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Appeals Court Rules Bank Would Face Lawsuit Over Charging Gift Card Reactivation
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On Tuesday, an unanimous Appellate Division, Second Department held that a federal chartered savings bank must face a lawsuit to decide whether under New York Law it can charge fees to reactivate expired gift cards. Expired gift cards were viewed as abandoned property, and under the relevant law in New York, federal regulations allow exemptions for proceeding in certain claims under state law.

Justice Jeffrey Cohen wrote, “Office of Thrift Supervision regulations explicitly recite that they have not preempted state contract law, commercial law, tort law or criminal law, to the extent that such state law only incidentally affects deposit-related activities.”

The lawsuit was originally filed by one Leigh Sharabani in 2009. On her birthday in 2007, she had received a gift card issued by Meta Bank, which was promoted by Simon Property Group Inc. The gift card had a $40 balance and was set to expire in April 2009. She used the gift card to make some purchases in 2008 and 2009 with a remaining balance of $17.71. In July 2009, when Sharabani attempted to use the gift card, she was told that the gift card would need to be reactivated at a fee of $15, leaving her with a balance of $2.71.


Sharabani initially sued Simon Property, the promoters of the card and then included Metabank as a defendant seeking class-action. The lawsuit asked the court to bar the defendants permanently from charging a renewal fee on expired gift cards, and also brought claims of breach of good-faith and obligations to deal fairly. Of course, breach of contract and deceptive practices were also added in for good measure.

In July 2010, Nassau County Supreme Court Justice Timothy Driscoll dismissed the complaint holding that the causes of action raised by the plaintiff were all preempted by federal law.

On all of the claims except the one on breach of contract, the Second Department reversed the ruling and held that OTS regulations preempt only those state laws that impose requirements on abandoned accounts.

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The 2nd department held, “as a general principle, the plaintiff is correct that Home Owners’ Loan Act of 1933 (which confers lending and investment powers on federal savings associations) and the OTS regulations do not preempt state contract or consumer protection laws of general application.”

The attorney for Sharabani, Irwin popkin remarked that the court “strictly decided that Justice Driscoll was wrong on his preemption analysis, and that under New York law and federal law, deceptive practice actions aren’t preempted, and neither are contract claims.”

The case is Sharabani v. Simon Property Group Inc in the Supreme Court of the State of New York, Appellate Division: Second Department, no. 2010-07552.



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