We've warned you plenty of times about issuers' terms, conditions and requirements that can eat away at the balances on your prepaid cash or gift cards. Now, this article from the Times-Union newspaper in Albany, NY, highlights yet another threat to your unused gift-card balances: New York and a growing number of other states will take the money on them if they go unused for five years.
How do they do this? New York and other states have dug up an old law referring to a practice called "escheatment," the article says. This is the law that lets a state claim abandoned property. Now, you might think of abandoned property in terms of deserted buildings and junked cars, but New York puts that gift card sitting at the bottom of your drawer in that category, too.
The Times-Union says New York collects an average of $3.8 million a year in unclaimed gift-card money. It's almost impossible to get that money back once it's gone, since gift cards generally don't identify the user (unlike a credit card that has a name printed on the front).
In this age of credit-card reform, retailers are often at loggerheads with government agencies seeking to regulate them, but this outrage makes for some unlikely bed mates: Both consumer advocacy groups and the retail industry's main trade group are furious at states who scoop up dormant gift-card revenue. Keep in mind, though, the industry's fury is a bit self-serving; after all, if you don't use a gift card, they keep that money if the state doesn't take it.
This post from a blog dealing with unclaimed property issues points out that New Yorkers actually have it pretty good, all things considered. California passed a law earlier this year that shortens the time frame in which the state can claim your unused gift card to three years, and the post cites several other examples of states modifying their escheatment laws to more quickly get their hands on gift-card moolah to help balance their recession-damaged budgets.
The Federal Reserve recently took up this issue. In a proposal last month, they limit the application of dormancy fees and penalties. Unfortunately, they don't eliminate states' power to snatch your unused gift cards, but they propose a five-year grace period (the same as what New York currently has) before a state can decide that the gift card you've forgotten about is unclaimed property.
Bottom line? If someone gives you a gift card this holiday season, view it as a use-it-or-lose-it opportunity and stash it away at your peril. You might forget about it, but the state won't.
Grab bag: States take unclaimed gift-card money