'Tis the season to blog about gift cards.  Last year we talked about how gift cards generate more revenue for stores because recipients of a $25 gift, say, usually end up spending more than that to get the full value of the card.  Tyler Cowen today links to an article that shows what retailers love even more than over-redeemed gift cards -- the unredeemed gift card.  Best Buy booked $43 million last winter for selling little plastic cards that probably cost a fraction of a cent to manufacture and maybe a little more to process.

The posting caught my eye because (throat-clear, cough) twelve years ago I did some research for a client who wanted to sell "stored value cards" with long-distance minutes on them.  At the time, state law required unredeemed "gift certificates" to escheat to the state.  So, if a retailer had received value for a gift certificate that was not used before the expiration date, the retailer had to send that money to the state treasury.  I even remember reading a magazine article about the same time giving a hint on how to negotiate with a retailer over an expired gift certificate.  The article suggested asking the manager when the store had reported the amount to the state treasury and asking to see the paperwork.  The underlying message was that expired gift certificates were vastly under-reported.  So, what changed so that now stores get the benefit of the unredeemed gift certificate?

From my ten-minute research fit on the web, I can only say that the law has changed.  For example, Texas now has a law in the Property Code specifically for "stored value cards."  Section 72.106 of the Texas Property Code exempts stored value cards from the escheat requirement when personal property is abandoned.  The store is the "holder" of the property, so the property is not really abandoned, according to the statute.  However, five percent of the value of the unredeemed (or under-redeemed card) goes to educational grants.  Now that's legislative compromise!  Perhaps only five percent of unredeemed gift certificates were ever reported, so the state treasury didn't lose anything!

(N.B. Illinois law seems to allow for escheat of gift cards after five years if the card has an expiration date and it is the practice of the store not to honor expired cards.  However, the act allows for maintenance fees to be deducted, so I assume that retailers deduct 20% of the value per year if unused.  Just a guess.)

Economics | Bookmark

TrackBack URL for this entry:
http://www.typepad.com/services/trackback/6a00d8345157d569e200d834d03e7653ef

Links to weblogs that reference Abandoned Gift Cards:

1. Posted by wingsandvodka on December 18, 2006 @ 17:01 | Permalink

2. Posted by Mrk2Mrkt on December 18, 2006 @ 21:03 | Permalink

3. Posted by Mrk2Mrkt on December 18, 2006 @ 21:08 | Permalink

4. Posted by Vick on December 24, 2006 @ 13:24 | Permalink

5. Posted by Ryan on November 20, 2007 @ 12:32 | Permalink