The Legal Wrangling of Gift Cards
Friday, April 1 2005
Published on AllBusiness.com
Over the past few years there has been a lot of talk about the "hidden fees" associated with gift cards. Looking at all the fine print, it may seem as if retailers are trying to pull a fast one, but, in most cases, the stores are just as frustrated as their customers.
The federal government has yet to draw up a piece of universal national legislation to regulate expiration dates, dormancy fees, and unused gift cards, so each state has had the opportunity to enact its own varied laws. In January and February of 2005 alone, more than 100 pieces of legislation were introduced throughout various states across the country.
A number of states have adopted escheat laws — which essentially determine who can claim the value of an unused gift card. Some say the money should be returned to the consumer, while others maintain an unused card should be returned to the issuing vendor. And some dictate that the remaining balance on the card be handed over to the state government. Issuing retailers, caught in the middle, are forced to decide if they will deduct a small percentage of the face value of the card [dormancy fees] to keep their books in order and track the card until someone has claimed the balance.
Most states are simply trying to protect consumers from forfeiting their money if they do not use a gift card in a timely manner, but industry experts speculate that some states may be trying to profit from the complicated matter. A number of national retailers have decided to do away with expiration dates altogether, but this only solves half the problem. Some have discussed banding together to lobby for one piece of federal legislation. In the interim, they are left to juggle hundreds of pieces of legislation – all while trying to keep customers happy.
How do states apply the laws of escheat to gift cards? Take a look at what these states have done in the past.
Illinois: If there is no expiration date or the issuing retailer has a policy to honor expired gift cards, the state takes no action. If the card expires, the remaining balance is handed over to the state.
New York: The State of New York mandates that the issuing retailer clearly state the conditions of expiration on the face of the card. The laws of escheat come into play after five years, though it is not clear who claims the unused balance on the card.
Arizona: Gift cards and gift certificates are not subject to the state's laws of escheat. An issuing retailer may charge dormancy fees if such fees were clearly stated at the time of purchase.
New Hampshire: Gift cards and certificates with a face value of less than $100 may not have an expiration date and are not subject to the laws of escheat. This provision does not apply to cards or certificates distributed to consumers for promotional purposes.
California: In 1997 the state determined that gift cards and certificates that are sold to the end user cannot contain an expiration date. The card or certificate must be redeemable for their cash value or replaced by a new gift card. Gift cards or certificates sold at a discount to employers may contain expiration dates. Cards or certificates sold before 1997 are subject to the state's laws of escheat.
Source: State Escheat Laws as Applied to Gift Certificates, Incentive Federation
The federal government has yet to draw up a piece of universal national legislation to regulate expiration dates, dormancy fees, and unused gift cards, so each state has had the opportunity to enact its own varied laws. In January and February of 2005 alone, more than 100 pieces of legislation were introduced throughout various states across the country.
A number of states have adopted escheat laws — which essentially determine who can claim the value of an unused gift card. Some say the money should be returned to the consumer, while others maintain an unused card should be returned to the issuing vendor. And some dictate that the remaining balance on the card be handed over to the state government. Issuing retailers, caught in the middle, are forced to decide if they will deduct a small percentage of the face value of the card [dormancy fees] to keep their books in order and track the card until someone has claimed the balance.
Most states are simply trying to protect consumers from forfeiting their money if they do not use a gift card in a timely manner, but industry experts speculate that some states may be trying to profit from the complicated matter. A number of national retailers have decided to do away with expiration dates altogether, but this only solves half the problem. Some have discussed banding together to lobby for one piece of federal legislation. In the interim, they are left to juggle hundreds of pieces of legislation – all while trying to keep customers happy.
How do states apply the laws of escheat to gift cards? Take a look at what these states have done in the past.
Illinois: If there is no expiration date or the issuing retailer has a policy to honor expired gift cards, the state takes no action. If the card expires, the remaining balance is handed over to the state.
New York: The State of New York mandates that the issuing retailer clearly state the conditions of expiration on the face of the card. The laws of escheat come into play after five years, though it is not clear who claims the unused balance on the card.
Arizona: Gift cards and gift certificates are not subject to the state's laws of escheat. An issuing retailer may charge dormancy fees if such fees were clearly stated at the time of purchase.
New Hampshire: Gift cards and certificates with a face value of less than $100 may not have an expiration date and are not subject to the laws of escheat. This provision does not apply to cards or certificates distributed to consumers for promotional purposes.
California: In 1997 the state determined that gift cards and certificates that are sold to the end user cannot contain an expiration date. The card or certificate must be redeemable for their cash value or replaced by a new gift card. Gift cards or certificates sold at a discount to employers may contain expiration dates. Cards or certificates sold before 1997 are subject to the state's laws of escheat.
Source: State Escheat Laws as Applied to Gift Certificates, Incentive Federation
