LivingSocial Ordered to Pay $4.1 Million To Settle Class Action Suit

Ever since the federal CARD Act passed in 2009, all gift certificates have been required to have no less than a five-year expiration date. Some states, such as California, ban any expiration date whatsoever for gift certificates. This includes Starbucks cards, the manicure you gave your mom for her birthday, and a judge recently decided that the five-year rule applies to the daily deals sold by LivingSocial.

What would often happen is that a LivingSocial deal would be announced, exceed sales expectations, the business would be overwhelmed by customers, and it would become impossible to redeem the deal in the weeks or months allotted. A customer was angry enough to be missing out on her kayak tour that she decided to sue.

The $4.1 million payout, announced this week, will be split among some 26,830 disappointed customers who filed valid claims as of last month. In the future, LivingSocial, which "deny that they have done anything wrong or illegal and admit no liability," according to the official settlement FAQ, will sidestep the "gift certificate" classification by dividing its deals into "paid value" and "promotional value," each with a different expiration date. For example, this coupon for microdermabrasion has a paid value of $49--the actual money you put down--expiring on March 26, 2018, and a promotional value of $110-$140, expiring on July 2, 2013--the effective expiration date of the deal. In earlier statements, company spokespeople did not address the charges directly and said that if they had heard from customers, they would have done everything in their power to make it right.

Besides being another example of the air escaping from the daily-deals balloon, in the wake of the departure of Groupon's CEO Andrew Mason, the case highlights how consumer law struggles to keep up with the way we shop now. It makes sense from a consumer protection standpoint to impose generous time limits on gift certificates. Billions of dollars' worth of gift cards and gift certificates go unredeemed every year because life gets in the way. But with the volume and pace implied by "daily deals," it seems excessive to require every offer by every one of these sites to be redeemable for a full five years or more.

[Egg image: Flickr user Mark Turnauckas]