BILL ANALYSIS SB 885 Page 1 Date of Hearing: June 29, 2010 ASSEMBLY COMMITTEE ON BUSINESS, PROFESSIONS AND CONSUMER PROTECTION Mary Hayashi, Chair SB 885 (Corbett) - As Amended: June 14, 2010 SENATE VOTE : 21-12 SUBJECT : Gift certificates: redemption. SUMMARY : Requires that a gift certificate sold after January 1, 2012, be printed with a statement that the cash value of less than $10 may be redeemable in cash, as specified, and deletes provisions allowing dormancy fees for non-use of the gift certificate, as specified. EXISTING LAW : 1)Makes it unlawful to sell a gift certificate that contains an expiration date or a service fee, including, but not limited to, a service fee for dormancy. 2)Requires any gift certificate sold after January 1, 1997, to be redeemable in cash for its cash value, or replaceable with a new gift certificate at no cost to the purchaser or holder. 3)Requires any gift certificate with a cash value of less than $10 to be redeemable in cash for its cash value. 4)Exempts from the requirements above, the following gift certificates issued on or after January 1, 1998, with the expiration date appearing in capital letters in at least 10-point font on the front of the gift certificate: a) Those distributed by the issuer to a consumer pursuant to an awards, loyalty, or promotional program for free. b) Those donated or sold below face value at a volume discount to employers or to nonprofit and charitable organizations for fundraising purposes if the expiration date on those gift certificates is less than 30 days after the date of sale; and, c) Gift certificates that are issued for perishable food SB 885 Page 2 products. 5)Exempts dormancy fee requirements for the following gift cards when: a) The remaining value of the gift card is $5 or less each time the fee is assessed; b) The fee does not exceed $1 per month; c) There has been no activity on the gift card for 24 consecutive months, including, but not limited to, purchases, adding value, or balance inquiries; d) The holder may reload or add value to the gift card; and, e) A statement is printed on the gift card in at least 10-point font stating the amount of the fee, the frequency of the fee, that the fee is triggered by inactivity of the gift card, and when the fee will be charged. The statement may appear on the front or back of the gift card, but shall appear in a location where it is visible to any purchaser prior to purchase. FISCAL EFFECT : Unknown. This bill is keyed non-fiscal. COMMENTS : Purpose of this bill . According to the author's office, "While consumers gained new rights under SB 250 [(Corbett), Chapter 640, Statutes of 2007] many retailers are refusing to comply with the law. Starbucks was taken to court by three counties ? and agreed last summer to pay $225,000 in civil penalties for not complying with the law. "Consumerwatch, part of the news organization KPIX, visited about two dozen stores in San Francisco and inquired if they could redeem a gift card valued at $10 or less. Sales clerks at more than half the stores refused. "In these difficult times, consumers have the right to have ready access to liquid assets, including cash and gift cards. The remainder on their unused gift cards could make the difference in paying their bills and making ends meet. This problem is so common that in 2009 nearly $5 billion in gift SB 885 Page 3 cards went unspent." Background . Over the last several years, gift cards have become increasingly popular as a means of gift-giving. According to the financial consulting firm TowerGroup, Americans spent $88.4 billion on gift cards in 2008, but left $6.4 billion unspent. More than $100 million in gift card value was invalidated in bankruptcies and liquidations. In 2009, Americans spent $87 billion on gift cards, with approximately $5 billion unspent. TowerGroup also reported that 40% of gift card recipients in the United States do not use the full value of their gift cards. Previous committee hearing . This bill was heard by the Assembly Committee on Business, Professions and Consumer Protection on June 22, 2010. Testimony was presented by the author and key stakeholders, both in support and opposition to this bill. Alternate approaches were discussed, however, no consensus was reached and no vote was taken. The basis for this bill was a random query of local businesses performed by Consumerwatch that found half of the two dozen stores it visited were in non-compliance with the current requirements under SB 250. Also discussed at the hearing was the recent loss by Starbucks of a class action law suit for failure to comply with the requirements of SB 250, which among other penalties, required Starbucks to provide notification to their customers regarding the right of the consumer to redeem gift cards with $10 of value or less for cash. Opponents stated that since the passage of SB 250 two years ago, large retailers have complied with the law, including Walmart which has redeemed over 63,000 gift cards for cash, Target which has redeemed 698,000 gift cards for cash, and Home Depot which has programmed its registers to automatically give consumers cash back when the value of a gift card drops below $10. Support . The Consumer Union writes in support, "Consumers have long been frustrated, and remain frustrated, with the inability to use remaining gift card values on their gift cards. SB 885 will better inform both the recipients and merchants about the requirement to redeem values on gift cards with a remaining cash value of up to $10. It provides consumers the ability to use millions of unused gift card funds which would otherwise go unspent." SB 885 Page 4 Oppose . Opponents, including the National Federation of Independent Business, state, "As you know, the requirements of SB 250 came about as a result of a compromise crafted by the Assembly Business and Professions Committee. After just over two years with this law in place, now is not the time to change California's gift card law again. Gift card sellers are still reeling from the impact of the recession and should not be required to incur additional expenses to change their gift cards. Even with the delayed implementation date that was amended into the bill?this bill will still be costly for businesses and difficult to comply with." Previous legislation . SB 250 (Corbett), Chapter 640, Statutes of 2007 allowed any gift card, as defined, with a cash value of less than $10 to be redeemed in cash for its cash value. REGISTERED SUPPORT / OPPOSITION : Support Alameda County District Attorney's Office California Labor Federation CALPIRG Consumer Action Consumer Attorneys of California Consumer Federation of California Consumers Union Opposition Best Buy California Business Properties Association California Chamber of Commerce California Grocers Association California Independent Grocers Association California Manufacturers and Technology Association California Retailers Association California Theater Owners Association California Travel Industry Association Charles Diaz Trucking, Inc. CTIA The Wireless Association CVS Pharmacy First Data Freedom Ford Truck Center International Council of Shopping Centers SB 885 Page 5 International Franchise Association Jeff's Pet Depot JVCO Lowe's National Federation of Independent Business National Retail Federation Retail Industry Leaders Association Rite Aid RWD Consulting Safeway Target TechAmerica The Home Depot T-Mobile Analysis Prepared by : Rebecca May / B.,P. & C.P. / (916) 319-3301