They also could extend a legal case years and millions of dollars to ensure case precedent is not set in what is a crime in many jurisdictions.
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Prompt
How does California civil code section 1749 apply to a private corporation that:
- Accepts prepayment of funds into an account to purchase “credits” that are represented in monetary value;
- Those credits can be used to purchase only digital microservices online;
- where the capped-profit LLC organization is located within and registered in California, doing digital services business worldwide;
- the company engages in business with individuals directly using personal accounts tied to a outside authentication service or login such as personal email and required mobile phone number, along with credit card as the only payment method to fund an account with credits.
in regards to policies:
- expiring and keeping all funds and unused credits after a period of one year,
- a policy of never refunding a remaining credit value back to money.
and what are the actionable penalties of consumer protection laws for such a company?
Applicability of California Civil Code Section 1749 to the Company’s Practices
Under California law, particularly Civil Code Section 1749.5, gift certificates and similar instruments are regulated to protect consumers from unfair practices like expiration dates and non-refundability. Here’s how the law applies to the company’s practices:
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Definition of Gift Certificates:
- Stored Value Instruments: According to Civil Code Section 1749.5(e), a “gift certificate” includes any gift card, stored value card, or similar instrument with a monetary value issued for use by the holder.
- Application to Credits: The company’s “credits,” which are purchased with funds and hold monetary value for the acquisition of digital microservices, fit this definition. They function similarly to gift cards or stored value cards.
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Expiration Dates:
- Prohibition of Expiration: Section 1749.5(a) states it is unlawful to sell a gift certificate containing an expiration date.
- Company’s Policy: The company’s policy of expiring and retaining unused credits after one year directly violates this provision.
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Refundability:
- Cash Redemption: Under Section 1749.5(b)(2), any gift certificate with a cash value of less than $10 must be redeemable in cash for its value upon the consumer’s request.
- Company’s Non-Refund Policy: The company’s stance of never refunding remaining credit balances contravenes this requirement, especially for balances under $10.
Actionable Penalties Under Consumer Protection Laws
Violations of California Civil Code Section 1749.5 can lead to several legal consequences:
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Civil Penalties:
- Per Violation Fines: Under the Unfair Competition Law (Business and Professions Code Section 17200 et seq.), the company may face civil penalties of up to $2,500 for each violation.
- Restitution Orders: Courts can order the company to provide restitution to affected consumers for the unused credits wrongfully retained.
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Injunctive Relief:
- Cease and Desist Orders: The company may be legally compelled to stop the unlawful practices, such as expiring credits and refusing refunds.
- Policy Revisions: The court can mandate changes to the company’s terms of service to comply with state laws.
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Consumer Lawsuits:
- Individual Claims: Consumers can file lawsuits seeking damages for the loss of their unused credits.
- Class Action Suits: Given the widespread nature of the practice, the company could face class-action lawsuits representing all affected consumers, significantly increasing potential liabilities.
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Enforcement Actions:
- Government Intervention: The California Attorney General, district attorneys, or city attorneys can initiate legal actions against the company for unfair business practices.
- Public Disclosure: Such enforcement actions can lead to negative publicity, harming the company’s reputation and customer trust.
Summary
The company’s policies of expiring credits after one year and refusing to refund remaining credit balances violate California Civil Code Section 1749.5. These practices expose the company to substantial legal risks, including civil penalties, mandatory restitution, injunctive relief, and potential lawsuits from consumers and government entities. To mitigate these risks, the company should revise its policies to comply with state laws by eliminating expiration dates on credits and allowing cash redemption of small balances.