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States Make Grab for Unclaimed Rebates

Minnesota and other states have signed on to a lawsuit accusing Young America Corp. of violating unclaimed property laws by not reporting consumers' uncashed checks.

Last update: May 31, 2008 - 4:58 PM

Christina Brown of Bovey, Minn., is a pro at spotting deals. A mother of three and blogger also known as the Northern Cheapskate, Brown said she's worked rebate deals on such items as shampoo, razor blades and diapers.

"You do have to wait a long time to get the checks ... but if you're good at it, sometimes they pay you to take stuff out of the store," she said.

Mail-in rebates are a tried-and-true way to entice shoppers into stores and move all manner of merchandise out the door, and they're gaining allure as shoppers watch their spending. Once the domain of small-ticket items, rebate deals have expanded to include cash-back deals worth hundreds of dollars on everything from refrigerators to laser printers to computer software.

But what happens when consumers jump through the onerous hoops to get the rebates, yet for whatever reason, don't end up cashing the check? Whose money is it?

Until the early part of this decade, retailers, manufacturers and the fulfillment companies that processed the rebates for them simply kept the unclaimed money. Now, all but a handful of states are banding together to lay claim to the cash. They believe consumers are the rightful owners. The upshot is that millions of dollars potentially could wind up in the states' tightly stretched coffers.

At the center of the debate is Minnesota-based Young America Corp., one of the country's top three fulfillment companies.

In a closely watched lawsuit, Iowa Treasurer Michael Fitzgerald is accusing Young America and its clients of not reporting millions of dollars in uncashed checks, as required by unclaimed property laws.

Minnesota has joined 43 states and the District of Columbia and Puerto Rico in signing on to the suit, which was expanded in April to include several of Young America's rebate partners, including Sprint Nextel Corp., T-Mobile U.S.A. Inc., and Walgreen Co.

It's difficult to say how much money is at stake, but it's not chump change. Some 400 million checks, worth $6 billion to $8 billion, are sent to consumers every year, said Hal Stinchfield, a rebate analyst and owner of consulting company Promotional Marketing Insights in Orono.

Studies estimate only 10 to 40 percent of consumers collect their mail-in rebates, partly because of burdensome requirements that companies say are necessary to prevent fraud.

Of those rebate checks that are issued to consumers, about 3 to 5 percent go uncashed, said Kelley Gregory, director of legal affairs at Young America. Iowa investigators suspect the percentage is much higher, according to court documents.

Forgotten in the drawer

Consumers fail to cash checks for many reasons. Perhaps they've moved and the rebate doesn't get forwarded. Or perhaps they think it's junk mail and toss it. Or they tuck the check in a sock drawer and forget about it.

"In our view, that's your money forever because the company has made an obligation to you," said Iowa assistant attorney general Layne Lindebak.

The lawsuit, originally filed in February 2006 in Polk County District Court in Iowa, has gained steam as more states have signed on and the suit has widened to include rebate sponsors. The companies have until Friday to respond to charges. A judge has set a trial date for a year from now if a settlement isn't reached.

Many observers believe the lawsuit will lead to an industrywide investigation of rebate fulfillment service providers as well as manufacturers, retailers and others who offer consumer rebate programs.

As in most states, unclaimed property laws in Minnesota typically cover such things as abandoned checking and savings accounts, uncashed payroll checks, unclaimed safe deposit box contents, and stocks and bonds. States have three years to locate owners or beneficiaries. After that, the money goes to the general fund, which pays for the bulk of state programs and services. In 2007, Minnesota paid out $20.5 million of the $56 million in unclaimed property it collected.

Young America Corp., based about 40 miles southwest of the Twin Cities in the city of Young America, handles rebate requests for a host of Fortune 500 companies. Its clients have included Target, Best Buy, General Mills, Hewlett-Packard, Anheuser-Busch, Nestlé, McDonald's and Pepsi-Cola. In 2007, the company processed more than 58 million checks, Gregory said, though she couldn't immediately provide a dollar amount.

According to the suit, between Jan. 1, 1995 and June 30, 2002, Young America took uncashed checks, known in the industry as "slippage," of nearly $43 million, and ran afoul of unclaimed property laws by not reporting it to the state. The company specified in contracts with its codefendants that it would retain funds from uncashed checks and had factored that money into the price quote, according to the suit.

The Hatch memo

Young America attorney Patrick McLaughlin of Dorsey & Whitney declined to comment on the case. In court documents, Young America asserts that it merely processes the funds and therefore isn't considered a legal holder of the money. The company's argument is buttressed by a 1988 ruling by then-Commerce Commissioner Mike Hatch, who wrote that fulfillment companies "primarily serve as a conduit, receiving funds from a third party to disperse to consumers accepting offers of rebates or refunds," and thus are not subject to unclaimed property laws in the same way as the manufacturers who hired them.

Based on that ruling, in early May Young America asked the court to remove Minnesota as a party to the Iowa case. A judge has yet to rule.

The Hatch memo also adds a political twist to the legal dispute: Decades later, Commerce Commissioner Glenn Wilson, an appointee of Hatch political rival Gov. Tim Pawlenty, now is challenging the ruling and fighting big business on behalf of consumers. Hatch, a DFLer who after his commerce stint was attorney general for eight years, was a tough-minded consumer advocate who often butted heads with the Commerce Department.

In an affidavit filed with the Iowa court, Hatch said he has been retained by Young America to provide legal services.

"We think times have changed and practices have changed since 1988 ... and the memo doesn't hold in 2008," said Commerce Department spokesman Bill Walsh. "We think when a consumer gets a rebate check ... at that point it becomes unclaimed property just like an empty bank account or insurance policy, and we should try to find that person."

Rebates -- claimed and unclaimed -- have become a hot button for consumer advocates. The Better Business Bureau said complaints have risen more than 350 percent since 2002 -- from 974 complaints to 4,434 complaints in 2006.

Retailers such as Best Buy and Office Max have discontinued them in recent years because consumers were so frustrated with the process. Stories abound of people missing the deadline by a day, or failing to send in necessary paperwork or having trouble tracking requests that are weeks old. One fulfillment house said 10 percent of consumers fail to properly fill out forms the first time.

While the Iowa case focuses on a narrow slice of the rebate issue, it could touch the business practices of some 800 marketers and 60 fulfillment companies who participate in rebate promotions every year, said Stinchfield, the consultant.

Stinchfield, who worked at Young America for 15 years, said that while it's up to the courts to determine whether Young America or its clients owe money, it's clear that the states firmly believe that "somebody does."

Jackie Crosby • 612-673-7335


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