Groupon might well have a series of legal problems coming over its business model.
A recent report shows that Groupon and the other social coupon companies might have a series of legal problems over their business model. Each of the problems is seemingly small but in aggregate they pose something of a larger problem.
At heart the problem is that there's a series of laws across the US which try to protect consumers from possible abuses of any coupon or voucher system. If there were one system of Federal law for this it would be simple enough to make sure that all Groupon or other coupons complied with this law.
However, there isn't just that one system of Federal law: there is a patchwork of at least 50 different systems, one for each State. And these laws can be similar at times and directly contradictory at others. There are enough urban centres in the US that cross state lines that it's entirely possible that a Groupon could be legal and valid in one part of such a conurbation and illegal in another.
The major problems noted are, in the study from Harvard:
In particular, we flag restrictions on discounts of alcoholic beverages, prohibitions on short voucher expirations, restrictions on disposition of “abandoned” property, assurance of consumers’ right to cash back, the need for correct tax treatment, redemption processes at risk of error and malfeasance, and a voucher service’s liability when merchants fall short.
It's worth noting that the research points out that each of these individual problems is not a deal killer. Rather, that the accumulation of all of these different State laws on all of these different matters is a problem of complexity.
Taken individually, each problem might be resolvable. But in combination, these problems reveal the striking complexity and substantial legal exposure endemic to the business model voucher sites have chosen.
While Groupon is in their pre-IPO "quiet period" they cannot comment on such stories: but it is possible that they'll have to do some serious work to comply with these myriad laws in the near future.
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