Notes on gift card and gift certificates in the state of Washington


Today is the unofficial start of the holiday shopping season. One of my colleagues read the fine print of a gift card he received:

A monthly maintenance fee of $3 applies but is waived for the first twelve months after the card is issued. Thereafter, monthly maintenance fees are waived for an additional three months if the card is used in any given month.

This seems kind of backwards. They charge a maintenance fee if you don't create any work for them. Shouldn't the maintenance fee be charged when you use the card, rather than when you don't?

This "maintenance fee" is really just an "account inactivity fee". The issuer doesn't want to have to deal with the liability and associated risk of having lots of unused gift cards floating around, so they create a mechanism by which unused gift cards slowly lose value until they are worthless.

In the state of Washington, RCW 19.240 has rules governing how certain types of gift cards behave.

Gift cards issued by a bank (typically those branded with a credit card) are the biggest exception not covered by RCW 19.240, however. (Another exception is prepaid phone cards.)

You can read the entire chapter RCW 19.240 for the details on expiration dates (split over 19.240.030, 19.240.050, and 19.240.060), and inactivity fees.

Interesting notes:

  • In order for an inactivity fee to be allowed, a gift card must remain inactive for two years. Furthermore, the remaining balance after the fee must be $5 or less, and the inactivity fee cannot exceed $1 per month.
  • Once an inactivity fee is assessed, you can redeem the gift card for cash.
  • If you make a purchase that consumes only part of the value of a gift card or gift certificate, and the remaining balance is less than $5, you can redeem the balance for cash.
  • Gift cards that were not explicitly purchased (such as those received as part of a loyalty program or other) can have an expiration date.

I learned one way a local company addressed this problem: When my gift card went dormant, they sent me a check for the balance, hoping that I would cash it (hey, who wouldn't?) and thereby retire the liability from their books.

Comments (25)
  1. Doug says:

    How did they know where to send the check? I've never had to provide a name or address to use a gift card.

  2. PB says:

    That's why I like my great state of Minnesota. Several years back, they passed legislation so that gift cards cannot lose value if unused. Out of that spawned a market where people would donate the unused gift card money to charity.

  3. Brian G. says:

    @Doug obviously that company had his address through some mechanism. Maybe he had signed up for a loyalty program and provided it. He didn't say that they required he give his address, just implied that they DID have his address somehow.

  4. Julian says:

    To be honest, I'm not sure why anyone would waste money on a gift card. We already have a perfectly good "gift card" – in the UK they have the queen's picture on one side, and that of a famous historical person on the other! It is also available in denominations from £5 up to £100. Better yet, it is accepted in every shop in the land, and the government will even take it in payment of taxes. I'm sure all other countries have their own local equivalent scheme!

    The main problem though with shop cards, is that if (when?) the issuing business gets into trouble, the holders of gift cards can be left out of pocket, at the bottom of the queue after all the other creditors.

    A possible exception is the long-running book token scheme, as the vouchers were valid in any bookshop, not just the business that sold the card/voucher. This was long a mainstay of elderly relatives wanting to ensure that any money given was used to buy books, and not toys.

    [In U.S. culture, it is considered rude to give cash as a gift. Go figure. -Raymond]
  5. smf says:

    I imagine that they expect a certain number of people will forget to deposit the cheque. Like a lot of people forget to send in for rebates.

    Gift cards are rubbish though, cash is better. It can be spent anywhere and isn't affected by the company going under.

  6. David H says:

    I just checked California's laws regarding gift cards, and they seem much the same. One thing that caught my eye is the requirement that details regarding the dormancy fee be printed on the card in a minimum of 10pt font.

    I just realized this is the first time I've heard of a font-size requirement for fine print.

  7. Muzer says:

    "It is also available in denominations from £5 up to £100."

    There is no £100 note.

    There are, however, £1,000,000 and £100,000,000 notes still used internally by banks.

  8. Nick says:

    @Muzer: 100 million pounds? The largest the US ever made was $100,000. That was good enough for us. The $1000 was the largest in any kind of circulation.

  9. Gabe says:

    I never understood why companies are so eager to get those liabilities off their books. They have my money sitting there in some account, (presumably) earning interest. I'd expect they would prefer that I not spend the money, so they could keep my money longer.

    As for why one would give a gift card instead of cash, there are a few logical reasons: Sometimes you can get them at a discount (e.g. pay $19 for a $20 gift card). In some situations gifts of cash can be taxed (as income), while gift cards cannot. In the case of online stores, you can use it immediately to purchase goods, while cash would have to be deposited and sent to the credit card company.

    [Imagine you write somebody a check with no expiration date and 5 years pass and they haven't cashed it yet. Are you pleased that you are getting 5 years of float? Or are you annoyed that they haven't cashed it and are forcing you hold $100 in reserve just in case they ever cash it? -Raymond]
  10. ray_juped says:

    "I never understood why companies are so eager to get those liabilities off their books."

    It risks bankruptcy (what if one month every customer suddenly uses gift cards instead of paying money?), and the money isn't necessarily sitting in some account earning interest. In fact, it probably isn't, most corporations aren't endowed foundations.

  11. smf says:

    It's also that they factor in that a certain percentage will never redeem their gift cards anyway. Having the money sitting there when the gift card has been destroyed is pretty pointless.

    A gift card says: I don't know you well enough to buy something you'd like, but I remember you rambling on repeatedly about this store. I could have given you cash instead, but as I'm annoyed that I failed to buy you a present I'll make it inconvenient for you to spend the money.

    I had someone buy me one of those experience vouchers once, they then refused to book a date we could both go. So I never ended up using it and they got mad with me.

  12. Muzer says:

    @Nick: Reading Wikipedia to remind myself, it states that they're used by the Bank of England for backing Scottish bank notes – they're certainly never seen publicly (while in England and Wales, only the Bank of England issues notes by law, this never happened in Scotland so they have multiple banks issue different notes). Presumably otherwise the Scottish bank notes could effectively become worthless quite easily or something. I don't know, I never really learnt quite how money works properly in this regard ;)

  13. Kwpolska says:

    > [In U.S. culture, it is considered rude to give cash as a gift. Go figure. -Raymond]

    We in Poland have a nice solution for that.  Polish banknotes contain depictions of kings: http://www.nbp.pl/home.aspx — and so, many people actually use that to tell people what gifts they want (“little kings’ portraits” or “the Polish kings’ fellowship” are some of the most popular terms).

  14. JZ says:

    > Shouldn't the maintenance fee be charged when you use the card, rather than when you don't?

    Another example: in the UK, the quasi-monopoly telecom company BT advertises a low price for residential phone service, say 12 pounds.  This is a service many people don't want or need, but it is a prerequisite for DSL.  They then tell you that the price of the land-line is actually 17 pounds, and that you will get a 5 pound credit each month in which you actually use the telephone.  So if you only use a mobile phone, you pay 5 pounds (US $8) per month to avoid having to buy and use a desk phone.

    Calls from the land-line to BT's own customer service department do not count when calculating whether you earned the credit each month.

  15. GWO says:

    @Muzer : The Royal Bank of Scotland circulates a £100 note http://www.scotbanks.org.uk/banknotes_current_royal_bank_of_scotland.php, as do the two other Scottish issuing banks (Bank of Scotland, Clydesdale Bank).  Good luck trying to use one in Scotland, let alone in England (where even the common Scottish banknotes tend to be looked at with suspicion.)  None of the Scottish banknotes is legal tender, but in Scotland, no banknotes are.

  16. Andrew says:

    smf>I imagine that they expect a certain number of people will forget to deposit the cheque. Like a lot of people forget to send in for rebates.

    This wouldn't save them/make them money, since issued checks that are not cashed have to be turned over to an applicable state under its law of escheat (yes, a real word; escheat ::= abaondoned property).

    [The goal is not saving money. The goal is to reduce exposure by retiring a significant chunk of the outstanding liability. -Raymond]
  17. Mmx says:

    @Julian:

    not only the rudeness thing, for many places; it's also actually "helpful" so that the receiver actually gets a gift for himself/herself.

    If you give someone a videogame shop gift card, you are basically giving them a videogame, leaving the choice of title to them and all the usual gift-benefits are in (like, when playing or later remembering ehi! this is a gift from X, and such). If you give them 50£ you give them some money they will store in the bank or spend to buy diapers for their newborn and nothing for themselves.

  18. Andrew says:

    >[The goal is not saving money. The goal is to reduce exposure by retiring a significant chunk of the outstanding liability. -Raymond]

    Sorry, Raymond, that can't be it. As part of the escheat process the company must turn over the funds to the state to hold for the payee of the check. The issuance of the check doesn't retire the liability–only cashing it does.

    [Right. Reduce exposure by making it easier for people to retire the exposure by cashing the check (instead of trudging into a store and buying something). And as I noted in the article: It worked! I cashed the check. -Raymond]
  19. kog999 says:

    "If you give them 50£ you give them some money they will store in the bank or spend to buy diapers for their newborn and nothing for themselves."

    But what if they really need diapers? Isn't it better to let them decide whats more important to them to spend the 50 on.

    I one of those people who is hard to shop for because i don't really want anything particular. I end up getting a lot of gift cards as a result and due in large part to laziness and not really wanting anything many of them go unused and wasted. If it were cash i would put it in my pocket, or the bank if it were a large enough amount and use it as the need arose.

  20. Ahura Mazda says:

    (split over 19.240.030, 19.240.050, and 19.240.060…).

    Looks like IPv3 :)

  21. Random832 says:

    [In U.S. culture, it is considered rude to give cash as a gift. Go figure. -Raymond]

    I used to wonder why, but then I realized – to borrow a catchphrase from your blog: What if two people did this? Those people would, in effect, not have exchanged gifts with each other at all, or at best one of them would have given a much smaller one.

  22. Nicholas says:

    @Random832: That's smart, I hadn't thought of that.  It seems like that would mean cash for a birthday gift (which I've gotten often as I'm apparently "difficult to shop for") is reasonable, but for gift exchanges such as Christmas it's not such a good idea.

  23. Jonathan says:

    Gift cards really mean "here's some money, and don't use it to buy drugs".

    – A comedian whose name I forget

    I'm also difficult to shop for, and rarely use gift cards I get from work/etc. But I found a great solution for that – giving them to my girlfriend, which can easily consume said cards, earning me some appreciation along the way!

  24. Rick C says:

    Another reason for gift cards is to avoid spoiling the surprise.  Let's say I know you like video games. I could ask you for a list of games ahead of time, but then you'd know what I was likely to get you.  Instead I could get you a gift card for GameStop.  Now you don't know that I'm getting you a video game, unless you know that's the only thing I know you like.  But even then I could get you a Wal-Mart or Amazon card, and if you were suddenly struck by the desire for a book or a t-shirt, you could get that instead.  I'm trading off thoughtfulness for surprise.

  25. engywuck says:

    in germany: gift cards (paid for by another person) generally become void after three years (the general limit on "Verjährung" (limitation of claim(?)) for civil matters), starting with the end of the year they were purchased. In special cases (like a pre-bought sightseeing tour) it can be limited to two or one years, but then you have the right to get the money (minus profit the shop would have had) instead – after the limit is up, of course. Oh, and anybody who shows the card gets what's written on it, even when a different name is noted on the card.

    @Rick C: this only works for "money-giftcards". There are also gift cards like "one massage at beauty parlor X" or "city tour in vienna for two". So you can't buy a book instead.

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