Tennessee's Unclaimed Property Statute.Section 66-29-135 of Tennessee's Uniform Disposition of Unclaimed (Personal) Property Act (the Tennessee Act) provides that a “gift certificate”16
issued in the ordinary course of an issuer's business is presumed abandoned if it remains unclaimed by the owner upon the earlier of: (1) The expiration date of the certificate; or (2) two years from the date the certificate was issued.17
A gift certificate is exempt from the Tennessee Act if the issuer of the certificate does not impose a dormancy charge and when the gift certificate (1) conspicuously states that the gift certificate does not expire; (2) bears no expiration date; or (3) states that any expiration date is not applicable in Tennessee.18
An issuer of gift certificates that Tennessee presumes to be abandoned as of the end of a calendar year must report and transfer the gift certificate funds to Tennessee by May 1 of the following year.19
Tennessee thereafter assumes custody and responsibility for the unclaimed gift certificates, and the issuer is relieved of all liability arising thereafter with respect to the property.20
A business that has transferred unclaimed gift certificate funds to Tennessee may elect to honor the gift certificate and may request reimbursement by filing a request with the State.21
The Bureau understands that, if an issuer were to decline to honor the gift certificate, the consumer could attempt to reclaim the funds by submitting an unclaimed property claim form to the Tennessee Department of Treasury. As is true for Maine, to properly submit an effective claim, the consumer would need to determine that Tennessee is the appropriate State to contact, which might not be obvious if the consumer lives and uses the gift certificate in another State. The Bureau does not have precise data concerning the amount of money that Tennessee collects each year in funds relating to unclaimed gift certificates. Given the limited card types that appear to be subject to Tennessee's law, however, the Bureau believes that the amount is likely to be relatively small.
16Pursuant to Tennessee's Consumer Protection Act, the term “gift certificate” excludes prepaid telephone calling cards and prepaid cards usable at multiple, unaffiliated merchants or at automated teller machines (i.e.,“open-loop” gift cards). Tenn. Code Ann. § 47-18-127(e) (2012). In this discussion of Tennessee's statute, “gift certificate” refers to the concept as used in Tennessee law. Aside from the exclusion for “open-loop” gift cards and prepaid telephone calling cards, the Bureau believes that “gift certificate” for purposes of Tennessee law generally includes gift cards and other similar electronic devices. However, the Tennessee definition of “gift certificate” may differ in some respects from that used in the EFTA.
Id.§ 66-29-113. The amount presumed abandoned is the price paid by the purchaser, except that for gift certificates issued after December 31, 1996, and redeemable in merchandise only, the amount presumed abandoned is sixty percent of the purchase price.Id.§ 66-29-135. The Bureau notes that a Tennessee trial court held in 2001 that Tennessee law requires transfer only of the right to claim merchandise by using the gift card (i.e., not transfer of funds).Service Merchandise Co.v.Adams,No. 97-2782-III, 2001 WL 34384462 (Tenn. Ch. Ct. June 29, 2001). The statute nevertheless appears to require the transfer of funds.
IV. Request for Comment
Pursuant to the EFTA, the Bureau intends to consider and address the requests received to determine whether the application of Maine's and Tennessee's unclaimed property statutes to gift cards is inconsistent with the EFTA and Regulation E. In making its determination, the Bureau will consider whether Maine's and Tennessee's statutes may afford consumers greater protection than Federal law. The Bureau invites interested persons to submit comment on all or any aspects of this notice.
Maine's and Tennessee's laws presume gift cards to be “abandoned” and release businesses from the obligation to honor the gift cards during a time period when, pursuant to Federal law, consumers should be able to use the cards. The Bureau seeks public comment on whether there is any inconsistency between these provisions of state law and the expiration date provisions of the EFTA and Regulation E and, if so, on the nature of the inconsistency. As a related matter, the Bureau solicits public comment on whether and how gift card issuers can comply with both Federal and State law, for example by honoring unclaimed cards and requesting reimbursement from Maine or Tennessee.
The Bureau further seeks comment on whether Maine's and Tennessee's unclaimed property statutes as applied to gift cards afford consumers greater protection than Federal law. For example, the Bureau notes that, once the funds corresponding to a consumer's unclaimed gift card transfer to Maine or Tennessee, those funds presumably are protected from the risk of loss in the event that an issuer later files for bankruptcy. Unclaimed gift cards that have transferred to Maine or Tennessee also should be protected from any inactivity fees that might otherwise be assessed on an unused card, to the extent permitted by Federal or State law.22
Finally, a consumer would have an indefinite opportunity to attempt to reclaim his or her unclaimed gift card funds from the State and, if successful, might be entitled to receive cash from the State, rather than the right to obtain merchandise.
22Pursuant to the EFTA and Regulation E, inactivity fees or other service charges generally may not be assessed on gift cards unless there has been no activity on the gift card during the 12-month period ending on the date on which the fee is imposed. 15 U.S.C. 1693l-1; 12 CFR 1005.20(d). State laws may protect unused gift cards from inactivity fees for longer periods or indefinitely. For example, Maine law provides that fees or charges may not be imposed on gift obligations or stored-value cards, except that the issuer may charge a transaction fee for the initial issuance and for each occurrence of adding value to an existing gift obligation or card. 33 M.R.S. § 1953. Under Tennessee law, inactivity fees or other service charges are prohibited for two years after a gift certificate is issued. Tenn. Code Ann. § 47-18-127(b). Based on industry outreach, the Bureau understands that inactivity fees are rare in today's market, particularly for closed-loop cards (i.e.,cards usable only at a particular merchant or group of merchants).
On the other hand, if unclaimed gift card funds were transferred to Maine or Tennessee after two years of non-use, and if issuers were not required to honor the card, then a consumer mightonly be able to redeem his or her property by submitting an unclaimed property claim form to the State. At a minimum, a consumer first would need to determine that the card should still have been usable, and then would need to determine which State to contact to reclaim funds corresponding to the unclaimed gift card. As discussed above, when an issuer has no record of the gift card owner's name, unused funds for the card will transfer to the State of incorporation of the gift card issuer. Thus, for example, a consumer who purchases and uses in New York a gift card that was issued by a company incorporated in Maine or Tennessee may be required to contact Maine or Tennessee, rather than New York, to attempt to claim funds that have transferred to the State. It is not clear, however, how the consumer would know to do this. In addition, the consumer would be required to spend time and perhaps money completing and submitting any required claim form(s), as well as to wait perhaps several weeks or months to receive his or her property. Finally, the Bureau understands that Maine's and Tennessee's existing processes for claiming unclaimed property generally rely on property owners' names and addresses. It may be difficult for gift card owners to locate and successfully claim their property under those processes, particularly if gift card issuers do not know, and thus do not report to the State, the names of the consumers who own the unclaimed cards (i.e.,the gift card recipients).
The Bureau notes that at least one judicial decision has weighed the relative benefits to consumers of the EFTA and Regulation E and States' unclaimed property laws as applied to gift cards. In January 2012, the U.S. Court of Appeals for the Third Circuit upheld a decision by the U.S. District Court for the District of New Jersey that declined to preliminarily enjoin the application to gift cards of New Jersey's unclaimed property law, which at the time presumed gift cards abandoned after two years of non-use.23
The District Court concluded, and the Third Circuit agreed, that the plaintiffs were unlikely to prove that Federal law preempted New Jersey's unclaimed gift card law. The Third Circuit identified certain benefits of New Jersey's law that, in the court's view, weighed in favor of a conclusion that New Jersey's law was more protective of consumers than the EFTA and Regulation E.24
Specifically, once New Jersey received unclaimed gift card funds, it would have held them for consumers indefinitely (i.e.,not merely for the minimum five years required under Federal law). In addition, a consumer who submitted a successful claim for his or her funds would have received cash back from the State, as opposed to a card solely redeemable for goods or services.25
The Bureau notes that the court reached its conclusion in the absence of any specific guidance or determination from the Board of Governors of the Federal Reserve System or from the Bureau.
See N.J. Retail Merchants Ass'nv.Sidamon-Eristoff,669 F.3d 374 (3d Cir. 2012),reh'g denied(3d Cir. Feb. 24, 2012).
As noted, the Bureau invites public comment on all or any aspects of this notice, including on the application of Maine's and Tennessee's unclaimed property laws to gift cards, on the nature of any inconsistency between those laws and the expiration date provisions of the EFTA and Regulation E, and on whether Maine's and Tennessee's laws afford consumers greater protection than Federal law. After the close of the comment period, the Bureau will analyze any comments received, conduct any further analysis that may be required, and will publish a notice of final action in theFederal Register.
Dated: August 16, 2012.
Director, Bureau of Consumer Financial Protection.