Government officials across the country are reminding citizens to utilize gift cards, as there are few regulatory devices available to recover unused balances. The issue highlights the quandary of unused balances and the primary option consumers have to protect themselves, mainly to spend through their gift card. The Sioux City Journal spoke with Iowa State Treasurer Mike Fitzgerald to highlight the lack of legal options Iowans have, reflective of the situation in much of the country:
“Prior to 2014, lost or forgotten gift card funds in the state of Iowa would, after a period of five years, be turned over to the state treasurer’s office as unclaimed property so that the owner could be located through the Great Iowa Treasure Hunt… But that summer, eight years ago, a new state law went into effect that allowed merchants to hold onto gift card funds indefinitely, assuming the issuer of the card does not charge fees and assuming the card has no expiration date.”
Gift Cards: Use It or Lose It
In the article Fitzgerald shares that the attempts to return money were difficult, making the prior legislation unwieldy and putting stress on retailers. With the current legislation, funds cannot expire, although service fees can be charged, meaning the retailer could potentially be on the hook for funds in the unlikely event that a lost gift card is found years later:
“The gift-card law was viewed by some state officials as, more than anything, a gift to merchants, who could retain the money paid to them for a gift card without having actually sold anything at all.
‘Most businesses just keep (the money) — because let’s face it, if you haven’t used a gift card in about a year, you’re probably not going to use it,’ Fitzgerald said. ‘The Chamber of Commerce, businesses, they know that, and so that’s why they offered that. That was kind of the way the Iowa law was cut.’”
Good for Retailers?
The reality for most retailers is that they want consumers to utilize gift card balances in a speedy fashion. As my colleague Brian Riley discussed in a PaymentsJournal podcast this summer with Aimee Wright and David Southwell of Blackhawk Network, up to 90% of gift card users are likely to overspend their balances, leading to additional purchases and with lower costs due to less interchange fees.
While government officials may lament the ability of retailers to keep the funds, the reality is retailers actions are counter to the argument. Adding to that point is the continuing adoption of digital wallets to support gift card transactions. As Mercator research has identified, 23% of consumers already utilize retailer specific wallets to pay for goods and services. The increased stress of inflation is also causing these retailers invest more in technology to push more business towards wallets through card redemption, loyalty benefits and discounting. The reduced costs for the transactions and opportunity to gain brand loyalty bring to light the reasons and desire of the retail community to encourage use of gift card balances.
Overview by Jordan Hirschfield, Director of the Prepaid Advisory Service at Mercator Advisory Group.