Forgotten gift cards are as much a part of the holidays as regifted fruitcakes and awkward family photos. But even if you’ve forgotten about a gift card balance, that doesn’t mean retailers and state governments have.
Unused gift card balances are something of an annoyance for retailers; they’re a liability that can stay on a company’s books for years. To get them off their books and ensure they get to keep the cash even if you forget to spend it, many have created fees and expiration dates to try to absorb balances back into their bottom lines as quickly as possible. Until the Credit Card Accountability, Responsibility and Disclosures Act, or CARD Act, goes fully into effect, how quickly they can do so depends on a patchwork of state laws.
“The laws vary a lot,” says Karen Anderson, a senior compliance adviser with Abandoned Property Services LLC, in New York.
But retailers aren’t the only folks gunning for your unused gift card dollars; cash-strapped state governments also have their eyes on them. In many states, officials can force a gift-card issuer to turn the unused balance over to their state — a process called escheat.
So how can you protect your gift card balances from getting caught up in this clash of the titans?
Most states mandate a period immediately following purchase when the value of a card is legally protected. This period lasts at least a year and a few states, like Virginia and Nebraska, have no such limits as long as retailers disclose their terms clearly.
Although uncashed gift cards appear to be free money for a retailer, most businesses prefer you spend your gift card as soon as possible after you get the card, says Jennifer Borden, a partner at Holland & Knight based in Boston.
“The retailers don’t want the gift certificates to go outstanding,” says Borden. “They want customers in their stores shopping and potentially buying more than just the value of the gift card.”
Eaten by fees
Unfortunately, despite the best wishes of retailers, some consumers never get around to using their cards during this legally protected period. As a result, many unused cards end up having their value eaten away by fees or eliminated altogether by expiration dates before becoming legally dormant and vulnerable to being escheated by the state.
State laws now govern how quickly a retailer can begin levying fees; when the CARD Act takes effect Aug. 22, 2010, retailers will have to wait at least a year before doing so.
You may still be able to get some value for your card if you spend it during this stage. Usually, providers will siphon off cash in “maintenance fees” gradually before an expiration date kicks in and renders your card useless. The expiration date is currently governed by state law, but will be uniformly extended to five years after the CARD Act kicks in.
Escheat and your gift card
Once the card has expired or fallen legally dormant in the eyes of the state, it becomes part of a turf war between card issuers and states over who gets to keep the unspent balance. This war has intensified in recent years as cash-strapped governments seek to plug budget holes.
Escheat laws are generally written to make sure that money goes to states instead of fattening an issuer’s bottom line. Some states, including California, struck deals with issuers to avoid legal wrangling and help consumers at the same time, says Borden.
“The retailers in California, by and large, decided to take expiration dates off of their gift certificates and California agreed that if you didn’t have an expiration date on your gift certificates, then they wouldn’t escheat the property,” says Borden.
If a state does escheat a gift card balance, a consumer currently doesn’t stand much chance of getting that money back, says Nebraska Treasurer Shane Osborn, president of the National Association of Unclaimed Property Administrators, because gift cards have no name or address attached to them. Complicating things, says Osborn, is a Supreme Court ruling that escheated property with no address attached so it goes to the state where the issuer is incorporated. Because the rightful owner is unlikely to hail from the escheating state, officials in that state have little incentive to try to return the money.
“We encourage the large gift-card issuers to take a name and a ZIP code, at least, when they’re selling a gift card,” says Osborn. “If that gift card comes to the point where it will be escheated, then that money will be turned over to that state, and that state can actually go out and find the owner.”
State treasuries may not end up getting the last laugh, however. Retailers have recently begun evading escheat by creating dummy corporations to issue their gift cards and headquartering them in states that have escheat laws favorable to retailers, says Patrick Carter, the director of revenue for Delaware.
In the end, there’s no reason to let your gift card dollars become part of this perpetual game of cat and mouse. Using your card within a month after getting it is the best way to ensure that your gift card dollars end up buying something nice for you, not the retailer’s stockholders or out-of-state bureaucrats.