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Gift Cards and Bankruptcy
By David Lawrence
Gift cards have become a major way of giving gifts - birthday gifts, teacher gifts and especially holiday gifts. However, few people realize that if the retailer who issued the gift card goes bankrupt the card holders are out of luck. United States federal law allows companies to stop accepting gift cards as soon as they file for bankruptcy. The companies are not required to stop - but the bankruptcy courts will allow it. Gift card holders can file claims in the bankruptcy settlement - but that is going to be a lot of paperwork for a gift card and typically a delay in receiving any money. In 2008 Bombay won approval from the bankruptcy court to pay off gift card holders at 25 cents on the dollar. So a $100 gift card would yield the owner just $25.00. And that's only if the consumer heard about the settlement and knew how to claim their money. American Express, MasterCard, Discover and Visa — the major card issuers - also offer gift cards. These cards can be used anywhere that these credit cards are accepted thus there is little risk of being impacted by bankruptcy. However, these gift credit cards typically have expiration dates and come with activation fees. So a $25.00 gift card might cost the purchases $28.99. Less risk - more cost is a traditional financial trade-off. Efforts are underway to protect consumers - but nothing is expected soon. Consumers Union is in the lead on this effort along with several other consumer groups. In 2008 they petitioned the Federal Trade Commission to improve consumer protections for gift card holders. The groups asked the FTC to require retailers to segregate funds from gift card sales in a trust account, and use that money to honor gift cards as long as the stores remained open. |
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May, 2012
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