Not Just for Retailers: Gift Cards & Stored Value Cards

Not Just for Retailers:

Gift Cards &

Stored Value Cards: (The Basics)

Presented by:

Amanda Culp - Card Compliant LLC

Richard M. Zuckerman - Dentons US LLP

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 legal counsel.

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.

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


• General Purpose Reloadable (“GPR”)

• Payroll

• HSA

• FSA

• Rebate


• Travel

• Youth

• Mobile Wallets

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


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


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


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


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


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”


• 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.”


• 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.”


• 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.”


• 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.”


• 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

[email protected]

Richard M. Zuckerman, Esq.

Partner

Dentons US LLP

1221 Avenue of the Americas

New York, NY 10020

212.398.5213

[email protected]

Not Just for Retailers: Gift Cards & Stored Value Cards

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