Coronavirus

Regulations on Gift Cards Make It Harder To Support Local Businesses in a COVID Crunch

Restaurants and shops are already suffering enough.

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From celebrities to the local chamber of commerce, everyone is urging us to ease small retailers' misery by buying gift cards from our favorite local shops and restaurants. Not only will we give ourselves something to look forward to after things reopen, but we'll be helping hard-hit small businesses make it past the cash crunch.

I'm the last one to discourage these gestures. I wish I could be like the generous benefactor who spent $82,000 on gift cards from a grocery store and two restaurants in Earlham, Iowa, population 1,450, then sent local households $150 worth apiece.

But one note of caution, especially if you're a merchant thinking of issuing gift cards for the first time. Gift card regulations are, as Bloomberg Law once put it, "the gift that keeps giving…to lawyers."

Especially in litigation-friendly states, such as California and Illinois, private attorneys stand ready to file freelance suits claiming that you didn't get the practices or disclosures right on expiration or fees or "dormancy" or balance refunds and will need to cough up a class action settlement. (The lawyers' fees, of course, will be payable in cold cash, not card credits.) But no state is a safety zone, thanks to federal law. When the national government waded into the already crowded field with its own 2009 consumer protection statute, it heeded progressives' wishes by layering its new gift card rules on top of the varied state rules, rather than replacing or pre-empting them.

Where the rules aren't explicit, there are lawyers eager to exploit the ambiguities. Disability law, for example, is silent on whether you need to issue at least one version of your card with a Braille translation, but that silence has not prevented eager attorneys from filing hundreds of lawsuits claiming that cards aren't accessible to the blind under the Americans with Disabilities Act and its state equivalents. So be prepared to write out another settlement check for that if need be.

Happily, that federal law did exempt some kinds of store cards, notably those issued in paper format only. (Good news for those businesses whose customer relationships still haven't moved online.) Likewise, smaller businesses probably don't need to worry much about one of the more esoteric gift card legal exposures: the fact that federal financial regulators see them as a dangerous method of money laundering and are ready to prosecute high-dollar dealings. If you're a local business that issues cards in small denominations only, and if you don't let any single purchaser spend $10,000 or more on them, you're probably OK on this front.

I've saved the worst for last. It's the obscure realm of state-level legal authority known as unclaimed property law, or "escheatment." According to some state governments—Delaware is the most zealous about this, but other states have joined in—a gift card that never gets redeemed isn't just a pleasant windfall for the merchant. It's a form of "unclaimed property," just like a bank account or stock share whose original owner loses or abandons it.

That means all of it—the whole sum—becomes the property of the state.

States like Delaware send in audit teams that calculate how much outstanding gift card obligation is on your books and apply complex formulas to guess what portion of it is likely to go unredeemed. They then demand that you pay that sum to them, not to any customer. Even if you negotiate them down, you'll probably be writing checks to your accountant and your lawyer.

That casts a particularly bleak light on one of the kindest motives for buying a gift card from a struggling small business. Were you thinking you might throw it in the back of a drawer and never get around to using it at all, as a kind of tip to an enterprise that has brought you happiness over the years? Depending on what state you live in, you might actually be tipping your state tax authorities. The merchant you wanted to help would instead get hassled.

This would be a good time for lawmakers to revisit both the overregulation of gift cards in general and the application of unclaimed-property law to them in particular.

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  1. Right, so the shining knights of retail were not eating away the value of gift cards to nothing

    regulation rarely gets created in a vacuum

    retailers were ripping people off, they get what they deserve

    If they had never done that, regulation would never have happened

    1. regulation rarely gets created in a vacuum

      That’s true, but not for the reason you think. Regulations are often created to benefit or privilege certain constituencies.

      1. Fair enough
        But in this particular case the constituency was the average consumer

        1. No actually the constituency is the illiterate and foolish.

        2. Actually, the constituency is likely trial lawyers and big box stores. The former use it to extract more wealth, the latter use it to combat competition.

        3. “…But in this particular case the constituency was the average consumer…”

          You.
          Are.
          Full.
          Of.
          Shit.
          The constituency is the Trial Lawyers Association, you fucking lefy ignoramus.

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    2. Yeah, don’t steal, the state hates the competition

  2. “escheatment”

    “Cheat” is a big part of that word for good reason.

    Government is nothing more than a giant and elaborate switchblade and mask and all in government are nothing more than muggers. Government was devised as a bandit’s weapon and disguise and that is all that it ever can be.

  3. God… I’m so disappointed. In the midst of the government mandating that everyone stay home in the middle of a pandemic, I thought libertarians would be sticking their dicks out and calling for overthrow of the government and bringing their guns to the local constable’s office. Instead we’re left jerking our dicks around (which is different… trust me!!) arguing about gift cards. Where’s my revolution and when does the libertarian vanguard take over the government with their superior firepower? THis is what the whole 2nd amendment is all about! I mean– for fuck’s sake– if not now, when?

    1. Always lusting for violence, but not wanting to participate.

    2. I’d love to overthrow my state and local governments, but we don’t have constables here.

      There’s always an obstacle.

    3. “…sticking their dicks out…”

      Our lefty deadbeat shitbag has some serious fascination with others’ dicks, it seems.
      It sort of suggests a bit of ‘compensation’…

  4. You think communist anarchists would act the same way that the libertarians on this comment board are reacting? Some fascist asshole showed up at their protest once and they beat him down so bad he had to run the his twitter mommy and complain about his brain bleed. Let that be your example, right-wingers. Geesch, stop acting like a bitch!

    1. You think communist anarchists would act the same way

      The ones who let their familes be taken to be lined up against a wall and shot?

    2. “You think communist anarchists would act the same way that the libertarians on this comment board are reacting?..”

      No, shitbag, they’d be on their knees asking what the supreme leader wants them to do now.
      Fuck off and die.

  5. federal financial regulators see them as a dangerous method of money laundering …. If you’re a local business that issues cards in small denominations only, and if you don’t let any single purchaser spend $10,000 or more on them, you’re probably OK on this front possibly guilty of “structuring”.

  6. Beware conflation of ‘escheatment’, the permanent surrender of funds to the state from counties’ administration of estates, and ‘unclaimed property’, which remains the property of the owner but relocated to state custody. in Texas, at least, the balance of unspent gift cards is still stored at the individual level and can be reclaimed at any time the customer provides the card. The state does not collect balances until after three years of inactivity, so plenty of time to buy cards now and let the covid wave ride out. Considering this allows cardholders to reclaim their money even if a business is gone, it’s a reasonable protection of consumers.

    1. Which is all well and good for businesses that go under, but once the business is gone the state can’t take possession of the funds, meaning the law can only be applied to businesses that are still operating. And of course when you show up with your gift card the business is out the money twice over, once when the government collected it and again when you redeemed your card (the original money they received is of course long since spent riding out the pandemic)

      1. Oh no, a business won’t pay a customer for a card reported to Unclaimed Property, so there’s no danger of double payment. Since customers often discover lost cards years after acquiring them, there can be an advantage for the customer in holding the funds somewhere that they won’t be absorbed into bankruptcy.

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