Ad Law Access : Washington D.C. Advertising Lawyer & Attorney : Kelley Drye & Warren Law Firm : New York, Chicago, Connecticut, New Jersey, Brussels

This week, a California Superior Court approved a settlement agreement in a class-action lawsuit alleging that Amway Corporation and its related companies violated gift card laws. Amway’s gift cards included a notation instructing consumers to "redeem before" a certain date. The plaintiffs argued that this notation violated a California law that prohibits expiration dates on gift cards. As part of the settlement, Amway agreed to stop using the “redeem before” language and to allow consumers to redeem or replace more than $20 million worth of expired gift cards.

Approximately half the states have laws that either restrict or prohibit expiration dates, and a federal law mandates that gift cards must be valid for at least five years. As we’ve noted before (click here, for example), consumers and plaintiffs' lawyers are taking a close look at how gift cards are marketed and sold and have been quick to file lawsuits against perceived violations. Companies should examine their gift card offers in order to evaluate their risk of being a target of these types of suits. 

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Last month, consumers filed a class action lawsuit against Groupon, alleging that the company’s deals violate California and federal gift certificate laws. This month, a similar lawsuit was filed against LivingSocial, alleging that the company’s deals violate Washington and federal gift certificate laws.

Approximately half the states have laws that either restrict or prohibit expiration dates. In addition, a recent federal law requires gift certificates to be valid for at least 5 years. The plaintiffs in these cases are arguing that the Groupon and LivingSocial deals constitute gift certificates and that the expiration on the deals violate federal and state laws. In addition, the plaintiffs in the LivingSocial lawsuit are arguing that the no cash back provision on the company’s deals violates a Washington law that requires issuers to give cash back, under certain circumstances.

These lawsuits demonstrate that plaintiff’s lawyers are attempting to stretch gift certificate laws to cover various types of offers that don’t fit the traditional mold of gift certificates. Companies should take a close look at any offers that combine pre-payment with an expiration date in order to evaluate their risk of being a target of these types of suits. 

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This post was written by Gonzalo E. Mon and David J. Ervin.

Last week, the Federal Reserve Board announced final rules that restrict the application of fees and expiration dates to store gift cards, gift certificates, and general-use prepaid cards. The rules are issued under Regulation E and become effective August 22, 2010.

The rules apply to gift certificates, store gift cards, and general-use prepaid cards, as those terms are defined in the Credit CARD Act. Covered products include retail gift cards, which can be used to buy goods or services at a single merchant or affiliated group of merchants, and network-branded gift cards, which are redeemable at any merchant that accepts the card brand. The rule does not apply to other types of prepaid cards, including reloadable prepaid cards that are not marketed or labeled as a gift card or gift certificate, and prepaid cards received through a loyalty, award, or promotional program.

The rules prohibit imposition of dormancy, inactivity, or service fees unless (1) there has been at least one year of inactivity on the certificate or card, (2) no more than one such fee is charged per month, and (3) the consumer is given clear and conspicuous disclosures about the fees. The rules also prohibit the sale or issuance of a gift certificate, store gift card, or general-use prepaid card that has an expiration date of less than five years after the date a certificate or card is issued or the date funds are last loaded.

Keep in mind that in addition to the new federal rules, gift cards are subject to a patchwork of state laws. Indeed, the new rules provide that a state law is not preempted due to inconsistency with federal law if the state law is more protective of consumers. Unfortunately, then, issuers still need to make sure that any cards that are marketed across the country comply with all of the relevant state laws.

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Skype, a service that lets consumers make phone calls online, agreed to settle a class action that challenged the company's policy of expiring credits that were older than 180 days. While Skype is free for consumers who call each other over the internet, there are fees associated with various additional features. To use these features, consumer can purchase “credits.” However, if a consumer’s account remains inactive for more than 180 days, the credit is wiped out.

The plaintiffs argued that the Skype credit is essentially a gift card, and that imposing an expiration date or inactivity fees violates laws in various states. As part of the settlement, Skype will pay $1.8 million toward a settlement fund, which will provide eligible class members with electronic vouchers for Skype credit of up to $4 each. Skype also agreed to do away with its 180-day expiration policy. More information about the settlement is available on this website.

If your company sells credits for your services, check with your legal counsel before imposing expiration dates on the credits or using any mechanism that could deplete the number of credits in a consumer’s account. Gift card laws in certain states may be broad enough to apply to your credits and could restrict your ability to deplete or expire the credits.
 

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