Payment Systems, Consumer Tragedy, and Ineffective Remedies

Abstract

Payment methods like the Starbucks Rewards Card, while imitating liquidity, are challenged by confidence-detracting barriers of too little consumer knowledge and a lack of appropriate remedies. Starbucks operates as a non-banking firm performing an essential banking function – the storage of money for consumers to later use. Consumers are rarely well informed of the nature of this transaction and the relief that may be available when contracting for a future sale. Recent congressional action (CAFA) limiting class action lawsuits to Federal Court significantly limits traditional consumer relief while the bankruptcy code provides little relief should the merchant find itself insolvent. All the while, consumers continue to entrust more than $1 billion each year for merchants to hold with no guarantee that the credits will be honored, few enforcement mechanisms to force merchants to do so, and little relief if the company files bankruptcy. Using the metaphor of consumption gentrification, this Article re-conceptualizes the stored value cards problem as a confluence between fair dealing and risk allocation. In doing so, the Article suggests several avenues of relief, but proposes comprehensive reform that incorporates commercial policy, regulatory oversight, and social consumer awareness.

Keywords: consumer law, commercial law, banking, secured transactions, payment systems, stored value products, Starbucks, Article 9, consumption gentrification, unsecured aggregate creditor, bankruptcy, CAFA

JEL Classification: A14, E21, E49, E53, K12