Issuers of Gift Cards Taking Action:Changes to New Jersey Unclaimed Property Law Impacting Gift Cards Leading to Issuer “Revolt”

April 19, 2012 11:33 AM

American Express, InComm, and Blackhawk Pull Out of State

By now, most national retailers are familiar with the changes brought about by 2010 N.J. Laws Chapter 25, (“the Act”), impacting the treatment of gift or stored value cards (“Gift Cards”) and the subsequent litigation challenging the Act. Although sections of the Act focused on the issuers of money orders and travelers checks, much of the recent media attention has focused on the impact of the Act on issuers of Gift Cards.

On appeal, the Third Circuit affirmed the decision by the District Court to strike down two key provisions of the Act.  The first provision held by the District Court to be invalid was the retroactive application of the Act to Gift Cards that are redeemable only for merchandise or services.  The Third Circuit agreed with the District court’s holding that to apply this provision retroactively to Gift Cards that could only be redeemed for merchandise or services would substantially violate the contractual relationships of the issuers of Gift Cards.  The Third Circuit also affirmed the District Court’s determination that the “place-of-purchase” presumption in the Act, which provides that the address of the place of purchase is to be used for a Gift Card when the purchaser’s address is unknown, is invalid.

While the forgoing portions of the Act were ultimately rejected, other key provisions remain in force.  Specifically, although Gift Cards were not subject to escheat in New Jersey prior to the Act, they are now deemed abandoned after two years of inactivity, and any value left on the Gift Card is reportable to the State. 

One of the most hotly debated provisions in the Act, however, was the requirement that issuers of Gift Cards must collect and maintain the Gift Card purchaser’s or owner’s name and address or, at a minimum, their zip code.  There were two primary objections to this provision.  The first is the serious administrative burden it places on Gift Card issuers to modify their point-of-sale processes to collect and retain the data.  The second is the presumption that New Jersey will use the zip code, if in New Jersey, to claim unredeemed Gift Cards after two years of inactivity.

Gift Card Issuer Response

In what now reads as prophesy, a recent online article on Newsworks Beta outlined the concerns of many who oppose the Act, including the fear that once the provisions of the new law take effect, some New Jersey merchants would stop issuing Gift Cards rather than try to follow the Act’s requirements.  The floodgates opened on April 2, 2012, when American Express became the first major issuer of Gift Cards to announce the decision to pull its Gift Cards from retail locations in New Jersey rather than try to meet the technological burdens of complying with the Act.  On April 5, 2012, InComm, a leading issuer of Gift Cards, announced that it, too, would be pulling its Gift Cards, including Visa and MasterCard Gift Card products, from New Jersey retailers.  On that same day, Blackhawk Network, which sells prepaid gift cards for consumers and businesses in third-party locations such as grocery stores, also announced plans to cease sales of gift and prepaid cards in New Jersey.  Based on discussions with other retailers, it appears that an exodus of Gift Card issuers from New Jersey is well underway.

Too Little Too Late?

While New Jersey has been actively defending the provisions of the Act, some state lawmakers seem to think that the Act goes too far.  On March 15, 2012, Assembly Bill 1871 passed the Assembly and was sent to the Senate.  If enacted, the bill would reverse the changes made to the New Jersey statutes made by the Act, including the requirement for retailers to collect zip code information when someone buys a gift card.  While the Senate has said that it would review the bill in May, even if passed by both houses, the bill would still need to be signed by the Governor in order to become law.

What This Means to Your Company

Based on the Act as it stands today, any company that issues more than $250,000 of Gift Cards per year will now be required to obtain the name and address, or at least the zip code, of the purchaser or owner of the Gift Card.  Failure to do so may subject a company to penalties for failure to perform duties imposed by the Act.  According to N.J. Stat. § 46:30B-104, these penalties can be up to $200 a day, up to a maximum of $100,000.  Unless Assembly Bill 1871 or similar legislation is enacted, companies now face a difficult choice: either stop issuing Gift Cards in New Jersey, or try to comply with the data retention provisions of the Act, including the associated legal risks and technology costs.

Our Expertise

The True Partners Consulting Unclaimed Property Management Solutions Team is comprised of a national group of professionals with diverse backgrounds, including industry and government.  Based on our proven track record, we have grown to be one of the top service providers in the country.  We believe we possess the best combination of experience, expertise, and resources to address all of your unclaimed property needs across all industries, including retail.  We encourage you to contact one of our professionals to discuss any questions or concerns that you may have regarding unclaimed property and what these recent developments may mean to your company.

Cathleen A. Bucholtz
Managing Director

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