority rule 40 states Section 3(6) of 1981 Uniform Unclaimed Property Act and Section 4(6) of 1995 Act Nevada 17

16 Third Priority and the New Jersey Law / Court Challenge (continued) N.J. Stat. 46:30B-42.1 An issuer of a stored value card shall obtain the name and address of the purchaser or owner of each stored value card issued or sold and shall, at a minimum, maintain a record of the zip code of the owner or purchaser. If the issuer of a stored value card does not have the name and address of the purchaser or owner of the stored value card, the address of the owner or purchaser of the stored value card shall assume the address of the place where the stored value card was purchased or issued and shall be reported to New Jersey if the place of business where the stored value card was sold or issued is located in New Jersey. New Jersey Retail Merchants Association v. Sidamon-Eristoff The Gift Co. option 18

17 Promotional or Loyalty Cards Definitions Exchange for value Rebates 19

18 Federal Law Definition (12 C.F.R ) Loyalty, award, or promotional gift card means a card, code, or other device that: Is issued on a prepaid basis primarily for personal, family, or household purposes to a consumer in connection with a loyalty, award, or promotional program; Is redeemable upon presentation at one or more merchants for goods or services, or usable at automated teller machines; and Sets forth the following disclosures, as applicable: A statement indicating that the card, code, or other device is issued for loyalty, award, or promotional purposes, which must be included on the front of the card, code, or other device; The expiration date for the underlying funds, which must be included on the front of the card, code, or other device; The amount of any fees that may be imposed in connection with the card, code, or other device, and the conditions under which they may be imposed, which must be provided on or with the card, code, or other device; and A toll-free telephone number and, if one is maintained, a Web site, that a consumer may use to obtain fee information, which must be included on the card, code, or other device. 20

19 The Changing Landscape of Gift Card and Unclaimed Property Laws and Their Impact on Banks, Retailers and Consumers Tuesday, April 12, 2011 Robert Andalman Partner and Co-Chair, Litigation Department Emily Haus Associate, Litigation Department LOEB & LOEB LLP