Gift Card Sellers Get Half a Loaf in New Jersey As State Delays ZIP Code Rule

New Jersey has delayed implementation of the most onerous provisions of an unclaimed-property law affecting gift cards that caused American Express Co. and two major gift card distributors to pull out of the state this spring. The changes Gov. Chris Christie signed into law last week, however, don’t repeal the original law as its opponents had hoped they would, but they still were enough for AmEx and both distributors to resume gift card sales in the state.

Passed in 2010, the law for the first time made gift cards subject to escheatment, which prompted many observers in the retailing and prepaid card industries to brand it as a revenue grab by the cash-strapped state. The law required gift card sellers or program managers to collect the ZIP codes of all card buyers, but only New Jersey residents would be subject to its provisions. Another controversial aspect of the law allowed the state to claim unused gift card balances after only two years.

Retail groups challenged the law both in court and the Legislature, where they lobbied for repeal. They mustered only enough political strength, however, for a four-year delay, until 2016, for the collection of ZIP codes. And instead of two years, the state now has to wait five years before collecting unused card balances, according to a report from the Washington, D.C.-based National Retail Federation.

“This law strikes the right balance between protecting consumers while providing fair rules for card issuers and businesses,” the bill’s sponsor, state Rep. Declan O’Scanlon, R-Monmouth, said in a statement.

The law, A-3045/S-1928, made several other changes, including differentiation between general-purpose reloadable prepaid cards and more traditional stored-value cards such as gift cards. GPR cards will escheat 100% to the state, while stored-value cards will escheat 60% to the state and 40% to the retailer.

InComm, one of the distributors that stopped selling cards in New Jersey when an injunction preventing implementation of ZIP-code provision expired earlier this year, said it would resume selling cards in the state while continuing to seek repeal, according to a state business publication. Also returning is grocery chain Safeway Inc.’s Blackhawk Network. “Our customers are our priority, so we are happy that the modification to New Jersey’s law will allow them to enjoy the benefits that gift cards offer, while protecting their privacy,” says a spokesperson via e-mail.

AmEx, too, plans to resume gift card sales, although a spokesperson couldn't say exactly when. “Based on recent events, we are delighted to be able to once again offer our gift cards to consumers in New Jersey through our third-party sellers,” the spokepserson says by e-mail. “We have an extensive distribution network for our gift card business and as you can imagine, it does take time to distribute our gift cards to these various retail locations across the state. It is going to take some time, but we hope to complete this process as soon as possible.”

The New Jersey Retail Merchants Association said O’Scanlon’s bill didn’t go far enough because it’s original goal was repeal, a goal the trade group said it would still pursue. Retailers said as the injunction was about to expire that ZIP-code collection would be a costly and difficult process, and that they had received little guidance from the state. And prepaid card researcher Ben Jackson, a senior analyst at Mercator Advisory Group Inc., said the ZIP-code collection delay “may hurt more than it helps, because it takes the urgency out of the situation.”

“The New Jersey Legislature, with elections coming up, budget and tax issues, and various other priorities, may put the gift card law on the back burner,” Jackson tells Digital Transactions News by e-mail. “So in four years, retailers may suddenly wake up to find that they still need to comply with gathering cardholder data, or else they will end up back in the place they were before this extension. So there could be another fire drill in four years.”

Maynard, Mass.-based Mercator estimates gift card loads in New Jersey may be as high as $600 million annually.