Groupon Deals Attract Connecticut's Scrutiny
By MICHAEL HICKINS
Wall Street Journal
JULY 15, 2011
Connecticut law-enforcement officials are looking into whether online deals site Groupon Inc. is breaking consumer-protection laws that prohibit gift cards from expiring.
According to Jeremy Pearlman, one of two assistant attorneys general handling the investigation for George Jepsen, attorney general for the state of Connecticut, the state is looking into whether Groupon's deals—known as groupons—should be considered in the same light as gift certificates, for which Connecticut law bans expiration dates altogether.
"If groupons meet the definition of a gift certificate, we feel there may be a violation of the state law," Mr. Pearlman said.
In a written statement, Groupon said it intends to cooperate with the Connecticut attorney general and help "him and his team understand our business model."
The company declined to comment on whether it considers groupons to be like gift certificates.
Groupon promotes discounts and shares the revenue from the sale of its deals with the merchants offering the goods or services. The offers are heavily discounted in order to ensure they are snapped up quickly, but consumer advocates say the deals often come with conditions that aren't always clear to customers, such as expiration dates. Consumer advocates also say customers might not be aware of other terms and conditions affecting their deals, including local taxes will be owed on alcohol or tobacco on top of the discount, or that the clock starts ticking on a 90-day health-club membership when a groupon is purchased, as opposed to the first time the consumer goes to the gym.
In a letter to Groupon Chief Executive Andrew Mason, Mr. Jepsen asked Groupon to "explain the terms under which groupons are sold to and redeemed by consumers, how much revenue those sales generate in Connecticut and how frequently expiration dates are imposed on the sale of goods and services at a discount."
In the letter, Mr. Jepsen said "it appears that what Groupon, Inc. sells or offers may fall within the definition of a gift certificate under Connecticut law," but he added that he hasn't "prejudged Groupon or reached any conclusions."
Connecticut law defines gift certificates as "a record evidencing a promise, made for consideration, by the seller or issuer of the record that goods or services will be provided to the owner of the record to the value shown in the record."
Consumer advocates are split as to whether groupons should be considered in the same light as gift cards.
Linda Sherry, a spokeswoman for Consumer Action, said the fact that consumers pay for the groupons means "they really are more like gift cards than coupons. You're paying for them."
She added, "A coupon may save you money if you choose to use it, but in no case will it cost you money."
But Jack Gillis, a spokesman for the Consumer Federation of America, sees things differently. "If you spend $100 for a gift card and then it devalues over time, that would not be expected. But most people understand that coupons expire."
He said the reason companies such as Groupon are coming under increasing scrutiny is that "we've never purchased coupons before, and that's what makes it different."
Mr. Gillis added that complaints are likely to increase as less-Internet-savvy consumers start trying these types of services. "The key is going to be clear and accurate disclosure...Full disclosure will really protect [these companies] from a growing sense of unease" among consumers, he said.
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