|Expired gift cards: Whose money
Did you get a gift card for Christmas? Since it was
given to you, you probably think the money should be spent by you.
However, if you wait too long to spend that gift card, it could
end up in the state's unclaimed-property account.
Why? Well, even though you might not think you've
abandoned your gift card, if you don't use it after a certain amount
of years it might be subject to laws that allow the money left on
that card to revert, or escheat, to your state's piggy bank.
Every state has an act regarding unclaimed property
that covers things such as the way in which dormant bank accounts,
unclaimed safety-deposit boxes and uncashed checks go into the hands
of the state. These laws are called escheat laws. In recent years,
the popularity of gift cards has made state treasurers re-examine
state escheat laws regarding gift cards because of the huge revenue
Some gift cards do come with expiration dates and
fees. However, most
major retailers such as J.C. Penney Co. Inc., Wal-Mart, Home-Depot,
Target and Costco have all but done away with their expiration dates
and fees and will redeem your gift card for merchandise anytime,
even after a number of years.
So, when does the gift card money become the state's
money? That depends on your state's escheat laws.
There are basically three models of escheat laws.
1. No expiration or escheat
model. This is a very consumer-friendly model used in several
states including California, Washington and Massachusetts. This
model never gives up the money to the state. The gift card is good
from now until eternity. In this model, there is a reserve fund
specifically for redemptions set up by the retailer. By setting
up this reserve fund, the retailer recognizes that the consumer
can eventually redeem the gift card for merchandise. Retailers in
these states are not required to have the money escheat to the state.
2. 60/40 model. This
is a more traditional model stating that gift certificates can come
with expiration dates and when they do expire (usually between three
and five years) retailers are responsible for having 60 percent
of the value of the card escheat to the state. The retailers are
allowed to keep the other 40 percent. The state acknowledges that
retailers have costs that come with gift cards and allows them to
keep a portion of the leftover money. Indiana and Iowa use this
3. No gift-card expiration
dates, escheat laws apply. This model is somewhat confusing
since the states involved, such as Connecticut, have eliminated
expiration dates on gift card and certificates. However, even though
consumers will not find expiration dates on their gift cards, they
are expected to use their gift cards within three years. Otherwise
the state views the gift card as abandoned and the money escheats
to the state. However, if a customer comes in after three years
and obtains merchandise from the store using their unexpired gift
card, the retailers can apply to get the money back from the state.
According to George Delta, counsel to the Incentive
Marketing Association, a trade organization of businesses in the
incentive industry, "States require businesses to give them
some type of periodic report of the amount of unclaimed property
they are holding. This allows the state to monitor this potential
source of income."
Dan Horne, professor of marketing at Providence College,
says consumers ultimately benefit from state escheat laws because
the unused money that is not claimed goes into the state Treasury.
With 50 states, there is no easy, uniform answer to
questions of escheat. If you are wondering about how your state
handles gift cards, the Incentive Gift Card Council offers a link
to check your state's escheat laws.