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STATES CHALLENGE GIFT-CARD TERMS

BY BRANNON BOSWELL AND DONNA MITCHELL

In a struggle that could affect gift-card programs throughout the industry, Simon Property Group is battling state governments to defend its Simon Visa Giftcard, which is under attack over fees, expiration dates and other card caveats.

At the height of the holiday shopping season, former Georgia governor Roy Barnes filed a suit in state court on behalf of two consumers who tried to redeem their year-old Simon gift cards at Atlanta malls, only to find the cards had expired. The suit, which seeks class-action status, charges that the value of unused Simon Visa Giftcards is unclaimed property that must be turned over to the state of Georgia so the purchaser can reclaim it. The cards lose $2.50 in value each month, starting seven months after purchase, according to the plaintiffs.

Simon counters that the suit has neither legal nor factual merit. The Georgia case is the latest in a string of lawsuits being filed against the Indianapolis-based firm. In late November the attorneys general of Connecticut, Massachusetts and New Hampshire sued Simon in their respective state supreme courts, on the grounds that the company’s cards violate state consumer-protection laws concerning gift certificates.

For its part, Simon insists that because the cards are co-branded bank cards, they fall under federal banking laws, not state gift-certificate regulations, according to Michal Regunberg, a Simon spokeswoman. (Some gift cards, like those sold by Starbucks and Target, have no fees and don’t expire, but those are not co-branded as bank cards.) Simon’s argument underscores a lawsuit the firm filed against the three New England states in a pre-emptive move.

There is much at stake here, because gift cards have become hugely popular. At press time the National Retail Federation was projecting that these cards would account for about $17.2 billion in sales for the 2004 holiday season.

Other mall owners with gift-card programs declined to comment formally but said they share Simon’s view and are even considering pre-emptive suits themselves.

Several mall companies, including General Growth Properties and Glimcher Realty Trust, issue mall-based gift cards. Simon was expecting 2004 sales from its program to reach $400 million at press time.

But the technology behind these and other debit-card programs is outpacing legislation and consumer familiarity, says Herb Tyson, ICSC staff vice president of government relations.

“Our concern is that there be some consistency and fairness,” said Tyson, “so that industry professionals know what the ground rules are.”