Who Get's My Money After Gift Card Expiration?

Did you get a gift card for Christmas? Since it was given to you, you probably think the money should be spent by you. However, if you wait too long to spend that gift card, it could end up in the state's unclaimed-property account.

Why? Well, even though you might not think you've abandoned your gift card, if you don't use it after a certain amount of years it might be subject to laws that allow the money left on that card to revert, or escheat, to your state's piggy bank.

So, when does the gift card money become the state's money? That depends on your state's escheat laws.

There are basically three models of escheat laws.

1. No expiration or escheat model.

This is a very consumer-friendly model used in several states including California, Washington and Massachusetts. This model never gives up the money to the state. The gift card is good from now until eternity. In this model, there is a reserve fund specifically for redemptions set up by the retailer. By setting up this reserve fund, the retailer recognizes that the consumer can eventually redeem the gift card for merchandise. Retailers in these states are not required to have the money escheat to the state.

2. 60/40 model.

This is a more traditional model stating that gift certificates can come with expiration dates and when they do expire (usually between three and five years) retailers are responsible for having 60 percent of the value of the card escheat to the state. The retailers are allowed to keep the other 40 percent. The state acknowledges that retailers have costs that come with gift cards and allows them to keep a portion of the leftover money. Indiana and Iowa use this law.

3. No gift-card expiration dates, escheat laws apply.

This model is somewhat confusing since the states involved, such as Connecticut, have eliminated expiration dates on gift card and certificates. However, even though consumers will not find expiration dates on their gift cards, they are expected to use their gift cards within three years. Otherwise the state views the gift card as abandoned and the money escheats to the state. However, if a customer comes in after three years and obtains merchandise from the store using their unexpired gift card, the retailers can apply to get the money back from the state.

According to George Delta, counsel to the Incentive Marketing Association, a trade organization of businesses in the incentive industry, "States require businesses to give them some type of periodic report of the amount of unclaimed property they are holding. This allows the state to monitor this potential source of income."

Dan Horne, professor of marketing at Providence College, says consumers ultimately benefit from state escheat laws because the unused money that is not claimed goes into the state Treasury.

With 50 states, there is no easy, uniform answer to questions of escheat. If you are wondering about how your state handles gift cards, the Incentive Gift Card Council offers a link to check your state's escheat laws.

By Kristin Arnold
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How to claim expired gift card funds

My gift card survey showed that most gift cards issued by major retail chains do not expire. But some do. What happens to that unclaimed money is increasingly the subject of a tug of war between retailers and states, many of which have passed laws forcing retailers to turn the money over.

"There is an increasing chess game between issuers of these cards trying to find ways to reduce abandoned property exposure and states trying to increase ways to get their hands on what they view as legitimate abandoned property," says attorney Duncan Douglass of Alston & Bird, LLP in Atlanta, who specializes in gift cards and the state laws that apply to them. Catherine Fox-Simpson, a partner in the retail and consumer product practice at consulting firm BDO Seidman, LLP, is more blunt. "I expect a showdown," she says. "It is a matter of time."

As of November 2007, according to the National Conference of State Legislatures Web site, more than 30 states have unclaimed property laws that apply to unused gift card balances. In Michigan and New York, unused balances go to the state (escheat). In Texas and Illinois gift card balances are reverted to the state with certain conditions, while in Florida open-loop, network-branded gift card balances go to the state when unused. People who bought cards in those states may try to initiate unclaimed property claims, usually through the state’s treasurer or similar post. The National Association of Unclaimed Property Administrators’ Web site can link you to the appropriate office in every state.

A minority of states, including the largest, California, do not presently make any effort to reclaim gift card money into state coffers.

There is a third party in this competition over unspent gift card money: The consumer who paid for it in the first place.

How can these consumers make sure that neither the retailer nor the state gets to keep their money? Experts and states recommend the following steps:

• When buying or receiving a gift card, read it carefully. In some cases, the retailer may not make it entirely clear if or how the gift card expires. "We encourage people to read the fine print regardless of what the merchandiser tells them," says Elizabeth Kupchinsky, spokeswoman for the Pennsylvania Treasury Department.


• Hold onto the physical card itself and any receipts. Very often, it is unclear to whom the expired gift cards funds belong. "The difficulty in gift cards is that there is no name attached at the point of sale unlike, say, having a deposit for your utility service," says Rochelle Stewart, bureau chief for Citizen Services at the Montana Department of Revenue. Having the card and receipt in your possession can help.


• Learn how gift card expirations are treated in your state, because the issuer may be prohibited from imposing an expiration date. In states with such laws, funds on expired gift cards no longer have to be turned over as unclaimed property.


• If the state permits expiration and the date is past, talk to the retailer first. "We encourage people to go to the business and say 'Will you honor this?'" says Kupchinsky. Even if they won't, some card issuers may allow the gift card funds to be transferred to a new card.

If the retailer has already turned over the money, look to the state for help. Every state maintains an online database of unclaimed property. Additionally, a call to the Department of Revenue, state Treasury Department or other government branch in charge of unclaimed property could help.
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