Category: gift cards

On Second (or Third) Thought, Nevermind — NJ Eliminates Gift Card Data Collection Requirement

Perhaps we can now tie a bow on the long-running New Jersey gift card saga.  First, a brief refresher:

In 2012, Governor Christie signed Senate Bill 1928 into law, which revised New Jersey’s 2010 gift card legislation.  Briefly, the bill extended the dormancy period for gift cards from 2 years to 5 years, and delayed implementation of a requirement that retailers obtain zip code information at the point of sale for 4 years.  While many gift card issuers applauded the amendments, not everyone was happy.  In particular,  the some holders and gift card issuers favored legislation that would remove gift cards from the New Jersey unclaimed property act entirely or, at least, to eliminate the zip code collection requirement.  As a NJ BIZ article recounts, however, repealing legislation got watered down on the State House floor.

After more than 2 years of legislative wrangling, the issuer and holder communities got (at least part of) what they were looking for.  On February 5, Governor Christie signed Senate Bill 2235 into law.  The law eliminates the provision of the New Jersey Unclaimed Property Act previously scheduled to come into force in 2016, requiring card sellers to obtain zip code information at the point of sale.

Friday Lost + Found: Kenya Delays, Steel City Funds, Colorado Small Business Exemption

Kenyan Unclaimed Assets Authority Ordered to Get to Work and Consider How to Use Funds — The full scale implementation of a Uniform Act style unclaimed property act is apparently still slow going in Kenya.  According to Kenya’s Standard Digital News website, the Unclaimed Financial Assets Authority — the government entity created by the new law — has been ordered by the High Court to hold its initial meeting and commence work.  This is after earlier delays caused by problems in finding members for the Authority.  Separately, Business Daily Africa is reporting that Kenya’s Higher Education Loans Board is negotiating with the UFAA to see if the funds taken in under the unclaimed property act can be used to fund certain higher education expenses, similar to what is done in some U.S. states.

Pittsburgh Unclaimed Funds — As we’ve mentioned a few times, cities are also often in possession of unclaimed funds for their residents.  Recently, WPXI in Pittsburgh posted an article that includes a listing of unclaimed property held by the Steel City for its residents.

Colorado Gift Card Exemption For Small Issuers — On March 15, Colorado’s Governor signed House Bill 13-1102 into law.  The law exempts from the Colorado Unclaimed Property Act unclaimed gift cards held by an issuer that sells less than $200,000 of gift cards per year.

 

5Ws: CFPB to Review State Gift Card Laws

As has been widely noted, the federal Consumer Financial Protection Bureau, which was set up as part of 2010’s Dodd-Frank Act, is looking into State unclaimed property laws relating to get cards.  Here is the who, what, where, when and why:

Who?  The Consumer Financial Protection Bureau, which opened its doors in 2011, and was created by the 2010 Dodd-Frank Act.  The CFPB is a federal agency which is primarily responsible for (as the name suggests) consumer protection, financial education, and rulemaking relating to consumer finance activities.

What?  According to a press release issued by the agency, the CFPB wants to evaluate whether certain state unclaimed property laws relating to get cards are inconsistent with federal law. Specifically, pursuant to the Credit CARD Act of 2009, most gift and stored value cards are required to be free from expiration for at least 5 years.  In some states, however, the dormancy period for gift cards is a shorter period of 2 to 3 years (i.e., after 2 years, the issuer of the card is no longer obligated to honor it, so long as the amount is escheated to the state).

Where?  According to the CFPB’s public notice of potential rule making, the agency is specifically concerned with the gift card provisions contained in the Maine and Tennessee Unclaimed Property Acts.  In each of these states, stored value cards are generally deemed abandoned (that is, are subject to being reported and remitted to the state) in two years.

When?  The CFPB is currently soliciting comments from the public before making its decision.  Interested parties can submit comments for consideration within 60 days from the publication of the CFPB’s notice.

Why?  The CFPB’s inquiry underscores the fundamentally different viewpoints of the state and federal agencies when it comes to determining what is in the consumer’s best interests. The state unclaimed property agencies are primarily concerned with taking custody of apparently unused funds as quickly as possible, under the presumption that by taking custody of the property quickly, they increase the likelihood that the consumer will eventually reclaim the funds for the state.

The CFPB, on the other hand, is primarily concerned with making sure that the in the consumer’s gift card funds remain valid in the first place. The federal agency would presumably contend that anything which keeps the card active for a longer period of time serves the consumer best.

Here We Go Again

Just when you thought it was safe to escheat gift cards in New Jersey . . . .

As you may know, New Jersey recently revised its unclaimed property laws relating to gift cards.  In particular, the new legislation provides that retailers generally only have to escheat 60% of the face value of unclaimed gift cards, applies a dormancy period of five years for those items (up from two), and delays enactment of a requirement that card sellers obtain purchaser address information for five years.  That new law settled the long running legislative, judicial, and public relations battles concerning the Garden State’s attempts to bring unused gift cards into the scope of the state unclaimed property act.

Or did it?  On July 30, New Jersey Assemblyman Paul D. Moriarty, chairman of the Assembly Consumer Affairs committee, introduced Assembly Bill 3189, which would completely remove stored value cards from the scope of the NJ Unclaimed Property Act.  As reported previously by NJ Biz, Assemblyman Moriarty was the original sponsor of the legislation that became the recently passed, Senate Bill 1928, but he voted against the legislation after changes significantly altered the form of the bill (the original version of the bill was more akin to the newly introduced AB 3189).  Inasmuch as Assemblyman Moriarty was the only legislator to vote against Senate Bill 1928, this legislation might be a long shot.  Either way, the story is not quite over yet.

New Jersey Gift Card Legislation Passes

According to Escheatable’s contacts in the New Jersey State Government (read: the Internet) Governor Christie signed Senate Bill 1928 into law.  While it did not go as far as many hoped it would (by, for example, repealing all references to gift cards in New Jersey’s unclaimed property law) it does provide some regulatory relief for gift card issuers.  In particular, this bill:

  • extends the dormancy period for stored value cards to 5 years (up from the current 2);
  • restricts the application of expiration dates and dormancy fees; 
  •  provides that retail gift cards are escheatable at 60% of the face value (thereby giving retailers the benefit of some profit margin).  Note that this does not apply to “general purpose” cards as defined in the legislation;  and
  • requires issuers to redeem cards in cash if there is a balance of less than $5

The full text of the legislation can be found here.  While the gift card industry’s response to the bill is yet to be seen, already gift card provider InComm has announced that it will return to New Jersey.  The issuer previously left the state in April, citing the requirements of the unclaimed property law.

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.

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.

New Jersey Gift Card Repeal Legislation Continues Progress

When we last left the New Jersey Gift Card Saga, the New Jersey State Assembly had passed a bill that would effectively undo the 2010 gift card legislation by removing “stored value cards” from the scope of New Jersey’s Unclaimed Property Act.  In addition, the proposed legislation would (re)extend the dormancy periods for travelers’ checks and money orders to 15 and 7 years, respectively. 

After passing the Assembly, the bill was forwarded to the State Senate, where it was referred to the budget committee.  Recently, the Senate Budget Committee likewise passed the bill.  Just in case you were wondering, it is unlikely that the Governor will support the bill (although that will not necessarily stop it from passing).  Earlier last month, the Governor told a group of reporters that if “If they [the gift card issuers] want to move out, move out. It’s their call.”  We will continue to follow the legislation.

NJ Legislative Research Office: Gift Cards Worth $20-$25 Million Per Year to State

In connection with NJ Assembly Bill 1871, which would reverse the changes made in 2010 to New Jersey’s unclaimed property laws, the New Jersey Office of Legislative Services released its Fiscal Estimate Report on the proposed legislation.  While the OLS itself declined to estimate the lost revenue impact on New Jersey that would be a consequence of undoing the gift card legislation, it did recount testimony from the Unclaimed Property Division last summer wherein the Division estimated that the state would collect “$20 million and $25 million per fiscal year from the escheatment of stored value cards.”

The entire report can be found here.

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.