CFPB: Gift Card Issuers Must Honor Cards after Funds Escheat to State (May 2013)
The Consumer Financial Protection Bureau (CFPB) recently published a final determination regarding whether the unclaimed property laws of Maine and Tennessee relating to unredeemed gift cards are inconsistent with and preempted by the gift card provisions of the Electronic Fund Transfer Act and Regulation E. In its ruling, the CFPB determined that Maine’s unclaimed property law as applied to gift cards is not inconsistent with federal law, and therefore no preemption was found. With respect to Tennessee’s unclaimed property law, however, the CFPB ruled in favor of preemption but only with respect to the provision permitting issuers to choose whether to honor an unclaimed gift card after the underlying funds have been escheated to the state.
|Read Margo Hirsch Strahlberg’s Paybefore Blog on the decision.|
What this means to gift card issuers is they must honor gift cards even after the underlying funds have escheated to the state.
The CFPB’s determination with respect to Tennessee focused on section 66-29-116 of the Uniform Disposition of Unclaimed Property Act, which provides that a gift card issuer is relieved of all liability with respect to a gift card after the unused value is transferred to the state and to the extent of the value transferred for any claim that may later arise with respect to the gift card. The CFPB treated Tennessee law differently than Maine’s law, finding that despite the extensive similarities in statutory language, Tennessee’s unclaimed property law does not require an issuer to honor an abandoned gift card after transferring the card’s unused value to the state. Rather, section 66-29-116 provides that a person that has transferred a gift card’s unused value to Tennessee has the option of (i) honoring the cards and then requesting reimbursement from the state or (ii) not honoring the cards because the funds have already escheated to the state.
In its analysis, the CFPB decided that the Tennessee provision effectively acts as an expiration date to what otherwise should be easy point-of-sale access to a gift card’s underlying funds. The CFPB acknowledged that complying with both federal law and applicable state law imposes “possibly burdensome” obligations on gift card issuers. Yet above all else, the CFPB was concerned with consumers’ ability to use their gift cards.