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Financial Services Law Insights and Observations

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  • FTC to release quarterly consumer complaint data; agency highlights rise in gift card scams

    Consumer Finance

    On October 16, the FTC announced the launch of a new interactive online format that will release aggregated consumer complaint data on a quarterly basis. The interactive dashboards explore aggregated statistics about fraud, identity theft, and other consumer protection problems, and also provide a state-by-state breakdown of issues. As part of the new initiative, the FTC’s Consumer Protection Data Spotlight focuses on the rise in consumer complaints concerning gift card scams, which are now the most reported method of payment for imposter scams. According to the FTC, fraud report payments using gift and reload cards experienced a 270 percent increase (from 7 percent up to 26 percent), which can be attributed to quick access to cash, largely irreversible transactions, and anonymity. As of September 2018, the FTC reports that reported losses involving the use of gift and reload cards has already reached $53 million.

    Consumer Finance FTC Consumer Complaints Gift Cards

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  • Arizona prohibits gift card fees and certain expiration dates

    Consumer Finance

    On April 17, the Arizona governor signed SB 1264, which prohibits the issuance or sale of gift cards in Arizona that are subject to fees or certain expiration dates. Arizona previously allowed gift cards to be subject to an expiration date, a fee, or both as long as the relevant information was clearly and conspicuously disclosed to the consumer before the purchase was made. SB 1264 prohibits gift cards from begin subject to a fee and prohibits the underlying money on a gift card from being subject to an expiration date. The law allows an expiration date with respect to the card, code, or device associated with a gift card, only if the gift card contains a clear and conspicuous disclosure that the underlying monies associated with the card do not expire and the consumer may obtain a replacement. The prohibition on gift card fees and expiration dates does not apply to (i) gift cards that are sold below face value or donated to nonprofit or charitable organizations; (ii) gift cards distributed pursuant to an awards, loyalty, or promotion program when the consumer has given no money or other property in exchange for the card; and (iii) cards for prepaid telecommunications services, electronic funds transfer cards, bank-issued debit or general purpose reloadable prepaid cards not marketed or labeled as gift cards or gift certificates. The law becomes effective 91 days after the end of the legislative session.

    Consumer Finance Gift Cards Fees State Legislation

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  • OIG for U.S. Postal Service Probes Expansion Into Financial Services

    Consumer Finance

    On May 21, the Office of Inspector General for the U.S. Postal Service (OIG) issued a report titled, “The Road Ahead for Postal Financial Services.” The report follows a January 2014 white paper issued by the OIG, which explored how the U.S. Postal Service could expand its provision of financial products to underserved Americans. The report summarizes five potential approaches for increasing the Postal Service’s financial services offerings, including: (i) expand current product offerings, which include paper money orders, international remittances, gift cards, and limited check cashing, as well as adjacent services  (e.g., bill pay, ATMs); (ii) develop one key partner to provide financial services offerings, including possible expansion to general purpose reloadable prepaid cards, small loans, and/or deposit accounts; (iii) develop different partners for each product; (iv) make the Postal Service a “marketplace” for distribution of financial products of an array of providers; and/or (v) license the Postal Service as a financial institution focused on the financially underserved (although the OIG is not recommending this approach). Factors to consider when determining which approach to take, if any, include the legal and regulatory landscape; the effectiveness of cash management systems; dedication of the internal team, and public awareness of existing and potential services offered.

    Gift Cards Prepaid Cards ATM Remittance Check Cashing Deposit Products

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

    Fintech

    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.

    Payment Systems Gift Cards

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  • CFPB Seeks Input on Conflict Between State and Federal Gift Card Laws

    Fintech

    On August 16, the CFPB issued a Notice that it intends to make a preemption determination with regard to two state gift card laws. The CFPB is seeking public comment to inform its response to requests that the CFPB address conflicts between the EFTA’s gift card expiration provisions and those in Maine’s and Tennessee’s laws. The Notice explains that Maine’s and Tennessee’s laws presume gift cards to be “abandoned” and release businesses from the obligation to honor the gift cards after two years of inactivity, while federal law generally prohibits the sale of a gift card with an expiration date under five years. The CFPB requests public comment on whether there is any inconsistency between the identified state and federal expiration date provisions and, if so, on the nature of the inconsistency. The CFPB also seeks comment on whether card issuers could comply with the federal and state laws as they currently exist, and whether the Maine and Tennessee laws provide greater consumer protection than the federal law.

    CFPB Gift Cards EFTA Preemption

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  • New York Appellate Court Holds that Federal Law Does Not Preempt State Contract and Consumer Protection Laws in Gift Card Suit

    Fintech

    On April 17, 2012, the Appellate Division of the New York Supreme Court held that federal laws and regulations do not preempt state contract and consumer protection laws, reversing an earlier trial court decision dismissing a lawsuit concerning gift card expiration dates and renewal fees. Sharabani v. Simon Property Group, Inc., No. 2010-07552, 2012 WL 1320067 (N.Y. App. Div. Apr. 17, 2012). The plaintiff filed an action based on New York state law to recover damages arising out of a gift card that required a “reactivation fee” for use after its expiration date. The defendant, a federally chartered thrift that managed the gift card program, and its co-defendant moved to dismiss the lawsuit on various grounds, including that all of the plaintiff’s state law claims were preempted by federal law. The court held that although Office of Thrift Supervision (OTS) regulations permitted the issuance of gift cards with administrative fees, the OTS has explicitly stated that its regulations do not preempt state contract law, commercial law, tort law, or criminal law to the extent those laws are consistent with the OTS’s intent to occupy the field of federal savings associations’ deposit-related regulations. Based on this regulatory guidance, the court determined that only the claim based on New York’s abandoned property law was preempted by federal law because the OTS has specific regulations regarding abandoned accounts. The court affirmed dismissal of the abandoned property claim and remanded the remaining claims based on state contract and consumer protection laws to the trial court for evaluation under the remaining prongs of the defendants’ motion to dismiss.

    Class Action Gift Cards

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  • Third Circuit Upholds District Court's Order Enjoining Full Enforcement of New Jersey Gift Card Escheat Law

    Fintech

    Recently, the U.S. Court of Appeals for the Third Circuit affirmed the district court's decision to enjoin New Jersey from fully applying and enforcing its gift card escheat law. N.J. Retail Merchs. Assoc. v. Sidamon-Eristoff, No. 10-4551, 2012 WL 19385 (3d Cir. Jan. 5, 2012). Retailers challenged the constitutionality of a 2010 amendment to New Jersey's unclaimed property statute that provided for the custodial escheat of store valued cards (SVCs or gift cards). Under New Jersey's Chapter 25, SVCs are presumed to be abandoned after two years of inactivity and issuers are required to transfer to the state the remaining value on the SVCs at the end of the two-year abandonment period. In addition, issuers are required to obtain the name and address of the purchaser or owner of each SVC issued or sold and, at a minimum, maintain a record of the zip code of the owner or purchaser, and there is a presumption that the address of the owner or purchaser is the same as the address of the place where the SVC was purchased or issued. This latter provision has the effect of causing unused funds to escheat to New Jersey, rather than to the state where the card issuer is domiciled, when the last known address of the purchaser is unknown. In response to challenges under the Supremacy Clause, the Due Process Clause, the Commerce Clause, the Contract Clause, and the Takings Clause of the U.S. Constitution, the Third Circuit upheld the district court's preliminary injunction enjoining the retroactive application of Chapter 25 to SVCs redeemable for merchandise or services that were issued before Chapter 25's enactment. It also upheld the district court's preliminary injunction enjoining the prospective enforcement of the place-of-purchase presumption. The court, however, declined to prospectively enjoin the data collection provision or the two-year abandonment provision, finding that SVC issuers failed to show a reasonable likelihood of success on the merits of these claims and that the data collection provision is severable from the place-of-purchase provision.

    Gift Cards

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