H&M will pay $36 million to settle allegations it unlawfully kept millions of dollars from unused gift cards, New York Attorney General Letitia James announced Thursday.
The fast-fashion retailer will pay more than $28 million to the state of New York, of which more than $18 million will go to its Abandoned Property Fund for unredeemed balances on H&M gift cards sold before 2015. William French, the whistleblower who originally filed the action against H&M, will receive $7.74 million.
New York law requires gift card issuers turn over unused balances to the state’s Abandoned Property Fund after five years of inactivity. James’ office claims H&M knew this and concealed its failure to comply with the law.
“My office has zero tolerance for companies that disregard the law and line their pockets with money that belongs to hardworking people,” James said in a statement. “For years, not only did H&M illegally keep unused gift card money that customers paid for, but they then lied about it to the state. Violating the law is not trendy or tolerable, and today H&M will pay millions of dollars for its wrongdoing.”
According to the state of New York, H&M entered into a contract with an Ohio company in 2008 to “make it appear” this other business was the issuer of the retailer’s gift cards. H&M knew this company did not actually sell or distribute gift cards, the state said. Furthermore, it allegedly told H&M that the fashion company would “always manage … the cash proceeds from gift card sales.”
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Though the contract appeared to deem this outside company the issuer of its gift cards, H&M retained “total control” over the manufacturing and sale of its gift cards, the money from the sale of gift cards continued to be deposited in H&M’s accounts and its gift card redemption practices “did not change at all,” the state argued.
The attorney general also accused H&M of lying on multiple occasions, including falsely claiming in May and November 2011 that its gift card liabilities had been transferred to another company.
H&M neither admitted nor denied these allegations, according to the settlement it signed.
“While we disagree with many of the characterizations concerning our alleged conduct, H&M cooperated with the New York State Office of the Attorney General during the course of its investigation and has agreed to resolve this matter,” the company said in a statement. “All funds received from gift card sales have always belonged to our customers for their personal use. No H&M customer gift cards have or will be impacted by this settlement, as H&M has and will continue to offer gift cards without expiration dates.”
The Office of the Attorney General opened its investigation into H&M after French filed a lawsuit under New York’s False Claims Act in 2016. The law allows individuals to file civil actions on behalf of the government and share in any recovery.
French previously filed a similar action in Delaware in 2013 against the Ohio corporation CardFact and Card Compliant, a competing gift card services business that bought CardFact in 2009. French used to work at both companies. The action also named more than two dozen corporations—including Skechers, Ralph Lauren and Wolverine World Wide—alleging they failed to turn over unredeemed gift card balances.
The court dismissed claims against some of these defendants, including Ralph Lauren, which had already been the subject of an audit from the state of Delaware that included gift cards. Others settled out of court. Only one company, Overstock.com, went to court. The e-tailer initially lost at trial, but an appeals court reversed the decision.
H&M backs carbon-capturing aprons
Meanwhile, in H&M’s hometown Stockholm, a restaurant crew has begun testing out cotton aprons that supposedly capture carbon dioxide from the air, Reuters reported Friday.
The pilot utilizes a technique developed by H&M collaborator, the Hong Kong Research Institute of Textiles and Apparel (HKRITA). According to Reuters, the team developed an amine-containing solution for treating cotton that can attract carbon dioxide gas and capture it on the surface of the textile. After use, the aprons are heated to 30-40 degrees Celsius (86-104 degrees Fahrenheit), at which point they release the carbon dioxide as gas into a greenhouse.
HKRITA CEO Edwin Keh told Reuters that though the capturing capacity of treated apparel “isn’t super high,” it is “quite inexpensive” and “quite easy” to produce. The aprons were produced at an H&M supplier in Indonesia with the factory’s existing equipment, Keh added.