Student-Led ‘Gift Card’ Suits Against Universities Are Trending

Covid-19 litigation has been as ubiquitous as the virus itself—including in higher education. Colleges and universities have faced class actions in almost every federal district court in the country brought by students seeking tuition and fee refunds for remote learning required during the onset of Covid-19.

These lawsuits leave a blueprint for students to sue their universities on a class basis—a trend rarely seen before the pandemic. This is being tested with a new wave of class actions claiming that, by retaining students’ unused meal plan swipes and dollars, universities are violating state consumer protection laws called “gift card acts.” These cases have been filed in multiple states, including Connecticut, New York, and New Jersey.

University counsel must grapple with the more fundamental shift this signals in higher education law: The student class-action trend appears here to stay and may indicate a major shift in the student-university relationship.

Gift Card Acts

While gift card acts vary by state, they generally aim to prevent companies from adopting unfair practices for retaining unused or expired funds loaded onto gift cards. A federal statute, the Credit CARD Act of 2009, sets the floor for fair gift card practices.

The Credit CARD Act prohibits gift cards from expiring less than five years from activation and prohibits inactivity fees in most circumstances. Many states follow the federal standard set under the Credit CARD Act, though certain state statutes provide more stringent requirements.

The CARD Act and its state analogues, however, also have potentially applicable carve-outs to the definition of “gift card” and/or exemptions relating to the expiration and fee prohibitions. For example, the federal definition of “gift card” doesn’t include an item “not marketed to the general public” or items “redeemable solely for admission to events or venues . . . which may also include services or goods ” available at those venues. N.J. Stat. Ann. Section 56:8-110.1, for example, limits gift cards to a “tangible device” as opposed to an electronic balance; 15 Okla. Stat. Section 797 stipulates that a prohibition on expiration dates doesn’t apply to gift cards “issued for a food product.

Claims Against Universities

Although states’ gift card provisions vary, the allegations against colleges and universities in this new wave of class actions are similar across the various lawsuits filed thus far. Plaintiffs essentially make two contentions:

• institutional meal plans, accessed by students through their ID cards, are, or operate like, gift cards
• institutional retention of unused balances or “swipes” that remain on student accounts at the end of the academic year violates the applicable state gift card statute’s non-expiration and refund requirements

Plaintiffs further allege that institutions fail to clearly disclose this practice and that retaining unused meal plan dollars violates the “junk fees” provisions of gift card acts, which generally prohibit surprise fees and non-descript fees such as convenience, processing, or service fees. The lawsuits filed to date also assert claims for other consumer protection statutory violations and common law tort claims.

Navigating This Wave

These cases leave several open questions, including whether meal plans are considered gift cards under each state’s gift card act. Schools may assert multiple legal and factual defenses to these new class actions, including that:

• meal plans aren’t gift cards
• students’ meal plan arrangements with schools are a matter of contract, not statutory or tort law
• schools’ policies with respect to meal plans are clearly communicated to students
• nothing prohibits students from spending any unused dollars before the end of an academic year

In the meantime, university counsel can take multiple actions now that will help them respond to and prepare for these lawsuits. These actions include:

• researching your state’s gift card acts
• analyzing your institution’s meal plan policies and student contracts
• assessing existing gift card act cases in your state for applicable defenses
• reviewing your institution’s insurance coverage for these types of claims, and
• engaging with relevant campus stakeholders to ensure that meal plan policies are adequately disclosed, consistently applied, and reflective of on-the-ground experiences and expectations of the campus community.

A Permanent Shift

Because these Gift Card Act cases are brought in multiple jurisdictions at once, the impact becomes far bigger than any one case. Like with the Covid-19 cases, students’ contractual relationship with their university will be under a microscope in multiple jurisdictions. Universities not yet directly involved in these cases should look for ways to reduce the risk of similar claims in the future, including amending their meal plan agreements to ward against these claims and to align their policies with students’ expectations regarding the allocation of meal plan dollars.

Gift Card Acts are consumer protection statutes, so plaintiffs filing these new cases may assume students are consumers. This is a far cry from the case law that once held that universities stand in loco parentis to their students.

This framing of the university-student relationship—as one of seller-consumer—may prompt a precedent for future responses to student class and consumer protection claims. Higher education institutions must decide the following:

• What are the limits of the contractual relationship between students and universities?
• Are students consumers?
• Are there fundamental differences between universities/students and retailers/consumers, even regarding non-academic aspects of student life?

Student plaintiffs and the plaintiffs’ bar seem set on expanding the consumerism framework of higher education. Each argument and decision in these multijurisdictional class actions will inform the legal relationship between student and university not only for the named plaintiffs, but also for each student living and learning on campus moving forward.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Jeffrey M. Weimer is a partner in Reed Smith’s global commercial disputes group and leads the firm’s higher education team.

Cori Mishkin is an associate in Reed Smith’s global commercial disputes groupp and a member of the higher education and appellate teams.

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