Gift cards have grown in popularity over the years as more and more consumers rely on them. In 2011, the transaction volume for the cards in the U.S. was more than $100 billion, according to TowerResearch.
However, between 6% and 10% of the gift cards ultimately go unused. For example, roughly $8 billion went unspent as a result of unused gift cards in 2007. The research group states that about $41 billion has remained unspent since 2005.
Brian Riley, a senior research director at TowerGroup, says that the unused value from the gift cards include values lost after the expiration dates and other fees even though these amounts have decreased since the Card Accountability, Responsibility and Disclosure Act was introduced in 2009.
The financial-consulting firm states that on average, $65 billion dollars is spent in gift cards in America every year, with about $6.8 billion remaining unredeemed.
So, where does the money go?
Although companies and states have set up different regulations, the money usually goes back to the retailers as income. Many of the retailers convert the unused credits from liability accounts to income accounts. Some of them also use the credits to reduce their operating expenses.
In addition, over 30 states have set up regulations stipulating that unused gift cards are regarded as unclaimed property when they expire or after a given timeframe. The regulations, which are known as escheat laws, authorize the states to take part of the profits companies receive from such cards. This helps the states to bolster their revenues, considering rising debt and sinking tax collections.
Since closed-loop cards such as iTunes Gift Cards are under state-level oversight, however, the states can only make such collections from the issuing establishments, such as restaurant and retail gift cards. Open-loop gift cards, such as prepaid Visa cards, are under federal oversight and are regulated based on the issuing body.
In the state of Texas, the gift cards escheat to the State once they expire. In about half of the states, the gift cards are collected after between two and five years. In states like Minnesota, however, gift cards do not expire.
In states where gift cards are collected, retailers and other third-party processors are required to maintain updated databases indicating when cards are issued and used.
According to the National Retail Foundation, retailers are opposed to attempts at giving the states more control over the unredeemed gift cards. This includes efforts to collect gift cards without expiration dates.
However, the states claim that their regulations are meant to help consumers recover their money, as they are better placed to track down and get in touch with the owners of unused gift cards. In 2008, New York State returned about $2,150 to the rightful owners. According to the State Comptroller’s Director of Reporting Operations, Ron Schubin, there is little they can do if the owners are unknown.
Whatever happens to unused gift cards, it is clear that they are popular with consumers and businesses need to take advantage of them.