In House Counsel Challenges With Offering Gift Cards and Coupons via - - PowerPoint PPT Presentation

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In‐House Counsel Challenges With Offering Gift d d d l d Cards and Coupons via E‐Commerce and Social Media

Navigating State and Federal Gift Card Laws, Escheat Duties, and When a Coupon Might Be Deemed a Gift Card

T d ’ f l f

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific WEDNES DAY, MAY 15, 2013

Today’s faculty features:

Edward B. Chansky, Shareholder, Greenberg Traurig, Las Vegas Robert J. Herrington, Co-Chair, National Products Liability and Mass Torts Practice, Greenberg Traurig, Los Angeles Y en Trac, Counsel, Gap, San Francisco Y en Trac, Counsel, Gap, San Francisco Maria L. Zanfini, Litigation Counsel, American Express, New Y

• rk

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IN‐HOUSE COUNSEL CHALLENGES WITH OFFERING GIFT CARDS AND COUPONS VIA E‐COMMERCE AND SOCIAL MEDIA

NAVIGATING STATE AND FEDERAL GIFT CARD LAWS, ESCHEAT DUTIES, AND WHEN A COUPON MIGHT BE DEEMED A GIFT CARD MAY 15, 2013

Edward B. Chansky, Shareholder Greenberg Traurig, Las Vegas Robert J. Herrington, Co‐Chair, National Products Liability and Mass Torts Practice Greenberg Traurig, Los Angeles Yen Trac, Counsel Gap, San Francisco Maria L. Zanfini, Litigation Counsel , g American Express, New York Company

Three Fact Patterns

• 1. Joe’s Pizza Online “ Daily Deal” coupon: $10 for large pizza, normally $20
• 2. Aggregator

Preloaded cards for $X good at any participating merchant

• 3. Premium

Preloaded card issued as benefit in points/ rewards program

6

Three Issues

• 1. Front-end

Terms of offer, including expiration date

• 2. Back-end

Escheat

3 Litigation

Risks and Strategy

• 3. Litigation

Risks and Strategy

7

Facts to Focus on

• What did the consumer pay?
• What did the sponsor say?
• Wording of state & federal laws

Intent/ Purpose of Statutes

• Intent/ Purpose of Statutes
• Gray Areas
• Best Practices

8

Joe’s Pizza – Daily Deal

9

Multi‐Merchant Program

10

Points/Rewards Program

11

What are the primary forms and sources of regulation of gift cards and gift certificates?

• Federal CARD Act
• State laws
• Restrictions and/ or prohibitions on expiration dates and dormancy fees
• Cash-redemption option for remaining balances below $5 or $10

12

What's covered and what's not? What s covered and what s not?

• Card/ certificate with cash-equivalent balance the consumer pays

for? Generally yes.

• Reward item given as premium/ gift/ prize without payment? Generally

no.

• Other kinds of pre-paid plans or subscriptions for services? S
• metimes

unclear.

• Does the form/ format matter?

(paper vs. electronic)

• Does the wording matter? (what if you don't call it a "gift card")
• What about a discount coupon?
• What about a voucher for a product/ service rather than a credit for

a cash-equivalent balance?

13

What is escheatment?

• Under the doctrine of escheat, the state is entitled to take custody of property

that has remained unclaimed or abandoned by its owner. E t t d t it f th US h l i d t l

• Every state and t erritory of the US has unclaimed property laws.
• Generally, the laws require a business to report and remit outstanding

liabilities that have gone unclaimed by an employee, vendor or supplier, liabilities that have gone unclaimed by an employee, vendor or supplier, customer (the “ owner” ) for the period of time specified in the state’s unclaimed property laws (the “ statutory dormancy period” ).

14

How does escheatment apply to gift cards pp y g and daily deals?

• Gift Cards -Y
• u receive a $100 Bloomingdales gift card.

(1) Y

• u take it to Bloomingdales and purchase $150 worth of merchandise and pay the extra

$50 out of pocket and everyone’s happy; $ p y ppy; (2) you forget about it completely or lose it; (3) k i Bl i d l d h bl d h f l $97 49 Y (3) you take it to Bloomingdales and purchase a blender that after sales tax costs $97.49. Y

• ur

gift card now has a balance of $2.51. Y

• u put the gift card in your wallet, but probably are not

going to pay much attention to it because what can you buy for $2.51? Chances are, you completely forget about the $2.51 because it is so insignificant.

• Daily Deals -Y
• u bought the daily deal for Joe’s pizza (paying $10 bucks for a $20 pizza),

but to never get to Joe’s to redeem it.

15

Escheat and Gift Cards

• States have reached different conclusions on the issue of whether unused gift cards are abandoned

property that escheats to the state. Minority Approach:

• Exclusion of GCs from abandoned property laws
• Exemption for specifically defined types of Gift Cards
• No expiration or escheat model

Majority Approach: Majority Approach:

• Unused Gift Cards are abandoned property that will escheat to the state, but there are

many variables including such things dormancy period (which runs from 2 to 7 years). 16

Escheat and Daily Deals

• Who is the holder of the unclaimed funds?
• Who is the issuer?
• What Value?
• Face Value Or Purchase Price?

17

Which state’s law governs?

• Y
• u buy your niece or nephew a gift card in NY and send it to you nephew who is

at UCLA in California. Whi h t t ’ h t l ?

• Which state’s escheat law governs?

18

Priority Rules

• The primary rule: the escheat law of the state of the owner’s last known address,

based on the records of the holder, will apply.

• The secondary rule: In situations where the holder has no address information for the
• The secondary rule: In situations where the holder has no address information for the
• wner, the Court adopted a secondary rule (referred to as the “ back-up rule” ) that

provides for escheat to the state of incorporation of the holder of the property.

• In addition, the secondary rule applies not only when the rightful owner’s address is

unknown, but also when the owner’s identity is unknown.

19

New Jersey, Not the Garden State for Gift Cards

In 2010, New Jersey amended gift card law: (1) prohibited dormancy fees; (2) provided for an abandonment period of only two years; (3) required store value card issuers to collect the purchaser’s name and address and to maintain at minimum, the purchaser’s zip code; (4) presumed NJ to be the purchaser’s location if the gift card was sold in NJ and (4) presumed NJ to be the purchaser’s location if the gift card was sold in NJ, and the issuer did not have the name and address of the purchaser.

20

NJ Enjoined From Creating Transactional Priority Rule

In January 2012, the Third Circuit affirmed the lower court’s decision and held: (1) the retroactive application of the provision in the law requiring escheatment f t t di SVC i d i t t t f th l i tit ti l

• f outstanding SVCs issued prior t o enactment of the law is unconstit utional;

(2) the place of purchase presumption is invalid; and (3) the transactional priority rule is unconstitutional.

21

What Companies Need to Know Before Setting Up a Compliance Program

• Which states’ laws apply?

Use Priority rules to determine

• Know the current laws for all reportable states (virtually every state has variations)
• Monitor legislative changes
• When do Obligations Begin?
• Know the current reporting and due diligence requirements for each state, as well as the

applicable dormancy period and as of” or “ end date” and reporting deadline

• Pre-planning: what entity will issue gift cards and what will be the state of incorporation of

that entity. Is it practicable for the business to issue gift cards by an entity incorporated in a state with no GC escheat?

22

Record Review/Internal Due Diligence

• Record Review/ Internal Due Diligence
• Due Diligence/ Owner Contact
• Reporting and Remitting
• Records Retention

23

Daily deal phenomenon

• Where does it fit in the available categories?
• Is it a discount coupon (unregulated), a gift card (regulated), or both?
• What are best practices if you plan to offer this type of program?
• Who is responsible for compliance (including escheat)? The individual

merchant or the coordinating website?

24

Terms and Conditions

• What should you say on your cards/ certificates?
• Do you need additional/ separate terms from what's on the card itself?

25

Privacy

• With whom can you share information about the offers consumers

request/ purchase/ receive?

• What kind of disclosure do you make to consumers to alert them to the

h i ? sharing?

• What impact will the new "privacy by design" direction of the FTC have

in this area?

26

Intersection with social‐media‐based advertising

• If you reward a consumer with a coupon for "liking" your page, can you

advertise that person's "like" without disclosing the payoff he/ she received?

27

What About Foreign Laws?

28