Playing Chicken With Gift Cards in New Jersey

by Ben Jackson 0

The future of the New Jersey gift card law that would requireretailers to collect zip codes from gift card buyers and escheatunused balances to the state seems to have deteriorated into a gameof chicken. On one side are retailers and other industry playerswho say they will stop selling cards in the state if the law doesnot change. On the other side are Governor Chris Christie and hisadministration who have in effect dared the retailers to stopselling cards. Caught in the middle are New Jersey residents andtheir friends and family members in other states.

Over the past couple of weeks American Express andgift card distributors InComm and Blackhawk have announced theywould stop selling gift cards in New Jersey because compliance withthe law is too onerous. No major retailers have said publicly thatthey would stop selling gift cards in the state, but privately theyare all watching to see whether or not the law will be implementedas promised by the state. Note that InComm and Blackhawk too haveleft themselves an out by saying they would stop selling cardslater this year. They hope that the governor and the treasurerchange their minds.

A changing of minds does not seem likely at this point. In a pressconference this week, Gov. Christie said that hewas not losing sleep over the prospect of retailers ending giftcard sales. His retort was that if retailers want to leave, thenthe state should let them go. He has also said the collection ofzip codes is not a huge burden for the retailers.

One can’t help but wonder whether this law will cause the governorto lose sleep once other states and their residents start suing NewJersey to recover the money loaded onto gift cards in New Jersey.Other states, such as Nevada and Texas, have laws in effect thatsay if they are the state where the card is issued, the escheatmentof unused balances must go to them if the address of the ownercannot be found. Whether a zip code counts as the address of theowner will need to be sorted out in the courts, apparently. Now,how are these states going to feel about New Jersey claiming thosefunds?

In addition, a fundamental failure of the New Jersey law is that itmakes no accommodation for out of state recipients. Federal law, inparticular the Card Act of 2009, calls for a minimum five-yearexpiration date on gift cards. If a gift recipient gets a card froma friend or relative in New Jersey, their card will face a forcedexpiration of two years. Now New Jersey is claiming funds due toresidents of other states. It is hard to read other people’s minds,but it is not hard to imagine that a class action attorney mightsee an opportunity here.

In all of this, the ones who really pay the price are the giftgivers and recipients. Now those who buy the cards and those whoreceive the cards must contend with a product where, despitefederal efforts to set a level of expectations, the rules changefrom state to state. A gift card is no longer an attractive optionfor an out-of-state friend or relative because New Jersey can reachacross the line and claim that money for itself.

Click here to read analyst Tim Sloane’srecommendations to retailers.