Old Laws, New Property: Escheat and Gift Cards

Transcription

1 Unclaimed Prperty Reprting in Delaware Old Laws, New Prperty: Escheat and Gift Cards presented by Ezra D. Church, Esq. February 1,

2 Overview Why Gift Cards? What State Law Applies? Structuring Gift Card Prgrams t Manage Cmpliance Prblem Areas and Ht Tpics Mrgan, Lewis & Bckius LLP 2

3 The Gift Card Phenmenn Wildly ppular! Cnsumers like them: Happy medium between cash and a particular gift Gift cards are the mst requested gift item f the past 5 years Retailers like them: Extend hliday / giving seasns Generate stre traffic and drive revenue Uplift Breakage Mrgan, Lewis & Bckius LLP 3

4 Hw d escheat laws relate t gift cards? There are lts f unused gift cards Generally 12-15% f gift card balances never redeemed Reprts indicate that the avg. husehld has $300 wrth f unused gift cards Cash-strapped state gvernments have taken ntice States have begun t claim the unused balance n gift cards (the breakage ) as unclaimed prperty States differ in hw they address gift cards: Many treat it as unclaimed prperty, althugh in different ways Sme clearly exclude gift cards frm unclaimed prperty laws Delaware? Des treating unused breakage as unclaimed prperty make sense? Mrgan, Lewis & Bckius LLP 4

5 State Laws n Escheat f Gift Cards In light f the ptential value f unredeemed gift cards, the questin f which state s unclaimed prperty laws apply is critical Supreme Curt has explained the rules fr deciding which state gets escheat f unclaimed prperty: First pririty rule: State f the wner s last-knwn address Secnd pririty rule: If hlder s recrds d nt disclse, prperty is subject t the laws f the hlder s dmicile, il e.g., state t f incrpratin See Texas v. New Jersey, 379 U.S. 674 (1965). Mrgan, Lewis & Bckius LLP 5

6 Structuring Gift Card Prgrams t Manage Cmpliance Sell gift card liability t a third-party Or, establish a subsidiary that t issues gift cards in a state t that clearly has n escheat requirement, e.g., VA r FL Cnsider type f entity (crpratin, LLC etc.) Maintain crprate frmalities Only perate in that state Mrgan, Lewis & Bckius LLP 6

7 Prblem Areas and Ht Issues: New Jersey Legal Battles In 2010 New Jersey amended its escheat law regarding g gift cards: Gift cards presumed abandned after 2 years If hlder s recrds did nt disclse the wner s last-knwn address, escheat was t the place f purchase (rather than place f hlder s dmicile) Data cllectin requirement Retail and industry grups sued t keep the law frm taking effect Ultimately the Third Circuit Curt f Appeals determined: N retractive applicatin N place f purchase rule Data cllectin requirement Ok Shwdwn n the data cllectin requirement in 2012 Cmprmise legislatin, l July 2012: Data cllectin requirement pstpned 4 years Abandnment perid increased frm 2 t 5 years Only 60% f the unredeemed balance n gift cards subject t escheat (rather than 100%) Cash redemptin n gift cards with less than $5 in value Mrgan, Lewis & Bckius LLP 7

8 Prblem Areas and Ht Issues: Online Sales and Registratin ti f Gift Cards Changing retail envirnment may result in grwing first pririty liability: The grwth f internet purchases where ship t infrmatin is btained Als registratin i f gift card/lyalty, l reward prgram Use f separate issuer entity? Use f custmer limiting instructins regarding persnal infrmatin? Mrgan, Lewis & Bckius LLP 8

9 Prblem Areas and Ht Tpics: Impact f Federal CARD Act The Credit Card Accuntability and Respnsibility & Disclsure Act f 2009 ( CARD Act ) and Regulatin E impsed a number f restrictins n gift cards One is that t gift cards cannt expire less than 5 years after issuance r last lad In August 2012, Bureau f Cnsumer Financial Prtectin issued intent t determine whether escheat prvisins f ME and TN (are incnsistent with and preempted by the CARD Act: ME: Gift cards are presumed abandned tw years after Dec. 31 f the year issued r the mst recent transactin ccurred. 33 M.R.S TN: Gift cards are presumed abandned if unclaimed as f the earlier f (a) the expiratin date r (b) 2 years frm issue. Tenn. Cde Ann Prblem: [ME & TN] laws presume gift cards t be abandned and release businesses frm the bligatin t hnr the gift cards during a time perid when, pursuant t Federal law, cnsumer shuld be able t use the cards. Ntice f Intent, 12 CFR Part 1005 Mrgan, Lewis & Bckius LLP 9

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