New law prohibits gift card depreciation

Gift cards can no longer depreciate with dormancy, nor will they carry expiration dates. EDITOR’S NOTE: This is the second article in a series that looks at how new Minnesota laws affect the University.

Liz Riggs

It’s happened to everyone.

You get a gift card to a store you never visit from someone who either doesn’t know you very well or hasn’t kept up with your tastes.

And by the time you find occasion to visit the retailer or restaurant for which the card has been issued, sometimes six months or a year later, the card has either decreased in value, or expired altogether.

Under a new law that took effect just more than three months ago, businesses in Minnesota can no longer sell gift cards with expiration dates or dormancy fees – fees for nonuse – something many were doing in the past.

Rep. Joe Atkins, DFL-Inver Grove Heights, the chief author of the legislation, said the law is about ensuring basic consumer protections.

“Essentially, these are the gifts that can keep on giving or the gifts that could keep on taking,” Atkins said.

Atkins likened expiration dates and nonuse fees on gift cards to the “Grinch that stole Christmas,” and said his intent in sponsoring the legislation was “just trying to give people what was paid for.”

The law is not retroactive, however, so it applies to gift cards and certificates issued after Aug. 1 of this year.

He said one reason similar legislation died in the House in past years was because retailers claimed expiration dates were necessary to get liabilities off their books.

After some research, Atkins said it was discovered that at the two-year mark, according to the IRS and standard accounting principles, unredeemed gift cards are no longer considered a liability to the businesses that issued them.

“It was just a windfall (for the businesses),” Atkins said. “That didn’t seem fair.”

Sen. Katie Sieben, DFL-Newport, who authored the Senate version of the bill, said at the time Minnesota passed its gift card legislation, there were 29 other states that had similar laws limiting dormancy fees or expiration dates – most not as stringent as what was passed in Minnesota.

Sieben said, to her knowledge, California bans expiration dates but does not have any laws against dormancy fees.

Sieben said the issue came to her attention in 2006 when she read an article citing research from TowerGroup, a financial services industry research and consulting firm, that said of the $80 billion spent on gift cards annually, almost 10 percent of that amount is never redeemed.

Recalling her days as a college student, Sieben said gift cards were a popular graduation and holiday present, especially for those living away from home.

“It would seem to me to be advantageous for college students especially,” Sieben said about the new law, although she said she doesn’t have any firm information that college students buy or receive gift cards more than other segments of the population.

Eric Shin, who owns Heavenly Daze Coffee House on Washington Avenue, said in the past his business typically set a one-year limit on gift certificates.

“I feel like there needs to be some type of an expiration date on them,” said Shin, whose gift certificates are often issued for around $5. “It’s like money in your pocket not being spent,” he said.

He said having an expiration date on a gift certificate can also offer protection for consumers.

If a customer waits too long to use a gift card, they can’t always be assured that a retailer will still be in business.

The new law did not impact major retailers like Target or Best Buy, both of which said they did not previously have expiration dates or non-use fees on their cards.

Quiznos is one area business affected by the legislation.

According to its corporate Web site, Quiznos charges a $1 monthly fee on all gift cards after 24 months of nonuse, unless prohibited by law.

Geography and political science student Hannah Heidt is happy about the new law.

“I think if you buy a gift card for $20 you should be able to use that regardless of when you decide to use it,” Heidt said. ” ‘Cause God knows that I have some Old Navy cards kicking around from several Christmases ago.”