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The Green Sheet Online Edition

July 13, 2009 • Issue 09:07:01

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Gift card legal perils - Part 1

At Prepaid Day held during the Electronic Transactions Association's 2009 Conference & Expo, JiJi Park, Partner at the law firm of Pillsbury, Winthrop, Shaw, Pittman LLP, advised gift card program providers how to avoid getting sued. Her basic mantra: follow the law. But evidently that's harder said than done.

A main problem is that laws regulating gift cards vary widely from state to state. According to Park, some states limit or prohibit altogether the imposition of service, nonuse, handling, activation, maintenance or dormancy fees.

Coast to coast

"In New York you may have a service fee on any card unless that card remains dormant for 12 months, and those [fees] must be conspicuously stated on the card itself," she said. "They cannot be on a separate terms and conditions on the Web site. It has to be on the card."

In California, the regulations might be the most exacting in the nation. Park outlined the five requirements that must be in play for service fees to be assessed:

  1. The remaining value on the card is less than $5.
  2. The fee does not exceed $1 per month.
  3. There has been no activity on the card for 24 consecutive months.
  4. The cardholder may reload the card.
  5. A statement is printed on the card (in 10-point font) stating the fee amount, how often it is assessed, that inactivity triggers the fee and at what point the fee is charged.

Pillsbury's presentation focused on California because it became the first state to enact gift card legislation in January 1997. California is therefore seen as a trendsetter in the gift card arena. But that moniker does not necessarily translate into statewide compliance. "We have run across very few cards that have qualified [with] these requirements," Park said.

Terms and conditions

Park stressed that gift card providers must follow the letter of the law when it comes to informing consumers of the terms and conditions of gift cards. "It is very important that the purchaser get clear and conspicuous notice," she said.

But that, too, can be tricky given the variance of such rules from state to state. Some states require that all terms and conditions be stated on the cards, and in a mandated 10-point font size, Park said.

Additionally, proposed state legislation would require gift card sellers to provide consumers with written statements, post signs with the terms and conditions, print that information on receipts or allow it to be accessed via the Internet or a toll-free phone service, Park said.

Compliance with state unclaimed property laws can also be a tangled jungle, according to Park. In the gift card realm, unclaimed property means the unused balances left on cards; state escheat laws dictate how those balances - billions of dollars annually in aggregate - are treated.

With so much money at stake, gift card providers are under increasing scrutiny to follow guidelines on how those funds are handled. "If you do Internet sales or you ship cards to someone, you're going to have that record," Park said. "You can't destroy that record once you have it just to get out of your unclaimed property obligations."

Due to noncompliance unearthed by accounting firms, public companies have had to restate their financial reports, she added. "That is something that you do not want to have to do," she said.

In the next edition of SellingPrepaid E-Magazine, Daveed A. Schwartz, Attorney at Pillsbury, delves into the hazards to avoid when implementing gift card programs.


For more stories from SellingPrepaid E-Magazine, as well as breaking news and forums devoted to the prepaid sphere, please visit greensheet.com. end of article

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