Monday, June 25, 2012

Breaking News: New Jersey Legislature Passes Gift Card Bill, Legislation Headed to Governor (Updated)

We continue the seemingly never ending saga of New Jersey's 2010 gift card legislation.  A brief recap:  In July, 2010 New Jersey passed Assembly Bill 3002, which, among other things, applied the state's Unclaimed Property Act to gift cards (using a 2 year dormancy period), reduced the dormancy period for travelers' checks from 15 years to 3 years, and reduced the dormancy period for money orders from 7 years to 3 years.  In addition, the legislation provided that all gift cards, even those for the purchase of merchandise only, would escheat to the state at full face value (the "Face Value Requirement"), required all gift card issuers to collect at least zip code information from the gift card purchasers (the "Zip Code Requirement"), and provided that in the absence of such zip code information, it would be presumed that all gift cards sold in New Jersey were sold to New Jersey residents (the "Location Presumption").  Got all that?  Good.  Sadly, were not even close to being done with the summary.

Unhappy with several parts of the legislation, gift card issuers, money order transmitters, and travelers' check sellers sued the state to challenge the new law.  Specifically, opponents of the legislation challenged New Jersey's authority to shorten money order and travelers' check dormancy periods, to apply the Unclaimed Property Act to gift cards, and to enforce the Face Value Requirement, the Zip Code Requirement, and the Location Presumption (more details here).  Initially, a federal court in New Jersey entered an injunction temporarily prohibiting the state from retroactively enforcing the Face Value Requirement or the Location Presumption.  The court declined, however, to prevent application of the 2 year dormancy period for gift cards or the shortened dormancy periods for money orders and travelers' checks.  Still there?  Great.  Still not done.

Ultimately, the lower court's decision was appealed to the U.S. Court of Appeals for the Third Circuit in Philadelphia.  That court ultimately upheld most of the lower court's decision.  Specifically the Court of Appeals held that, as a preliminary matter, the gift card issuers challenging the law had shown that they are likely to succeed on their claim that the retroactive Face Value Requirement unconstitutionally interfered with the sellers' contract rights and reasonable expectation of making a profit (because generally retailers do not sell $50 worth of merchandise for $50; there is usually a profit margin). The Court also ruled that the Location Presumption was invalid (and thus could not be enforced) because of the Supreme Court's decision in Texas v. New Jersey.  Thus, cards sold in New Jersey without name and address (more on that later) are still escheatable to the holder's state of incorporation.  At the same time, the Court ruled in favor of New Jersey on two fronts.  First, the Court ruled that the 2 year dormancy period itself was permissible.  Moreover, the Court held that the law's requirement that sellers collect name and address information (or at least zip code info) from the purchaser is constitutional.  Hello?  Still getting the story up to speed.  We're almost at the new stuff.  Really.

While all this legal wrangling was going on, the legislature was also at work trying to improve, amend (or completely undo) the previous legislation.  Industry also got into the act.  In particular, several gift card issuers pulled their products from the shelves in New Jersey, citing an inability or unwillingness to comply with the challenged legislation (including particularly the requirement to collect zip code information for every transaction).

This, in turn, also fomented a public relations battle between the gift card industry and the state.  Basically, the state argued that the gift card retailers were greedy corporate oligarchs bent on stealing innocent citizens' funds with gift cards designed to suddenly dematerialze without warning.  For their part, the gift card retailers essentially argued that New Jersey wanted to outlaw gift cards entirely, through stiff criminal penalties, up to life imprisonment, for persons caught using, possessing, or even thinking about gift cards.  (Editor's note:  This is, perhaps, not a completely accurate recitation of each sides' respective position, though that seemed to be the gist of it).

ANYWAY:  Earlier this year, the New Jersey Assembly passed a bill that would effectively undo the 2010 legislation, by removing stored value cards from the scope of the New Jersey Unclaimed Property Act, and (re)extending the dormancy periods for money orders and travelers' checks back to 7 and 15 years, respectively.  That bill then went to the State Senate for consideration.  Earlier today, the State Senate took action with respect to the 2010 gift card legislation.  Given the twists and turns thus far, what do you think that the State Senate did?
A.  Passed the Assembly Legislation As Is
B.  Passed the Assembly Legislation With Some Minor Changes
C.  Voted Down the Assembly Legislation; Gift Card Laws to Remain As Is
D.  None of the above
Congratulate yourself if you chose "D."  According to the Newark Star-Ledger, the State Senate unanimously passed Senate Bill 1928.  This bill extends the dormancy period for stored value cards to 5 years (up from the current 2) and provides that retail gift cards are escheatable at 60% of the face value (thereby giving retailers the benefit of some profit margin).  The bill also requires issuers to redeem cards in cash if there is a balance of less than $5.  This bill will now (presumably) be considered by the State Assembly.

UPDATED 6/26/2012:  The Assembly passed the same bill later on the evening of June 25.  The bill now goes to the Governor for signature.



Finder's Fees and Unclaimed Property

Last week, a variety of news sources in Ohio reported that the Ohio Department of Commerce (the government entity responsible for the Buckeye State's unclaimed property program) issued a "cease and desist" order to a company that was allegedly charging Ohioans for unclaimed property claim forms.  In addition, the claim section of Ohio's "Treasure Hunt" website has been revised to display a prominent disclaimer at the top:
A Claimant may file a claim WITHOUT the assistance of a paid professional finder.
 The website has also been revised to bar unclaimed property "finder" firms from printing claim forms from the Department of Commerce's website.  Apparently, these finder firms operated by searching for and printing claim forms from Ohio's website (a free service provided by the Department) and then "selling" those (free) forms to the individuals identified. 

While the relevant section of the Ohio Unclaimed Property Act does not, strictly speaking prohibit private "finder" firms from charging a fee to assist private citizens with the recovery of unclaimed property from the Department of Commerce, it does strictly limit such activities.  For example, the Act provides that no agreement to assist with claiming property is valid within the first 2 years after the property has been reported to the state, and the "finder fee" must be registered with the state.  In addition, the law has a number of disclosure requirements that specify certain terms that must be in the finder contract.

While we often write about the state's interest in using "unclaimed funds" that it holds to balance budgets and make expenditures, it should perhaps come as no surprise that a number of private parties are also looking to grab a piece of the pie.  Agreements with so-called "finder firms" are allowed in many states, pursuant to which the finder agrees to assist a claimant with obtaining his or her money from the state in exchange for a percentage fee.  Indeed, in Escheatable's home state of New Jersey, the Unclaimed Property Act allows for a fee of up to 35% of the value of the property.  (see N.J.S.A. 46:30B-106).

Of course, states generally charge no fees for searching, claiming and receiving unclaimed property that they hold for the benefit of the rightful owner.  That does not mean that all finder firms are shady -- indeed, there are a variety of situations where most of us will gladly pay another to provide a service that we don't have the time, patience or expertise to do ourselves -- but it does mean that a consumer should only enter into such an agreement if he or she understands exactly what he or she is paying for.  In the case of unclaimed funds, a finder fee firms (might) provide you with expertise or time (i.e., the they will deal with the the claim process so you don't have to).  They are NOT, however, providing you with access to the money; the money is yours.  The finder is not "giving" you anything; the relationship is more akin to letting the finder firm mine for gold on land that you own; except, of course, in the case of unclaimed property there are two important caveats:

1.  First, if the finder is contacting you, there's money being held for you (in other words, there is likely something of value on your land in our mining example);

2.  Second, and more saliently, what is backbreaking and dangerous work in our mining example is usually just filling out a form and sending it to the state.

Everyone is free to spend their time and money how they wish, and everyone has their own individual balance.  Just know what you are paying for.  In the case of unclaimed funds and finder firms, it is (maybe) time and expertise, not access, that you are buying.

Tuesday, June 12, 2012

Michigan "B2B" Exemption Passes

More than a year ago we mentioned that Michigan was considering House Bill 4563, which would add a business-to-business exemption to the Michigan Unclaimed Property Act.  That legislation was finally enacted (effective immediately) about two weeks ago.  The text of the legislation provides, in relevant part, that:
Except with respect to property described in sections 7 and 17, this act does not apply to any credit balances, overpayments, deposits, refunds, discounts, rebates, credit memos, or unidentified remittances created on or after April 1, 2009 and issued, held, due, or owing in any transactions between 2 or more associations. This exemption does not apply to outstanding checks, drafts, or other similar instruments.
 The references to "sections 7 and 17" refers to those sections of the Michigan Unclaimed Property Act relating to bank deposits and safe deposit box items, respectively.  While the legislation is effective immediately, by its terms, the exemption only applies to items "created on or after April 1, 2009."  In other words, property that is reportable starting with next year's report.

Monday, June 11, 2012

Lost & Found: New Jersey Gift Card Editorials, Missouri Breaks Records, South Carolina Returns Money to Lawmakers, West Virginia Treasuer Honored


Editorial on New Jersey Gift Card Law -- Last week, we posted an update concerning the New Jersey legislature's efforts to repeal the Garden State's 2010 gift card legislation.  Recently, the Times of Trenton, NJ published an editorial strongly in favor of repealing New Jersey's gift card law.  While the Times editorial board commended the state's efforts to ban dormancy fees and expiration dates, it nonetheless argued that "[t]he state should not be poised like a vulture over these purchases, counting on a recipient’s forgetfulness to help patch budget holes."  The full editorial can be found at the Times of Trenton website here.

Even Some Lawmakers Unaware of Unclaimed Property Laws -- Charleston, SC NBC Affiliate WCBD recently reported that South Carolina State Treasurer Curtis Loftis (who was a recent participant in our "Meet Your Escheator" feature) announced that at least 23 South Carolina legislators were owed unclaimed money by the state.  Thanks to the efforts of Treasurer Loftis, that number is likely to get whittled down.  According to an article published on SCNow.com at least one legislator has already begun the reclaim process.

Missouri Breaks Unclaimed Property Reunification Record (Again) -- According to an article in the St. James Leader-Journal, Missouri State Treasurer Clint Zweifel recently announced that, for the third time in a row, the state has broken the record for the largest amount of money returned from the unclaimed property fund for the fiscal year (with a few weeks remaining).  This year, Missouri has returned more than $36.5 million.  Of course, as regular readers may recall that large amount was helped a great deal by the fact that just a few months ago, Missouri paid out the largest single unclaimed property claim ever (of more than $6 million).

West Virginia Treasurer Given Lifetime Achievement Award -- The National Association of Unclaimed Property Administrators, an organization representing the interests of state unclaimed property departments, recently honored West Virginia Treasurer John Purdue with a lifetime achievement award to recognize him for his efforts to return unclaimed property to West Virginians.  According to an article in the Charleston (WV) Gazette, Treasurer Pursue has overseen the return of more than $100 million since West Virginia's unclaimed property law was modernized in 1996.