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The Green Sheet Online Edition

March 08, 2010 • Issue 10:03:01

The crux of cash back on gift cards

In late January 2010, California State Sen. Ellen Corbett, D-San Leandro, introduced a bill that would require California retailers to return cash back to customers with closed-loop gift cards that contained balances of $20 and under. While proponents of SB 885 believe raising the limit from $10 to $20 would put more money in consumers' pockets, detractors think it may harm California merchants and consumers in the long run.

Current California law regarding cash back on gift cards went into effect Jan. 1, 2008. That legislation, also authored by Corbett, has been a success, the senator said in a statement. "This program has been working so well over the past few years that we thought it was important to introduce a bill that would allow even more help to our consumers," Corbett said. The additional money may make the difference in keeping families afloat, she added.

According to Corbett, in the United States $5 billion of the $87 billion loaded onto gift cards annually goes unspent. Years down the line, companies can claim those unspent funds as profit "without even supplying a product," she said. Therefore, Corbett said, consumers are making unsolicited donations to retailers. By upping the cash back limit, Corbett believes the new proposal would "return power to consumers."

Setting limits

Michelle Jun, Staff Attorney at Consumers Union, the nonprofit publisher of Consumer Reports, agrees with Corbett. "For the most part, when the dollar amounts get lower and lower on gift cards, it becomes increasingly more difficult for the consumer to obtain the remaining funds on that gift card," she said. "It's just another way for consumers to get back the value on that gift card."

But Bill Dombrowski, President of the California Retailers Association, believes raising the cash back limit would fundamentally alter the definition of a closed-loop gift card.

"The gift card is supposed to be what it says it is: a gift card," he said. "It's not a cash instrument. The higher you make this limit, the more tempting it is for people to use it as a cash vehicle. So, with a $20 limit, it starts to get awful tempting for people to start using it as a free cash loan.

"Go out and buy a couple thousand dollars worth of gift cards, redeem them right away and don't pay it off 'til the end of the month. Better yet, put it on a rewards card and get some cash back for also doing it. So there's all sorts of fraud implications on this thing, and it's just the start."

Additionally, Dombrowski believes SB 885, if enacted, would deny consumers choice in gift card purchasing. "What you're doing is getting into dangerous territory where retailers will decide it's not worth it to even offer gift cards," he said. When the initial bill - SB 250 - was being debated in 2007, Dombrowski said that Corbett originally wanted the $20 cash-back limit and that CAA "reluctantly" went along with the $10 limit. Dombrowski considers SB 885 to be ill-timed, with the association's constituents still implementing the original $10 cash-back limit and studying how it affects California retailers.

For more stories from SellingPrepaid E-Magazine, as well as breaking news and forums devoted to the prepaid sphere, please visit greensheet.com. end of article

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