Difficult-to-empty gift card didn't violate NY consumer protection law

Preira v. Bancorp Bank, --- F. Supp. 2d ----, 2012 WL 3541702 (S.D.N.Y.)

Defendants sell prepaid, stored-value Vanilla Visa and Vanilla MasterCard gift cards.  The cards have an activation fee and are “non-reloadable,” so cardholders cannot add value or merge the values of two or more gift cards after purchase. On the package, the terms and conditions disclose that card funds never expire; other details are available either inside the packaging or on the relevant website or 800 number.  Gift cards can be used with any merchant that accepts Visa or MasterCard debit cards. The cardholder agreement specifies that cards can be mailed back and the remaining balance will be sent to the cardholder by check.

But some merchants don’t allow cardholders to conduct split transactions (zeroing out the card and paying the remainder in some other way).  Split transactions generally require pre-swipe notice to avoid having the card declined. 

Plaintiff bought a Vanilla Visa gift card for $25 plus $4.95 activation fee.  She used it for various purchases (the court was confused about why she’d buy a gift card and pay the activation fee for herself), and was initially refused in her attempt to complete a split transaction.  Later, she tried again at Wal-mart, but the transaction was refused by the issuer, and the Wal-mart clerk allegedly explained that the store had problems with Vanilla Visa and MasterCard gift cards “all the time.”

Preira sued for violation of N.Y.G.B.L. § 349, breach of the implied covenant of good faith and fair dealing, unjust enrichment, and conversion.

The claims all failed because Preira couldn’t allege actual injury.  Balances don’t expire; some merchants do allow split transactions; and a customer can return the card at any time for a refund of the remaining balance.  Preira argued that the balance and the nonrefundable activation fee counted as damages, since consumers were paying for a card that didn’t work as advertised, and that a refund policy can’t destroy a consumer protection claim.

New York’s consumer protection law doesn’t require justifiable reliance or defendant’s intent to deceive, but it does require actual injury.  Deception alone isn’t sufficient; something more is required, such as that the price of the product was inflated as a result of the deception.  Here, plaintiff’s allegations that consumers were left with unused balances because of some merchants’ rejection of split transactions, and that consumers lacked recourse, were belied by the complaint and the documents that were inherently part of the complaint.

First, “that Plaintiff cannot complete a split transaction with every merchant that accepts Visa debit cards does not mean that she has suffered actual injury within the meaning of Section 349, especially when the Cardholder Agreement discloses this very fact.”  Second, even if no merchants allowed split transactions, she could still reclaim the unused balance by mail.  It may be true that a money-back guarantee doesn’t always preclude a consumer protection claim, but the defendants’ unrestricted refund policy providing full compensation prevented a showing of harm.  (The court doesn’t say it in so many words, but I think it matters that the product here is money—the refund is essentially fungible with the product’s performance, as it wouldn’t be for a non-money product.)

The court also commented that, in the judge’s “judicial experience and common sense” (Iqbal), it was “wholly implausible that gift card holders are unable to use the full value of their cards at the many retailers that permit split transactions. Even Plaintiff does not allege that those retailers are few in number or inconveniently located.”  In addition, though the court said it wasn’t considering this for purposes of the motion to dismiss, an affidavit from defendant created in the course of discovery stated that there were “1,676,123 Gift Cards with a zero ending balance as of August 4, 2011” and “that there were approximately 397,775 Gift Cards with a positive balance as of August 4, 2011.”  Some of the latter appeared never-used because they had the same opening and ending balances. The numbers supported the judge’s common sense that plaintiff and those like her could, like 1.6 million other cardholders, fully deplete the funds through purchases or split transactions or by sending the cards in by mail.

Preira argued that her claim wasn’t based on lost value, but rather on false and misleading statements that the gift cards could be used in the same way as debit cards.  Two problems: she never alleged that debit cards can be used for split purchases at any retailer; nothing in the complaint stated what happened to a debit card holder whose total is more than his or her available balance.  In the absence of a split transaction, both types require affirmative steps when a balance is below the desired purchase amount—either a mail-in refund (gift card) or reloading the card (debit card).

Second, Preira’s alleged injury was identical to the deception, which was insufficient.  It is not enough that a consumer allegedly bought a product she would not otherwise have purchased in the absence of deception.  She failed to allege, for example, that the deception inflated the cost of the card, or that she tried and failed to get her money back.  All the limits—including limits on split transactions and on how to get money back—were fully disclosed to her (for contract values of disclosure) before her first transaction, though after she paid the activation fee.  She never sought a refund of the activation fee.