Whose money is it?
The Changing Landscape of Unused Gift Cards
by Bill Hardekopf
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Gift cards are a popular gift to give and receive. However, if they are not used, they may be turned over to your state government as unclaimed property.
Escheatment laws have required financial institutions to report and remit abandoned or unclaimed intangible property to the state. This has historically applied to uncashed checks, bank accounts, and mutual funds.
But in a time of budget cuts, recession, and shortages, it is not surprising that many states have expanded escheatment rulings to include unused gift cards, bringing in millions of dollars each year. According to the Wall Street Journal, New York state took in $9.6 million in unclaimed gift card money in 2008, but only $2,150 was distributed to consumers.
The TowerGroup estimates that $41 billion in gift cards have not been used since 2005. When a gift card is unclaimed for a designated period, some states take custody of the card and add the value to the treasury's general fund until it is claimed by the rightful owner. The time of abandonment varies by state, but it is typically two to five years.
The escheatment laws differ from state to state, and some states like Maryland and Arizona fully or partially exempt gift cards from escheatment laws. New Jersey is creating a controversy with card issuers as it takes aggressive action to claim unused or unspent values on gift cards while claiming it is protecting consumers. New Jersey's Chapter 25 law was enacted in 2010 to include "stored value cards" as unclaimed property. After two years of inactivity, the user must transfer the remaining value of the card to the state. It also requires the issuer to collect the name and address of purchasers, or at least the purchaser's zip code.
Gift card providers like American Express, InComm, and the Blackhawk Network are refusing to comply and plan to stop selling gift cards in New Jersey in June. The issuers say collecting this information is too costly to implement, and retailers that do not typically collect address information must implement a process to at least collect the zip codes for each purchaser.
Both retailers and governments want to help themselves to this unused money. Retailers benefit from unused gift cards by moving unredeemed amounts off their balance sheets and reclaiming the amounts as revenue.
Unredeemed gift cards, known as "breakage income" for business, can be a significant source of revenue. For instance, Home Depot recognized $42 million in gift card breakage income during 2011, as well as $46 million in 2010 and $40 million in 2009. However, before recognizing breakage income, companies must first determine that state escheatment laws do not apply.
Now is the time to collect all gift cards from drawers, wallets and car consoles and start using them. If you can't use them, give them away or sell them at a gift card exchange like PlasticJungle.com or GiftCardRescue.com.
If you think you have missing or unclaimed assets, you can run a quick search by entering your name and state at MissingMoney.com or your state treasury department. Examples of unclaimed money can be forgotten bank accounts, stock dividends, insurance refunds and customer overpayments. If a claim is found, you will have to submit more information to receive your money.
Bill Hardekopf is CEO of LowCards.com, a site that simplifies the confusion of shopping for credit cards. It is a free, independent website that helps consumers easily compare credit cards in a variety of categories such as lowest rates, rewards, rebates, balance transfers and lowest introductory rates.
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