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The Green Sheet Online Edition

March 14, 2011 • Issue 11:03:01

Prepaid profile:
Card Compliant LLC



Compliance partnership made for two

With the complex and evolving state and federal laws targeting the leftover funds on unused gift cards, issuers of closed-loop gift cards, as well as program managers, will likely take interest in a recent partnership between unclaimed property consultancy Keane and stored-value card consultancy Card Compliant LLC.

The partnership, consummated in November 2010, combines Keane's expertise in managing companies' overall unclaimed property liability with Card Compliant's specialized knowledge of how diverse state laws intersect with gift and other stored-value cards.

"Keane assists clients with all property types in all states," said Laura Lane, Vice President at Keane. When the IRS audits businesses, all property types come under scrutiny, including paychecks, vendor checks and gift cards. For retailers, the breakage left over on gift cards is fairly significant, she added.

The firm minimizes the amount of unclaimed property retailers owe to states and, on behalf of its clients, files the paperwork that states require. "The compliance rules for stored value are complicated, and that's why we felt that partnering with a company that specifically focuses on that, managing that, was worthwhile for the gift card or stored-value card arena," Lane said.

Over 5 million combinations

Card Compliant President David Hill said the amount of money businesses are required to turn over to the states varies from state to state. "Some of the states are 100 percent escheat states," he said, meaning all unused funds on gift and stored-value cards must be turned over to the state.

However, "some of the states are 60-40, meaning 60 percent of the unclaimed property has to be reported to the state, and then the retailer can keep the other 40 percent," he added.

Compounding the complexity of the regulations are state-by-state mandates governing when gift cards expire and the fees that can be assessed on the cards. Added to that are the three federal priority rules designed to establish what entities have claim to what unclaimed property (for more on the priority rules, see "Will gift cards no longer be sold in New Jersey?" SellingPrepaid E-Magazine, Jan. 28, 2011, issue 11:01:B).

Hill said in excess of 5 million possible permutations of federal and state regulations can apply to any one gift or stored-value card. To take into account all these variables, Card Compliant developed software called OptiMax – a "rules-based engine" that crunches the numbers to determine a business's liability and ensure they turn over to the state the correct amount of escheated funds, Hill said.

"Technically escheat is not a tax, but it feels like it to the retailer when they are passing over those funds," he noted. In addition, businesses want to avoid noncompliance, since fees, penalties and interest can be assessed for failure to comply, and comply in a timely fashion. "It's not uncommon to see the fees get up to be the equivalent of what they have to otherwise escheat," Hill said.

Antidote to the money grab

Due to economic woes that have saddled states with billion-dollar budget deficits, state lawmakers have stepped up attempts to collect more unused funds sitting in retailers' bank accounts. Lane cited Michigan, which lowered the dormancy period on unclaimed accounts payable funds from five years to three in order for the state to get a "one-time infusion of cash from the lower dormancy period."

New Jersey has been in the news recently, because it is attempting to modify its unclaimed property laws so that, among other things, merchants would be forced to collect more gift card purchaser data at the POS so that the state could claim more of those funds down the line.

Hill said many states are in a wait-and-see mode concerning New Jersey. If the Garden State prevails, businesses domiciled in New Jersey may flee to other states, which are going to "try and position themselves to attract those businesses so they can reap the benefits of taxes and/or employees, potentially, and unclaimed property," Hill said.

Lane said Keane, in tandem with other organizations, filed an amicus (friend of the court) brief to throw their support behind a lawsuit filed by American Express Co. subsidiary and gift card issuer American Express Prepaid Card Management Corp. and others to prevent New Jersey from implementing what Lane called a money grab.

Hill pointed out that Card Compliant also functions as a third-party, closed-loop gift card issuer that shoulders the unclaimed property compliance responsibilities, freeing retailers from that increasingly cumbersome and difficult responsibility.

"They become the distributor, and we are the issuer," he said. "We are responsible for reporting to all the individual states, identifying what dollars need to be escheated, when, and what dollars can be taken to earnings by the retailer." end of article

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