The Hawaii legislature has sent legislation to the governor for signature that would require retailers and restaurants to provide cash back to gift card owners for balances under $5.
Hawaii Gift Cards
Hawaii permits retailers to sell gift cards to consumers so long as there are no service fees, including dormancy or inactivity.
Hawaii also limits activation fees to the lesser of 10% of the gift certificate or $5.
In accordance with the CARD Act, Hawaii also prohibits expiration dates less than five years after the date of issuance for gift cards. In the case of paper only gift certificates, the state does permit a two year expiration date.
Awards, loyalty, and promotional cards are exempt from many of the restrictions, so long as the expiration date, if any, appears on the gift card or the accompanying receipt at time of purchase.
The New Hawaii Cash Back Provision
The new provision, in §481B-13(c), reads as follows:
For any gift certificate with a remaining balance less than $5, the certificate issuer shall redeem the remaining value of the gift certificate for cash.
The provision would be effective January 1, 2020.
Concerns About Gift Card Cash Back Provisions
Gift cards have been an area subject to many concerns, particularly involving fraud and money laundering.
One common issue for retailers is the unreceipted return of merchandise. In the case when consumers return merchandise without a receipt, retailers often provide a stored-value card for the value of the merchandise. This then would require the consumer to purchase new merchandise from the retailer to receive the value of the card.
When states require cash back on low balance gift cards, retailers are often left with the risk of losing any profit on items they sell. And provide an incentive for additional, potentially fraudulent, returns.
Another big concern for retailers will be compliance with the new provisions.
Retailers will need to train front line staff to comply with the new cash back provisions instead of denying the request.
We have seen aggressive plaintiff class-action lawyers in California, which has a similar cash back provision. Shoppers will go to stores to request cash back on small balance gift cards. When the shoppers are denied, they will file a class-action lawsuit.
Hawaii law says that violations of the gift certificate/card section is an “unfair or deceptive act or practice in the conduct of trade or commerce.” Under the Hawaii unfair business practices statute, consumers may bring lawsuits. The penalties are up to $10,000 per violation per day.
For Help With Your Gift Card Program
Gift cards are subject to a variety of state and federal laws. As a retailer or gift card issuer, you need to be in compliance with the entire matrix of gift card laws.
Careful planning and training will lower your risk of class action lawsuits and unclaimed property audits.
Contact Kimberly DeCarrera to discuss your options for gift card planning.