• Retail -- Gift Cards May Have Strings Attached
  • November 9, 2005 | Author: Lee R. Dickinson
  • Law Firm: Baker, Donelson, Bearman, Caldwell & Berkowitz, PC - Nashville Office
  • From financing to changes in eminent domain to labor issues, the retail sector often seems as though it requires counsel to be jacks-of-all-trades. In-house counsel must be nimble to keep their companies competitive and secure on a series of fronts. Honing the focus on the following issue will help counsel be prepared to handle the challenges ahead.

    Retail gift cards and stored-value cards continue to gain popularity among consumers. Retailers benefit from early realization of revenues as well as possible added profit from non-redemption.

    Many states directly regulate the sale and issuance of gift and stored-value cards. These laws often govern expiration dates, dormancy charges and the substance and placement of disclosures on the card. However, several other areas of law may inadvertently regulate a particular card program.

    • "Money transmitter" or "sale of checks" laws require licensure and minimum solvency standards for those selling or issuing payment instruments. Generally, if a card is redeemable only for goods or services of the issuer (a "closed" card system), these laws usually are not applicable. If, however, the issuer's cards may be redeemed at various retailers (an "open" card system), money transmitter laws may be a factor.

    • If a card issuer collects personally identifiable information about the card holder, Gramm-Leach-Bliley Act compliance may be required. This act mandates implementation of certain security safeguards, providing notice of the issuer's privacy practices and strict prohibition of disclosure of financial information to third parties without consent.

    • Abandoned property laws also may come into play. Under these laws, unclaimed property (such as the value of prepaid stored-value cards) must be paid to the state, as custodian for the owner, after a statutory dormancy period.

    Remember these issues when launching or changing a gift or stored-value card program. In addition, consider the impact of banking and money-laundering laws. As the use of gift cards continues to grow, new legal issues will arise.