New York Attorney General Letitia James on Friday secured nearly $4.4 million from a gift card company, Card Compliant LLC (Card Compliant), for knowingly helping popular fashion retailer H&M keep millions of dollars in New Yorkers’ unused gift card funds, in violation of New York law.
According to Attorney General James, for years, H&M withheld New Yorkers’ unused balances on their gift cards that should have been available to claim through the state’s Office of Unclaimed Funds. H&M used an agreement with Card Compliant to make it appear that Card Compliant, as an out-of-state company, was handling H&M’s gift card business and therefore was not required to transfer the unredeemed balances to the state. In reality, H&M continued to manage its own gift card business and was required by law to turn over unused balances. In May 2022, Attorney General James secured more than $36 million from H&M that it had wrongly withheld. As a result of the settlement announced today with the Office of the Attorney General (OAG), Card Compliant will pay nearly $4.4 million to the state.
“Consumers should know that when they buy gift cards, the money on the card belongs to them,” said Attorney General James. “For years, Card Compliant and H&M knowingly disregarded the law and lied to the state and consumers, lining their own pockets with gift card funds that belonged to New Yorkers. My office will continue to protect New Yorkers’ wallets and go after any company that attempts to cheat them.”
H&M sells gift cards for use in its retail and online stores. Every year, some portion of H&M’s gift cards go unused by consumers, resulting in an unredeemed balance on the cards — money that H&M has received, but consumers have not redeemed for merchandise. Under New York law, after five years of inactivity, gift card issuers are required to turn over unused balances on gift cards to New York’s Abandoned Property Fund.
The OAG opened an investigation into H&M in 2016, after a whistleblower filed a lawsuit under the New York False Claims Act, and found that H&M knew it was required to transfer millions of dollars in unredeemed gift card balances to the Abandoned Property Fund but did not do so.
In order to avoid relinquishing these funds, H&M entered into an agreement with Card Compliant which was intended to make it look like Card Compliant, not H&M, issued and administered its gift cards. Card Compliant operates its business out of Leawood, Kansas, and therefore was not required to transfer unredeemed balances to New York’s Office of Unclaimed Funds.
In 2011, the New York Comptroller’s Office contacted H&M about the contract between H&M and Card Compliant. Card Compliant advised H&M to only share some of the contract terms with the Comptroller’s Office and not to disclose the fee provisions that would have revealed that H&M kept the unredeemed gift card balances. Card Compliant also prepared a letter for the Comptroller’s Officer falsely claiming that the company had paid out tens of millions of dollars in connection with H&M gift card redemptions. In reality, Card Compliant had not done this, and lacked the resources to honor H&M’s millions of dollars of outstanding gift cards. Card Compliant made misleading statements to the Comptroller’s Office to falsely imply that Card Compliant, not H&M, performed the gift-card issuance and marketing services and retained the unredeemed gift card balances.
Friday’s agreement resolves allegations that Card Compliant provided false statements to the Comptroller’s office and advised H&M to make false statements to avoid turning over the unused balances on gift cards to the state. As part of the agreement, Card Compliant will pay $4.37 million to New York state, of which more than $1 million will be paid to the whistleblower.
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