Passed on June 25, 2012 and signed into law on June 29, 2012,
Senate Bill 1928 (SB1928) amended New Jersey's unclaimed
property law. The law, closely watched by issuers of gift cards,
provides a five-year abandonment period, a new
"cash-back" provision, prohibition of post-purchase fees
and expiration dates, disclosure requirements and the collection of
ZIP codes from purchasers. Although the new law was intended to fix
some of the infirmities of the old law, the data collection
provision appears to have the gift card community gearing up for
another challenge.
This alert summarizes SB1928, parts of which will be effective as
early as September 1, 2012.
Background
In 2010, Assembly Bill 3002 (AB3002) amended New Jersey's unclaimed property law to provide that unused stored value and gift card balances would escheat after two years' inactivity and to require issuers to collect, at minimum, ZIP code information from purchasers. (To read Venable's January 2011 alert about New Jersey's gift card law, please click here.) SB1928 revises some provisions of AB3002 and adds new requirements.
Summary of Provisions of SB1928
The new law provides for a five-year abandonment period (a
change from two years in AB3002) before unused balances from gift
cards escheat; a previous version of the bill, passed by the Senate
Budget Committee in May, would have taken away the state's
ability to seize gift cards, but the provision was watered down by
the Senate so that it simply extended the abandonment period. Only
60 percent of the abandoned card's value will escheat.
A new provision was also introduced that permits customers to cash
in cards with a balance of less than $5.00, effective September 1,
2012. The law does not require sellers to affirmatively inform
customers of the right to request a refund. This
"cash-back" provision is important; a number of major
gift card sellers have been required to pay large fines in other
states for failing to comply with similar laws. Indeed, in 2009,
Starbucks was required to pay $225,000 in civil penalties, costs
and restitution to three Northern California district attorneys and
post signs informing customers about their right to a refund, and
was required to modify its cash register system to provide for an
auto-refund capability.
The new law also provides that post-purchase fees are prohibited
for cards sold on or after December 1, 2012, although some
activation, purchase and similar fees are still permitted.
Expiration dates on the funds underlying stored value cards are
also prohibited, although the card itself may be expired if the
expiration date is properly disclosed. The law imposes very
specific requirements with respect to fees, expiration dates,
disclosure and similar matters.
Similar to the laws in many other states, the law exempts gift
cards donated or sold below face value to a nonprofit, charitable
or educational organization, as well as those redeemable for
admission to events or venues at particular locations or for goods
or services in conjunction with that admission. Promotional and
loyalty cards are also exempted, and there are a number of other
exemptions, including cards usable at multiple merchants, prepaid
telecommunications cards and rewards cards (for which consideration
is not paid).
Collection of ZIP Codes
The most controversial provision in the new law is the
requirement that gift card sellers collect the ZIP code of
purchasers of gift cards in New Jersey, an attenuated version of
the data collection requirement in the 2010 law that was added to
SB1928 in spite of efforts by retailers and trade groups like the
New Jersey Retail Merchants Association. Those following this issue
will recall that three of the largest sellers of gift cards in New
Jersey pulled their gift cards out of the state in the spring of
2012 rather than comply with ZIP code collection requirements in
the 2010 law, after the requirement was upheld in federal court.
(To read Venable's April 2012 alert upon this issue, please
click here.) Nonetheless, the new law merely delays, rather
than eliminates, the requirement until the first day of the 49th
month (or 4 years) following enactment. Notably, New Jersey is
still the only state to impose a ZIP code data collection
requirement for gift cards.
The gift card community appears to be dissatisfied with the
continued inclusion of the ZIP code collection requirement in
SB1928. While the reason for the delay is not stated -- ostensibly,
it will allow time for the New Jersey Treasury to issue specific
guidance on how to comply with the law, and give sellers time to
implement new data collection systems and adopt procedures -- it
arguably does not address fundamental concerns about cost and the
difficulty of imposing controls on third parties collecting
personal information from purchasers. Of course, four years also
provides ample time to challenge the new law or lobby for yet
another version. Indeed, one of the three gift card sellers that
pulled its gift cards out of New Jersey has already publicly stated
that it plans to challenge the new law. On Friday, June 29, the
President and CEO of InComm, one of the companies that announced it
was pulling its gift cards from New Jersey, announced that the
company will continue to sell gift cards indefinitely in New Jersey
as long as there is no requirement to collect consumer information
at the point of sale. InComm has also pledged to spend the next
four years working to remove the data collection requirement from
the law.
Based on this statement and other reactions to the new law, it
appears that a challenge to the data collection requirements, and
perhaps even other provisions of the new law, is likely. In the
immediate term, however, gift card sellers must be cognizant of
other requirements of SB1928, such as the cash-back requirement and
prohibitions on post-purchase fees and expiration dates, which will
be effective as early as September 1, 2012.
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