U.S. Consumers May Be Holding $75 Million Worth Of Worthless Gift Cards

March 4, 2008 7:44 a.m. EST

New York City, NY (AHN) - Around $75 million worth of gift cards are in danger of becoming useless because of the expected rise in number of bankruptcies among American retailers.

According to the National Retail Federation gift cards purchased for during the recent Yuletide season reached $26.3 billion, rising from $24.8 billion in 2006 and $18.48 in 2005. While a large portion are still valid, the $75 million at risk nevertheless is a big dent on the pocket of U.S. consumers already reeling from the economic slowdown gripping the nation.

Brian Riley, senior analyst of The Tower Group, said the amount in plastic gift cards in danger of becoming void may exceed $75 million based on the increasing number of stores and dining establishment expected to close shop in 2008. The most vulnerable cards are those issued by mom-and-pop services like local nail salons, Riley said.

C. Britt Beemer, chairman of America's Research Group anticipates frustration among a lot of consumers expecting to use their gift cards only to find it worthless. "You basically stole (money) out of the customers' pocket. They will never forgive you," Beemer said.

Problems posed by gift cards have promoted consumer advocacy groups to lobby for the enactment of laws that would address expiration dates and high fees on lapsed cards. Because of their efforts, over 20 states have enacted regulations that eased restrictions on the use of gift cards.

A bankruptcy expert said even if retailers want to honor their gift cards, existing regulations may stand in the way. Howard Kleinberg, director of bankruptcy practice at Meyer, Suozzi, English and Klein explained most of the financially-challenged retailers do not have the funds to honor the cards or the creditors' committee or bankruptcy court may not permit it since gift cards are considered debts, so holders are not assured of getting paid back.

According to data from U.S. Bankruptcy Courts, filings for bankruptcies had actually gone down to 801,269 for fiscal year 2007 from 1.11 million for fiscal year 2006.