Over the past year, daily deal sites have surged in popularity with consumers. Competitors Groupon and LivingSocial appear to be leading the pack and were battling it out yesterday with Super Bowl commercials. In the end, many of us are opting to take advantage of such offer and often times, these offers provide tremendous bang for the buck; however, there can be strings attached.
In late January 2011, Groupon was sued for a second time; this time, a class action law suit was filed in California which claims Groupon violates California Gift Card Law among other things.
Unfortunately, it's unclear if and how these discounted gift certificates or "groupons" are governed by state gift card laws. Below is a quick walk-through of where things stand in regards to California law.
A closer look at California's current gift card law:
In general, California gift card law does not allow for gift cards/gift certificates to be sold with expiration dates; post-sale fees are also generally prohibited. However, there are exceptions and the law does not specifically state whether or not a discounted gift certificate (groupon/voucher) is governed by such laws.
California Civil Code Section 1749.45(a) defines a gift certificate and reads:
"As used in this title, "gift certificate" includes gift cards, but does not include any gift card usable with multiple sellers of goods or services, provided the expiration date, if any,is printed on the card. This exemption does not apply to a gift card usable only with affiliated sellers of goods or services."
That's not much help in determining if a groupon voucher is considered a gift certificate. In fact, that's not a very good definition of a gift certificate. However, Section 1749.6(a) offers some more insight and reads:
"A gift certificate constitutes value held in trust by the issuer of the gift certificate on behalf of the beneficiary of the gift certificate. The value represented by the gift certificate belongs to the beneficiary, or to the legal representative of the beneficiary to the extent provided by law, and not to the issuer."
It not a far stretch to see a groupon voucher represents "value held in trust". After all, a consumer is giving the issuer money for services to be provided at a later date. This implies groupon vouchers would be governed by California gift card law as gift certificates.
Groupon's Terms Agree, Mostly
It appears Groupon agrees that a portion of their vouchers is likely governed by state and federal gift card law. According to groupon's terms:
While the expiration date on the Voucher dictates the last date that you can use your Voucher at Merchant for the promotional offer stated on the Groupon, applicable law may provide that the Merchant is responsible for honoring the cash value that you paid for your Voucher for a period of time beyond the expiration date stated on the Voucher. In other words, you should be allowed to redeem the cash value (or purchase price) of your Voucher up until the greater of: (1) the Voucher’s expiration date; or (2) the minimum length of time allowed by applicable law for a Voucher to expire.
We think expiring the promotional value is a reasonable approach and understand why such a policy was created. California gift card law (and federal gift card law) specifically provide an exclusion for promotional gift certificates.
California Civil Code Section 1749.5(d)(1) reads:
This section does not apply to any of the following gift certificates issued on or after January 1, 1998, provided the expiration date appears in capital letters in at least 10-point font on the front of the gift certificate:
(1) Gift certificates that are distributed by the issuer to a consumer pursuant to an awards, loyalty, or promotional program without any money or other thing of value being given in exchange for the gift certificate by the consumer.
Clearly the state recognizes a company should have the ability to offer gift card promotions with expiration dates. It's also clear part of a groupon voucher is promotional in nature and no money is being exchanged for the "promotional value". However, it may be argued that something of value was was given in exchange for the groupon voucher as a whole. Furthermore, it's a bit confusing that one gift certificate can be treated in two separate ways.
The Deal Breaker: Cash Back Law
California Civil Code Section 1749.5(2) reads:
"Notwithstanding paragraph (1), any gift certificate with a cash value of less than ten dollars ($10) is redeemable in cash for its cash value."
If the entire potion of a groupon voucher where to be governed by gift card laws, a $9.99 groupon voucher sold for $5 would be redeemable for $9.99 in cash (or check) by the issuer. The consumer could demand cash for a portion of the gift certificate which they never paid for.
That just doesn't seem right and it's a point which implies the entire portion of a groupon voucher should not be subject to gift card laws. Furthermore, it seems reasonable to understand the "cash value" of a groupon voucher is the portion in which cash was exchanged.
Assuming Groupon clearly disclose the expiration dates for both the promotional value and cash value, Groupon appears to be standing on solid ground.
Unfortunately, not all Groupons disclose both expiration dates and often times. While the Barnes and Nobel Voucher offered a detealed terms webpage, the terms link for other many offers direct to a generic "Universal Fine Print" page which mentions nothing about expirtion dates or the notion of state and federal laws which may extend the expirtion date. All of which is covered at the bottom of the main Groupon Terms page.