On June 9, Connecticut Governor Dan Malloy signed into law HB 5564, which adds Connecticut to the growing list of states that require gift card sellers or issuers to provide cash back to consumers in certain partial redemption situations. In particular, HB 5564 (enacted as Public Act No. 16-140) requires a seller or issuer of a gift card to provide the purchaser with either a proof of purchase receipt or a gift receipt for the purchase of such card. Once the card has been redeemed for goods or services and the remaining balance is less than $3.00, the redeeming seller or issuer must pay the purchaser the balance in cash, if requested by the purchaser, provided that the purchaser furnishes the proof of purchase or gift receipt. Notably, gift certificates or gift cards sold by a retailer that does not have a retrial establishment in Connecticut are exempt for the cash-back requirement. HB 5564 is effective on October 1, 2016 (though the legislation does not specify whether it applies only to gift cards issued on or after that date).
With this legislation, Connecticut becomes the 12th state to enact a cash-back requirement for gift cards, joining California, Colorado, Maine, Massachusetts, Montana, New Jersey, Oregon, Rhode Island, Texas, Vermont, and Washington. Connecticut is the first state to require the purchaser to furnish a receipt, however (and is the only state to require the issuer or seller of the gift card to provide a receipt in the first place). In addition, Connecticut is the only state to adopt a $3.00 balance threshold. Although a majority of the states provide for a $5.00 threshold, a few states have a lower threshold ($1.00 in the case of Rhode Island and Vermont, and $2.50 in the case of Texas), whereas California has adopted a $10.00 threshold.
As a practical matter, we are aware that many retailers choose to adopt a uniform cash-back standard in all of the states that have enacted cash-back laws (e.g., $10.00, if the retailer does business in California). One of the challenges faced by such retailers is the fact that it has been unclear whether this practice would mean that the retailer’s gift card program does not qualify for the FinCEN Prepaid Access Rule’s “closed loop prepaid access” exemption. Such exemption is premised on the card being redeemable only for goods or services. However, recently issued FinCEN guidance has confirmed that if a retailer “maintains a standard dollar level for de minimis refunds that is set at the highest required fixed amount from among the states in which the retailer does business, FinCEN will regard all such refunds as de minimis and consistent with the definition of closed loop prepaid access.” FIN-2016-G002, March 24, 2016, available at https://www.fincen.gov/statutes_regs/guidance/pdf/FIN-2016-G002.pdf.
Gift card sellers and issuers should be wary of Connecticut’s and other states’ cash-back requirements, as these laws are often fertile ground for consumer class actions. States could also impose civil penalties for the failure to provide cash back as required. For example, New Jersey imposes a penalty of $500 per violation, and a retailer’s failure to provide cash for each card is considered to be a separate violation. If a retailer incurs an aggregate of 100 violations during any 12 month period, the penalty is trebled. See N.J.S.A. § 46:30B-42.1(g).