Attorney General George Jepsen contacted Groupon today requesting more information on the nature of its business practices, specifically whether the company is in violation of Connecticut law regarding the expiration of gift certificates.
Groupon, a fast growing startup that is looking to issue what is expected to be a multi-billion dollar IPO in the coming months, pioneered the “daily deal” concept that is now being duplicated by large and small competitors. Consumers buying a “Groupon” up front are offered steep discounts on goods and services. For example, a deal presented on July 14 at a local florist offers $30 worth of flowers for a $15 purchase, provided the offer is redeemed before Jan. 16, 2012. Customers purchase the offer directly from Groupon, which in turn splits the proceeds with the local business. It’s the expiration date that caught Jepsen’s attention. By law, gift certificates issued in Connecticut cannot expire.
“It appears that what Groupon, Inc. sells or offers may fall within the definition of a gift certificate under Connecticut law,” Jepsen said in a press release today.
Groupon’s terms of service separate each offer into two components: the “purchased value” and the “promotional value.” The purchased value is the amount the customer paid for an offer, and the promotional value is what the merchant is offering in addition to what the customer pays. Groupon’s terms state the purchased value does not expire until it is used or refunded. Using the florist as an example, if a customer redeems the Groupon after the expiration date the merchant is still required by Connecticut law to honor the purchased value portion of the offer indefinitely. If the merchant does not offer the refund, Groupon says in a blog post that they will refund the customer for the purchased value.
“When a Groupon expires, customers can still redeem for the price they paid for the period of time defined by state law,” Groupon wrote. “This is not new; it’s been in our terms of service and in every merchant contract since May of 2009 – when we were six months old and launched in two cities.”
Groupon confirmed with CTTechJunkie that they will reimburse a customer’s purchase should a merchant refuse to honor the offer after expiration. They added the refund will come directly from Groupon, and that the company will not try to recoup those costs from the merchant.
“Groupon did have an online training video where they recommend that all businesses have a customer service policy ready for any Groupon customer who comes in after the expiration date,” said Herb Emmanuelson, President of the Capital Classics Board of Directors. “The board of directors of Capital Classics agreed to honor any unused Groupon even after the expiration date. We want our audience to have a positive experience with our theater company.”
The video states that merchants are required to accept the Groupons on the purchased value, “per federal and state gift card laws.” Watch the video below, the expiration portion begins at 3:20.
Groupon’s VP of Global Communications, Bradford Williams, says the company will comply with the Attorney General’s request for information.
“We look forward to cooperating with Connecticut’s attorney general in helping him and his team understand our business model as it relates to the many Connecticut merchants and consumers who use our service,” he wrote in a statement issued today by the company.