Varying state laws on gift cards unwelcome surprise for bearers

AUGUSTA – Gift cards are now among the top five gifts given for Christmas in the United States, but few recipients are aware the cards could lose their purchasing power entirely by next Christmas.

An estimated $17 billion-plus in cards were sold during the holidays last year, according to the National Retail Federation, or about 8 percent of all retail business in the country. Over all of 2003, the total value of the cards was projected to hit $45 billion.

But unlike credit cards, gift cards are not regulated in some states, and in states that do have consumer protection provisions, the laws vary widely.

“Hidden fees are illegal here,” Maine State Treasurer Dale McCormick said last week, “but the law that matters is the law in the state where the card was sold.”

As a result, she said, that gift card you received from a relative in another state for $25 in merchandise at a national bookstore chain could start losing its value in the spring, and be worthless by next Christmas.

“But the cards you buy and send to someone in another state are under our laws,” she said. “Those consumers are protected by our law.”

Gift cards and gift certificates are regulated in Maine under the Treasurer’s Office. If the cards or certificates are not used within three years, they are considered abandoned property and must be reported to the state treasurer. If the Treasurer’s Office cannot find the owner, the cash represented by the face value of the card or certificate goes into the state treasury.

“We get all kinds of complaints,” Bonnie Delano, who coordinates the treasurer’s effort to find the owners of unclaimed property, said last week. “People have gift cards that run out because of the fees charged by some stores, and a big area of complaints is gift certificates to restaurants.”

While the gifts are similar, they are regulated differently. Both are what are called “bearer instruments” in the law, which means if you have a card or certificate to a store or restaurant, you own it and can spend it.

“In Maine, a gift certificate is good even if the restaurant or store puts an expiration date on the certificate,” Delano said. “I can tell you they don’t like that, they want to keep the money, even though they provided nothing to the consumer.”

Treasurer McCormick had a personal experience with gift certificates. Her children had received a certificate as a gift purchased at a national chain video store. When they went to use the certificate, the store said it was no longer valid because its value had been “used up” by fees assessed because the certificate had not been used.

“I can tell you I was some unhappy,” she said, “and I know I am not alone in having something like this happen.”

Last year, McCormick was president of the National Association of Abandoned Property Administrators, and the problem of gift cards and gift certificates was a major topic discussed by the members across the country. She said there are no uniform standards and that has resulted in problems for consumers nationwide.

“You ask why Congress does not do something,” she said. “I am concerned if they did it would not be to help consumers. I would rather have consumers in Maine have some protection.”

The problems range from fees for not using the cards fast enough to getting a replacement for a card that is damaged, lost or stolen. And there is the pesky problem of what to do about the last few dollars or cents left on a card.

No one can say with certainty how much cash is left unused on gift cards, but industry experts estimate it is between 10 percent and 15 percent of the original value.

The problem grows more complicated as the popularity of gift cards grows. For example, gift cards that malls sell that can be redeemed at any store in the mall are regulated under a different set of laws in Maine as well as in many other states.

“Because they can be used at many retailers, the law looks upon them differently,” Will Lund, Maine’s superintendent of Consumer Credit Protection, said last week. “Those types of cards are under this office.”

Lund said fees are allowed to be charged if they are disclosed and are not “unconscionable,” a term used in consumer credit laws for several decades.

“To my mind, a dormancy charge that kicked in after one month or two months or even six months could or would be considered unconscionable,” he said.

He said the size of the fee also would have to pass the “unconscionable” test. He said if a card had a value of $40 and had a $10 a month dormancy fee, that would fail the test and not be legal.

But often, Delano said, it is not clear-cut. She said one young man called with a complaint about gift cards he had received from a national chain store that totaled $500. The cards were mostly of $50 denominations and one card was worth $100. That is, he thought they were worth that much when he had received them as a present two years ago.

“He was told there was no value left on the $50 cards, “she said, “and not much left on the $100 card. It was almost all eaten up by fees.”

Delano said the cards disclosed the fees on the back of the cards and there was nothing she could do to help the young man get back any of his money.

“A lot of people just don’t understand how complex this can be, “she said. “They need to look at those cards they got at Christmas and make sure they use them before it’s too late.”