In the first use of its authority to issue preemption determinations, the Bureau of Consumer Financial Protection reached two different results while determining whether federal law preempted unclaimed property laws relating to gift cards in Maine and Tennessee.
The federal Credit Card Accountability and Responsibility and Disclosure Act of 2009 prohibits the expiration of gift card funds within five years of issuance, among other requirements. But state laws in Maine and Tennessee allow for unused balances to revert to the state after two years.
Solicitation for public comment about the issue generated 20 comments, two from consumer advocacy groups and 18 from gift card issuers and trade associations – all of which agreed that the Bureau should determine whether both state laws were preempted. Industry groups noted the burdens of complying with both state and federal laws, as well as the potential for constitutional due process concerns when issuers must honor cards held by consumers and then seek reimbursements from the state pursuant to state escheat laws. The consumer groups expressed concern that consumers would not often succeed – or would not even try – to reclaim their property if required to retrieve unused value from the state rather than the issuers.
Emphasizing that it was relying upon the interpretation provided by Maine’s state treasurer that the law requires a holder must honor a gift card that has been presumed abandoned pursuant to the Act, the Bureau said the law should not be preempted. “Under the Maine Act, as explained by the State’s Treasurer, an issuer that has transferred the unused value on an abandoned gift card to the state must honor the gift card on presentation indefinitely, and may then request reimbursement from the state,” Director Richard Cordray wrote. “Because the Maine Act does not interfere with consumers’ ability to use their gift cards at the point-of-sale for at least as long as they are guaranteed that right by [federal law], the Bureau has determined that there is no basis for concluding that the provisions in Maine’s unclaimed property law relating to gift cards are inconsistent with, or therefore preempted by, federal law.”
The agency reached a different conclusion with regard to the Tennessee law, however, which does not require issuers to honor cards after funds have been transferred to the state. Consumers would be forced to submit an unclaimed property claim with the state to recover their funds and would likely have to wait at least several weeks to receive their property, the CFPB said. Therefore, Tennessee’s statute “is inconsistent with federal law because, by permitting issuers to decline to honor gift cards as soon as two years after issuance and relieving them of liability to consumers for the property, the effect of this provision is to permit cards and their underlying funds to expire sooner than is permitted” under federal law.
To read the CFPB’s determinations, click here.
Why it matters: In the discussion of both laws, the Bureau noted that its determination reflected communications with the state authorities and could change if the interpretation of the statutes changes. “If legislative, judicial, or other official action effected a relevant change” in how the states applied their gift card laws, “the Bureau could revisit its determination.” Now that the determinations provide clarity about how to handle gift cards in Maine, issuers in the state will now face administrative difficulties when they must honor gift cards presented at the point-of-sale and then seek reimbursement from the state.