Unclaimed Gift Certificates and Cards

The volume of unspent gift cards is staggering. According to a report from Credit Summit, approximately $21 billion in gift cards are left unspent by US consumers. This unredeemed value can have significant economic implications.

For consumers, these unused funds represent lost purchasing power. For merchants, although they initially gain the revenue from the sale of gift cards, the financial strategy around unspent gift cards—known as breakage—can impact revenue recognition and business planning.

State laws and escheatment

Escheatment laws are critical when discussing unclaimed gift cards. These laws dictate that after a certain period, the value of unclaimed gift cards must revert to the state, rather than the retailer or issuer keeping it indefinitely. This process is meant to protect consumers, ensuring that unspent funds are eventually used for public benefit if not utilized by the cardholder.

Breakage and unclaimed property

Breakage and unclaimed property laws shape how unused gift card funds are managed. Breakage refers to the unredeemed balance on gift cards after a certain period, essentially becoming “free money” for businesses if not claimed by consumers. However, this isn’t straightforward.

When gift cards remain unused, businesses classify these unredeemed funds as liabilities until they can be derecognized. The term “escheat” complicates this, as it refers to the state’s power to claim unclaimed property. States may consider unused gift cards as unclaimed property that businesses must surrender.

Dormancy periods

Dormancy periods for gift cards, which define the timeframe before a card is considered inactive and subject to escheatment, vary significantly by state. The Unclaimed Property Professionals Organization (UPPO) highlights that these dormancy periods are not uniform, ranging from as short as two years to exempt statuses where no dormancy period is applicable at all.

For example, in New York, the dormancy period for gift cards is five years, meaning if a gift card is not used within this timeframe, it must be reported and remitted to the state as unclaimed property. Each state’s rules can influence both consumer behavior and business practices, making it crucial for both parties to be aware of their respective state laws.

Federal regulations

CARD Act

The Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009 enforces several key provisions to protect consumers in the realm of gift cards. Under the CARD Act, issuers of gift cards must adhere to strict rules regarding expiration dates and fee disclosures. Gift cards cannot expire until at least five years from the date they are activated, ensuring cardholders have ample time to use the cards before they become worthless.

This long-term validity allows consumers to spend the card at a convenient time, enhancing their user experience and financial flexibility. For instance, if a consumer receives a gift card but does not find an immediate use for it, the regulation enables them to hold onto the card without the pressure of a looming expiration date, thereby reducing financial waste and increasing consumer satisfaction.

Additionally, the Act places significant limits on the fees associated with gift cards. Dormancy, inactivity, or service fees cannot be imposed unless the card has been inactive for a minimum of one year. Furthermore, any such fees must be properly disclosed to the consumer at the time of purchase and clearly stated on the card itself.

Tips for handling unused gift cards

Tracking and claiming

To track and reclaim unused gift cards, several online free and paid tools can be useful. For instance, MoneyBot5000 lets you search for unclaimed funds from lost, unused, or expired gift cards. It’s advisable to check these databases regularly for any lost treasures. Registering your gift card upon purchase can also help in instances of loss or expiry, as having a recorded transaction makes it easier to claim refunds.

Checking balances

It’s important to regularly check the balance of your gift cards to avoid leaving value unredeemed. If your gift card balance isn’t updating correctly or if you face technical issues, referring to the issuing company’s customer support can provide troubleshooting assistance.

Reallocation of funds

Unused gift card funds don’t have to go to waste. Many platforms and organizations allow the transfer of unredeemed balances to charitable causes. This approach ensures that the remaining value on your gift cards can make a positive impact, even if you don’t use them yourself.

Selling or repurposing gift cards

Converting to cash

Unused gift cards don’t have to gather dust. They can be sold for cash on various platforms. To convert gift cards to cash, consumers can use reputable online outlets such as CardCash, Raise, or platforms like Gift Card Granny, which aggregate offers from multiple third-party resellers. Selling through these platforms typically involves providing the card details, receiving an offer, and if accepted, getting paid via PayPal or check.

To get the best value, it’s crucial to check multiple platforms as offers can vary significantly. According to CNBC, some sites offer up to 92% of the card’s value depending on the demand.

It’s also advisable to read user reviews and verify that the platform has a secure transaction process. NBC Washington suggests looking for guarantees on the card’s value, especially on exchange sites where buyers get a period, often 45 days, to ensure the new card works before the transaction is final.

Honoring expired gift cards

Even if a gift card has expired, it may still hold value. Consumers should reach out directly to the retailer or issuer. Some companies may honor expired cards, especially if presented with a valid reason like a recent purchase. While not guaranteed, some businesses are willing to reactivate expired cards, extend their expiration dates, or convert the balance to store credit.

When appealing to a retailer, it’s useful to provide any relevant information such as the purchase date, the original receipt, and any communication with customer service. Being polite and persistent often helps. Another approach is to check state-specific gift card laws; some states have regulations that prevent expiration or mandate issuer responsibilities even after a card has expired.

Social and economic impact

Unredeemed balances

At any given time, 10% to 19% of gift card balances remain unredeemed, contributing to a significant economic phenomenon. Around 6% of gift cards are never even used. Over the past decade, Americans have purchased more than $1 trillion worth of gift cards. Between 2005 and 2015 alone, unredeemed gift card balances amounted to an estimated $45.7 billion. This represents a massive shift in potential consumer purchasing power, with funds remaining locked in an inactive state rather than circulating within the economy.

Financial loss

On an individual level, the average unspent gift card amount per person in the U.S. is about $187, totaling an estimated $23 billion worth of unused credit nationwide. This unspent value can lead to reduced consumer spending, which in turn impacts overall economic activity. The cumulative effect of these unredeemed balances is substantial, emphasizing how a seemingly small individual oversight can scale into a significant economic issue.

Merchant management issues

Managing unredeemed gift cards presents several challenges and costs for merchants. These complications arise chiefly because merchants need to maintain sufficient funds to cover the liability of outstanding gift cards, which can strain cash flow.

Furthermore, the potential escheatment process adds administrative burdens as businesses must continuously monitor and report unclaimed balances, particularly in states with stringent escheatment laws. Failure to comply can result in fines and reputational damage, which further exacerbates the financial and operational challenges for merchants.

In conclusion, the issue of unspent gift cards extends far beyond simple consumer oversight; it has broad economic, financial, and regulatory implications for both individuals and businesses.

The sheer scale of unredeemed gift cards, amounting to billions of dollars annually, underscores the importance of awareness—both for consumers seeking to maximize the value of their gift cards and for businesses striving to properly manage breakage and liabilities.

To mitigate these impacts, both parties should adopt proactive strategies, from regularly tracking balances to exploring options like reallocation to charity or selling unused cards. As the unspent balance issue continues to grow, finding solutions to keep gift cards circulating in the economy rather than languishing in drawers could unlock new opportunities for both consumers and retailers.