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'Domino Effect' Expected as Gift Card Issuers Pull Out of New Jersey

By J. Craig Shearman
Washington Retail Insight
April 12, 2012

One of the nation’s largest gift card issuers and two of the biggest companies that distribute gift cards for retailers are pulling out of New Jersey, citing a controversial new state law requiring merchants to collect zip codes from card purchasers and turn over unused balances after two years.

American Express said that since it sells its cards through a number of third parties it is “not able to ensure compliance” with the requirement to collect zip codes. The company began pulling cards from New Jersey store shelves several weeks ago and completed the job last week.

Blackhawk Network and InComm, which together distribute more than 175 brands of gift cards to more than 3,800 retail locations in New Jersey, both said they would pull their cards in June.

The New Jersey Treasury Department responded to the moves by issuing a statement saying the state wants to claim unused gift card funds so the money can be returned to consumers rather than being kept by card issuers. But Blackhawk and InComm said the law isn’t necessary.

“Every penny of value represented by an unused card in Blackhawk Network’s program is available to the consumer forever, even without the state’s intervention,” Blackhawk President Talbott Roche said. “No one has to go through extensive government paperwork and process to regain access to them.”

“We are very concerned that our New Jersey consumers will not have continued access to their gift card funds,” InComm President and CEO Brooks Smith said. “States should not have the right to remove funds from an unexpired gift card.”

InComm noted that under federal law gift cards cannot expire in less than five years, and that most major gift cards no longer have expiration dates.

Like Amex, InComm said it could not guarantee that retailers selling its cards would be able to comply with the zip code requirement, citing a survey showing more than 90 percent of state residents are opposed to disclosing personal information. Blackhawk said collecting zip codes could jeopardize consumer privacy, slow down checkout lines and “may not be relevant” in identifying the owner of the cards since gift cards are meant to be given away.

New Jersey Retail Merchants Association President John Holub said other card issuers are also expected to leave.

“I have had conversations with numerous retailers who have made the decision that should the zip code requirement go into effect, that they will pull their cards,” Holub said. “I am fearful that it’s going to be a significant domino effect.”

A number of states include gift cards under their unclaimed property laws, but New Jersey is believed to be the first requiring merchants to collect zip codes. Doing so is intended to allow the state to distinguish New Jersey residents from non-New Jerseyans, with issuers required to turn over unused balances only on cards sold to state residents. But collecting the data would require retailers to spend millions of dollars to upgrade cash registers and other point of sale equipment, retrain clerks and set up systems to securely store the data.

Holub’s association filed a federal lawsuit that was successful in having some portions of the law thrown out, but the zip code provision has been upheld and a judge recently lifted an injunction blocking it from being enforced.

Merchants who don’t comply face penalties of $200 a day up to $100,000. But the law isn’t clear on whether those penalties apply per company, per store or per card, potentially exposing a retailer to millions of dollars in fines.

© 2012 National Retail Federation

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