Cycling-fitness company SoulCycle Inc. (SoulCycle) recently agreed to pay up to $9.2 million to settle a class action suit arising out of its fast-expiring “gift cards.” Plaintiffs alleged that SoulCycle defrauded customers by forcing them to purchase “gift certificates” for classes that were subject to short expiration windows, as opposed to allowing customers to pay for classes with cash or credit. Plaintiffs claimed that this practice resulted in SoulCycle’s ability to keep all unused balances on such certificates. Specifically, the class action alleged that such practices were in violation of the U.S. Electronic Funds Transfer Act (EFTA) and California’s Unfair Competition Law (UCL).

SoulCycle attempted to toss the suit, arguing that it sold packages of classes, which were subject to expiration. SoulCycle argued that classes were not the equivalent of gift cards and should not have been characterized as such. The court was unpersuaded and the case survived SoulCycle’s motion to dismiss.

Plaintiffs and SoulCycle have agreed to settle the dispute for up to $9.2 million. The terms of the settlement allow class members to receive $25 back for two cycling classes, or, alternatively, to have two classes reinstated by the studio chain. SoulCycle also agreed to changes its policies to ensure consumers understand that purchasing a class or series of classes does not constitute the purchase of a gift certificate/card.

TIP: Gift card/certificate expiration dates are regulated on both the federal and state level, with some states prohibiting expiration dates altogether. Advertisers should keep in mind that a purchase instrument not marketed as a gift card/certificate may still be subject to federal or state regulation under such laws if the instrument functions in the same manner as a gift card/certificate.