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The Green Sheet Online Edition

January 14, 2008 • Issue 08:01:01

California chomps on gift card leftovers

On Jan. 1, 2008, California Senate Bill 250 went into effect. The bill requires merchants to reimburse consumers for the unused remainder of gift cards with a balance of $10 or less.

SB 250, sponsored by Sen. Ellen Corbett, D-San Leandro, and signed into law by Gov. Arnold Schwarzenegger on Oct. 13, 2007, applies to private label gift cards sold after Jan.1, 1997. It affects cards issued by retailers such as Barnes & Noble Inc., Best Buy Co. Inc. and Wal-Mart Stores Inc.

Network branded cards issued by Visa Inc, MasterCard Worldwide, American Express Co and Discover Financial Services, with the requisite card Association logo on them, are not beholden to the California law since card networks fall under federal statutes.

SB 250 amends Section 1749.5 of the California Civil Code, adding the $10 redemption provision to language that forbids expiration dates on certain types of gift cards sold in California.

"This was a straightforward bill that made sense for consumers," said Sen. Corbett in October 2007. "Last year, $8.2 billion went unspent in gift cards." According to Corbett, between 2005 and 2006, Home Depot U.S.A. Inc. and Best Buy Co. Inc. claimed $43 million each in unredeemed gift card amounts.

Limited Brands (makers of Victoria's Secret lingerie) pocketed $30 million, while Nordstrom Inc. made an $8 million profit and Michaels Stores Inc. made $7 million.

Darby Kernan, Deputy Chief of Staff for Sen. Corbett, said SB 250 is "the strictest in the nation" in imposing its $10 threshold on the redemption of unused gift cards, favoring consumers over retailers.

Policies regarding unredeemed gift cards vary from state to state. According to Kernan, Montana and Washington state impose a $5 maximum amount on gift cards that can be redeemed for cash, and Vermont allows consumers to cash out gift cards when only $1 is left on the card.

In SB 250, an unredeemed gift card is any private label gift card purchased after Jan. 1, 1997. The individual purchaser, not the retailer, controls if and when the gift card will be redeemed. In California, there are no expiration dates on gift cards.

Kernan does not believe California retailers will be upset at the new law. Kernan stated that the original unused amount written into the bill was $20.

Retailers balked at that amount but were content with the reduction to the $10 limit. Every state has laws regarding unclaimed property, called escheatment laws, whereby funds from unused bank accounts, unclaimed safety-deposit boxes and uncashed checks go into state coffers.

In recent years, the rising popularity of gift cards has made state treasurers revisit state escheat laws because of the huge revenue involved in the unclaimed amounts of gift cards for merchants. Industry experts say California is seen as a bellweather state for trends affecting the payments industry. end of article

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