Use Gift Cards Immediately to Avoid Problems
Use Gift Cards Immediately to Avoid Problems
Gift card sales have boomed as they have become the easy, no-hassle
holiday gift. The National Retailers Federation estimates that consumers
spent $26.3 billion on gift cards last Christmas season.
However, there is little consumer protection with gift cards, which can make
them a costly gift if you don't use them quickly.
Earlier this year, Sharper Image declared bankruptcy, turning Sharper Image
gift cards into worthless pieces of plastic. The bankruptcy affected almost
$20 million in gift cards.
There is no guarantee that consumers will be able to redeem the full value
of the gift card if the retailer files bankruptcy. Retailers filing for
bankruptcy must have court approval to operate gift card programs.
Bankruptcy courts consider unused gift card funds as debt and decide whether
or not the retailer must pay it. The retailer can choose to petition the
court to allow it to continue to honor gift cards. If the retailer doesn't
make the request, or the court doesn't allow it, then the consumer can lose
the value of the gift card. After that, the only remaining option is to file
a claim as an unsecured creditor to the bankruptcy proceeding.
Consumer groups, including Consumers Union, recently filed a petition to the
FTC to ask regulators to do more to keep consumers from losing money on gift
cards from bankrupt retailers. The recommendations include retailers
setting up trust accounts for funds generated from gift card sales that
would be used in the event of a bankruptcy; forcing the bankrupt
company to accept its own card at full value as long as it remains
in business; and requiring bankrupt companies to stop selling gift
cards no later than the date of filing for bankruptcy.
"The best way to use a gift card is to spend it as soon as you receive it
because you don't know what is going to happen in the future," says
Bill Hardekopf, CEO of LowCards.com and author of The Credit
Card Guidebook. "Bankruptcy isn't the only way that your card will
lose its value. After 6-12 months, some retailers charge a monthly fee
that is as high as $2.50, which will quickly reduce the value of your gift
card."
According to the National Retail Federation, another reason to spend a gift
card quickly is that the government may take it away. Many states have laws
which will treat unused gift cards as "abandoned property." If personal
property goes unclaimed for a certain period of time, the state has the
right to take it into the state treasury. This includes bank accounts and
personal property like gift cards. These abandoned property laws can go into
effect in as little as two or three years. Retailers must turn over unused
gift card dollars to state governments under the appearance of returning the
"abandoned" money to the gift card purchaser. States can collect millions
of dollars a year from these clauses.
"It is a good idea to spend your card within the first year. If you wait
much longer, you may forget about it and later find yourself with an expired
card," says Hardekopf. "If your card has expired, take it to the retailer
and ask them to issue you a new card--some retailers may do this. If
the card has been treated as abandoned property, you can try to initiate
an unclaimed property claim through your state's treasurer."
Gift card sales have boomed as they have become the easy, no-hassle
holiday gift. The National Retailers Federation estimates that consumers
spent $26.3 billion on gift cards last Christmas season.
However, there is little consumer protection with gift cards, which can make
them a costly gift if you don't use them quickly.
Earlier this year, Sharper Image declared bankruptcy, turning Sharper Image
gift cards into worthless pieces of plastic. The bankruptcy affected almost
$20 million in gift cards.
There is no guarantee that consumers will be able to redeem the full value
of the gift card if the retailer files bankruptcy. Retailers filing for
bankruptcy must have court approval to operate gift card programs.
Bankruptcy courts consider unused gift card funds as debt and decide whether
or not the retailer must pay it. The retailer can choose to petition the
court to allow it to continue to honor gift cards. If the retailer doesn't
make the request, or the court doesn't allow it, then the consumer can lose
the value of the gift card. After that, the only remaining option is to file
a claim as an unsecured creditor to the bankruptcy proceeding.
Consumer groups, including Consumers Union, recently filed a petition to the
FTC to ask regulators to do more to keep consumers from losing money on gift
cards from bankrupt retailers. The recommendations include retailers
setting up trust accounts for funds generated from gift card sales that
would be used in the event of a bankruptcy; forcing the bankrupt
company to accept its own card at full value as long as it remains
in business; and requiring bankrupt companies to stop selling gift
cards no later than the date of filing for bankruptcy.
"The best way to use a gift card is to spend it as soon as you receive it
because you don't know what is going to happen in the future," says
Bill Hardekopf, CEO of LowCards.com and author of The Credit
Card Guidebook. "Bankruptcy isn't the only way that your card will
lose its value. After 6-12 months, some retailers charge a monthly fee
that is as high as $2.50, which will quickly reduce the value of your gift
card."
According to the National Retail Federation, another reason to spend a gift
card quickly is that the government may take it away. Many states have laws
which will treat unused gift cards as "abandoned property." If personal
property goes unclaimed for a certain period of time, the state has the
right to take it into the state treasury. This includes bank accounts and
personal property like gift cards. These abandoned property laws can go into
effect in as little as two or three years. Retailers must turn over unused
gift card dollars to state governments under the appearance of returning the
"abandoned" money to the gift card purchaser. States can collect millions
of dollars a year from these clauses.
"It is a good idea to spend your card within the first year. If you wait
much longer, you may forget about it and later find yourself with an expired
card," says Hardekopf. "If your card has expired, take it to the retailer
and ask them to issue you a new card--some retailers may do this. If
the card has been treated as abandoned property, you can try to initiate
an unclaimed property claim through your state's treasurer."
