Gift-Card Issuers: Mind State Cash-Back Requirements

This past August, Dave & Buster’s, the restaurant-cum-arcade chain, was sued in California state court for allegedly violating the cash-out provision of California’s gift-card law.[FN1] Under California’s law, a gift-card issuer must allow the holder of a card worth less than $10 to redeem it for cash upon request.[FN2] In the suit, plaintiff alleges that the terms of Dave & Buster’s gift cards expressly state that they are not redeemable for cash (without any qualification that cash redemption is permitted where required by law) and that repeated attempts to redeem a card for cash were denied by employees of Dave & Buster’s. The plaintiff purports to represent a class of California consumers who bought Dave & Buster’s gift cards between August 2011 and August 2015. The Dave & Buster’s case is new, but not novel. The cash-out provision was added to California’s gift-card law in 2008 and has seen enforcement from both public and private litigants since. In August 2009, District Attorneys for Sonoma, Monterey and Shasta counties settled a claim against Starbuck’s for failure to honor the cash-out provision. Pursuant to that settlement, Starbuck’s was required to pay $225,000. Lawsuits alleging non-compliance with the cash-out provision have also been filed against at least Google, Chipotle, Petsmart, Panda Express, and Pep Boys.[FN3]

Issuers of gift cards should note California’s requirement, while also noting that California is not the only state with such a law. At least ten other states currently have a provision in their respective gift-card laws that requires an issuer to redeem a card for cash upon request in certain circumstances. Those states include Colorado, Maine, Massachusetts, Montana, New Jersey, Oregon, Rhode Island, Texas, Vermont, and Washington.

California’s law is in some regards the strictest of the lot. Its $10 threshold is the highest of any current state law. Most of the other states require cash redemption only when the card’s value has fallen below $5.00 and some are lower than even that (e.g. the threshold in Texas is $2.50 and in Rhode Island and Vermont it is $1.00). In addition – and unlike the laws of most other states – California’s law does not expressly require that the card have been partially used to qualify for cash redemption; the only eligibility requirement for cash redemption in California is that the gift card have a value of less than $10.00.[FN4]

However, while complying with California’s cash-out requirement would go a long way towards universal compliance, the laws of some of the other states have their own nuances that need to be considered. For example, in Massachusetts, the holder of a gift card that is non-reloadable may redeem it for cash after 90% of its original face value has been used. For a non-reloadable card with a high initial value, that could mean that the threshold for cash redemption is far higher than $10.

Gift card issuers should confirm their programs comply with the patchwork of applicable laws and should specifically ensure that they are prepared to honor cash-out requests in those states where required to do so. Issuers should review the gift-card laws of states in which they operate (or otherwise sell cards), create a policy for handling requests for cash redemption, and take steps to train employees to address such requests accordingly. Issuers may also want to confirm that their gift-card terms and conditions do not state unequivocally that the card is not redeemable for cash and instead make clear that cash redemption will be allowed where required by law. Finally, these laws do change. The law in Texas only went into effect on September 1, 2015, so even those who have previously considered their compliance obligations should conduct periodic reviews to ensure they remain up-to-date.



FN1: Case No. BC590241 (Los Angeles County Superior Court, filed August 5, 2015)

FN2: Cal. Civ. Code § 1749.5(b)(2)

FN3: Hernandez v. Google, Inc. (Case No. 5:15-cv-03303-BLF (N.D. Cal)); Chaitt v. Chipotle Mexican Grill, Inc. (Case No. BC470810 (Los Angeles County Sup. Ct.)); Petsmart Gift Card Cases (Consolidated as Case No. CJC-09-004590 (San Francisco County Sup. Ct.); Isaac v. Panda Express Inc. (Case No. Case No. 37-2012-00057430 (San Diego County Sup. Ct.)); and Graber v. The Pep Boys (Case No. RG11600495 (Alameda County Sup. Ct.)).

FN4: Though note that certain types of gift card (such as cards distributed free of charge as part of a loyalty or promotional program) are exempt from California’s law entirely, subject to certain requirements.