New Jersey will soon begin to claim the unused value of those gift cards that have been dormant for two years where the cards were purchased by or for a New Jersey resident. Merchants that have issued what New Jersey calls “stored value cards” with a face value over $250,000 in the preceding year will have to comply. A “stored value card” is defined to include “paper gift certificates,” “electronic gift cards” and the like, where those cards are “pre-funded and the value ... is reduced upon each redemption.” The $250,000 value threshold appears to apply to the total number of stored value cards that a retailer sells nationwide. Under the law, any value remaining on stored value cards after a dormancy period of two years will escheat to the state to be held in an account for consumers that want to claim the funds.

The way that the law is drafted, it will apply to an online retailer that sells a gift card to a New Jersey resident the same as it will apply to a retailer within the state that sells gift cards to local consumers. This means that a qualifying merchant in California that sells more than $250,000 a year in gift cards will have to send the unused value of gift cards sold to New Jersey residents to the New Jersey State Treasurer where there has been no card activity for a period of two years.

Once the compliance date is set, compliance likely will not be overly difficult for companies that already sell their cards over the Internet. The law requires gift card issuers (1) to collect the name and address information from purchasers (or owners) of stored value cards and (2) to maintain a record of the individual’s ZIP code (at a minimum). This will likely be less burdensome for online retailers since they will already be collecting the customer’s billing information at the time of purchase. Thus, in such an instance, the retailer would just need to make sure that it has a method in place to link the consumer information with the value of any unused vouchers. Offline, companies may have additional hurdles to overcome. While the New Jersey law requires the collection of consumer address information, including ZIP codes, several states do not permit merchants to collect address and/or ZIP codes at the point-of-sale. Most notably, New Jersey currently does not permit this type of collection. This is something that the New Jersey legislature and/or State Treasurer will have to consider when further determining compliance requirements.

In any event, after a two year dormancy period, if the stored value cards have not been fully redeemed, both offline and online retailers would have to send the remaining funds to the state. However, in order to comply with federal CARD Act, the retailer must still permit the gift cards to be honored for a period of at least five years and seek reimbursement from the State Treasurer for any cards that are honored between the escheat date and the five year mark. This is to ensure compliance with the federal CARD Act, which prohibits gift cards that expire in less than five years.

Currently, the New Jersey Treasury Department is working to issue a compliance date as well as guidance regarding collection practices. It still remains to be seen how a lot of the issues surrounding this law will pan out.

Arent Fox is continuing to monitor this issue and will provide additional information as the matter progresses. Please contact Sarah Bruno or Eva Pulliam for additional information.