One mandate of the New Jersey State Assembly Bill NJ A3002 signed into law in June 2010 is that retailers collect names and addresses of gift card purchasers to establish the legal basis for New Jersey to seize more of the funds that lay dormant on gift cards and other stored-value instruments.
A November 2010 webinar hosted by Keane, a firm specializing in unclaimed property, estimated that New Jersey could collect between $33 million to $55 million annually in unused funds, given the present language in the law.
But lawsuits filed in New Jersey, one involving American Express Co. subsidiary and gift card issuer American Express Prepaid Card Management Corp., have halted the law's implementation. However, a U.S. district court judge in New Jersey recently denied the request by the AmEx subsidiary, and other entities, to stop the state from imposing new data collection provisions for its updated unclaimed property laws.
In an interview with Selling Prepaid, Laura Lane, Vice President at Keane, called the New Jersey law a "money grab." She said New Jersey once exempted stored-value cards from unclaimed property laws, and that the new law strips away that exemption. Additionally, she claimed that forcing New Jersey retailers to collect names and addresses of gift card buyers is an unrealistic burden.
"They're just not going to be able to track the information and obtain it," she said. "Think about every time you buy a gift card and having to stop and give all this information. It's not feasible."
Lane stated that if the law is not overturned, major retailers will stop selling gift cards in New Jersey.
By any estimation, unclaimed property law is complicated. As outlined by David Hill, President of Card Compliant LLC, federal unclaimed property laws often conflict with state unclaimed property laws. Added to that are "all the nuances" associated with each type of unclaimed property, such as money left over on closed- and open-loop gift cards, Hill said. These nuances include both federal and state expiration date and fee restrictions, Lane added.
Card Compliant claims that, with all the federal and state rules and regulations taken together, there are potentially 5.7 million rule combinations for any single card.
The rules that govern unclaimed property originate from a U.S. Supreme Court decision that prioritizes the process of assigning ownership to unclaimed property. Lane said the first priority rule is that if the owner of the property cannot be located, the property falls to the state of the owner's last known address.
The second priority rule is that if an address cannot be established, the property reverts to the state where the card issuer's business is incorporated, Lane said.
If requirements of the first two rules cannot be satisfied, the third and final priority rule comes into play. Hill called the third priority rule a "transaction rule," meaning that if the property is unused funds on a gift card, for example, then the state where the card was purchased becomes the beneficiary of the funds.
But the very nature of gift cards complicates the priority rule process for card issuers. Hill said 88 to 90 percent of all gift cards are "anonymous," because buyers are not required to provide personal information at the time of purchase, which makes establishing ownership based on the first priority rule difficult.
The second priority rule affects various issuers differently, depending in what state any given issuer is incorporated, since each state establishes what percentage of unclaimed property issuers must turn over, Hill said. It is not uncommon for businesses incorporated in one state to set up card issuing subsidiaries in other states to take advantage of more favorable escheat regulations, he added.
How New Jersey wants to implement the third priority rule is what gives issuers the greatest concern, Hill said. To establish where a particular gift card is purchased, issuers would have to register gift card purchasers at the POS, he explained, something that would be impractical, time consuming and expensive.
If New Jersey has its way, many of the large retailers that Card Compliant consults with will stop selling gift cards in the Garden State, according to Hill. "And that'll be to the detriment of the consumers and the residents of New Jersey," he said.
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