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More States Sold on Reforming Gift Cards
Stateline.org ^ | October 17, 2006 | Philip Ewing

Posted on 10/18/2006 9:32:22 AM PDT by Diana in Wisconsin

It has taken a few years, but state legislatures are catching up with glitches in the popularity of gift cards, the quick-fix solution for those too befuddled or time-pressed to find the perfect present.

At least 25 states have strengthened their consumer protections for the credit-card-sized scrip that more Americans now give in lieu of a hand-picked, boxed-and-bowed gift, according to the National Conference of State Legislatures. U.S. shoppers are expected to spend as much as $72.8 billion in 2006 on gift cards. But only in three states can consumers be guaranteed that their gift cards will be worth full value when they go to spend them at a store, restaurant or online.

Around the country, expiration dates and “processing fees” are the bane of gift card users. Shoppers might find the value of their cards eaten away by fees charged by retailers and banks – or stripped to zero if too much time elapses between when the cards were purchased and redeemed.

Starting in 2004, lawmakers in many states began responding to consumer complaints by introducing bills that would have forbade all fees and made the cards’ value perpetual. But that type of legislation rarely survived, and today only Connecticut, Montana and Rhode Island prohibit all fees and expiration dates. California, which started the movement with its gift card law of 1996, prohibits expiration dates but allows fees in certain circumstances.

More typical is Kansas’ new law, an example of the compromises that lawmakers and business groups often reach on the gift card question. Sponsored by state Rep. David Huff, a Kansas City-area Republican, the idea for the law came in 2003, after one of Huff’s constituents bought his wife a $100 gift card to a spa and the card expired before she could redeem it, meaning the money was lost.

Huff introduced a bill that would have prohibited gift cards from expiring and taken effect on July 1, as with most Kansas legislation. But after lobbying from retailers’ groups, the final bill only guarantees that cards will be valid for at least five years after purchase, and involve no fees within one year. Also, the new law won’t take effect until Jan. 1, 2007, after this year's holiday shopping season.

“They were not that enthused,” Huff said of businesses’ reaction to the bill.

Huff said part of the opposition came from businesses that count on a certain number of gift cards to be forgotten under Christmas trees or to flutter out of birthday cards. Unredeemed cards can add up to a lot of pure profit: Home Depot, the nation’s second-largest retailer, announced in 2005 it had made $43 million from gift cards it didn’t expect to be redeemed. About 10 percent of the value of gift cards in the United States goes unredeemed each year, said Dennis Moroney, an analyst with the financial research firm TowerGroup.

There are two main types of gift cards: store-issued cards that work like cash when redeemed at cash registers or online, and cards issued by banks and credit businesses such as Visa or American Express that can be redeemed anyplace that takes credit cards.

Retailers’ groups say that the fees go to third-party vendors who handle and process the cards, and complain that the variety of different state regulations can confuse consumers. Advocates for bank-issued gift cards say fees and limited-use dates help keep the cards’ overall costs down for consumers. Unlike retailers’ cards, banks and credit card companies charge an upfront fee for gift cards in addition to the value buyers add.

Some large retailers, including Wal-Mart, Target and The Gap, voluntarily don’t charge service fees or impose expiration dates on their gift cards. Chain restaurants also avoid the restrictions, according to the National Restaurant Association; even if restaurant patrons wait a few years to redeem a gift card, they tend to spend more money than the card is worth.


TOPICS: Business/Economy; Culture/Society; Government
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To: Diana in Wisconsin

quit gift giving...perish the thought.

While I would not spend big amounts, gift giving is a family tradition. Though stressful, it is one worth keeping.


21 posted on 10/18/2006 10:26:21 AM PDT by rwfromkansas (http://xanga.com/rwfromkansas)
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To: Obadiah

How about if the goverment put bar codes on money and if you didn't spend it within a year, it lost its value? Sounds like something Congress would like.


22 posted on 10/18/2006 10:44:25 AM PDT by Right Wing Assault ("..this administration is planning a 'Right Wing Assault' on values and ideals.." - John Kerry)
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To: Diana in Wisconsin
I received a $30 Starbucks gift card right about the time I decided to cut their sugary offering to lose weight. I still have the card. I've never used it. We didn't have a Starbucks in my town. The only time I could use it was in airports enroute on a business trip. If I choose to use my gift card at some point in the future when I'm low on cash and have a Starbucks at hand, it is right for them to claim it is expired?
23 posted on 10/18/2006 10:50:17 AM PDT by Myrddin
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To: Obadiah

I don't see any fraud.

It is not the problem ofthe establishment selling the gift card if people don't redeem them becuase they move, they lose them, they just never get around to using it, or whatever.

The bad part is when a gift card has a fee or a monthly charge that slowly makes them worthless.

If you look at the big picture. Home depot's #1 selling item is their gift card. The "breakage" is normally 15%. Meaning 15% of gift cards do not get redeemed or 15% of the total $ value of gift cards do not get redeemed.

It is not like they have some way of making sure you don't redeem the cards.


24 posted on 10/18/2006 10:56:40 AM PDT by BookaT (My cat's breath smells like cat food!)
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Comment #25 Removed by Moderator

Comment #26 Removed by Moderator

To: BookaT
No, but like rebates, retailers build in obstacles to enhance the likelihood that a gift card goes unredeemed. For example, with rebates, there are strict mailing date limits, multiple documents from multiple sources that need to be sent, etc. With gift cards these obstacles are time of use limits, declining values, etc. I have received gift cards for which I have kept for longer than 1 year only to find out that a retailer won't "honor" the gift card - for which CASH was paid - because the redemption time exceeded one year. In most cases there are no dates on the gift card nor are there any statements stating that this cash equivalent was good for only 1 year. It's a racket and retailers simply need to be upfront and honest about it. If there are limits, fine, state so. But Home Depot collect $43 million in one year in unredeemed gift cards ought to tell you something about what's going on.
27 posted on 10/18/2006 11:12:44 AM PDT by Obadiah
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To: Obadiah

I agree with most of your statement but I cannot agree that "there is something going on,"in regards to Home Depot.

As I stated in my post there is about 15% margin of people who do not use either, their gift card at all or the full value of it. Add that to the fact that Home Depot's #1 sales item is their gift card.

Do you think Home Depot could sell $286 million of their most popular selling item? Yes they can and 15% of that total value of sales($43 million) will probably not be redeemed. This is not some scam by Home Depot to keep you from redeeming your gift card. It is the end user not using the gift card(lost it, forgot they had it) or not using the full value of the gift card. Period.

I don't know how this is Home Depot's fault or any retailers fault.


28 posted on 10/18/2006 11:27:16 AM PDT by BookaT (My cat's breath smells like cat food!)
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To: Political Junkie Too
If the gift receiver never redeems the card, then it is like stuffing cash under your mattress.

What I meant is what do propose the stores do with the money collected from the cards until they are redeemed? Do they place it in escrow?

That is the crux of the problem and why stores have expiration dates on the cards. If the cards were given an infinite life then the companies have an liability on the books forever in many cases.

By having expiration dates and declining value over time, this gives the companies a way to gradually rid themselves of the liability over time for cards that aren't going to be used.

29 posted on 10/18/2006 11:38:44 AM PDT by JeffAtlanta
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To: JeffAtlanta
I see, good point. I didn't think of that. Escheat the money to the state after 5 years, until the person finds it on some foundmoney.com website? :-)

-PJ

30 posted on 10/18/2006 11:41:25 AM PDT by Political Junkie Too (It's still not safe to vote Democrat.)
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To: Political Junkie Too

Some states are moving to have them turned over to the states unclaimed property division (escheatment). The problem is when they are purchased they do not who the owner is.


31 posted on 10/18/2006 11:43:36 AM PDT by Delphster
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To: TonyRo76
Deceitful, greedy b@st@rds... This kindof crap makes me more willing to spend a little extra time and find an actual gift. Screw the scheming retailers.

It's Home Depot's fault that some people don't use their gift cards? Is it the water companies fault when you don't pay your bill and they charge you a fee?

Sometimes I really do think that I've stumbled onto DailyKos - all that is missing is a workers of the world unite speech.

This really does lend credence to the theory that when you go far enough to the right politically that you end up wrapping around and connecting with the far left.

32 posted on 10/18/2006 11:45:51 AM PDT by JeffAtlanta
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To: Diana in Wisconsin

Either fraud and theft are illegal or they or not.


33 posted on 10/18/2006 11:48:15 AM PDT by DaGman
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To: BookaT

No ther is nothing going on with respect to Home Depot, but it merely demonstrates that apparently a lot of people are getting caught up in this. Earlier in the article it noted that many retailers bank on a certain percentage not being redeemed.

You are always going to have lost or misplaced gift cards that do not get redeemed, that's a natural given. I just think that, at the very least, there needs to be clearer and upfront information spelled out on the card so that someone, like me, doesn't hang on to a gift card for a rainy day only to find out that the retailer confiscated the value!


34 posted on 10/18/2006 11:50:45 AM PDT by Obadiah
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To: Delphster
Some states are moving to have them turned over to the states unclaimed property division (escheatment). The problem is when they are purchased they do not who the owner is.

That will end up hurting business severely for major retailers in their state as gift cards will become unprofitable.

Actions like this will sink most major retailers like Best Buy and all that will be left is Walmart. Major retailers lose money for most of the year and only break even during on "black Friday", the day after thanksgiving.

A significant number of the purchases made during the Christmas season are gift cards. If governments made the gift cards unprofitable then they are going to destroy a lot of businesses.

35 posted on 10/18/2006 11:51:38 AM PDT by JeffAtlanta
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Comment #36 Removed by Moderator

To: Political Junkie Too

"How do you book the transactions to the general ledger?"

Accountants know how to do it. A conservative way would delay recognizing sales and profits, until the merchandise is selected and delivered.

"Unearned revenues"

Accounting used to be conservative.


37 posted on 10/18/2006 12:33:29 PM PDT by truth_seeker
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To: GovernmentShrinker

Don't make your discipline my law. ;)


38 posted on 10/18/2006 12:38:39 PM PDT by carton253 (Sadness is just another word for not enough chocolate.)
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To: Diana in Wisconsin
The card save the businesses money; they don't have to process as many exchanges and returned items.I would think its alright to charge $0.25 for the cost of the plastic card, but if you give a business $100, the giftee or recipient should get $100 value for it.
39 posted on 10/18/2006 3:08:28 PM PDT by Pete from Shawnee Mission
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To: Political Junkie Too

I like how your mind works. You sound like an accountant, like me! :)


40 posted on 10/18/2006 6:56:24 PM PDT by Diana in Wisconsin (Save The Earth. It's The Only Planet With Chocolate.)
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