Many holders don’t understand the intricacies of reporting stored value cards, payroll cards, reloadable cards and gift certificates. It’s not surprising. Due to advances in technology, this property category is getting more attention. Requirements constantly evolve. Reporting unused balances (breakage) of gift cards can be quite complex.
Challenges of reporting unclaimed gift card value
Gift Card Challenge #1:
54 unclaimed property reporting jurisdictions
Holders of all unclaimed property must navigate laws in every state and territory. Nearly every jurisdiction's laws include verbiage related to gift cards, stored value cards or gift certificates. More than 30 states offer specific gift-card-related exemptions.
Gift Card Challenge #2:
Who is the gift card owner and holder, and who should have the right to benefit from unredeemed balances?
Gift cards are purchased by one person and given to another. Which is the legal owner? When a third-party administrator processes gift cards, should breakage be held and reported by administrator or issuer? (Hint: It depends on your contract.) Some breakage is never redeemed and ends up being a source of income for companies. Is it fair that states take away this benefit, when many cards are never fully redeemed and companies are faithfully honoring card agreements? Heightened focus on the gift card industry and shrinking dormancy periods further erode this benefit.
Gift Card Challenge #3:
Gift card data management is complicated
Where should card data reside, including documentation of numerous ongoing transactions when owners redeem and reload funds? Administration and legal issues vary depending on whether data is held and managed in-house or with a third-party administrator. The challenges include technical analysis of each card to determine its current position. Multiply that by the many thousands of cards some companies hold, and administration becomes highly complex and potentially financially prohibitive. (Proper guidance and data analysis of a gift card portfolio can help.)
Gift Card Challenge #4:
Not your normal unclaimed property
In general, gift cards can be treated similarly to other types of property. In some ways, however, they are a property unto themselves that requires special handling. Due diligence is difficult or impossible without customer information. For companies issuing tens of thousands of cards each year, documentation, monitoring, and compliance reporting can be extremely challenging.
These challenges only touch the surface of gift card escheatment complexity. Through ongoing industry discussion, audits, legislative debate and litigation, the industry will continue to fine tune laws, so holders will achieve more clarity.
Until then, stored value card issuers should comply as best they can and set up policies and procedures to accommodate unclaimed property reporting. Here’s a start:
3 steps to establish gift card escheatment processes
If you issue gift cards and you haven’t been concerned with escheating gift card breakage up to now, it’s time to insert it into your company’s unclaimed property processes. The best way to begin is to build a specific administrative framework to manage it.
Put a person or team in charge of gift card reporting.
Many companies don’t have one person or team overseeing unclaimed property reporting specifically for gift cards. Assign a project leader with the skills and background to understand complex gift card laws and issues. A focused project leader can guide the process, work with professional advisors, stay on top of issues and legislation, and initiate and lead action when needed.
Compare internal card issuing policies with unclaimed property laws.
Your team must clearly understand the laws of the 54 jurisdictions and how they affect the way your company processes gift cards and handles breakage. Your unclaimed property advisor can help or take responsibility for the entire process. Look for points where internal practices conflict with laws, as well as processes that lead to breakage being defined as escheatable in the first place.
Set up compliance processes and consider changes in gift card practices.
Identify internal changes necessary for compliance. You or your third-party processor might set up a system for gathering purchaser information (which also could assist your marketing department). If this will create a financial hardship due to the number of cards you issue, your company might have difficult decisions to make. In addition, you can change certain practices to minimize escheatment. Legal exemptions can easily reduce reportable amounts (to learn more, ask us).
Again, these steps provide only a peek at the complexity of this type of unclaimed property, but it's a great place to begin thinking how your company can conquer compliance with gift-card-related unclaimed property laws.