New Jersey Fights To Claim Unused Gift Cards

Despite losing a federal court ruling, New Jersey State Treasurer Andrew P. Sidamon-Eristoff told a U.S. District Court judge in Newark that the state will appeal a Nov. 13 ruling that temporarily struck down a new law concerning seizures that was enacted in July as part of Governor Christie's budget:

The legislation amended part of the state Uniform Unclaimed Property Act to include gift cards for the first time, allowing the state to consider a card abandoned two years after purchase and seize the balance.

The amendment also allowed the state to consider a traveler's check abandoned if it is not cashed or spent three years or longer from the purchase date, instead of after 15 years under the previous law — the rule in most states.

The proposals incensed the New Jersey Retail Merchants Association, New Jersey Food Council and American Express, which filed separate suits seeking to block the law, which was due to take effect Nov. 1.

"We thought that when we won the injunction that would hopefully end this issue," said John Holub, president of the merchants association. "Unfortunately, and very disappointingly, the state has chosen to appeal."

"We recognize the difficult situation the state is in," he said, but he added that the amendment "totally goes against" Christie's efforts to cut red tape and reduce the burden on businesses.

States are amending the abandoned property law to allow the state to take possession of property (escheat) if it is not claimed within a vastly reduced period of time (statute of limitations or dormancy period).

For example, travelers checks were typically given a 15 year statute of limitations under the Uniform Unclaimed Property Act, which most states have adopted in one form or another. With budgetary pressures, states have turned to making hash out of the uniform rules. New Jersey decided to slash the 15 year statute of limitation to just three years for travelers checks. Moreover, New Jersey sought to make the travelers check provision retroactive to 1994, allowing the collection of millions of dollars to help balance this year's budget. Add to that the new provisions that wanted to impose dormancy periods for gift cards, and the state was hoping to raise revenues through a back-door measure.

Since gift cards often involve companies across state lines (think Home Depot, Best Buy) and are therefore interstate commerce, enacting onerous rules that differ from other states was found to violate the US Commerce Clause. The judge, Freda L. Wolfson, granted a temporary injunction against sections of the amendment that define when the state can consider checks and cards abandoned and allow retroactive seizures.

I don't expect the state to succeed at the appellate level, but they'll go through the motions because of the economic necessity of needing those funds to help balance a budget that looks almost as bad as last year.