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New York Gift Card Escheat Decision, Rebate Update, and California Fax Law

New York Court Rules on Expired Gift Cards

A state court in New York has ruled that gift card issuers must turn over to the state as unclaimed property any unused amount on an expired gift card five years after the date of the last use. Kimberley’s A Day Spa in Latham, New York, filed suit challenging the state comptroller’s determination that it had to report and turn over to the state the unused amounts on gift cards after five years in accordance with the state's unclaimed property statute (Abandoned Property Law Section 1315) even if they expired before that date. (New York law allows gift cards to have an expiration date, if certain disclosures are made.) Kimberley’s argued that the state’s decision interfered with its contract with the gift card purchaser, namely that a gift card purchaser relinquishes ownership to any amount remaining on the gift card when it expires and that the gift card issuer is entitled to the profit it expects to make from unused gift cards that expire. The court disagreed and ordered Kimberley’s to escheat the amount on unused gift cards to the state.

This ruling is consistent with the approach of many other states in treating unused gift card balances as escheatable even on previously expired gift cards.

New York Enacts Rebate Law and Sen. Schumer Asks FTC to Investigate Rebate Policies

New York enacted Assembly Bill 8436 regulating rebate offers and fulfillment. The new law, codified at General Business Law 391-p, will take effect September 1, 2006, and will require companies that offer rebates to provide rebate redemption forms directly with the product or at the same location and at the same time that the consumer purchases the product. If a company does not provide a rebate redemption form directly with its product, it may supply the retailer with either a sufficient quantity of rebate forms or the means to create a rebate form prior to or at the time and place of sale. For Internet sales, a company can comply with the law by providing a rebate redemption form on its web site. For telephone sales, a company can provide the rebate form on a web site or can send the form to the consumer by mail, email, or fax according to the consumer’s choice.

A company must allow a consumer a minimum of 14 days from the date of purchase to submit a rebate redemption form, and a company must mail a rebate check to the consumer within 60 days of receiving a redemption form meeting the terms and conditions of the rebate offer. Penalties for violating the new rebate law include fines of $100 - $1,000 for each violation.

Senator Charles Schumer from New York has also asked the Federal Trade Commission to investigate company rebate policies and to standardize rebate procedures. Specifically, Schumer requested that the FTC adopt the following rebate polices:

  • Companies must provide consumers at least 30 days to redeem their rebates and must fulfill the terms of the rebate within the same amount of time required of consumers but should not exceed 60 days;
  • Companies must take steps to send the rebate check in a manner which identifies the piece of mail as the expected rebate check (so consumers do not think it is junk mail and throw it out);
  • Companies must accept copies of receipts, not just originals;
  • Companies cannot require consumers to write identifying information on the rebate form unless the receipt does not identify the purchased product;
  • Companies offering rebates may not require information that is not necessary to process the rebate, including information other than name, address and phone number;
  • Companies must provide telephone numbers or contact information for rebate inquiries so consumers are able to check on the status of their rebates.

Court Delays Enforcement of California’s Commercial Fax Law

A federal court has delayed the enforcement of California’s new commercial fax law while it hears arguments challenging the law. The new law, which was scheduled to take effect January 1, 2006, did not contain an established business relationship exemption, unlike the new federal Junk Fax Prevention Act, and, thus, would require faxers to have recipients' written consent prior to sending them faxes. The California law purportedly applies to faxes sent from California to other states as well as faxes sent into California from other states. The U.S. Chamber of Congress has challenged the interstate application of the law. At the same time, an industry trade group has asked the Federal Communications Commission to rule that federal law regulating commercial faxes preempts state laws that attempt to regulate interstate faxes. (Please see our December 2005 and October 2005 alerts on the federal and California junk fax laws.)

This client alert is a publication of Loeb & Loeb and is intended to provide information on recent legal developments. This client alert does not create or continue an attorney client relationship nor should it be construed as legal advice or an opinion on specific situations.

Circular 230 Disclosure: To assure compliance with Treasury Department rules governing tax practice, we inform you that any advice (including in any attachment) (1) was not written and is not intended to be used, and cannot be used, for the purpose of avoiding any federal tax penalty that may be imposed on the taxpayer, and (2) may not be used in connection with promoting, marketing or recommending to another person any transaction or matter addressed herein.