New Jersey Will Soon Claim Unused Gift Cards

Here's another reason not to allow your gift cards to gather dust: Your unused balance could be used to put a new coat of paint on a sign for the Jersey turnpike.

Credit card swipe
Credit card swipe

At least that's the prospect facing gift card owners in the Garden State. New Jersey will soon require gift card sellers to obtain ZIP codes from buyers so it can claim unused balances of cards that have been inactive for two years.

Gift card owners will be able to file claims to get their money back, thus preventing unused balances from reverting to retailers, the New Jersey Treasury Department said in a statement. There will be no time limit on redemptions.

If the money is never claimed, "it can be used for the benefit of all New Jerseyians to prevent tax increases and service cutbacks," the state's Treasury department says.

Treasury spokesman Andy Pratt says the state is still discussing implementation of the law with retailers, some of which have already started collecting ZIP codes. Small businesses are exempt from the law.

Some large gift card providers have already headed for the nearest exit. American Express has yanked its gift cards out of New Jersey convenience and grocery stores. Blackhawk Network, which distributes cards sold in drugstores and grocery stores, will stop selling gift cards in New Jersey in June unless the law is changed, says chief marketing officer Teri Llach. InComm, which distributes gift cards from Visa and MasterCard , says it's also leaving the state in June.

Opponents of the law say the problem it was designed to solve no longer exists. The vast majority of retail cards never expire, and a provision of the 2009 credit card reform bill prohibits general purpose cards from expiring in less than five years. In addition, the law restricts dormancy fees that used to eat away at unused balances.

Since the law was enacted, the amount of unused balances on gift cards has plummeted, says Brian Riley, an analyst at CEB TowerGroup. In 2006, the value of unused gift cards — known in the industry as "spillage" — totaled $8 billion, or 10 percent of all gift cards. Last year, the value of unused gift cards was $2 billion, or about 2 percent of gift cards, CEB TowerGroup estimates.

Still, $2 billion is a lot of money, and if New Jersey succeeds in reaping revenue from spillage, other states may follow suit, says Bill Hardekopf, chief executive of About half of states have laws that give them the authority to claim all or a portion of unused gift cards or gift certificates, usually after three to five years of inactivity, according to the National Conference of State Legislatures.

"Over the years, retailers have tried to keep (unused gift cards) out of the state's hands," says Dan Horne, associate professor of marketing at Providence College in Rhode Island. "Now the states are trying to get it back."

If this worries you, there's an easy solution: Use your gift cards. Some tips:

1) When you receive a gift card, spend it all right away. If you have some gift cards stashed in your sock drawer, it's likely because they have just a few dollars on them. Avoid that by spending all of your balance at once, even if that means throwing in some of your own cash, Horne says.

"Think about it in terms of a huge discount," he says. "If I'm going to buy something and I have a $100 gift card, and I spend $108, for eight bucks I got something pretty cool."

2) Look into whether you can exchange your card for cash or something else of value. Some states require issuers to redeem gift cards for cash if the balance falls below a certain level. In California, for example, gift card issuers are required to give you cash back if your gift card balance is less than $10.

United-Continental Airlines recently started a program that lets frequent fliers exchange a gift card from one of 60 major retailers for frequent flier miles. Similarly, U.S. Bank's FlexPerks Travel Visa Signature card holders can exchange select gift cards for credit card rewards points.

3) Check out the secondary market. Companies such as PlasticJungle and Cardpool will buy your cards at a discount. The minimum value for these cards is typically $25, so this isn't a solution for small-value cards. But if you've got a gift card worth at least $25 that you know you'll never use, you can exchange it for cash or another gift card.

This story first appeared in USA Today.