Washington Retail Insight

New Jersey Postpones Gift Card Escheatment Law

By J. Craig Shearman
Washington Retail Insight
September 2, 2010

New Jersey officials have postponed deadlines for a controversial new law that would place gift cards under the state’s unclaimed property law and seek to sweep tens of millions of dollars into the state treasury even if the cards had not expired.

A requirement for retailers to collect the names and addresses of gift card buyers has been pushed back from September 1 to October 1, and the deadline for actual escheatment of unused gift card balances has been delayed until November 1.

The postponement was announced after the New Jersey Retail Merchants Association led Garden State storeowners in arguing that the measure is anti-consumer, anti-business and constitutionally suspect under U.S. Supreme Court rulings on escheatment law.

NJRMA is continuing to work with the office of Governor Christopher Christie in an attempt to have the law repealed or amended, and is also looking at a possible legal challenge.

The gift card requirement was adopted as part of legislation enacted this summer intended to help close the state’s budget shortfall by shortening the time it takes the state to claim unused money orders and travelers checks. State Treasurer Andrew Eristoff told an Assembly committee this spring that he expected to collect $85 million in the upcoming fiscal year under the law, but did not break out how much of the total would come from gift cards.

Under the law, retailers would be required to collect the names and addresses of gift card purchasers along with the amount of each card. After two years, the value of any unused cards would be automatically transferred to the state, along with unused balance on partially used cards. Card issuers would be prohibited from charging dormancy fees on the cards during the two-year period. Expiration dates are not addressed, but absence of an expiration date would not provide a safe harbor from the escheatment requirement.

The measure would apply both to traditional gift cards issued by retailers, and the “mall cards” and credit card-branded “stored value” cards issued by banks. Cards issued under a promotional program, customer loyalty program or charity program would be exempt, along with those issued by businesses selling less than $250,000 a year in gift cards.

While bank-issued cards often have dormancy fees and expiration dates that can take effect in as little as two years, most gift cards issued by major national retailers no longer have either. NRF is concerned that the new law could have New Jersey making claim to unexpired retail gift cards that consumers have saved and still intend to use.

Retailers could reclaim the money from the state if a customer presents a card after it has been escheated, but the law provides no details on the process for doing so.

NRF led a dozen member retailers and restaurants in a letter to Christie last month asking him to reconsider the law, saying irritated customers could walk away from gift card purchases when asked to provide their names, and that lower gift card sales could lead to reduced tax revenues and job loss.

“At a time when the state of New Jersey should be implementing policies that help retailers and restaurants recover in this weakened economy, (this law) only provides more onerous burdens, uncertainty and audit risk,” the letter said. With the vast majority of gift cards redeemed by purchasers rather than going unused, the New Jersey law “causes tremendous effort and expense for just a very small percent of unredeemed cards,” the letter said.

© 2010 National Retail Federation