Unclaimed Property Laws Often Go Overlooked by E-Marketers, But Many States Are Aggressively Enforcing Them

One set of legal obligations that are often overlooked by Internet sellers arise under states’ “unclaimed property” laws, sometimes referred to under the arcane label of “escheat.” Black’s Law Dictionary defines escheat as “the preferable right of the state to an estate left vacant, and without there being any one in existence able to make a claim thereto.” Although dense, the definition, once parsed, describes a relatively simple concept: under the laws of nearly every state, a business that is holding property on behalf of a third-party (called the “owner”) is obligated to report and turn over the unclaimed property to the state, after passage of a prescribed “dormancy” period.

Unclaimed property includes customers’ unredeemed gift certificates and gift cards, merchandise credits, and uncashed refund checks. It also includes accounts payable, payroll and benefits, shareholder dividends, and even workers’ compensation funds, among other things. Indeed, any third-party obligation that goes unredeemed may be subject to escheat. For Internet retailers, unredeemed gift obligations can be substantial (although fortunately some state laws include exemptions for gift certificates). Retailers should be aware that expiration dates on gift certificates and gift cards do not apply to states’ right of escheat and that there is no statute of limitations on escheat obligations under most states’ laws.

Gift Cards: The Sleeping Dog

Many of you may have read about the federal Credit Card Accountability, Responsibility, And Disclosure Act of 2009 (the “CARD Act”). While the CARD Act largely regulates the terms and conditions for credit cards, it also provides certain protections for purchasers of gift cards that will go into effect on August 22, 2010. But many people may not be aware that the CARD Act does not preempt or otherwise supersede state laws on gift cards, either before August 22 or afterwards.

There are many states that have gift card laws that bar the use of expiration dates on purchased gift cards, prohibit or set restrictions on imposing inactivity fees or other charges with regard to gift cards, and/or require disclosures regarding fees and expiration dates. Some of these laws are enforceable by the attorneys general of the states and/or through suits brought by consumers.