Imagine having a gift card in your wallet that you forgot to use for two years, and the state seizes the remaining value off that card. That could happen, if unclaimed property laws in New Jersey, modified in 2010 to fill a budget shortfall, are enforced. The legislation requires retailers that sell gift cards to capture a gift card purchaser’s personal information (which may include name, address and/or zip code) at the point of sale. This information will then be kept by card issuers and is reportable to the state. After two years of card inactivity, New Jersey will automatically take the unspent money, even if the card has not expired.
Retailers have sued to block the law and card issuers have challenged almost every facet of the new gift card law, arguing it is unconstitutional and preempted by federal law. Unable to guarantee compliance, American Express and two other leading card companies, Blackhawk and InComm, have pulled gift cards off store shelves in the New Jersey market.
New Jersey Legislation Being Challenged
Since 2010, New Jersey’s gift card law has faced a rocky road, wrote Donald Scarinci, managing partner at the law firm of Scarinci Hollenbeck in New Jersey and New York. “In fact, many of the requirements have not yet been implemented due to legal challenges. “
Ben Jackson, senior analyst at Mercator Advisory Group, said, “Unfortunately the New Jersey law may not necessarily be preempted by federal law. The Card Act of 2009 mentions that state law takes precedence if state law is deemed to be more protective of the consumer.”
The citation reads: Section 402 of the Credit Card Act amends (Electronic Funds Transfer Act (EFTA) Section 920 to provide that the EFTA does not preempt any State laws that address dormancy, inactivity, or service fees or expiration dates for gift certificates, store gift cards, or general-use prepaid cards if such State Law provide greater consumer protection than the new gift card provisions.
In New Jersey Retail Merchants Association v. Sidamon-Eristoff, et al., and two related cases, the provisions applying the new escheat rules to existing cards and the place-of-purchase presumption were blocked by a federal court.
“While the injunction has since been lifted, the enforceability of the law has yet to be decided,” said Scarinci.
Card Companies Exit NJ Market
Pending resolution, InComm removed all Vanilla Visa Gift Card and Vanilla MasterCard Gift Card products from retail locations in New Jersey, effective June 30. These retail locations include the nation’s leading big box, pharmacy, discount, convenience and grocery chains. InComm stated in a press release that due to technological hurdles created by the new law, the company will not be able to ensure compliance and has elected to eliminate the Vanilla Visa Gift Card and Vanilla MasterCard Gift Card programs from more than 1,500 retail locations in New Jersey.
“Customer service and ease of use for consumers have always been of the utmost importance to us at InComm, and we want to continue to serve our retailers, brand partners and consumers with the best prepaid and payment solutions in the market,” said Brooks Smith, President and CEO of InComm. “Unfortunately, once the new unclaimed property law is enforced in New Jersey, we will be unable to ensure compliance on behalf of our retail partners, and therefore have no option other than to cease selling InComm products in the state.”
Under federal law, gift cards cannot expire earlier than five years after purchase, and in fact most gift card funds never expire, including Vanilla gift card products. In California, gift cards have no expiration dates and are good forever.
“The state wants to take the consumer’s funds after two years of inactivity, thereby gaining access to consumer’s money. Every penny of value represented by an unused card in Blackhawk Network’s program is available to the consumer forever, even without the state’s intervention,” said Talbott Roche, president, Blackhawk Network.
Consumers Asking Questions
Theoretically, New Jersey would use the information about gift card buyers to collect the unused money on the cards and put it into the state’s unclaimed money fund 24 months after the last time the cards were used. Card holders could obtain any remaining balances on the gift cards by contacting the state’s unclaimed funds office.
Consumers are having trouble making sense of the legislation. Shelley Hunter Kukuk, a gift card blogger who is a programmer, wondered about the logistics: “Nobody anticipated there being a problem asking for address or zip code information at the checkout line? Implementing the law would seem rather difficult to roll-out across retailers statewide.”
New Jersey officials contend that the laws were needed to bolster consumer protections for purchasers of gift cards. “In its defense of the laws, the New Jersey Department of the Treasury highlights that the law prevents sellers of gift cards from depleting and then taking consumers’ unused balances,” wrote Scarinci.
So instead of the card issuers taking the unused balances, New Jersey will take the money when consumers fail to use their gift cards. “In response, New Jersey officials have pointed out that the law allows consumers to request a reimbursement at any time (although they will likely have to jump through a few hoops to get the money back), “said Scarinci.
“Consumers are definitely the ones who will be shortchanged if this unclaimed property law change is enforced in New Jersey. Through surveys, polls, letters, e-mails and radio call-ins, consumers have overwhelming expressed that they do not support this law, and they certainly don’t want to lose the ability to buy gift cards,” said Teri Llach, chief marketing officer, Blackhawk Network. “It’s just not feasible for retailers and gift card providers to comply with the law. In addition, consumers’ privacy is important to them and they don’t want to have to share their contact information when making a gift card purchase. Not to mention that the purchaser often isn’t the end-user of the gift card. Finally, consumers certainly don’t want the State to take funds off their non-expiring cards after two years of non-use.”
Llach added, “We hope to come to an agreement with the government which allows us to keep gift cards in the State of New Jersey. Removing funds from cards that don’t expire or requiring the collection of zip code is not good for retailers or consumers, and ultimately will force the removal of gift cards from the State.”
Meanwhile, retail studies claim that the lost sales tax revenue would exceed gains that the state thinks it will get from unused funds on gift cards.
According to The Record (Hackensack, NJ), the Christie administration has estimated that the 2010 expansion of the state’s unclaimed property seizure powers would raise $80 million a year. At a seven percent tax rate, the retailers’ analysis suggests lost gift card-related sales of taxable items statewide in a range between $914.3 million and $1.34 billion.
Nothing is settled, as lawsuits ensue. “Whether the New Jersey law is more protective of the consumers will have to be determined by the courts, I guess. I think there will be more lawsuits to come both between states and from non-New Jersey residents who receive cards from friends and relatives in New Jersey,” said Jackson. •