In the Spirit of Giving Gift Cards
“The regulation subject to certain exceptions, of course, now provides that prepaid purchase cards cannot have an expiry date, and even if they do, it doesn't mean that it's effective.” – Paul Matthews, P.Eng (AB)
On Episode 6: In the Spirit of Giving Gift Cards – Mark Fancourt-Smith and Alix Stoicheff speak to Kelowna partner, Paul Matthews, P.Eng. (AB) about British Columbia’s Prepaid Purchase Cards Regulation and what you need to know when buying or using gift cards this holiday season and beyond.
Guest:
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Don't have time to listen to the full podcast? Here's what this episode covered:
- Paul Matthews: Engineer and Lawyer 00:46
- What are the benefits to companies in issuing the gift cards? 04:13
- Do gift cards have expiration dates? 06:26
- What tools are available to the consumer to ensure the regulation is enforced? 07:26
- What are the exceptions to the prohibition on expiry dates? 08:24
- How does BC’s regulations hold up next to other jurisdictions across the country? 09:36
- What sorts of fees are companies able to charge for a gift card? 10:35
- What are some risks for consumers and business if people are sitting on a gift card? 11:13
Transcript
Alix Stoicheff 00:00
As the holiday season approaches and people look at buying gift cards for their friends and family, what are some things that both businesses and consumers should keep in mind in terms of how gift cards are regulated?
Mark Fancourt-Smith 00:19
Welcome to LawsonInsight! I'm Mark Fancourt-Smith , a litigation partner located in Lawson Lundell’s Vancouver office.
Alix Stoicheff 00:25
And I'm Alixandra Stoicheff, a litigation associate located in our Calgary office.
Mark Fancourt-Smith 00:30
Paul is a partner in our Kelowna office practicing in the fields of intellectual property, engineering, procurement and construction, strategic sourcing and privacy and data security. Paul, welcome to the podcast!
Alix Stoicheff 00:41
Hi, Paul!
Paul Matthews 00:43
Thank you, Mark and Alix! Great to chat with you!
Mark Fancourt-Smith 00:46
So as a first question, I just wanted to ask you a bit about how you came to law and to Lawson, you had a bit of an interesting route before going to law school in the US and clerking at the Oregon State Court of Appeals. You had a career as an engineer, so I wonder if you could tell us about that and what made you change courses?
Paul Matthews 01:05
Well, thank you! Not to bore you to death, but I started my career on the contracting side of the oil and gas industry and was involved in working on a gas plant that at the time was the largest discovery in, I believe North America for about 25 years. So it was just a massive project and the facility itself that was contested at the regulatory level, at the time, in Alberta, it was the ERCB. And what I found interesting was during those ERCB hearings, and in preparation for them, I was the project designated technical advisor, if you will, for that regulatory process. And I found myself educating the lawyers and feeding them notes during the process on the aspects of the technology that was used, and recognizing how well lawyers were paid then and how little engineers were, I thought, why there's clearly something more to chasing the business. And I thought that was a good opportunity for me to leverage my engineering background and take it into law.
Mark Fancourt-Smith 02:10
And then so how did you find yourself coming to us?
Paul Matthews 02:13
You know, at the time, I was living in Kelowna, and had been for a number of years, commuting to Calgary, and recognized that the tech sector was something that was really going to happen in town. And just as a matter of pure fortuity, I met Mike Macaulay, and it was really just the opportunity of a lifetime. And I'm very grateful to have met Mike and the firm and had an opportunity to be the boots on the ground here in Kelowna, to, to staff the office, by myself for about 15 to 18 months. It was just that simple.
Alix Stoicheff 02:47
So Paul, you are the first person who we've had from the Kelowna office on the podcast, and it presents a nice opportunity for us to chat a little bit about that office. So how did the Kelowna office come to be and what makes it unique?
Paul Matthews 03:00
Well, it was really, it was really the firm's vision and recognizing the tech sector that was emerging here to set up an office to catch that wave. So the office opened here in the spring of 2017. We’re, frankly, fully staffed already, and we strategically caught some space in the Innovation Center, which is really, you know, in the same building and one floor above the local accelerator in the Okanagan, which supports the, you know, the tech entrepreneurial sector, as well as the tech hub set up by the University of British Columbia, Okanagan campus. So it couldn't have been a better location, a more strategic location, it couldn't have been a better time. And the office, we've got quite a diverse skill set here. It's tech heavy, as you can imagine. So there's myself, and I've got a commercialization practice. We have Rick Okimaw, who's our Patent Agent, and we have Mike Macaulay, who leads the M&A, financing corporate structuring, side. In addition, we have tax associate, commercial litigator and the head of our research and opinions group. So it's really a well positioned skill set to serve the tech community here and beyond.
Mark Fancourt-Smith 04:13
Now, I wanted to turn to the topic of the day why we asked you here. Over the summer you blogged about the Prepaid Purchase Cards Regulation. Title of the blog was “Gifts that Keep on Giving” [LINK]. Now we are familiar with the reasons why we buy gift cards or prepaid purchase cards. One, it's one small step above giving money in terms of lazy keeps giving, in some cases, a way to get a deal on goods and services. I wanted to ask you and it comes from part of the focus of the article. What are the benefits to companies in issuing the gift cards?
Paul Matthews 04:45
That's a great question Mark, and when I was looking at this question that actually came up in the context, one of the ventures we were working with it appeared to me that it was simply a matter of reach. It's a low cost easy way of attracting new clientele and keeping current clientele and you know binding them, you can walk into a Safeway store or Best Buy store pretty much anywhere other than the actual store service providers, bricks and mortar, and pick up a gift card. It's just, it's just so easy.
Mark Fancourt-Smith 05:23
Paul, just thinking about it. And again, in the context of the of the blog post, you made one of the other benefits to companies, it would seem in selling gift cards as a way to get revenue for services without having provided them yet. And that sort of then goes into the open secret of gift cards, which is that, you know, certainly less than 100% of them are ever redeemed. And so to an extent, this is a way of businesses to get revenue without having to provide services. In the end. In a sense, a company has a pool of revenue that it may or may not actually have to draw down upon to provide services at all.
Paul Matthews 05:55
You know, I think that's a great point Mark, very insightful. Not only does it help balance the, you know, the peaks and valleys, particularly that we're seeing this year on the retail side and other service sectors in terms of revenue. But frankly, it let's face it, it increases the margin. Certainly they're not all redeemed or if they are not redeemed 100%. I know, I'm as guilty as anyone of sitting on a bunch of cards and losing track of them.
Alix Stoicheff 06:26
Well, and Paul, that leads into actually what I want to talk about next, which is how the practice of businesses putting expiration dates on gift cards really drove this prepaid purchase card regulation, because on the one hand, as I understand it, you know, having expiration dates is a way for companies to get more certainty as to the liabilities that they face going forward. On the other hand, it is also a way of potentially and this is a bit of a more cynical view, but of ensuring that a lower percentage of the cards actually gets used or redeemed.
Paul Matthews 06:55
Going back to that hidden or open secret, if you will, that profit motive. I think that's very much on point, Alix, the legislative response to that was really with the view that it was a sharp practice, and trying to eliminate the ability to really take advantage of people. So the regulation subject to certain exceptions, of course, now provides that prepaid purchase cards cannot have an expiry date, and even if they do, it doesn't mean that it's effective.
Alix Stoicheff 07:26
And so on that note, what kind of tools does the regulation or even the bureau provide the consumer in terms of enforcing or making sure that that regulation is actually followed?
Paul Matthews 07:36
Well, and this is where the consumer has to be looking out for themselves and really has to have an awareness of their rights in this space. Real good resource is just the BC consumer website, if you take a look at that it even has a discussion of what the legislation regulations are, what your consumer rights are, and to the extent that sharp practice continues, there's even a form you can download, complete and provide to the vendor. To the extent the vendor or supplier ignores that, then you have the opportunity to avail yourself of the resources that the government makes available, and then they'll get involved. So all to say, you can still use your prepaid purchase card.
Alix Stoicheff 08:24
Okay. And I understand that there are some exceptions to the prohibition on expiry dates. What are those exceptions? And sort of? What's the reasoning behind that?
Paul Matthews 08:32
So that's a really good question as well. And there are a number of exceptions. So for example, one of them is that if it's a purchase card issued for a specific good or service, I think on the website, he example given is a haircut at a hair salon. So that can have an expiry date, and the rationale there, of course, is that for that particular supplier or vendor, they want some certainty into how long they have this contingent liability sitting out there. So it's really providing those vendors with certainty in what in what their accounts are. Another is if the purchase card is issued or sold for a charitable purpose, I think the rationale for that is self evident. Another one is that if you receive a purchase card for something for free, on a promotional basis, or for anything less than its redeemable value, then it can have an expiry date, again, just to promote the marketing and promoting side. Those are sort of the primary ones.
Alix Stoicheff 09:36
Okay. And we've been talking about this in the context of the British Columbia legislation, but am I correct in understanding that there's similar legislation in other jurisdictions across the country?
Paul Matthews 09:45
To a large extent, they're quite similar, but there are differences. And so you really do have to be aware of what your rights are when you're a consumer in those different jurisdictions.
Alix Stoicheff 09:58
Right and conversely, for a lot of the small businesses who I know are promoting the use of gift cards, especially this Christmas, as Mark noted earlier, this one is particularly unique, and people may be both selling and relying upon gift cards. Those businesses will want to make sure that they're on side the regulations in their particular jurisdiction to no doubt.
Paul Matthews 10:14
Absolutely, there are a couple of other aspects to gift cards that we haven't touched on. For example, the obligation for the card issuer to ensure that they disclose the terms and conditions of the card, and it to the extent that you purchase a mall card, a card that can be used at various shops within a mall, they are able to charge fees on that card
Mark Fancourt-Smith 10:35
What sorts of fees are they able to charge on it?
Paul Matthews 10:37
So the first is they're allowed to charge a fee when you purchase the card. Now at least BC the limit to that fee is $1.50. They also have the right to start charging monthly fee to the extent that you don't use the card. So if you go for I believe, its 15 months and you don't use the card, they can start to impose a monthly fee, you have an opportunity to go back and ask the vendor to give you an extension so you can start to use the card, but it's very interesting that legislation has allowed suppliers then after a certain amount of time to charge sort of a stale fee or a non-use fee, if you will.
Mark Fancourt-Smith 11:13
Just on that point with prepaid purchase cards are rolling over time in certain circumstances. What are some other risks that a consumer might face if they are effectively sitting on a gift card?
Paul Matthews 11:24
Great question Mark. The risk, particularly in these times is that when the consumer goes to use the card, the supplier or the vendor that is insolvent, and they can't use it, the gift card then is effectively an unsecured claim on the business and the ability to really extract any of the value of it is lost.
Mark Fancourt-Smith 11:46
I suppose the flip side to it, from the vendor point of view, especially for businesses who have been affected by ongoing restrictions, and are using the gift cards to kind of balance out the peaks and valleys is that once the restrictions are lifted, they might be faced with a stream of customers with prepaid services. And so there then in the position of having to provide the services, but without the revenue just when they're trying to start back up.
Paul Matthews 12:13
Increasing the slope of that hill they have to climb out of. Yeah, good point.
Mark Fancourt-Smith 12:17
One last point I just wanted to make and make you aware of Paul, when I was pulling up the blog that you had done and I typed in Paul Matthews and gift cards, you are actually not the first search result. Apparently there is a Certified Public Accountant in Texas named Paul Matthews, who as part of efforts to drum up business is offering gift cards. I just thought you'd like to do that in case you get any inquiries which may seem puzzling and not especially blog or label.
Paul Matthews 12:43
Thanks for the heads up, Mark!
Mark Fancourt-Smith 12:44
Paul, thanks so much for coming on the podcast today. Great to have you!
Alix Stoicheff 12:47
Thank you for joining us, Paul!
Paul Matthews 12:48
Thank you both. Have a great day.
Mark Fancourt-Smith 12:50
Thank you for joining us on LawsonInsight today and thanks again for Paul Matthews for being our guest.
Alix Stoicheff 12:55
For more information, please visit our website at lawsonlundell.com, and check out the blog authored by Paul Matthews on this issue [LINK]. You can also stay up to date by connecting with us on Twitter using the handle @LawsonLundell, and by subscribing to this podcast on Apple, Spotify or Google Podcasts. Thanks for listening!
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