Use Gift Cards Immediately to Avoid Problems

November 5, 2008, Written By Sarah Hefner
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 should set up trust accounts for funds generated from gift card sales that would be used in the event of a bankruptcy; the bankrupt company should be forced to accept its own card at full value as long as it remains in business; and bankrupt companies should be required 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. Bankruptcy is not 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.

Experts say 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. 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.

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The information contained within this article was accurate as of November 5, 2008. For up-to-date
information on any of the terms, cards or offers mentioned above, visit the issuer's website.

About Sarah Hefner

Sarah Hefner has written for several publications as well as serving as an editor to various writers. She graduated from the School of Communications & Journalism at Auburn University with a Bachelor of Arts degree in Public Relations.
View all posts by Sarah Hefner