Florida Consumer E-Newsletter
December 2008
Charles H. Bronson
Commissioner
A Message from the Commissioner
Dear Friends:
The joy of the holiday season is once again upon us and the number of shopping days which remain are quickly dwindling. Based on recent data, retailers might surmise that consumers would lean towards the purchase of gift cards at such a late date. After all, gift card sales for the 2007 holiday season topped $26.3 billion, which represented a 42% increase over the 2005 season.
Unfortunately, this year may prove to be a bit unique as the U.S. is in the midst of one of the longest recessions since World War II. With a staggering number of retail bankruptcies and liquidations transpiring nationwide, savvy consumers are being forced to consider how a card’s value might be affected in the event a company should fail or seek protection from creditors. Many who recently received gift cards are rushing to use them before similar circumstances diminish the worth of the gift they have received.
In this issue of the Florida Consumer E-Newsletter, we have compiled some key information regarding gift cards. We at the Florida Department of Agriculture and Consumer Services would like to wish you happy holidays and a prosperous new year. Remember, we’re here for you - our Consumer Hotline will answer any consumer related questions you may have or direct you to the best resource for assistance. If you are calling within Florida simply dial 1-800-HELP-FLA (435-7352), outside of Florida 850-488-2221 or en Español 1-800-FL-AYUDA (352-9832). You can also visit us online at www.800helpfla.com for additional consumer information.
Sincerely,
What is “Breakage”? “Breakage” is a term used to describe a loss in monetary value of a gift card due to unredeemed value, expiration, loss of the card, or bankruptcy of the issuer. Both traditional retail gift cards and bank gift cards (those which carry the logo of American Express, Discover, MasterCard, or Visa, and are accepted where those brands of credit, debit, or charge cards are) are susceptible to this phenomenon. It has been estimated that over $8 billion/year is lost due to gift card breakage. Incredibly, this amount represents double the $3.5 billion annually estimated to be lost from debit and credit card fraud. In 2007, the Florida Legislature passed a new law, Section 501.95, Florida Statutes, which requires that gift cards sold or issued to Florida consumers shall not have an expiration date, expiration period, or any post-sale charge or fee. Approximately 30 states have enacted similar legislation, signifying a growing concern about the effects of gift card “breakage” on their populace.
What happens when a retailer goes bankrupt? It is extremely important for consumers to realize that there is a risk that they might not obtain the full value of their gift cards if a retailer files for bankruptcy or goes out of business. Small operations, such as your local tanning salon or restaurants that are not a part of a chain, are most vulnerable to economic downturns and pose the biggest risk to consumers. When a large retailer or national chain files for bankruptcy protection, millions of dollars may be lost on unused gift cards. Bankrupt retailers may not even have a choice when it comes to honoring the cards. Sometimes they simply can’t afford it and other times the bankruptcy court may not allow them to do so. Bankruptcy Courts look at gift cards as unsecured debt, which means the consumer is not necessarily going to get paid. However, when a store closes in your area, don’t immediately assume that a gift card is worthless. Many times the company may still be in business and you can use the card online or at an alternate location. In September of this year, a coalition of consumer advocacy groups petitioned the Federal Trade Commission (FTC) to protect shoppers from losing money on gift cards when retailers file for bankruptcy. The petition asked that retailers be required to place money from gift card sales in a trust account that would be used to honor the cards if the merchants continued to operate under the protection of the Bankruptcy Court. The FTC is carefully studying the magnitude of these issues before fully responding to the petition. Currently, when a retailer files for bankruptcy and is not honoring gift cards, consumers must file a claim (usually within 90 days of the bankruptcy filing) and get in line with all the other creditors. Information on filing a claim is available online at www.uscourts.gov.
Advice?!?!? Do some research before purchasing a gift card from your favorite retailer or local financial institution. Check the company’s website, including its shareholder pages and press releases. Do a Google search of the issuer’s name with such words as “financial trouble” or “bankruptcy.” If you have any doubt about which gifts card to buy, remember that cash is universally accepted and will make your gift recipient equally as happy.
Additional Resources
|
|---|
The links below are for your information only. The goal of the Division of Consumer Services is to provide additional information to consumers. The Florida Department of Agriculture and Consumer Services does not review or confirm these sites for accuracy.
Federal Trade Commission
Shopping for gifts can be a real dilemma. Just what do you get your finicky Aunt Mary, your co-worker, or your child’s babysitter? Gift cards may be the answer: one size fits all, and the recipients can get exactly what they want from a retailer or restaurant.
Federal Trade Commission
The Federal Trade Commission tells consumers that gift cards, whether purchased from a retailer or a financial institution, may come with strings attached.
Federal Trade Commission
Consumers are projected to spend $25 billion on gift cards in the 2006 holiday season. The Federal Trade Commission tells consumers that gift cards, whether purchased from a retailer, a restaurant, or a financial institution, may come with strings attached.
