New York Attorney General Letitia James announced that global fashion retailer H&M will pay $36 million to resolve allegations that it unlawfully retained unused gift card balances that should have been transferred to the State's Office of Unclaimed Funds and repeatedly lied about the status and handling of its gift card business.
Each year, portions of gift cards go unused by consumers, resulting in unredeemed balances on the cards—money that the retailer has received in payment but has not provided value for in goods or services. After five years of inactivity, New York law requires gift card issuers to turn over the unredeemed balances to the State's Abandoned Property Fund, which is overseen by the Office of Unclaimed Funds.
The investigation into H&M, opened after a whistleblower filed a lawsuit under New York's False Claims Act, revealed that H&M not only knowingly failed to comply with its obligations, but also concealed its failure to comply. After H&M became aware in 2008 that it had to transfer its unredeemed gift card balances to the Abandoned Property Fund, it allegedly entered into a sham agreement with an unnamed company that disguised the nature of the funds H&M was required to escheat. Additionally, the investigation found that H&M falsely told the State that its gift card business and liabilities had been transferred to the out-of-state company; in reality, H&M continued to run that business itself, and the funds never left its own bank accounts.
"For years, not only did H&M illegally keep unused gift card money that customers paid for, but they then lied about it to the state," Attorney General James said. "Violating the law is not trendy or tolerable, and today H&M will pay millions of dollars for its wrongdoing."
Under the terms of the Stipulation and Settlement Agreement, H&M will pay more than $28 million to the State, approximately $18 million of which will go to the Abandoned Property Fund for unredeemed balances on gift cards sold before 2015, and the whistleblower will receive $7.74 million for alerting the AG to H&M's misconduct.
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