Its official. The method for balancing the budget is to write laws that speed up how quickly money can be taken. It also broadens escheatment to cover any loose change it possibly can, including business credits and open loop prepaid cards. Apparently, the state of IL expects to collect up to $40 million in the first year of a newly enacted law. They will do this by simply stretching the law to the snapping point, and then attempting to apply it retroactively to apply to property previously exempt from escheat. And so, they have.
Laws for Prepaid Cards
The Unclaimed Property law is as specialized as law gets and involves a byzantine set of federal law, Supreme Court decisions, state laws, state judicial rulings, and the Uniform Laws Commission, some of which are contradictory. However, in an effort to comply, prepaid merchants and issuers have funded an entire ecosystem, consisting of lawyers, accountants and business rules software companies, that are brought in to help them obey these laws.
Will B2B Credits Suffice?
There have been times however, such as when NJ decided it would require prepaid companies to collect zip codes for every prepaid card sold, where the insanity was too much, and the industry dug its heels in by simply stating that they would abandon the state altogether rather than comply. Well the wizards in Illinois have not learned from the New Jersey example and are looking to sweep funds off of consumer prepaid cards and they may have discovered a way to gouge an entirely new, previously unexplored, set of transactions – Business-to-Business (B2B) credits. You can view the relevant sections of the bill here.
The original idea of escheatment was to protect the consumer, to transfer money owed to consumers who have forgotten it or can’t be located to the state, which would then endeavor to return the funds to their rightful owner. This basic purpose of the escheat law appears to have been forgotten as the state had to discover new forms of revenue to keep it properly funded without “increasing taxes.” Illinois intends to force businesses to cough up any credits that remain on their books after three years and after five years for prepaid cards.
In the first year of this new law businesses will be required to look back 8 years while prepaid card suppliers will need to look back 10 years. This will clearly be a major surprise to large supply chain and other B2B operators and is likely to make many prepaid cards unsustainable. The federal courts in New Jersey held that that state’s similar attempt to repeal its exemption for gift cards retroactively was unconstitutional; but that didn’t stop the Illinois legislators from trying the same thing. Should prepaid card issuers decide to pull out of Illinois the ramifications will extend beyond just those issuers, all of the ancillary service providers, from debit networks, ATM operators, reload networks, call center operators, and card manufacturers will all see a commensurate drop in transactions.
Overview by Tim Sloane, VP, Payments Innovation at Mercator Advisory Group
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