A class action
lawsuit accuses Groupon of selling gift certificates with short
expiration dates, knowing full well that many consumers won't use
them in time.
The suit, filed in federal court in the Southern District of California, takes issue with Groupon's so-called “Daily Deals” -- offerings sent out by e-mail to its “massive subscription base (comprised of tens of millions of consumers nationwide).” The offers cover a wide variety of products and services -- “restaurants and bars, salons and spas, clothing and other retail items, and ... instructional lessons” -- and are sent, as the name suggests, on a daily basis. The deals are only activated if enough consumers decide to take advantage of the offer.
Groupon has recently caught fire with consumers looking for deals on a variety of products and services. As noted by the complaint, the company's “business model is based on offering discounts to consumers en masse by directly partnering with retail businesses that provide the products or services.” The revenue collected from Daily Deals is split between Groupon and the retailers.
“Onerous conditions”
The revenue-sharing arrangement is at the heart of the scheme alleged in the suit. The complaint, which also names department store Nordstrom as a defendant, says that Groupon and its participating retailers “create[] a sense of urgency among consumers to quickly purchase [Groupons] by offering 'Daily Deals' for a short amount of time, usually a 24-hour period.” Consumers buy the certificates for fear of running out of time, thereby subjecting themselves to the “onerous sales conditions imposed by Groupon, including illegal expiration terms, which are relatively short, often just a few months,” according to the complaint.
Once consumers have their hands on a Groupon, many are unable to redeem it before the expiration date, and are thereby “left with nothing, despite already having paid for the particular service or product,” according to the suit.
The suit notes that “the Credit Card Accountability Responsibility and Disclosure Act ('CARD Act') and the Electronic Funds Transfer Act ('EFTA') ... specifically prohibit the sale and issuance of gift certificates, such as 'groupons,' with expiration dates,” as does a California consumer protection statute.
The plaintiffs are seeking compensatory and punitive damages.
Groupon vs. Google
Groupon, launched in November 2008, has quickly developed a following among cost-conscious consumers. Last year, the site collected a whopping $500 million from its sale of gift certificates, according to the suit. Last year, the site turned down a $6 billion dollar offer from Google, citing the need to maintain employee morale and relationships with clients.
Thoroughly spurned, Google wasted no time in announcing that it was testing a Groupon competitor -- Google Offers. Google spokesman Neil Tyler said the web giant was “communicating with small businesses to enlist their support and participation in a test of a prepaid offers/vouchers program.”
Last week, tech site Mashable reported that Google Offers was getting ready to launch, citing a fact sheet describing the enterprise as “a new product to help potential customers and clientele find great deals in their area through a daily email.”
