Franchising & Distribution Law Blog

Originally, when Living Social first started issuing its daily deal coupons, the entire amount of a Living Social coupon would expire on a particular date, and that date was often far less than five years from the date of its issuance. After the first wave of lawsuits were filed alleging that daily deal coupons violated Regulation E, however, Living Social changed the terms of its deals. Specifically, Living Social created a two-tiered expiration formula, whereby a Living Social coupon actually has two separate expiration dates. The first expiration date is for the “paid value” of the coupon (the amount of money the consumer paid), and is typically set at least five years after the coupon’s issuance, in theoretical compliance with Regulation E. The second expiration date is for the “promotional value” of the coupon (the amount of money the coupon is worth above and beyond the paid value), which expires in a much shorter window, almost always less than a year after the coupon’s issuance.

What this two-tiered expiration formula means in practice is that if a consumer pays $50 for a Living Social coupon that is “worth” $100, the consumer will have five years to redeem the coupon for the $50 he or she actually paid, but will only have a few months to redeem the other $50’s worth of the coupon. Thus, this two-tiered expiration formula ends up meaning that consumers must use the entire Living Social coupon in far less than five years if they want to get the full $100 value of the coupon.

Now, nearly six months after Groupon settled a class action for a reported $8.5 million following allegations that its daily deals violated Regulation E’s expiration rules, Living Social has followed suit and settled its own class action alleging similar violations. Living Social will reportedly pay $4.5 million dollars to settle, and will alter its terms and conditions to make the expiration dates clearer for consumers.

What Living Social did not agree to do though, at least apparently, is change its two-tiered expiration formula. And by settling the case, Living Social has not only at least temporarily avoided a court from ruling on whether the two-tiered formula complies with Regulation E, but it has also avoided a ruling on whether such daily deal coupons are subject to Regulation E at all. Thus, gift card consumers (and issuers) will have to wait to find out if daily deal coupons are subject to Regulation E, and if so, if the practice of expiring the “promotional” value of the coupon complies with the law.