For optimal user experience, please upgrade your browser.
Public Policy

Why companies are pulling gift cards off the shelves in New Jersey

Floating Widget

Floating Item Container

Floating Rate Widget

Please Select
Your Rating

Gift cards have been one of retailers’ most popular items for many years now, and sales continue to grow every year. But a controversial new law in one state is threatening to make it so difficult to sell a gift card that some major players are pulling out and local retailers are afraid a “domino effect” will follow.

The state is New Jersey and the new law would require retailers to collect zip codes from card purchasers and turn over unused balances after two years.

The moved to seize unused balances as “unclaimed property” is controversial but not unusual – a number of states have similar laws. But the requirement to collect zip codes is a new twist. States have long disputed who has the right to claim unused funds – the state where a card was sold, the state where the seller is incorporated, the state where the buyer lives or the state where the recipient of the card lives, for example. By using the zip code to identify where buyers live, New Jersey argues that it has jurisdiction over cards sold to its residents.

All of that means headaches for retailers who want to keep selling gift cards, who will be forced to spend millions of dollars to upgrade point-of-sale equipment to be able to record zip codes, retrain clerks to ask for the numbers, and set up systems to securely store the data. And even after doing all of that, retailers are concerned that some customers in today’s privacy-conscious world will refuse to give their zip codes or give false numbers.

Merchants who don’t comply face penalties of $200 a day up to $100,000. And the law isn’t clear on whether those penalties apply per company, per store or per card, potentially exposing a retailer to millions of dollars in fines.

As a result, American Express said earlier this month that it could not guarantee that third parties handling its cards would be able to comply with the zip code requirement and pulled cards from New Jersey store shelves. Blackhawk Network and InComm, which together distribute more than 175 brands of gift cards to more than 3,800 retail locations in New Jersey, said they would remove their cards in June.

The New Jersey Treasury Department says it wants to claim unused funds so the money can be returned to consumers rather than be kept by card issuers. But Blackhawk and InComm said the law isn’t necessary. Under federal law, gift cards cannot expire in less than five years, and most major gift cards no longer have expiration dates.

New Jersey Retail Merchants Association President John Holub says a number of retailers are considering pulling their cards and that he is “fearful that it’s going to be a significant domino effect.” Holub’s group filed a federal lawsuit that succeeded in having some portions of the law thrown out but the zip code provision was upheld and an injunction blocking it from being enforced was recently lifted.

The zip code issue is confined to New Jersey at the moment. But some legal experts are concerned that it could spread to other states if New Jersey’s argument that is constitutes a valid claim on gift card balances holds up. And that could lead to yet another problem – some states prohibit collection of customer zip codes as a violation of privacy laws.