IGCC Analyzes Gift Card Legislation in California
By Deanna Ting
February 27, 2013
In the most recent edition of The Incentive Federation’s
Winter 2013 newsletter, George B. Delta, executive director and counsel for The Incentive Federation, penned an update on cash refund requirements for gift cards. Delta says that a total of 10 states — California, Colorado, Maine, Massachusetts, Montana, New Jersey, Oregon, Rhode Island, Vermont, and Washington — have enacted legislation that requires gift card issuers to provide cash back to holders in certain cases. In particular, he writes, California’s legislation poses some noteworthy questions about this type of legislation.
California, Delta writes, is the most generous when it comes to these policies. Gift card issuers must provide cash back to gift card holders for any card with a remaining value of $10 or less, although cash redemptions do not apply in certain cases.
Delta writes, “While the cash redemption trend is an understandable effort to protect consumers from themselves, it has created a great deal of extra work and potential problems for merchants. The California law is especially noteworthy in that the state has been very extra-territorial in applying its laws. In the past, the state has asserted that its law would apply in the following contexts: (1) if a product is bought outside the state and sent to a resident as a gift, (2) if a product is bought from a resident and sent to another state, or (3) if someone bought a product from one state (for example, New York) and sent it to an-other state (perhaps Virginia), and the transaction took place in California through a telephone operator or computer server. Thus, merchants may be required to apply California law requiring a right of cash redemption even if the connection with that state is remote or tangential. Moreover, the requirement that the merchant provide cash back if the value of the card falls under $10could create a problem for merchants if low-denomination gift cards are purchased with stolen credit cards and redeemed after a small purchase. Resellers also face the prospect of paying commissions on the full face amount of the card when they may have collected something less than that amount for the original sale.”
Delta says that, going forward, the industry needs to keep a close eye on this cash-back trend as consumer protection may create “unforeseen problems for merchants.”
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