Groupon Reaches Preliminary Settlement of Consumer Protection Law Allegations

It is no secret that the daily deal industry is white-hot.

Earlier this month, Groupon reached a settlement of several consolidated putative class action lawsuits venued in federal court in California.  The lawsuits against Groupon and several of its merchant partners alleged violations of the Electronic Funds Transfer Act (“EFTA”), as recently amended by the Credit Card Accountability Responsibility and Disclosure Act (the “CARD”), as well as various state consumer protection laws, based on the marketing and sale of vouchers with alleged illegal expiration dates.

Specifically, the plaintiffs asserted that the CARD, which generally applies to gift cards, is applicable to daily deal vouchers and therefore any voucher that expires (either the amount paid or the promotional value portion) in less than five years is a violation of federal law.  Under the CARD, if there is a specific dollar amount delineated then the gift card must be honored for no less than five years from the date of purchase.  If a specific dollar amount is not identified and the deal describes a service,  the CARD does not apply although state consumer protection laws which often include a provision regarding permissible expiration dates may apply.

Even if the CARD applies, it is critically important to recognize that daily deal websites must  comply with that state’s expiration date law if it provides for a longer period than the CARD.

The expiration date was not the only term challenged by plaintiffs.  Rather plaintiffs challenged several other terms and conditions of various deals offered by Groupon and its participating merchants, alleging that other restrictions imposed including “not valid for cash (unless required by law)” and “must use gift certificate in one visit” were unlawful.  Plaintiffs asserted Groupon’s marketing practice was designed to create sense of immediacy and therefore did not provide consumers with a reasonable opportunity to consider all of the terms and conditions.

Groupon denied plaintiffs’ allegations and asserted that the federal and state laws did not apply to the promotional value of a deal.  In other words, while the amount actually paid for a particular deal may be subject to an expiration date limitation, the promotional value of the deal was not.  Defendants also asserted that the deal vouchers fit within an exception for promotional gift certificates in the EFTA, that expiration of the promotional value of
vouchers is permitted under state law and that expiration of the purchase price is in accordance with applicable law which was disclosed to consumers as part of Groupon’s terms and conditions.

Groupon obviously determined that protracted litigation would be cost prohibitive and reached a proposed class-wide settlement.  Settlement terms include permitting customers who bought Groupon vouchers to redeem them past their expiration dates or, if they are unable to do so, obtain a refund.  Groupon also agreed to injunctive relief and to make clear and conspicuous disclosures where there is a difference between the date of expiration of the promotional value and the date of the expiration of the purchase price.  More specifically, the vouchers must conspicuously state that the purchase price portion of the deal does not expire unless and until the voucher is redeemed or refunded.  Vouchers shall clearly state the date of the expiration of the promotional value which shall constitute the date after which the purchaser shall not be entitled to redeem the portion of the Groupon voucher that is the promotional value only.

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