UPWords- May 2011- Prepaid Discount Vouchers: The Not-So-Final Frontier

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The biggest challenge for unclaimed property practitioners is determining how new forms of property fit into unclaimed property laws. Recent technological and entrepreneurial innovations continue to challenge historic concepts of what constitutes unclaimed property.

In the July 2010 UPwords, we explored the scope of property subject to escheat laws in the context of digital goods, such as digital downloads of video games, music and videos, promotional codes, and online stored value accounts.1 Since then, retailers of another new form of digital property — the online prepaid discount voucher — including companies such as Groupon and LivingSocial, have expanded their businesses rapidly. A recent string of class action lawsuits against these companies for alleged violations of federal and state consumer protection laws, including state restrictions on gift card expiration dates, highlights the unclaimed property implications of this new form of property as well as raising interesting issues regarding conflicting federal and state laws. In this installment of UPwords, we evaluate the unclaimed property issues raised by this new form of property, explore the intersection between federal consumer protection laws and state unclaimed property laws, and suggest that states should carefully and fully consider the legal and policy implications of continuing to expand the scope of property subject to unclaimed property laws.

What Is a Groupon, Anyway?

Groupon, for those who live in the Stone Age or still own a first-generation iPad, is a daily deal website that offers heavily discounted vouchers (or Groupons) on behalf of local vendors.2 The site has been hailed by Fortune magazine as the fastest growing company ever, with as many as 40 million subscribers worldwide.3 Groupon’s twist on the classic coupon site is that most discount offers last only for a 24-hour period, and the deal does not become ‘‘live’’ until a specified minimum number of other consumers purchase the same deal the same day. A variety of products and services are offered through Groupon, including everything from food to dance and scuba lessons to Lasik surgery. Once a deal becomes live, customers are charged the discounted price of the product or service and receive a confirmation e-mail containing a link to their Groupon, which is printed and then redeemed with the local merchant. The consumer gets 50 to 80 percent off, the merchant gets exposure and a guaranteed number of new customers, and Groupon collects 50 percent of the money earned.

LivingSocial, Groupon’s largest competitor, operates under the same basic business model as Groupon, with the most notable distinction being that LivingSocial does not require a minimum number of buyers to render a deal ‘‘live,’’ although buyers receive a unique link that makes their purchase free if they convince three or more friends to purchase the same deal.4

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