State lawmakers in Washington continue to push legislation regarding escheatment and breakage in gift cards.
As reported by KIRO in Seattle, two state senators announced plans to introduce legislation to escheat unused funds after a three year period:
“Sen. Yasmin Trudeau and Rep. Emily Alvarado highlighted the pressing need for reforms in state laws governing gift cards and mobile app funds. According to Trudeau, ‘We don’t buy gift cards expecting a large corporation is going to find ways to keep as much money as they can—that’s what we are here to address.’”
The potential legislation conflates three separate issues: expiration dates, breakage, and escheatment. The primary issue remains that despite the senators’ statements, gift card balances technically will never expire and will be honored even after the three- or five- year period that many companies use to account for unused funds. As is clearly stated in Amazon’s gift card terms and conditions, with specific mention of Washinton, for example:
“The portion of your Amazon.com Balance made up of Gift Cards issued after October 1, 2005 does not expire and may be applied to your Amazon.com account and applied to eligible purchases despite any stated expiration date. Expiration dates also do not apply for the portion of your Amazon.com Balance made up of any Gift Cards issued prior to October 1, 2005 in CA, CT, LA, ME, MD, MA, MT, NH, ND, OK, RI, VT, WA, or in any other jurisdiction solely to the extent prohibited or limited by law.”
Applying Breakage Rules
This brings up the issue of breakage. Retailers utilize breakage as an accounting function when dealing with gift cards to resolve the outstanding liability on their balance sheets. The monies already in the organizations’ coffers move from liability to asset. This does not remove the obligation of a retailer to honor the gift card balance at a later date, which would just reduce the amount of recognized revenue in later years if breakage had already been applied. Breakage also allows the merchant to offset the costs of supplying gift cards, inclusive of technology investments, discounting, commissions, and other fees required to properly administer a successful program.
In addition, the issue of breakage and unused funds continues to be a minor issue, with retailers constantly engaging customers to use cards and customers’ behavior showing quick redemption of the majority of gift cards. This was highlighted in Javelin’s recent report, Unused Value in Prepaid Cards: Breaking the Misconceptions.
The Challenge of Returning Unused Funds
The final unique issue revolves around escheatment of unused funds. States escheating gift card funds generally pocket these funds. The vast majority of gift cards are sold as anonymous purchases, with no known holder of the card. This makes the return of unused funds a relative impossibility.
As such, the law would only transfer the unspent funds from the organizations that support and maintain the costs of gift cards to state reserves. The notion that taking these funds away from companies and returning it to the owners remains a clear misreading of the total gift card landscape that legislative action cannot solve.