After Synergy abruptly shuttered its restaurant gift card program over the weekend, consumers were left holding stacks of apparently worthless prepaid cards. The company’s pending bankruptcy—after nearly 30 years of selling gift cards for locally owned restaurants—highlighted just how little recourse most consumers have when prepaid cards suddenly lose their value.
For many consumers, the end came swiftly. Synergy initially announced that its cards would expire on February 1, prompting a rush by consumers to spend any remaining balances. That surge in redemptions drained the program’s funds even faster than anticipated, forcing Synergy to shut it down a day earlier than planned.
Costco Steps Up
The cards were sold through Costco, which has stepped in to offer refunds to some customers. Costco is under no legal obligation to cover customers’ losses, and its website asserts that gift cards are nonrefundable. Nonetheless, the company has taken steps to provide limited relief to its customer base.
According to posters on Reddit, Costco is refunding the purchase price to customers who bought the cards themselves,or offering a Costco gift card if a third party had bought the Synergy card. While some customers said refunds were available only for cards that still retained their full original value, others reported that certain stores were granting refunds for partially used cards as well.
Unsecured Liabilities
The affected restaurants are also under no obligation to honor the cards. That leaves Synergy itself, which issued gift cards for local restaurants not only in its home base of San Diego, but also in Florida, New York, Texas, and several other states.
Synergy has no legal duty to reimburse its customers. Even if the company enters bankruptcy—an outcome expected any day—cardholders, though technically creditors, would be at the bottom of the priority list for repayment.
“In general, gift cards are unsecured liabilities, meaning they do not need any collateral or reserve requirements,” said Jordan Hirschfield, Director of Prepaid at Javelin Strategy & Research. “They are simply a promise to pay. For most major brands this is not an issue, as they aren’t in danger of bankruptcy. But it shows why consumers need to understand the gift card they are buying and evaluate the worthiness of the represented brands to fulfil their obligations.”
For now, Synergy has now gone completely dark. Its website displays only a brief notice stating that the gift card program has been discontinued.
