Home Depot has agreed to pay $750,000 to settle a California lawsuit that alleged the big-box retailer didn’t follow existing state laws regarding gift card redemption. Like several other states, California requires retailers to provide an option for gift card holders to redeem the value of their card if it’s below $10.
“There are a series of states that have laws requiring stores to cash out gift cards if they fall under a certain value,” said Jordan Hirschfield, Director of Prepaid at Javelin Strategy & Research. “Typically, the consumer has to request the cash-out, and the store must comply with the request.”
The $750,000 payment will cover civil penalties and investigative costs, rather than reimbursing customers. The settlement, though minor, seems like it could have been avoided.
As part of the agreement, the Los Angeles County Superior Court ordered Home Depot to change its gift card transaction processes. Home Depot will be required to program its check stands and registers that disburse cash to automatically pay out gift cards in cash if they have a balance of less than $10. Additionally, Home Depot will have to provide notices about the law on its physical gift cards, on any websites where the cards can be purchased or redeemed, and at the customer service and returns sections of its California stores.
The Importance of Education
One key aspect of this settlement is that Home Depot has agreed to provide its California employees with additional training regarding card redemption.
“I’d assume they didn’t properly train local employees,” said Hirschfield. “My guess would be that they train in a national standard and didn’t clarify the specific rules that apply in California.”
California isn’t the only state where store employees need to know the specific gift card regulations. New York, for example, enacted new cash-out options at the end of 2022 for balances less than $5.
Previously, California levied a similar fine of $85,500 to Taco Bell for violating cash-back options. While the amount paid may seem small, Hirschfield pointed out that the costs of defending such actions increase the total cost for organizations that have not been following regulations.
Gift cards are an important part of Home Depot’s business cycle. The company’s performance obligations for unredeemed gift cards reached roughly $1 billion as of January 2024.
