Loyalty award owners as creditors in bankruptcy proceedings

[RedemptionMan]

Thanks!

However, if I am not mistaken, airlines have different bankruptcy rules (guided by the FAA) than a retailer or other entities that offer loyalty programs. Thus, I think their frequent-flyer miles are protected, but I do not know whether, for instance, a customer who had unredeemed reward points in a grocery store could be considered in the line of creditors. I could be wrong though.

Also, that is a good point raised by you and Zigner about how companies changed their wording to avoid contract obligations. That alone could be the end of the issue.

I had a Dodge Visa card and the company almost went out of business did file bankruptcy and restructured. They sent out a notice that you had 30-60 days to claim the points. I took them as gas cards and closed down the points. If the company is going out of business then they should give you the option to redeem the points for equivalent items up to the points awarded. I really do not see how cash equivalency could be called in to play with them since they are not cash and can not be treated as cash. They are to be redeemed for merchandise or cash equivalent items.

 

[Zigner]

If the company is going out of business then they should give you the option to redeem the points for equivalent items up to the points awarded.

Please cite a law that requires this. We'll wait.

 

[Intern9014]

I had a Dodge Visa card and the company almost went out of business did file bankruptcy and restructured. They sent out a notice that you had 30-60 days to claim the points. I took them as gas cards and closed down the points. If the company is going out of business then they should give you the option to redeem the points for equivalent items up to the points awarded. I really do not see how cash equivalency could be called in to play with them since they are not cash and can not be treated as cash. They are to be redeemed for merchandise or cash equivalent items.

I think you are right. I know that in the Borders' bankruptcy case, the court decided that gift cards do not have to be protected in bankruptcy proceedings and that the owners of the cards had fair warning to use the cards before liquidation.

I think the same is likely true for any sort of loyalty card.

 

[RedemptionMan]

Please cite any useful information that I have ever given to anyone on this forum that has actually helped.

fify.....I will wait.....

 

[Zigner]

I will wait.....

As I expected.

 

[tranquility]

Thanks!

However, if I am not mistaken, airlines have different bankruptcy rules (guided by the FAA) than a retailer or other entities that offer loyalty programs. Thus, I think their frequent-flyer miles are protected, but I do not know whether, for instance, a customer who had unredeemed reward points in a grocery store could be considered in the line of creditors. I could be wrong though.

Also, that is a good point raised by you and Zigner about how companies changed their wording to avoid contract obligations. That alone could be the end of the issue.

The whole point of the case was if the Airline Deregulation Act overcame the contractual issue. Read the case, or, at least the syllabus.

The problem for the "unredeemed reward points" will have to do with the actual contract. If the store can change the terms at will and retroactively, the holder would not be in a line of creditors as the store simply changes the terms in BK. If they can't, then the holders of the contractual obligations will have some rights.

As in California, gift certificates cannot have an expiration date in general. (Certain items can have an expiration date.) If a store were to go BK, the holders of certificates would be in the line of creditors as a contractual right. If the certificate expired, no. However, even with the CA law, one exception would be if the certificate was "Distributed by the issuer to a consumer without charge under an awards, loyalty or promotional program". So, as you have already seen in your review, the state and the facts matter. State law will give guidance as to the nature and quality of the rights to the BK court.

 

[Antigone*]

I think you are right. I know that in the Borders' bankruptcy case, the court decided that gift cards do not have to be protected in bankruptcy proceedings and that the owners of the cards had fair warning to use the cards before liquidation.

I think the same is likely true for any sort of loyalty card.

Gift cards are not the same as loyalty cards. Gift cards represent unearned revenue therefore they are an actual liability. You are dealing with apples and oranges here.

 

[Intern9014]

The whole point of the case was if the Airline Deregulation Act overcame the contractual issue. Read the case, or, at least the syllabus.

The problem for the "unredeemed reward points" will have to do with the actual contract. If the store can change the terms at will and retroactively, the holder would not be in a line of creditors as the store simply changes the terms in BK. If they can't, then the holders of the contractual obligations will have some rights.

As in California, gift certificates cannot have an expiration date in general. (Certain items can have an expiration date.) If a store were to go BK, the holders of certificates would be in the line of creditors as a contractual right. If the certificate expired, no. However, even with the CA law, one exception would be if the certificate was "Distributed by the issuer to a consumer without charge under an awards, loyalty or promotional program". So, as you have already seen in your review, the state and the facts matter. State law will give guidance as to the nature and quality of the rights to the BK court.

I believe that may be the main point. I think it comes down to a case by case or "the facts" as you mentioned and any state statute that affects the situation.

This must be a rather esoteric topic as no one has discussed it. I can find law involving layaway, gift cards, and even casino chips, but loyalty point cards have never popped up.

 

[Intern9014]

Gift cards are not the same as loyalty cards. Gift cards represent unearned revenue therefore they are an actual liability. You are dealing with apples and oranges here.

That's true. I referenced In re BGI, Inc., 476 B.R. (Bankr. S.D.N.Y. 2012) simply because the judge decided that the consumers had a period of time in which they could have used their gift cards before liquidation.

I figure a judge would come to the same conclusion (that consumers should have used the points while they knew the business was restructuring/liquidating) if consumers were ever allowed to get so far as to challenge a business over unredeemed loyalty rewards.

 

[Antigone*]

That's true. I referenced In re BGI, Inc., 476 B.R. (Bankr. S.D.N.Y. 2012) simply because the judge decided that the consumers had a period of time in which they could have used their gift cards before liquidation.

I figure a judge would come to the same conclusion (that consumers should have used the points while they knew the business was restructuring/liquidating) if consumers were ever allowed to get so far as to challenge a business over unredeemed loyalty rewards.

APPLE - gift cards represent real money and hence a true liability

ORANGE - loyalty points do not.


You figured wrong.

 

[Zigner]

Why are we doing this guy's homework again?

 

[Intern9014]

APPLE - gift cards represent real money and hence a true liability

ORANGE - loyalty points do not.


You figured wrong.

We are talking past each other. You are right on both accounts, but that was not what I was referring to.

 

[Intern9014]

Why are we doing this guy's homework again?

It is not homework. Also, you are not doing anything. It is a post asking a question and some people have been helpful.

Why do you post? Why do you care? Those are rhetorical. They do not need answered.

 

[Zigner]

The reason I am asking this question is that I am an intern researching whether loyalty programs can be considered unclaimed property that is escheated to the state.

Right - Homework.

 

[RedemptionMan]

We are talking past each other. You are right on both accounts, but that was not what I was referring to.

the OP is talking about converting loyalty points to gift cards not two separate things. Most all businesses or companies about to go out of business to restructure will send out a 30 or 60 day notice to redeem or use the points by said amount of time and while I do not have case precedence for examples. I would imagine that it clears the books for those claims and the cards go back to the backing bank to claim any repayment on outstanding balances.