not just for retailers: gift cards & stored value cards
TRANSCRIPT
Not Just for Retailers:
Gift Cards &
Stored Value Cards: (The Basics)
Presented by:
Amanda Culp - Card Compliant LLC
Richard M. Zuckerman - Dentons US LLP
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Use of the Unclaimed Property Professionals Organization, Inc. (UPPO) name in copyrighted materials in this presentation does not constitute an endorsement by UPPO of a member, vendor, product or service. The content represents the opinions of the authors and not necessarily those of UPPO. This information is not intended as legal advice and should not be used to replace the advice of legal counsel.
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Today’s Agenda
• Different types of SVCs.
• Texas v. New Jersey and its impact on
the card industry.
• Different card issuer models.
• UUPA and different State laws.
• Proposals to revise UUPA.
• Credit CARD Act of 2009 and the CFPB.
The different types of SVCs
• Gift cards and e-Gift
• Merchandise Return
• Loyalty
• Awards/Rewards
• Promotional
• Incentives
Texas v. New Jersey
• The gift card industry has been shaped
by US Supreme Court decisions in
Texas v. New Jersey, 379 U.S. 674 (1965),
Pennsylvania v. NY, 407 U.S. 206 (1972), and
Delaware v. NY, 507 U.S. 490 (1993).
• These decisions establish federal
common law: Which State can escheat
unclaimed intangible property?
Texas v. New Jersey
• Primary rule: State of “creditor’s last
known address as shown by the debtor’s
books and records.” Texas at 680-81.
• Secondary rule [if debtor’s records
disclose no address, or laws of State
under primary rule do not provide for
escheat]: “the State in which the debtor
is incorporated.” Delaware at 499-500; Texas at
682.
Texas v. New Jersey
• UUPA and some State laws have third
priority rule: the State where “the
transaction out of which the property
arose occurred.” UUPA (1995) § 4 (6).
• Third priority rule is likely
unconstitutional. NJ Retail Merchants v.
Sidamon-Eristoff, 669 F.3d 374, 391-93 (3d Cir. 2012).
How Texas v. New Jersey
has shaped the gift card industry
• If a gift card issuer
– does not have records showing the address
of the card owners, and
– is incorporated in a State which does not
subject unused amounts to escheat, then
• No State can claim the unused amounts
(the “breakage”) as unclaimed property.
How Texas v. New Jersey
has shaped the gift card industry
• Corporations have the right to select a
State of incorporation “to gain an
advantage under the law of the state of
incorporation”. Moline Properties. v. C.I.R., 319
U.S. 436, 438-39 (1943).
Different issuer models
• Gift cards issuers incorporate in States
which exempt gift cards from escheat:
– Third party issuers retained by retailers to
issue cards and provide related services.
– Special purpose subsidiaries formed by
retailers to issue gift cards.
• Still obliged to escheat if records show
owner’s address in State which does not
exempt gift cards.
Different issuer models
• The details are critical:
– Bona fide transactions, under which
– the card issuer is the “debtor” in the
“debtor-creditor relationship” with the
consumer who owns the card, and
– the relationship between the card issuer
and the retailer (whether an independent
party, or a subsidiary) is well-documented.
Uniform Unclaimed Property Act
(UUPA) (1995)
“(13) ‘Property’ means . . . a fixed and certain
interest in intangible property ...and all
income or increments therefrom. The term
includes M
(ii) credit balance, customer's overpayment,
gift certificate, security deposit, refund,
credit memorandum, unpaid wage, unused
ticket, mineral proceeds, or unidentified
remittance; M”
UUPA (1995) § 1.
Uniform Unclaimed Property Act
(UUPA) (1995)
“(6) money or credits owed to a customer as a
result of a retail business transaction, three
yearsM
(7) gift certificate, three yearsMthe amount
abandoned is deemed to be [60] percentM
(12) wages one yearM
(15) all other property, five yearsM”
UUPA (1995) § 2.
Different State Laws
Missouri:
“(5) Gift certificates, credit memos and credit
balances that are redeemable in merchandise
only shall be reportable at a rate equal to sixty
percent of their respective face value.”
V.A.M.S. 447.505
Different State Laws
Arizona:
“15. . . .Property does not includeM property
that is referred to or evidenced by gift
certificates, electronic gift cards,
nonrefundable tickets, certificates evidencing
property denominated in value other than a
currency, including prepaid phone cards,
frequent flyer miles, stored value cards and
merchandise points.” A.R.S. § 44-301
Different State LawsTexas:“(a) This section applies to a stored value card%other
than a card: M
(2) that isM.subject to Chapter 73 [financial institutions]
(b)Mthe stored value card is presumed abandoned Mthe
earlier of:
(1) the card's expiration date;
(2) the third anniversary of the date the card was
issued or last usedM; or
(3) the first anniversary of the date the card was
issuedMlast usedMif the card's value represents
wagesM”
V.T.C.A., Property Code § 72.1016
Different State Laws
Texas: “(1) ‘Account’ meansMfunds received by a
depository in exchange for the purchase of a
stored value card.
(a) An accountMis presumed abandoned if:
(1) except as provided by Subsection (c), the
accountMhas been inactive for at least five
yearsM”V.T.C.A., Property Code § 73.001
Different State Laws
New Jersey: “a. A stored value card for which there has
been no activity for five years is presumed
abandoned.
b. The proceeds of a general purpose
reloadable card presumed abandoned shall be
the valueMin money, on the dateMcard is
presumed abandoned. The proceeds of all other
stored value cards presumed abandoned shall
be 60% of the value of the cardM”N.J.S.A. § 46:30B-42.1
Different State Laws
New Jersey:
“e. This section does not apply to:
(1) a stored value card that is distributedM under
a promotional, incentive, rewards, or
customer loyalty program or a charitable
program for which no direct monetary
consideration is paid by the owner;M”
‘General purpose reloadable card’ means a stored
value card issued by a bankM(1) usableMat multiple
merchantsMfor goods or services or at [ATM]M and
(3) not marketed or labeled as a gift cardM”N.J.S.A. § 46:30B-42.1
Different State Laws
New Jersey:
“t. MThe term ‘stored value card’ includesM paper
gift certificates, records that contain a microprocessor
chip, magnetic stripe or other means for the storage
of information, gift cards, electronic gift cards,
rebate cards, stored-value cards or certificates,
store cards...”
N.J.S.A. 46:30B-6; See also: Stored Value Card (SVC)
and PayCard Reporting Guidelines, found at
http://www.state.nj.us/treasury/unclaimed-
property/recent_changes.shtml.
Proposals to Amend UUPA
• NAUPA:
– “balance of a gift card, including virtual gift
card and other form of gift instrument, three
years following the latter of the date of
sale or the owner’s last use of the card.”
– “funds represented by a non-activated
[SVC] , one year after the funds would
have otherwise first been available to the
owner”
Proposals to Amend UUPA
• NAUPA
– “Where there is an ambiguity or conflict M
as to the applicable period giving rise to a
presumption of abandonment, the nature
of the underlying obligation, regardless of
the form of payment or account, shall take
precedence and dictate the corresponding
abandonment period.”
Proposals to Amend UUPA
• UPPO:
– “Pursuant to the ‘derivative rights doctrine,’
the state steps into the shoes of the missing
owner for escheatment purposes. By
requiring holders to escheat cash when
the missing owner could not have
claimed cash, states are violating the
derivative rights doctrine.”
Proposals to Amend UUPA
• UPPO:
– The revised act should “include an
exemption for stored value cards
redeemable for merchandise and
services only.”
– The revised act “should include a definition
of gift certificates to include stored value
cards.”
Proposals to Amend UUPA
• American Bar Association:
– UUPA should be amended “to provide that
only gift certificates that are redeemable
in cash are escheatable.”
– “The term ‘gift certificate’ [should] be
replaced with a broader term, such as
'prepaid obligation' to take into account
the many different kinds of prepaid
instruments that have been developed
since the 1995 UUPA.”
Proposals to Amend UUPA
• The Drafting Committee (so far):
– Add SVCs as a category of unclaimed
property.
– Consider different types of cards, and
consider recommending a percentage
subject to escheat to reflect profit/cost.
– Have not accepted ABA and UPPO
proposals to exempt gift cards redeemable
only for goods and services.
Credit CARD Act of 2009
• Primarily consumer protection act
– But has provisions related to gift cards,
GPR cards and loyalty, rewards and
promotional cards.
• Preempts inconsistent State laws.
– But provides that State law is not
inconsistent if it offers “greater protection” to
consumers. Courts and CFPB can each
determine preemption. 15 U.S.C.A. § 1693q.
The CFPB
• April 2013: CFPB issued Notice of
Preemption Determination regarding effect on
State laws (Maine and Tennessee).
http://www.consumerfinance.gov/blog/gift-cards-
clarifying-the-laws-in-maine-and-tennessee/.
• December 2014: CFPB issued Notice of
Proposed Rule Making regard prepaid
accounts.
https://federalregister.gov/a/2014-27286
We welcome your questions
(now, during, and after the
conference).
Amanda Culp, Esq.
Assistant General Counsel
Card Compliant LLC
460 Nichols Rd., Ste. 300
Kansas City, MO 64112
913.871.7445
Richard M. Zuckerman, Esq.
Partner
Dentons US LLP
1221 Avenue of the Americas
New York, NY 10020
212.398.5213