Are gift cards escheatable? Unfortunately, the answer is not simple as each state and territory have different unclaimed property laws regarding gift cards and the time before escheatment. These differences in state laws impact gift card breakage, the revenue companies gain through unredeemed gift cards.
The Electronic Funds Transfer Act and the Consumer Financial Protection Bureau’s (CFPB) Regulation E govern the use of expiration dates with respect to gift cards. These Federal laws dictate that if a gift card has an expiration date, consumers must have a minimum of five years from the date the card was issued, or reloaded in the case of reloadable gift cards, to use the funds. Additionally, the terms of expiration must be fully disclosed on the card, along with the expiration date.
What is Gift Card Breakage?
Breakage is the amount of revenue that a company collects from gift cards or other prepaid services that are never redeemed. Accounting for breakage is a challenge and can lead to noncompliance around gift card escheatment.
It’s hard to believe, but the holiday season is only a few months away. According to the National Retail Federation, Americans spent 23.6 billion last holiday season on gift cards alone. That being said, last month new gift card escheatment laws involving unclaimed property and the amount of time consumers have to use gift cards went into effect. While these regulations aim to help consumers, they aren’t crystal clear and leave room for some confusion.
For most states, these new regulations give consumers five years as opposed to one year to use the balance on most gift cards, but they will still have to pay fees for not using them. One major key improvement is that card issuers must wait a year before charging an inactivity fee. However, in a recent Associated Press interview, Laura Lane, vice president of unclaimed property services here at Keane Unclaimed Property, indicated that this could be both good and bad for consumers.
“It could be good for consumers in that they have a year before fees are charged,” she says. “However once that year is up, who knows how good for consumers that will be.”
In addition, the new rules don’t apply to all gift cards and this includes reloadable prepaid cards from MasterCard, Visa, American Express and other lenders, and reward cards or rebates. In fact, Lane says that more and more companies—such as phone companies—are giving rebates in the form of electronic cards because it’s easier for them to track how much is yet to be used.
Some states, however, do not follow this five-year standard. Take for instance New Jersey where Assembly Bill 3002, which was signed into law and went into effect on July 1, 2010, (but has recently been extended to October 1, 2010), requires that gift certificates, gift cards, and stored values cards be turned over to the state after just two years of dormancy. Legislation is on the table, however, to reverse these changes and eliminate the state’s claim on unused store values and eliminate the requirement that businesses gather contact information from customers buying gift cards. Michigan, as well, is expected to pass legislation this month that will reduce dormancy periods across the board – including gift cards – to 3 years of inactivity.
Moving forward, companies will soon be required to print expiration dates on gift cards. However, this new gift card escheatment law does not take effect until January 31, 2011 meaning that consumers must pay attention this holiday season. If they receive gift cards, they should use them as soon as possible in order to avoid escheatment or complications with the state.
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Abandoned Property, Abandoned Property Law, Compliance, Dormancy Periods, Escheat Law, Escheatment, Gift Card Escheatment, State Escheatment, Unclaimed Property, Unclaimed Property Law, Unclaimed Property Reporting