|
Effective January 1, 2008, a gift card issued in California with a cash
value of less than $10 is redeemable in cash for its cash value. The cash payment can be made in the form of currency or a check, or, if accepted by both parties, in the form of an electronic funds transfer.
This change makes the California gift card law one of the most consumer-friendly gift card laws in the United States. In addition to permitting cash redemptions, the new law also prohibits the sale of gift cards that impose an expiration date or a service fee.
The prior gift card law provided that any gift card sold after
January 1, 1997 was redeemable in cash for its cash value or subject to replacement with a new gift card. See Cal. Civ. Code §1749.5(b)(1). Several class action lawsuits were filed under this law seeking a cash refund for gift cards, but some of the trial courts that have decided on the issue have held that Section (b)(1) did not require a payment of cash upon demand because the retailer had the alternative of issuing a new card. No appellate court has ruled on the issue.
In response to these decisions, the California legislature passed Senate Bill 250. The bill keeps the existing language in Section (b)(1), but adds a new provision, Section (b)(2), which clearly states that when a customer requests redemption for a card with a cash value under $10, cash payment is required.
It is possible the appellate courts may weigh in on the issue and interpret Section 1(b) as requiring cash refunds for cards with cash values of $10 or more.
California Joins Other States Requiring Gift Card
Cash Redemption
In enacting this change, California joins a handful of other states that require gift card cash redemptions, including Washington, Vermont, and Montana, but the laws in each of those states are more limited than the new California law in the cash redemption required.
Washington requires a cash redemption only if the gift card issuer has imposed a dormancy charge and the gift card has a cash value less than $5 after the dormancy charge has been imposed. Wash. Rev. Code §19.240.040. Vermont requires a cash redemption if the remaining value on the gift card is less than $1. Vt. Stat. tit. 8, §2704. Montana requires a cash refund if the gift card was issued for more than $5 but has a remaining value of less than $5. Mont. Code §30-14-108(4).
Bill Also Narrows Types of Cards Exempt from Regulations
California Senate Bill 250 also narrowed the types of cards that are exempt from the California gift card regulations. Prior to the bill’s passage, the California gift card restrictions did not apply to any gift card issued for “food products.” This exemption has been narrowed to “perishable” food products. According to the bill’s proponents, this change was necessary to clarify that this exemption was intended only for gift cards whose value was a named perishable food product, such as a turkey. Although the new law does not define the term “perishable food product,” a 2000 California Attorney General Opinion states that this exemption is intended to apply to grocery food items sold at a supermarket and not to gift certificates issued for meals at a restaurant. California Attorney General Opinion No. 00-701 (Oct. 23, 2000).
The only gift cards that are exempt from the California gift card regulations are (a) gift cards that are distributed to a consumer under an awards, loyalty, or promotion program without any money or other thing of value being given for the gift card; (b) gift cards that are sold below face value at a volume discount to employers or to nonprofit or charitable organizations for fund raising; and (c) gift cards for perishable food products. Also exempted are gift cards useable at multiple sellers of goods and services. For example, a card issued by a mall operator that is redeemable at multiple different stores in the mall is not subject to the California gift card regulations, including the cash redemption obligation.
Ensure Compliance with the New Requirements
Companies that have retail outlets in California will need to make sure
that they implement procedures to ensure compliance with the new cash redemption requirements. This will include educating sales people about the new redemption requirements, setting up internal procedures to issue and account properly for the cash redemptions, and reviewing existing gift card terms and conditions to ensure compliance with the new law.
JOIN US IN ORLANDO
AT THE IFA’S 48TH ANNUAL CONVENTION
On February 10, franchise attorneys from DLA Piper US LLP will conduct the 17th Annual Elements of Building a Successful Franchise Network workshop, sponsored by the International Franchise Association (IFA) at its 48th annual convention in Orlando, Florida. From exploring the basics of establishing a franchise system to understanding recent changes in law that could materially affect businesses, this event will help franchise professionals validate, fine-tune, and even revamp their business plans to address challenges today and in the future.
For more information about this event, please contact us here.
|
Global Web Site »
US Offices »
US Franchise and Distribution Practice »
DLA Piper has been hailed as the number one firm in
the world in the area of franchise law and is cited in Chambers USA: America’s Leading Lawyers for Business as the pre-eminent practice in the nation. Our clients come from numerous business sectors and range from entrepreneurs and start-up companies that are establishing new programs to the largest franchisors, manufacturers, and distributors.
For more information about the requirements surrounding cash redemption of gift cards in California, please contact:
Scott W. Pink
|
