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by Jennifer Marble 0

In a swipe at gift cards, ABC News reports that “Borders Gift Card Holders Left With Squat” despite being warned that they should redeem their cards:

A judge ruled on Wednesday that customers who hold $210.5 million in gift cards from the defunct Borders chain aren’t eligible for refunds.

About 17.7 million gift cards were outstanding when Borders began liquidating its stores in July 2011 after failing to attract offers for the company.

As many of the commenters on the article noted, gift card holders knew that the store was headed for closer and had time to redeem their cards. The company filed for Chapter 11 Bankruptcy protection in February 2011. It announced in July 2011 that it would close all of its stores by Sept. 30, 2011.

In an e-mail on July 21, 2011, Borders CEO Mike Edwards told members of the company’s loyalty program that the store would go out of business, and their rewards points should be used by the end of the month, and that gift cards would be honored at the liquidation sales.

What more did gift card holders need to know? They had seven months from the time Borders first filed bankruptcy to redeem their cards, and then nearly two months from the time the liquidation was announced. The news of the closing was not an obscure event.

According to the article, the plaintiffs in the case seem to be disappointed that they couldn’t use their Borders gift cards to buy things at Barnes and Noble.
The three plaintiffs sought legal representation at the end of 2011, after they discovered Barnes and Noble would not honor Borders gift cards. Barnes and Noble acquired some of Borders’ assets including its brand trademarks and their customer list.

The treatment of gift cards by bankruptcy courts has been inconsistent, but so far no one has expected another company to honor its rivals’ gift cards. Some have treated each cardholder as an individual creditor, which greatly reduces the odds of cardholders receiving anything. And of course, in Bankruptcies, creditors are typically paid only a fraction of what they are owed, which brings up the question, why would anyone want to hold out for a fraction of the value when they could redeem the card for the full value?

The plaintiffs have said they will appeal, which could cause headaches for the gift card industry, but the characterization by ABC News is grossly unfair. The headline should perhaps read: “Court Says Oblivious and Greedy Gift Card Holders Should Have Paid Attention.”

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here to read more from ABC News. Click here to download Mercator Advisory Group’s 2011 Viewpoint about the Borders Bankruptcy.