class action claims against retailers: deceptive pricing...
TRANSCRIPT
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Presenting a live 90-minute webinar with interactive Q&A
Class Action Claims Against Retailers:
Deceptive Pricing, False Advertising,
Privacy and Gift Card Compliance Lessons From Recent Cases for Pursuing, Defending or Avoiding Claims
Today’s faculty features:
1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific
TUESDAY, MARCH 1, 2016
Amy Pierce, Esq., Pillsbury Winthrop Shaw Pittman, Los Angeles
Kai Richter, Partner, Nichols Kaster, Minneapolis
Stephanie A. Sheridan, Partner, Sedgwick, San Francisco
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CLASS ACTION CLAIMS AGAINST RETAILERS
Amy Pierce, Pillsbury Winthrop Shaw Pittman
Stephanie Sheridan, Sedgwick LLP
Kai Richter, Nichols Kaster, PLLP
5
Overview
• Class actions against retailers
― Identify trends and case law developments
― Identify strategies from both plaintiff and defense perspective
― Identify proactive steps for retailers to mitigate the risk of class actions
• Hottest litigation trends and related case law developments
― False advertising
― Deceptive pricing
― Made in U.S.A.
― Transparency in Supply Chain
― Song-Beverly Credit Card Act
― Data privacy
― Telephone Consumer Protection Act
― Gift cards
6
FALSE ADVERTISING
7
False Advertising
• Deceptive Sale Pricing
• Made in the U.S.A.
• California Transparency in Supply Chains Act of 2010
8
Photo: Koshy Koshy, Hot & Sour - – Creative Commons
Deceptive Pricing Claims
Historically, pricing practices have been enforced by the FTC. In the last two years, a
wave of private actions have targeted dozens of retailers. Claims in those cases
generally fall into two categories:
•Perpetual Sales Claims
― Based on the retailer’s own former price
― CA’s Former Price Law (Cal. Bus. & Prof. Code § 17501)
― Theory: Plaintiffs claim that retailers create a fake "original" price in order to
offer the item for sale at a discounted "sale" price; this leads consumers into
believing they are getting a bargain, even though the item never actually sold
for the "original" price.
•Price Comparison Claims
9
Deceptive Pricing Claims
• Perpetual Sales Claims
• Price Comparison Claims
― Comparisons to Third-Parties: Listing a "Compare At" price deceives consumers
into believing that the same item has sold at a third-party retailer for that
price, when in reality no other retailers offer the item for the comparison price,
or offer it for less than the comparison price. Thus, the consumer is deceived
into believing that he or she is getting a bargain that is illusory.
― Outlet Retailers: Listing a reference price previously used by the outlet’s full-
priced counterpart. In many cases, however, the item was manufactured
exclusively for the outlet. The claim here is that consumers thought they were
buying products from the full-priced store at a substantial discount, when in
reality, the products were never sold at the full-priced stores.
10
Deceptive Pricing Claims
• In the last year, courts have granted several motions to dismiss deceptive
pricing cases involving “Compare At” prices:
― Rubenstein v. Neiman Marcus, Branca v. Nordstrom, Sperling v. DSW,
Sperling v. Stein Mart
• During the same time period, two “perpetual sales” cases settled for $50
million each.
• In response to those settlements, plaintiffs have begun incorporating
“perpetual sales” claims into their claims against outlet retailers.
11
Deceptive Sale Pricing – CA Statutes
• Value determinations; Former price advertisement (Cal. Bus. & Prof. Code §
17501)
― “For the purpose of this article the worth or value of any thing advertised is
the prevailing market price, wholesale if the offer is at wholesale, retail if
the offer is at retail, at the time of publication of such advertisement in the
locality wherein the advertisement is published.”
― “No price shall be advertised as a former price of any advertised thing, unless
the alleged former price was the prevailing market price as above defined
within three months next immediately preceding the publication of the
advertisement or unless the date when the alleged former price did prevail is
clearly, exactly and conspicuously stated in the advertisement.”
• Possible defenses that have been asserted (with some success)
― Failure to state a Claim Lack of proof
― Lack of standing Plaintiffs cannot prevail on class certification
12
Deceptive Sale Pricing – Prior Suits
Numerous retailers have been the subject of suits:
• Dell
• Kohl’s
• J.C. Penney
• Justice
• TJ Maxx
• Sears
• Nordstrom
• Michael Kors
• HomeGoods
• Burlington Coat Factory
• Tween Brands
• Ross Stores
• Kenneth Cole
• Neiman Marcus
• Gap
• Michaels
• Ralph Lauren
• Saks
• Marshall’s
• Best Buy
• Select Comfort
• Guess
13
Deceptive Sale Pricing – Federal Law
• Cases build on well-established case law regarding reference price schemes
• FTC v. Colgate-Palmolive Co., 380 U.S. 374, 387 (1965) (“It has long been
considered a deceptive practice to state falsely that a product ordinarily sells
for an inflated price but that it is being offered at a special reduced price,
even if the offered price represents the actual value of the product and the
purchaser is receiving his money's worth.”)
• FTC v. Standard Education Soc., 302 U.S. 112, 114 (1937)
• FTC Regulations also prohibit deceptive reference pricing. See 16 C.F.R. § 233.1
The advertiser should be especially careful … that the [reference] price is one at which
the product was openly and actively offered for sale, for a reasonably substantial
period of time, in the recent, regular course of his business, honestly and in good
faith—and, of course, not for the purpose of establishing a fictitious higher price on
which a deceptive comparison might be based.
• In January 2014, 4 members of Congress wrote to the Chair of the FTC asking it
to investigate this practice.
14
Deceptive Sale Pricing – State Law
• Successful claims brought under California’s Unfair Competition Law,
False Advertising Law and Consumer Legal Remedies Act
• Spann v. J.C. Penney Corp., 2015 WL 1526559 (C.D. Cal. Mar. 23, 2015)
• Hinojos v. Kohl’s Corp., 718 F.3d 1098 (9th Cir. 2013)
• Brazil v. Dell, Inc., 2010 WL 5387831 (N.D. Cal. Dec. 21, 2010)
But See Rubenstein v. Neiman Marcus, 2015 WL 1841254 (C.D. Cal. Mar. 2, 2015);
Sperling v. DSW, Inc., 2016 WL 354319 (C.D. Cal. Jan. 28, 2016)
• Claims under other state laws have fared less favorably – for now
• Shaulis v. Nordstrom, Inc., 2015 WL 4886080 (D. Mass. Aug. 14, 2015)
• Kim v. Carter’s, Inc., 598 F.3d 362 (7th Cir. 2010)
15
Deceptive Sale Pricing – Settlements
• Settlement values have been substantial
- J.C. Penney: $50 million
- Justice Stores: $50 million
- Dell: $26,648,950 (estimated value)
16
Made in the U.S.A.: Federal and California Standards
• Under the FTC’s “Made in the USA” standard, a company can only describe a
product as being “Made in the USA” when “all or virtually all” of it was made
domestically. According to FTC guidelines, “all or virtually all” means that “all
significant parts and processing that go into the product must be of U.S. origin.
That is, the product should contain no—or negligible—foreign content.”
• California’s “Made in the USA” law is much stricter than the FTC’s, forbidding
manufactures from labeling products as “Made in the USA” unless every
component in the product was completely made in the U.S.
• This stricter standard led to a string of lawsuits in 2014 and 2015 against
retailers (mostly high-end denim manufacturers and retailers) alleging that
components, such as zippers and threads, were not domestically sourced.
17
Made in the U.S.A.
• On September 1, 2015, California
S.B. 633 was signed into law
amending Business & Professions
Code § 17533.7 (the “Made in the
U.S.A.” law), relaxing California’s
standard for merchandise labeled
as “Made in the U.S.A.” and
aligning the requirement more
closely with the federal standard
• Response to Kwikset Corp. v. Superior Court, 51 Cal. 4th 310, 246 P.3d 877
(2011) and its progeny
• The amendment resulted in the settlement of several pending claims, such as
Paz v. Adriano Goldschmied, where AG provided a $20 voucher or a pair of
free pants to the class members. The motion for preliminary approval said the
original retail value of the jeans distribution is $4 million.
18
Photo: Denise Krebs, American Flag on the Fourth of July - Creative Commons
Made in the U.S.A., Cont’d
• As of January 1, 2016, merchandise can be labeled “Made in the U.S.A.” if:
― “all of the articles, units, or parts of the merchandise obtained from outside
the United States constitute not more than 5 percent of the final wholesale
value of the manufactured product” or
― “the manufacturer makes a showing that it cannot produce or obtain a
certain article, unit, or part” within the U.S. for reasons other than cost and
that the article, unit, or part does not constitute more than 10% of “the final
wholesale value of the manufactured product”
• FTC standard for products labeled and marketed as “Made in the U.S.A.”
requires that “all or virtually all” of a product be made in the U.S., examining
the foreign content of a product as a whole.
― According to FTC’s guidelines, “all or virtually all” means that “all significant
parts and processing that go into the product must be of U.S. origin,” or “the
product should contain no — or negligible — foreign content”
19
Made in the U.S.A.: Current Litigation
• Late 2015 saw a second wave of litigation
• Unlike the first wave, which targeted denim and clothing manufacturers, the
second wave targeted consumable goods, such as energy drinks, condiments,
and pet foods that contain non-domestically sourced components.
• California’s “Made in the USA” law is based on California’s “Made in California”
law, which may provide guidance to courts in interpreting the new statute.
20
California Transparency in Supply Chains Act of 2010
• This Act’s stated intent is “to ensure
large retailers and manufacturers
provide consumers with information
regarding their efforts to eradicate
slavery and human trafficking from
the supply chains, to educate
consumers on how to purchase goods
produced by companies that
responsibly manage their supply
chains, and, thereby, improve the
lives of victims of slavery and
human trafficking.”
(Civ. Code §1714.43)
21
Photo: David Pacey, hand chain lock - Creative Commons
Who is subject to the Act and what is required?
• Every “retail seller” and “manufacturer” doing business in California and
having annual worldwide gross receipts above $100 million must disclose its
efforts to eradicate slavery and human trafficking from its direct supply
chain.
― Principal Business Activity Code under N. American Industry Classification
System: Manufacturing (311110-339900) or Retail Trade (441110-454390)
• Required Disclosures Actions the retail seller or manufacturer is taking if
any in five areas:
― (1) Verification
― (2) Audits
― (3) Certification
― (4) Internal accountability, and
― (5) Training
22
Where are the disclosures to be made? And, who is enforcing this Act?
• The company’s website homepage must have a “conspicuous and easily understood
link” to the required disclosures
• The California Attorney’s Office is the sole enforcer of the Act; however, private
law firms are filing class actions premised on disclosures made in the entity’s
disclosures
― Attorney General’s Resource Guide is available at
https://oag.ca.gov/sites/all/files/agweb/pdfs/sb657/resource-guide.pdf
• In August of 2015, civil actions were filed premised on the disclosures made to
comply with the Act but under characterized as violations of California’s unfair
competition law and false advertising law
• Defenses that have been asserted (with some success)
― Safe Harbor Doctrine Failure to state a Claim
― Lack of standing Lack of proof
23
SONG-BEVERLY CREDIT CARD ACT
Song-Beverly Credit Card Act
• The Song-Beverly Credit Card Act is intended to conform to the federal Truth in
Lending Act. Section 1747.08 prohibits entities that accept credit cards from
requesting personal identification information (“PII”) as a condition of
payment.
• Personal identification information is defined as information concerning the
cardholder that is not available on the face of the card, including the
cardholder’s address and telephone number. § 1747.08(b).
• Party City Corp. v. Superior Court concluded that a ZIP code, without more,
does not constitute PII.
• Pineda v. Williams-Sonoma Stores, Inc., held that PII includes a cardholder’s
ZIP code, disagreeing with Party City, reasoning that by defining the
cardholder’s address as PII, the Legislature must have intended to protect the
component parts of the cardholder’s address too.
25
Davis v. Devanlay Retail Group, Inc.: Song-Beverly and the consumer perception test
• Plaintiff alleged that Devanlay (Lacoste) violated Song-Beverly by requesting
and recording PII from customers who paid with credit cards. Davis argued
that Song-Beverly prohibited retailers from requesting any information while
the customer is at the point of sale, regardless of whether the customer
believed the information was a condition of payment.
• Rejecting Davis’ argument, the court explained that Song-Beverly violations
turn on whether consumers would perceive the store’s request for information
as a “condition” of the use of a credit card.
• Thus, the Davis test of whether retailers have violated Song-Beverly is based
on a consumer’s reasonable belief—an objective test—and not whether the
transaction has reached an official end.
26
Davis v. Devanlay Retail Group, Inc.
• Notably, the Ninth Circuit in Davis certified to the California Supreme Court
the question of whether retailers could ask for PII, provided consumers would
not reasonably believe the information was a condition of payment.
• The California Supreme Court declined to respond to the question, pointing to
the Harrold v. Levi Strauss & Co. decision.
• Unlike Davis, which held that Song-Beverly imposes a consumer perception
test, Harrold questioned whether any request after the transaction is
completed would violate Song-Beverly.
27
Harrold v. Levi Strauss & Co.: Song-Beverly does not prohibit data collection after transaction
• Plaintiff claimed that Levi’s violated Song-Beverly by asking for her email
address in conjunction with a credit card transaction. According to Plaintiff, a
Levi’s employee asked for her email before handing over her purchases,
thereby arguing that, for purposes of Song-Beverly, the transaction is not
finished until the customer leaves the POS.
• Harrold established a bright-line test to assist retailers in complying with the
Song-Beverly Act.
• The Harrold court held retailers do not violate Song-Beverly by requesting a
customer’s email information after the customer has been provided a receipt.
• The court reasoned that consumers could not reasonably believe that such a
request was a condition of payment, because the transaction had already
concluded.
28
Apple v. Superior Court (Krescent): Song-Beverly does not apply to online purchases of electronically downloadable products
• In Apple, the Plaintiff argued that Apple violated Song-Beverly by requiring
his telephone number and address to purchase media on iTunes.
• The California Supreme Court held that Song-Beverly does not prohibit online
retailers from collecting PII as a condition of accepting credit card payment
for electronically downloadable products.
• The Court looked to the Legislative intent discussed in Pineda v. Williams-
Sonoma, and distinguished the case because Apple involved online purchases.
• The Court noted that Song-Beverly was intended to protect customer privacy,
but not at the expense of fraud protection, as demonstrated by the fact that
the statute permits certain limited fraud prevention collection methods.
29
Ambers v. Beverages & More, Inc.
• In Ambers, Plaintiff alleged BevMo violated Song-Beverly by requiring Plaintiff
to provide PII as a condition of completing an online purchase, which Plaintiff
would later pick up in store.
• Applying the Supreme Court’s logic in Apple, the Second District Court of
Appeal concluded that Song-Beverly permits retails to use PII to prevent fraud.
• The Court reasoned that protection of customer privacy was outweighed by
retailers’ need to verify cardholder identity, since standard procedures used in
person-to-person transactions are unavailable.
• Also, the Court concluded that the transaction was completed at the moment
Plaintiff purchased the alcohol, not when he picked it up from the store.
• A month later, in Ambers v. Buy.com, the Ninth Circuit followed the reasoning
in Apple, holding that Buy.com did not violate Song-Beverly in requesting PII to
purchase tangible goods that would be shipped directly to the consumer (that
is, without picking up the goods in store as in BevMo).
30
31
DATA BREACH LITIGATION
• Unauthorized and unlawful acquisition, disclosure, viewing, or use of
confidential, sensitive, or protected information
• Litigation typically involves personal information of consumers or employees,
e.g.:
― Social Security Numbers
― Credit card, debit card, or account numbers, along with passwords and/or
PINs
― Driver’s license or ID numbers
What Is A Data Breach?
32
• In 2002, states began passing laws requiring notice to individuals whose
personal information was involved in a data breach.
― 47 states plus the District of Columbia now have such laws.
― So far, no Federal notification law has been enacted.
• This resulted in the proliferation of class action data-breach litigation.
History Of Data Breach Litigation
33
• Courts initially held plaintiffs did not have standing under Article III. Found that an
increased risk of future harm through identity theft or fraud was not an injury in
fact.
• In 2007, the 7th Circuit held plaintiffs had standing due to the increased risk of
future harm, analogizing to tort cases involving exposure to toxic substances or
defective medical equipment. Pisciotta v. Old Nat'l Bancorp, 499 F.3d 629, 634-35,
637 (7th Cir. 2007).
• Pisciotta marked a turning point for the viability of data breach litigation.
History (Cont.)
34
CIRCUIT SPLIT
History (Cont.) CIRCUIT SPLIT
STANDING NO STANDING
Krottner v. Starbucks Corp., 628 F.3d
1139 (9th Cir. 2010) – Theft of laptop
subjected employees to increased risk
of harm; held sufficient to establish
injury in fact.
Remijas v. Neiman Marcus Grp., LLC,
794 F.3d 688 (7th Cir. 2015) – Hackers
stole Neiman Marcus customers’ credit
card info, and plaintiffs claimed
injuries associated with resolving
fraudulent charges and taking
identity-theft preventative measures;
held sufficient to establish injury in
fact.
Reilly v. Ceridian Corp., 664 F.3d 38
(3d Cir. 2011), cert. denied, 132 S. Ct.
2395 (2012) – Hacker infiltrated
payroll system but no evidence
personal data was used; held to be
hypothetical, future injury insufficient
to confer standing.
35
• Negligence
• Breach of fiduciary duty
• Breach of contract/implied contract
• Negligent misrepresentation
• Unjust enrichment
• Consumer-protection laws
• State data-breach laws
― But most don’t provide a private cause of action
Types Of Claims
36
• Approximately 110 million Target customers had their credit card information stolen
• 2 components to the class litigation:
― Consumer plaintiffs
― Motion to dismiss denied in part1
― Settled for $10 million plus fees and costs
― People with actual damages get paid first
― Financial institution and bank plaintiffs
― Motion to dismiss denied in part2
― Target, Visa and certain Visa issuers settled for $67 million
― Other financial institutions who did not already settle with Target later settled for $39.4
million
1 In re Target Corp. Data Sec. Breach Litig., 66 F. Supp. 3d 1154 (D. Minn. 2014) 2 In re Target Corp. Customer Data Sec. Breach Litig., 64 F. Supp. 3d 1304 (D. Minn. 2014)
Case Study: Target
37
CASE FACTS SETTLEMENT
Sony PlayStation
Hackers acquired PlayStation users’
logins and some credit card info
$15 million
Sony employees Hackers released emails/documents $8 million
Heartland Payment
Systems
Hackers stole credit card info of 130
million consumers
$2.4 million - Consumers
$60 million – Visa
$3.6 million – Amex
$41.1 million - MasterCard
Stanford Hospital &
Clinics
Patient information was made available
on website
$4.1 million
AvMed Laptops stolen, compromising SSNs and
health records
$3.1 million
Vendini Data breach of online ticket seller
exposed credit card numbers
$3 million
Schnuck Markets Hackers obtained magnetic strip data $2.1 million
LinkedIn User names and passwords exposed $1.25 million
Countrywide Financial Former employee stole 2 million SSNs $6.5 million
Settlement Value Examples
38
Pending Case Examples
In re Anthem, Inc. Data Breach Litigation, No. 15-MD-02617-LHK (N.D. Cal.)
• MTD denied, 2016 WL 589760 (N.D. Cal. Feb. 14, 2016)
In re Experian/T-Mobile Data Customer Data Security Breach Litigation, MDL
No. 2676
In re Home Depot, Inc. Data Breach Litigation, No. 1:14-md-02583-TWT (N.D.
Ga.)
• Motion to dismiss pending
Remijas v. Nieman Marcus Group, LLC, No. 14 C 1735 (N.D. Ill.)
• Dismissal for lack of standing reversed by 7th Circuit
In re U.S. Office of Personnel Management Customer Data Security Breach
Litigation, MDL No. 2664
39
TELEPHONE CONSUMER PROTECTION ACT
40
Telephone Consumer Protection Act
• The “TCPA” restricts telephone
solicitations using an auto-dialer
(ATDS) to place calls
(47 U.S.C. § 227)
• Text messages are calls
See Satterfield v. Simon &
Schuster, Inc., 569 F.3d 946 (9th Cir. 2009))
• Penalties of between $500 $1,500 for each unlawful text message
41
Photo: Sean MacEntee, iPhone 4 apps– Creative Commons
Telephone Consumer Protection Act, Cont’d
• On and after October 16, 2013, prior express written consent is required to
send a text message to a customer that is marketing/advertising or dual
purpose
― New rules In re Rules and Reg’s Implementing the Tel. Consumer Prot.
Act of 1991, 27 F.C.C.R. 1830, 1839, 1856-67 (Feb. 15, 2012)
https://apps.fcc.gov/edocs_public/attachmatch/FCC-12-21A1.pdf
― Interpretation of new rules TCPA Omnibus Declaratory Ruling and
Order (July 10, 2015) https://www.fcc.gov/document/tcpa-omnibus-
declaratory-ruling-and-order
― Appeals followed, and consolidated appeal is pending
― FCC’s brief http://tcpablog.com/wp-
content/uploads/2016/01/Consolidated-Appeal-Respondent-Brief.pdf
― Clarification re Omnibus Declaratory Ruling
https://www.gpo.gov/fdsys/granule/FR-2015-10-09/2015-25682
42
What is prior express written consent?
• Prior to October 16, 2013, prior express consent was required to send
a text message to a customer
• Now prior express written consent is required
• Written consent must be both:
― signed by the consumer and be sufficient to show that she/he
― received “clear and conspicuous disclosure” of the consequences of providing
the requested consent (i.e., she/he will receive future
calls/texts via an ATDS from sender)
― agrees unambiguously to receive such calls/texts to her/his cell phone
― obtained “without requiring, directly or indirectly, that the agreement
be executed as a condition of purchasing any good or service”
43
What is a valid signature?
• One obtained in compliance with the
E-SIGN Act satisfies the requirements
(e.g., email, website form, text
message, telephone keypress, or voice
recording)
• An “electronic signature” is “an
electronic sound, symbol,
or process attached to or logically associated with a contract or other
record and executed or adopted by a person with the intent to sign the
record”
Sender bears the burden of proving that a clear and conspicuous disclosure was
provided and unambiguous consent was obtained
44
Photo: Sebastien Wiertz, Signature – Creative Commons
What are open issues?
• Plaintiffs are focusing on technical violations of the TCPA and ambiguities in
the FTCA and its implementing regulations
― What constitutes an ATDS?
― What constitutes human intervention?
― What constitutes prior express written consent under different text
messaging program models?
― What disclosures suffice?
• Do plaintiffs (and the putative class) lack Article III standing?
― Supreme Court granted certiorari in Robins v. Spokeo, Inc. (9th Cir. 2014)
742 F.3d 409, cert granted, 82 U.S.L.W. 3689 (U.S. Apr. 27, 2015) (No. 13-
1339).
45
What are potential pitfalls?
• Customer consents to receive 4 text messages but receives 5
• Customer gives consent, but the customer is only 16 years old
• Cell phone number provided does not belong to the customer
• Customer changes her/his phone number and the old number is assigned to
someone else who has not consented to receive text messages
• Managing opt-outs and customer complaints
46
Recent TCPA Settlements
• Capital One - $75,455,098
• HSBC - $39,975,000
• Bank of America - $32,083,905
• Met Life - $23,000,000
• LifeTime Fitness - $15,000,000
• Wells Fargo - $13,859,103
• Walgreens - $11,000,000
• Burger King - $8,500,000
47
48
GIFT CARD LAW
Gift Card Law
• CARD Act
• Cash Redemption of Gift Cards
• Fraud/Chargebacks Relating to Gift
Card Purchases
• Federal Prepaid Access Rules and
Regulations
49
Photo: Damian Gadal, Gift giving – Creative Commons
CARD Act
• Expiration Date Limitations
• Card may not expire < 5 years after issue date
• Expiration date must be stated clearly and conspicuously
• Fee Restrictions
• No fees unless no activity for 1 year
• Only one fee per month
• Disclosures Required
• Does Not Preempt More Restrictive State Laws
• Some states prohibit expiration dates altogether (Ex: MN)
• Some states prohibit fees altogether (Ex: MN)
• Some states have other restrictions
50
Cash Redemption of Gift Cards
• Several states’ gift card laws require certain gift cards to be redeemable for
cash if the card balance is less than $ X
― Requests can be made both in-store and online
• These states currently include:
― California Oregon
― Colorado Rhode Island
― Maine Texas
― Massachusetts Vermont
― Montana Washington
― New Jersey
• Many companies have an appropriate policy and related point-of-sale (POS)
procedures, however, they are sued because their employees allegedly do not
follow the policy
51
Photo: Steven Depolo, Money Hand Holding Bankroll – Creative Commons
What are “best practices?”
• Fundamentally, recognize the need to both train and retrain your employees
on your gift card cash redemption policies and POS procedures
• What are “best practices” for avoiding litigation?
― There is not a one-size-fits-all approach
― Different industries face unique challenges, requiring varied approaches
• Bests practices may include:
― Training new employees not only on the policy and POS procedures but
on the consequences to the company and to the employee if the policy
and procedures are not followed
― Periodically retraining your employees (and management) on your policy
and POS procedures
― Requiring employees to confirm in writing that they received training
and retraining on your policy and POS procedures
52
What are best practices? Cont’d
― Identifying optimal times for retraining employees, which may be both
high gift card sales months as well as high gift card redemption months,
and may be several times a year
― Including reminders of the policy and POS procedures as part of the
employees’ pre-shift meetings, especially during high gift card sales and
redemption months
― Posting reminders of the policy and POS procedures in employee break-
rooms or similar areas, especially during high gift card sales and
redemption months
― Including reminders of the policy in more frequent communications
with management teams
― Auditing employees’ (and the management’s) compliance with the policy
and POS procedures, which may include, for example, quizzing
employees or even a secret shopper
53
Fraud/Chargebacks Relating to Gift Card Purchases
• Gift card-related fraud may be on the rise because
there is a growing secondary market for gift cards
― A customer purchases gift cards with a
credit card, sells the gift cards to a
third-party(ies), and then calls credit card
company reporting the purchase as fraudulent,
requesting a chargeback
― A cardholder claims that there are funds
on the gift card but the company’s system
says the card balance is $0
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Photo: GotCredit, Fraud - Creative Commons
Fraud/Chargebacks Relating to Gift Card Purchases
• How does the company protect itself from a fraudster?
― Train employees to identify and report potential fraud
― Suspicious activity
― Unusual gift card purchasing behaviors
― Limit the total value in gift cards that may be purchased by a single individual
using a credit card both on-line and in-store
― Require a manager’s approval for sales of gift cards over $$
― Verify that the purchaser is who she/he says she/he is
― Publicly disclose company’s policy when it suspects fraud
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Federal Prepaid Access Rules and Regulations
• Bank Secrecy Act and its implementing regulations, 31 C.F.R. Chapter X, are
designed to deter, detect, and prevent money laundering and terrorist
financing
― Closed-loop and open-loop gift card programs are covered
• Is the company a “provider of prepaid access”?
― A “provider of prepaid access” is “the participant within a prepaid program
that agrees to serve as the principal conduit for access to information from its
fellow program participants.” 31 C.F.R. § 1010.100(ff)(4).
― A “prepaid program” is “an arrangement under which one or more persons
acting together provide(s) prepaid access.” 31 C.F.R. § 1010.100(ff)(4)(iii).
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What is a “gift card program?”
• A gift card program is not a prepaid program if:
― “(A) [i]t provides closed loop prepaid access to funds not to exceed $2,000
maximum value that can be associated with a prepaid access device or
vehicle on any day; [or] …
― (D)(1) … (ii) [f]unds not to exceed $1,000 maximum value and from which no
more than $1,000 maximum value can be initially or subsequently loaded,
used, or withdrawn on any day through a device or vehicle; and
― (2) [i]t does not permit: (i) f]unds or value to be transmitted internationally;
(ii) [t]ransfers between or among users of prepaid access within a prepaid
program; or (iii) [l]oading additional funds or the value of funds from non-
depository sources.”
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What is a “seller of prepaid access?”
• A “seller of prepaid access” is “[a]ny person or business that receives funds or
the value of funds in exchange for an initial loading or subsequent loading of
prepaid access if that person:
― (i) [s]ells prepaid access offered under a prepaid program that can be used
before verification of customer identification under [Section]
1022.210(d)(1)(iv) [of the BSA Regulations]; or
― (ii) [s]ells prepaid access (including closed loop prepaid access) to funds that
exceed $10,000 to any person during any one day, and has not implemented
policies and procedures reasonably adapted to prevent such a sale.” 31 C.F.R.
§ 1010.100(ff)(7).
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