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What about those gift cards? Billions of dollars of cards go unused

Buying just the right gift for a family member or friend can be a challenge. That may be one reason gift card sales are soaring in the U.S.

In 1999, $19 billion in gift cards were sold,according to WalletHub statistics. That number increased to $130 billion by 2015 and is projected to reach $160 billion this year. Though sometimes seen as impersonal, gift cards have entrenched themselves in American society.

These statistics seem to hold for Minnesota, as well.

"I think what we see on the national level is about what we see in Minnesota," said Bruce Nustad, president of the Minnesota Retailers Association. "I think our sales of gift cards are indicative of the national trends."

Businesses are pleased with the gift card market because 85 percent of card users redeem their cards within 60 days of receiving them and typically spend 34 percent over the amount of the card face value.

"In the last 10-15 years, I think we have seen retailers embrace gift cards more," Nustad added. "One reason is that if a customer has a $50 gift card, they might spend $75, and in their mind, they are thinking they are only spending $25."

Some companies have found that providing gift cards as a reward is more effective than offering a discount, which may be seen as just an attempt to sell more products.

Some $41 billion is unused

One question that frequently arises is how many of those cards go unused? Known as spillage or breakage in the gift card industry, the unspent money from gift cards, while still in the billions, has actually declined in the last decade.

WalletHub reported that spillage was estimated at $8.2 billion in 2007. By 2009, that number dropped to $5.2 billion and to $2.2 billion the following year. One cause of the decline may be the CARD Act—Card Accountability, Responsibility, and Disclosure—passed in May 2009.

Prior to 2009, companies were allowed to charge fees or institute penalties on unused gift cards. This law, among other things, stated that gift cards could not expire less than five years from the date of purchase or the last date that funds were loaded into the card, whichever was later. Recipients could hold cards until they decided what they wanted to buy or the item they wanted was available.

Even though the decline in spillage is good news, at least $41 billion in unused gift cards have accumulated since 2005, according to ABC News. That's a lot of money thrown away by American consumers.

"We generally advise people to use gift cards as soon as they can rather than stashing them away in a drawer or something," said Dan Hendrickson, the former communications director for the Better Business Bureau of Minnesota and North Dakota. He noted that people are more likely to use cards soon if the cards are from restaurants, coffee shops or retailers they frequent.

State laws affect gift cards

State governments have also addressed the amount of money sitting in unused cards. According to the Associated Press, at least 30 states have enacted escheat laws that allow them to treat gift card spillage as unclaimed property after the cards expire. This means businesses must record unused gift card sales and eventually turn that money over to the state if the law requires.

"Each state has different laws regarding gift cards," said Dan McElroy, president and CEO of Hospitality Minnesota. "It is difficult to make comparisons because the numbers may vary across jurisdictions."

Wisconsin, for example, follows the CARD Act.

McElroy noted that gift cards have no expiration date in Minnesota. "We have no escheatment law for gift cards so unused cards are not treated as unclaimed property."

Minnesota Statute 325G.53 states "It is unlawful for any person or entity to sell a gift certificate that is subject to an expiration date or a service fee of any kind, including, but not limited to, a service fee for dormancy."

That law does have a few exceptions, and the website for the Office of Minnesota Attorney General Lori Swanson notes that cards issued by a bank or those given as promotions, incentives, rebates, or in recognition of services performed may be permitted to impose expiration dates and fees.

Hospitality Minnesota does not track gift card sales in the state, McElroy said. It is too difficult, because at the point of sale, "gift cards look like cash."

Patty Brown, executive director of the Red Wing Chamber of Commerce, said her organization is unable to track gift card sales and usage locally, but it does track the use of Chamber Bucks, certificates which can be spent at the business of any member of the Chamber of Commerce.

"They work like gift cards," Brown said. "They are very popular and, in 2017, we sold $113,365."

The Chamber doesn't track unused Chamber Bucks because they have no expiration date, so they can be used at any time, according to Brown.

Why gift cards go unused

There are many reasons for spillage. According to The Wall Street Journal, nearly 10 percent of all gift cards end up hiding in a wallet, the bottom of a clothing drawer, or in a trash can. Other cards get partially used with the excess being forgotten.

"I think one of the biggest issues right now with gift cards is restaurants, tanning salons or other retailers closing unexpectedly," Hendrickson said. "It seems like there's a flurry of that going on."

Consumers who own gift cards with a company that goes out of business can file a claim with the company, noted Hendrickson. Those claims would likely be at the bottom of the list of creditors seeking reimbursement. Card holders also could see if other locations in a family or chain would honor the card. That may be more difficult with businesses that operated from a single location.

Some spillage is caused because the owner does not live in a region where the company issuing the card does business. Others possess cards but don't want the services or products available with the card. In those cases, card owners have options.

One would be to donate the card to a charitable or non-profit organization.

A second option would be to sell the card, for a lesser amount, to gift card exchanges such as Cardpool, GiftCards.com or CardCash. For example, Cardpool, founded in 2009, allows customers to buy discounted cards or exchange their cards for others posted on the website. Cardpool verifies the balance of each gift card and only buys and sells gift cards with no fees and no expiration dates. They buy and sell both physical and electronic gift cards.

Gift cards are a preferred gift

While gift cards, now available in paper, plastic, and digital format, are purchased for every holiday, birthdays are the most popular with 60 percent of shoppers stating they planned to buy a card as a present, according to WalletHub. Christmas followed that with 53 percent. Graduation was fifth on the list with 11 percent.

Gift cards appeal not only to buyers but to recipients as well. A recent poll by the National Retail Federation indicated that 59.8 percent of respondents would prefer a gift card as a present, so they could buy exactly what they wanted.

"Gift cards have become more popular with teenagers," Nustad said. "It used to be they wanted a pair of jeans or a drone, now they say, 'Get me a gift card, and I'll figure it out.'"

Know the gift card rules

The Better Business Bureau advises consumers to be aware of federal rules that govern gift card sales. Those rules state:

• An inactivity fee cannot be charged until the card has not been used for 12 months. However, you may be charged to replace a lost or stolen card.

• Gift cards cannot expire for at least five years or five years from the last date additional money was loaded onto the card. No more than one fee (of any kind) can be charged to the cardholder in a single month.

• The expiration date must be clearly disclosed on the card, and any fees must be disclosed as well. You should also see a toll-free phone number or website where you can get more information.

• A one-time fee can be charged when you buy the card, though this generally only applies to gift cards purchased through your credit card company — not those purchased directly from stores and restaurants.

If you receive a gift card, you should redeem it promptly if, possible, BBB staff advise.

Steve Gardiner

Steve Gardiner taught high school English and journalism for 38 years in Montana and Wyoming.  He started working at the Republican Eagle in May 2018.  He focuses on features and outdoor stories.  

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