Retailers Beware of the new New Jersey Gift Card Law

In the wake of the 2011 decision of the Third Circuit Court of Appeals in New Jersey Retail Merchants Association v. Sidamon-Eristoff, 669 F.3d 374 (3rd Cir. 2012), condemning a large portion of the New Jersey statute adopted in 2010 regarding gift cards, gift certificates, and other stored value cards, the New Jersey legislature amended the statute. S.B. (1928), Laws 2012, effective June 29, 2012. The statute removes some of the more objectionable provisions of the old law regarding stored value cards, which are defined broadly to include gift certificates, gift cards, and any other record (tangible or electronic) that reflects a promise, for money, by the issuer or seller that the owner of the record may obtain merchandise, services, and/or cash in the amount of the face value of the record. The statute, however, does add some strict prohibitions regarding stored value cards, and gift cards and certificates in particular. These prohibitions are such that a retailer that issues gift cards could be exposed to significant penalties unless it makes sure its practices conform to the requirements of this statute. At the same time, the law reduces the potential escheat of unredeemed gift cards. It also protects small issuers of stored value cards. A company that issues stored value cards of less than $250,000 per year is not subject to the escheat and consumer protection provisions of the New Jersey statute. Now for the details:

The features of the new law that are beneficial to retailers are that: (1) it repeals the provision of the old law that if the issuer does not maintain the address of the owner or purchaser of the stored value card, the value of the card must be escheated to New Jersey if the card was issued there; (2) it eliminates the requirement of the old law that the issuer obtain information about the gift card purchaser or owner, but instead requires that by July 1, 2016, the issuer maintain a record of the zip code of the owner or purchaser; (3) it extends the period of abandonment (i.e. an unredeemed gift card not claimed) from two years after issuance to five years; and (4) it requires escheat of only 60% (as opposed to 100%) of the proceeds of all stored value cards other than general purpose reloadable cards, which are cards issued by a bank or other financial institution.

Retailers are faced with three new provisions in the nature of “gotcha” clauses. The first requires that, for a valid expiration period or dormancy fee for a gift certificate or gift card, the issuer must disclose in 10 point font on the gift certificate or gift card, or the sales receipt or package for the certificate or card: (1) the expiration period or dormancy fee; and (2) a telephone number that the consumer may call for information regarding the expiration date or dormancy fee.

The second new feature is even more onerous. The issuer is required, for any stored value card that has a remaining balance of less than $5, to refund in cash the balance due upon request of the owner. Although there is no requirement for the retailer to advertise the consumer’s right to refund, or to disclose the same on the gift card, if the issuer fails to honor a gift card owner’s request to redeem, the penalties are severe. For each such instance, the retailer is liable for a penalty of $500 plus the remaining value on the certificate or card. If there are 100 or more violations during any 12-month period, the penalty is trebled to $1,500 per violation. The statute provides that the sole enforcement means for a violation of this section is a hearing before the Director of the Division of Consumer Affairs.

Finally, the new law prohibits the imposition of a fee in connection with stored value cards, except (1) activation or issuance fees of a card; (2) a replacement card fee with respect to lost or stolen cards; or (3) a dormancy fee of not more than $2.00 per month, but only for gift certificates or gift cards and only if the disclosure conditions described previously are satisfied.

In short, while the statute deletes some problematic features of the prior law and limits the escheat to 60% of the face value of the gift cards, it adds to the burden on direct marketers who issue gift cards, except for the small issuers of gift cards. The potential penalties for the unwary direct marketer are significant, so a gift card program should include protocol to make sure that the company satisfies this new law.

Posted by Martin Eisenstein