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(1)

Not Just for Retailers:

Gift Cards &

Stored Value Cards:

(The Basics)

Presented by:

Amanda Culp - Card Compliant LLC

(2)

UPPO Presentation Disclaimer

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

(3)

UPPO Antitrust Statement

UPPO has a policy of strict compliance with U.S. federal antitrust laws.

UPPO members and/or meeting attendees cannot come to understandings, make agreements, or otherwise concur on positions or understandings or activities that in any way tend to raise, lower or stabilize prices or fees. Members and/or attendees can discuss pricing models, methods, systems, and applications, as well as certain cost matters that do not lead to an agreement or consensus on prices or fees to be charged. However, there can be no discussion as to what constitutes a reasonable, fair or appropriate price or fee to charge for any service or product.

Information may be presented with regard to historical pricing activities so long as such information is general in nature and does not include data on current prices or fees being charged in any trade area. Any discussion of current or future prices, fees, discounting, and other terms and conditions of sale, which may lead to an agreement or consensus on prices or fees to be charged, is strictly prohibited.

(4)

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.

(5)

The different types of SVCs

• Gift cards and e-Gift

• Merchandise Return

• Loyalty

• Awards/Rewards

• Promotional

(6)

The different types of SVCs

• General Purpose Reloadable (“GPR”)

• Payroll

• HSA

• FSA

(7)

The different types of SVCs

• Travel

• Youth

(8)

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

(9)

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

(10)

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.

(11)

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.

(12)

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

(13)

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.

(14)

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.

(15)

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”

(16)

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”

(17)

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.”

(18)

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.”

(19)

Different State Laws

Texas:

“(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”

(20)

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”

(21)

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”

(22)

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”

(23)

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.

(24)

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”

(25)

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

(26)

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.”

(27)

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

(28)

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

(29)

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.

(30)

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

(31)

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.

(32)

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

aculp@cardcompliant.com

Richard M. Zuckerman, Esq. Partner

Dentons US LLP

1221 Avenue of the Americas New York, NY 10020

212.398.5213

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