Beware Gift Cards
Businesses that use expiration dates for gift cards or certificates are not too bright. A while back I received a $100.00 gift certificate for a local restaurant that had a one year expiration date on it. Now why would any business want to have that gift redeemed within a year? Doesn't it make sense to delay the redemption of that meal for as long as possible? And suppose I show up 30 days after the expiration? Will the restaurant refuse me my meal? Is that even good business sense? And if the business honors it regardless of the expiration date why bother putting an annoying thing like that in there in the first place?
Here's my sense of it: putting an expiration date makes people redeem the certificate sooner than they would otherwise, aside from pissing them off. I certainly would not buy someone a gift that could expire worthless; I'm sure I'm not alone so it also cuts down on sales - not a smart idea and it certainly annoys the recipient. Who wants to be forced to enjoy a gift on someone else's time schedule.
Some states have already restricted or outlawed the practice of expiration dates so some card issuers have concocted a maintenance charge to kick in after a year or two so that within a few years the cards expire without ever being used. I do not buy gift cards that have this feature. As much as it galls me, If I receive such a card I redeem it instantly so that the company doesn't make a penny in interest on the unredeemed cash value of the card.
Now suppose you get a Macy's Card and you're a J.C. Penny shopper? Give Cardavenue a try, they'll help you buy, sell, auction, or trade gift cards and gift certificates [I do not get any commission or money from them for this link].
I do understand why big retailers want the card used as soon as possible. Since it's on their books as a liability they want to remove it from that side of the ledger and turn it into revenue as soon as possible. But this is short-sighted and I expect companies that want to look good only in the short-term to eventually go out of business.
Now my main business is prepaid phonecards. My cards never, never, ever expire. Consequently my company has millions of cards that have never been used starting from 1993. To accountants that are idiots this makes it look like my company has millions of dollars worth of liabilities. What is overlooked is that the cash that was handed over 15 years ago has been earning interest for those 15 years. What is overlooked is that 15 years ago we sold a service that is a lot cheaper for us to fulfill now than when we originally sold the card. My company is the only one in North America never to expire their phonecards; we are also the longest surviving phonecard company in America. Coincidence? I don't think so.
Any large retailer that expires cards or charges confiscatory maintenance charges after a set time should be boycotted. Hopefully as consumers get smarter about these things they will avoid avaricious morons that gouge them. And never ever buy a gift card from a bank or American Express. AMEX Gift Cards are perhaps the worst kind of cards anyone could ever buy. First of all, since they are not tied to a specific retailer, they can have an expiration date even in states that forbid it to retailers. They are inconvenient to use: every time I tried to use one at a retail counter, the clerk would have to call AMEX to get some sort of authorization. I believe they do this so that the consumer will be so inconvenienced that he or she won't use the card again and the Mafia-type maintenance fees can kick in. The worst part is that AMEX does not even have to give notice if they change the terms and conditions for any reason. They could start charging $10 per transaction if they wanted to without the consumer even being notified.
Some mall operators like Simon Property Group circumvent state laws that forbid expiration dates and dormancy fees by having their mall gift cards issued and administered by a federally chartered bank. Connecticut in 2006 asked Congress to pass legislation strengthening and clarifying the authority of Connecticut and other states to prohibit dormancy fees and expiration dates on gift cards, even those issued by national banks. [PDF]
Simon Property bangs their cards for $2.50 a month (Crystal Mall gift cards) if an unused balance remains after six months. These greedy, lowlife bastards also levy fees of $7.50 to reactivate an expired card. Thankfully in 2007 the U.S. Court of Appeals for the Second Circuit has upheld Connecticut's ban against dormancy fees on gift cards.
Even though I am in the prepaid card business I oppose expiration dates and extortionate maintenance fees. According to a Consumer Reports survey, 27 percent of those who received gift cards during the 2006 holiday season had not used one or more of them nearly a year later. Card Issuers will make a ton of money on never-redeemed cards - they don't have to rob consumers blind - that's Congress' job. In its fiscal 2006 annual report, the retailer Best Buy revealed a $43 million gain from gift cards that were unlikely to be used.
I expect that gift cards this year will top the $100 billion dollar mark. Don't buy any that have an expiration date or charge heavy fees if not used in less than two years. Avoid national bank gift cards or non-retailer issued cards. I expect savvy businesses that respect their consumers to waive expiration dates and fees even if the state in which they are sold is too stupid to prohibit those fees.
Unfortunately for consumers there is no single, unified law on the matter so it can be quite confusing who can charge what where, see the chart below [some material taken from BER Business Times]:
| State | Expiration Date | Fees |
| California | Prohibited | Dormancy fee allowed; all other fees prohibited |
| Connecticut | Prohibited | Service fees prohibited |
| Georgia | Must be conspicuously displayed | Amount of dormancy fees must be conspicuously displayed |
| Illinois | Prohibits gift cards from expiring within 5 years of being issued; If an expiration date is not posted directly on the gift card, a toll-free number must be provided so the consumer can determine when the card expires | All fees and how they'll be assessed must be conspicuously displayed except on or after January 1, 2008 all fees are prohibited |
| Iowa | None unless there is a contract | None unless there is a contract |
| Kentucky | Must not be less than one year from the date of issuance. If no date is printed on card, it is presumed valid until redeemed or replaced | None that reduce value of card before expiration |
| Louisiana | No Expiration Date less than 5 years | No fees in excess of a one-time handling charge of $1 |
| Massachusetts | Gift Certificates must be good for at least 7 years | If 90% or more of a Gift Certificate has been used or redeemed, a merchant must give the consumer the choice between receiving cash OR maintaining the remaining balance on the Gift Certificate. |
| Nebraska | Must be conspicuously displayed. Excludes general-use prepaid cards | Terms of any fees must be printed on card/certificate. Excludes general-use prepaid cards |
| New Hampshire | No expiration dates on any gift certificate that was purchased for less than $100 | No prohibition |
| New York PDF | Must be conspicuously displayed | Must be conspicuously disclosed to purchaser. No service fee may be assessed before the 13th month after issuance |
| North Dakota | Must be more than six years after date of purchase | Service fees prohibited |
| Rhode Island | Expiration dates prohibited | Fees prohibited |
| Tennessee | Prohibited if less than two years after issuance. If sold without expiration date, gift certificate is valid until redeemed or replaced with new card | Issuance fee prohibited. Service charges less than two years after issuance prohibited |
| Washington | Prohibited | Can enforce a dormancy or inactivity charge if: (1) disclosed as specified; (2) The remaining value of the gift card is $5 or less each time the charge is assessed; (3) The charge does not exceed $1 per month; (4) The charge can only be assessed when there has been no activity on the gift card for 24 consecutive months, including but not limited to, purchases, the adding of value, or balance inquiries; (5) The bearer may reload or add value to the gift card; and (6) After a dormancy or inactivity charge is assessed, the remaining value of the gift certificate is redeemable in cash on demand. |
Click on any link in the table above for more detailed regulations for that state. Also be aware that many of these regulations exempt national bank gift cards, phonecards, malls and businesses issuing 'reloadable' gift cards, and VISA and American Express gift cards. Also usually excluded are promotional cards for which no money was paid or when the certificate is valid for artistic or cultural organizations and disclosed to the user.
Two years ago Kentucky became the first state ever to create a statewide gift card. The Unbridled Spirit Gift Card is good at dozens of locations for thousands of items. The card never expires and never charges a fee to use it, reload it or spend it. Cards can be purchased in person, on line or over the phone. They can be for any denomination or a pre-loaded amount when bought on line.
Just FYI, if you have an expired gift card you may not be out of luck if you know anyone in California - since it forbids expiration dates - your friend or relative can probably get you a replacement gift card.
Read the fine print.
