Wednesday, April 11, 2012

New Jersey Issues (Misleading) "Real Story" on Gift Cards; Trade Group Counters With (Somewhat Misleading) Response

. . . and so it continues.  Those of you hoping for a relatively genteel, thoughtful and well balanced discourse concerning the relative merits and risks of New Jersey's 2010 gift card laws are sure to be disappointed.

When we last left the saga of New Jersey's 2010 gift card laws, three gift card retailers had pulled out of the state, citing an inability or unwillingness to ensure that it could comply with New Jersey's gift card rules.  For its part, the state responded with a press release wherein it purports to provide the "Real Story" with regard to the legislation, and provides some FAQs to address concerns.   Unfortunately, while the state purports to provide the "real story," the canned FAQs provided are quite misleading.  The primary problems with the state's press release fall into two main categories:

1.  Complete Silence on the Federal CARD Act -- In several places, the state's press release contends that "after two years of inactivity" (the state's dormancy period) the gift card issuers take gift card funds as "windfall profits."  In fact, in the FAQ section of the release, the state explicitly states that "[e]xcept in pro-consumer states like New Jersey, gift card issuers take unused consumer balances as windfall profits after two years."  Elsewhere in the release, the state suggests that in the absence of New Jersey's law, gift card issuers are entitled to charge "exorbitant" dormancy fees.

The problem with these statements is that they are generally not true.  In May of 2009, President Obama signed The Credit Card Accountability Responsibility and Disclosure Act of 2009 (the "CARD Act") into law.  Among other things, that law prohibits most gift card issuers from imposing an expiration date of less than five years on cards covered by the Act.  The Act also limits card issuers ability to impose dormancy fees and provides that no such fees can be charged during the first 12 months from issuance.  A copy of the law can be found here.  The Act applies to nearly all open-loop (useable anywhere), closed-loop (affiliated merchant) and store gift cards (single stores).  See Pub. Law 111-24 at Section 401-403.  Accordingly, as a matter of federal law, nearly all of the gift cards that are subject to the NJ act must be valid for no less than five years.  Thus, an argument can be made that consumers are actually more inconvenienced by New Jersey's attempt to reduce the period of inactivity by more than half.

2.  (Purposeful) Ambiguity on Consumers' Ability to Recover Funds From the State -- A much more significant problem with New Jersey's press release, is the implication express statement that "every penny the State holds in unused gift cards can be reclaimed by consumers -- forever."  Again, this is simply not true.  While the law permits card issuers to collect full name and address information at the time of purchase, it only requires card issuers to collect zip code information.  New Jersey explicitly states as much in the release:  "[i]n many cases, all that is required to be collected is the zip code."  While that fact is offered by the state to demonstrate that the information collection burden on card issuers is light, it also removes the foundation on which New Jersey's house of cards is based.  Specifically, if the issuer does not collect name and address information, the state does not have name and address information.  Without that information, quite obviously, the state can not consider or honor consumer reclaim requests.  Thus, that vast majority of escheated funds cannot and will not ever be reclaimed by consumers -- much less the "every penny" touted by the state.  While the state is posturing this law as a consumer protection issue, it is really just a revenue generating device.

In response to the press release, a trade group calling itself Gift Card Users Unite! has issued a press release in response to the State's "Real Story."  While most of the information in the press release (particularly about the CARD Act and New Jersey's utter failure to recognize the issuer's reasonable expectation of making some profit from gift card sales) is completely accurate, GCUU is likewise guilty of some *ahem* rhetorical excess.  Specifically, the GCUU press release goes out of its way to imply that the New Jersey law somehow prevents the sale of gift cards in New Jersey.  Specifically, the press release claims that "the result of [the law's zip code] requirement is that consumers will not be able to buy cards in thousands of New Jersey stores."  The GCUU's website is even more alarmist, asking consumers to "PROTECT YOUR RIGHT TO BUY GIFT CARDS!"

Sorry, GCUU.  The law, for all of its faults, does not do anything to prevent, restrict or eliminate gift card sales in New Jersey.  It does create procedural requirements that make issuers unwilling to change their systems and/or policies to comply with the law.  No doubt there is an administrative burden:  some issuers will choose to comply, some won't.  The law does not, however, do anything to limit or restrict the sales themselves.

2 comments:

  1. So a gift card issuer selling cards in NJ and following the law escheats unused funds to the State after two years but would have to continue to honor the use of the card under the federal law for an additional three years? That should certainly stop windfall profits at the card company level.

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