| Releases & Statements
Gotbaum:
Fine Print Allows Retailers to Make Estimated $300 Million off
Gift Cards Sold to New Yorkers
According to Betsy Gotbaum, loopholes
in State laws allow retailers to profit on unredeemed gift cards
purchased by New Yorkers. In 2004, an estimated $300 million went
back into the pockets of retailers and millions more were lost
on fees charged for inactive cards. Gotbaum called for a tightening
of State law.
“This is probably one of the
best retail scams going. It’s a marketing tool worth billions.
Companies are intent on squeezing every last penny out of cardholders
and avoiding the reporting of unclaimed property to the state,”
said Gotbaum.
Americans spent $44 billion on gift
cards last year. It is estimated that $5.28 billion went unclaimed
and will likely wind up back in the pockets of retailers. Under
New York State law, the value on cards that have been inactive
for 5 years must be turned over to the New York State Comptroller’s
Office of Unclaimed Funds, which keeps the money in trusts for
owners to claim at any later point.
However, many retailers have found
loopholes: (1) they incorporate in states that do not require
the return of unclaimed gift card funds; (2) they do not collect
any personal information from the purchaser, thus avoiding turning
over the balance on cards to the purchaser or the state where
s/he resides. Last year, only $4.88 million was turned over to
New York State’s OUF, and hundreds of millions more were
lost to New York consumers forever.
By taking advantage of these loopholes,
companies have been able to maximize profit from these cards.
A retailers’ association guide recommends ways to increase
profits on gift cards. One section in the guide is called “How
to Avoid Reporting Unredeemed Gift Cards.” Other recommendations
include creating expiration dates and charging monthly dormancy
fees.
Groups such as the Consumer Union
and the U.S. Public Interest Research Group have criticized retailers
for taking advantage of consumers who provide them with immediate
cash flow in return for a delayed service or product.
New York State law already prevents
charging a monthly fee until the 13th month and mandates that
sellers give consumers information about the terms and conditions
of gift certificates at time of purchase.
Gotbaum is calling for all State laws
that apply to be amended in a way that would better protect consumers.
“These consumer cards have proven
to be a cash cow for companies. But it comes at the expense of
consumers. It should be a win-win situation for both retailer
and consumer. Consumers need to be better protected,” said
Gotbaum.
Estimates on lost and unclaimed gift
card dollars we derived by the New York State Comptroller’s
Office using census data and industry estimates that suggest 12
percent of all gift card purchases are never redeemed.
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