District Court Holds Gift Cardholders Suffer No Damages from Inability to Apply Unexhausted Balances

Payment Systems Gift Cards

On August 17, the U.S. District Court of the Southern District of New York dismissed a putative class action alleging deceptive sales practices under New York law against gift card distributors. Preira v. Bancorp Bank, No 11-1547, 2012 WL 3541702 (S.D.N.Y. Aug. 17, 2012). The plaintiff alleged that the defendants advertised that the gift cards could be used like debit cards, but that in fact merchants would not allow cardholders to conduct split transactions where the card was used to pay for a portion of a transaction and other means were used to pay the remaining balance. This restriction, the plaintiff claimed, prevented cardholders from completely depleting the value of the gift cards. The court rejected the plaintiff’s claim, holding that she failed to allege a cognizable injury because (i) some merchants do accept split transactions, (ii) the cardholder agreement provides that cards can be returned to the issuer in exchange for the unused balance, which never expires, and (iii) even if the damages are not based on the loss of the remaining value of the cards but on misleading statements that lead cardholders to believe the cards function like debit cards, the plaintiff failed to allege that debit cardholders can make split purchases at any retailer and, in any event, deception itself, without further injury, is not a cognizable harm under state law.