Gift cards have become something close to a scam. Many stores will automatically reduce the value of them monthly until they’re worth nothing, and many others provide expiration dates. If the company files for bankruptcy—even if they’re just reorganizing—that’s a debt that they may just not pay off, rendering the cards worthless. Gift cards are, fundamentally, an interest-free loan from a customer to a business, so the fact that they charge you to loan them money is just nuts. So I’m glad to see that Congress’ credit card regulation bill also regulates gift cards, prohibiting businesses from expiring them in less than five years, prohibiting fees until there has been one year of inactivity, and giving the Federal Reserve the ability to regulate them further. Whether you think of a gift card as a loan or as a prepaid debit card, in either case it’s a significant form of interstate commerce that is well within the purview of the feds and, given how badly businesses have treated their creditors/customers, is badly in need of regulation.
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A primary reason they charge you and have expiration dates is that all of the money they collect from gift cards stays on the balance sheet as an unearned revenue liability. And not just from a desire to increase revenue perspective, you would want to encourage consumers to use them just from a record-keeping perspective. Then if there is no expiration date, companies have to estimate at what point you are likely to never use the card (breakage).
That said, 5 years doesn’t sound unreasonable given the dormancy periods for escheatments. I would say that all states should just require them to be escheated. However, it would return to the state as an unclaimed asset of the purchaser. If it was given as a gift, then the purchaser is unlikely to ever claim the escheated property from the state. Then it just becomes appropriated state revenue, so why not just let the business keep it?
Last, I disagree that gift cards are fundamentally a loan to the business. The business is selling you a convenience. The convenience being that you don’t have to figure out what someone else might like in terms of a material possession. The other part being that the gift receiver does not have to hassle with returning something they don’t want. The business is ultimately satisfying a desire the consumer has, not the other way around.
the place where I work sells gift certificates as well as annual passes (of the “buy 11, get 1 free” variety). we never decrease their value, and we even go out of our way to honor many-years-old gift certs from the previous owners.
here’s why gift certificates are a great business idea: the business gets the money up front, and if the recipient never uses up the full value of the certificate (for whatever reason), it’s essentially free money for the business. If they DO use the certificate and come shopping at that business… it’s more people in the store than you would have otherwise. essentially a win-win situation. plus, the customers really like them too (both the people who purchase them and the people to whom they are given). everybody’s happy.
that said, businesses who decrease the value of the card etc. are clearly a bunch of bastards. shady stuff. not to be trusted.
I keep receiving gift certificates to chain businesses that I would never dream of patronizing. Usually from extended family members who live elsewhere… eg, there’s a Barnes&Noble where I live, and a Barnes&Noble where they live, so it’s easier for them to get me one of those. I usually end up giving them away.
I believe it was last Xmas that Jones went out of his way to track down gift certificates for his family members that were all local businesses… local to the places where those family members lived. Impressive, but difficult.
I’ve always liked those businesses who honor all gift certificates from their competitors … although I can’t seem to remember who does that, at the moment.
Your logic applies to any loan. Let’s try this out:
“Last, I disagree that mortgages are fundamentally a loan to a homeowner. The homeowner is providing you with a convenience. The convenience being that you don’t have to worry about the vagaries of the market with your investing, by keeping it in a house. The other part being that the homeowner has that asset—the house—which can be seized for nonpayment. The homeowner is ultimately satisfying a desire the bank has, not the other way around.”
I’m not buying it. :)