Gift card lawsuits can be avoided – here’s how

Many brands launch gift card programs for all the right reasons: to increase sales, acquire new customers, brand recognition and customer loyalty. Not to mention, consumers love them, with 80% saying they plan to buy more gift cards in 2022. The responsibility for your gift card program usually lies with the marketing department. For newer gift card programs, the program is just one of many responsibilities, while larger, more established programs may have a dedicated gift card manager with a small team.

The goal of a gift card program may seem simple: to establish sales at your own brand’s outlets and online store. But there can be many additional benefits, including capturing additional sales by selling to corporate buyers through programs like employee incentives, rewards, and loyalty, or leveraging third-party sales channels like as grocery stores, pharmacies and online marketplaces.

Once you have a gift card program in place and take advantage of the many benefits it can bring, the program may represent up to 5% to 10% of your brand’s revenue and it even becomes a line item in your company’s budget. financial.

If your business is like most, one very important aspect of managing your gift card program may be overlooked, or at least not given the attention it deserves: state regulatory and legal compliance. As a growing number of brands have learned firsthand, this oversight can cost your business millions, if not tens of millions, of dollars.

Track state compliance

One of the hardest parts of running a gift card program is keeping up with the ever-changing 50 state laws and regulations that may impact your gift card. The drudgery of staying current with, interpreting and then adjusting your gift card program’s operating procedures is a huge burden, especially when internal legal and compliance resources are, and should be, focused on your core business. job.

Over the past year, the industry has seen several multimillion-dollar lawsuits filed and settled against well-established brands such as Dunkin’ and H&M. So how do you protect yourself from the nightmare of state audits, litigation and judgments?

The first question to ask yourself is what national laws and regulations apply to your gift card program. Unfortunately, for brands selling in all 50 states, the answer is that all 50 states must be analyzed and considered by your legal team. If you’re not selling nationally, you should start with the state where your parent company is domiciled and then focus on states where your brand has outlets or sells online.

Areas of analysis should include unclaimed state property laws, also known as escheat. Escrow laws vary widely from state to state and dictate how and when unused funds from your gift cards should be processed. Further complicating this matter are priority rules, which were established by the federal government and outline state escheat laws that apply to individual cards based on your business location, where your gift card was sold and where the cardholder resides.

In addition to escrow laws, several states have created consumer protection laws that govern certain aspects of your program, ranging from when and how cash refunds must be provided to cardholders to information required in terms and conditions of your program. All of these laws must be considered in your customer service, operations, and enforcement procedures, or your program runs the risk of costly lawsuits or state action.

As states seek to protect residents and find sources of revenue, it’s critical to understand and apply these laws to protect your program from potentially large fines. A lack of understanding of these laws or incorrect interpretation has led to dozens of state audits and lawsuits in recent years.

Don’t Forget Federal Regulations

Finally, though less overlooked, there are federal laws and regulations, such as The Credit Card Accountability Responsibility and Disclosure (Credit CARD) Act, that will impact the expiration date and fees that may be charged to your cards. –gifts. There are also Federal Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations that need to be considered.

These considerations can be overwhelming and daunting – any brand just has to decide not to go ahead with a giveaway program. The good news is that there are solutions to help alleviate these challenges and ensure the success of your gift card program. Here are some recommended next steps:

  1. Consult your internal legal and compliance departments. However, it is also recommended to consult external legal experts to get the full picture. There are many law firms specializing specifically in closed-loop gift card laws that can offer expertise and advice.
  2. Join the Retail Gift Card Associationalso known as RGCA, which provides an extensive list of resources, including periodic legal and regulatory updates.
  3. Outsource your program to a gift card issuing and management partner to avoid having to pay for it yourself. Gift card management partners can assume escrow liability and have the expertise to navigate and comply with state consumer protection laws, as well as federal laws.

Gift card programs are an important marketing strategy for brands and can have a significant impact on your bottom line. However, don’t rush into a program without making sure it complies with federal and state laws and regulations, or the benefits could be outweighed by the legal and financial consequences.

NOTE: The information in this article is provided for informational purposes only and should not be construed as legal advice on any subject. You should not act or refrain from acting on the basis of any content included in this article without seeking advice from an attorney or other professional.

Dave Jones is the CEO and co-founder of ALL. His background has been primarily in the payments and e-commerce industries in which he has over 20 years of experience and three successful entrepreneurial exits. Jones’ most recent role was as managing director of the digital and incentive divisions of Blackhawk Network, a leading global gift card provider acquired by Silverlake Private Equity in 2018..

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