BILL ANALYSIS
SENATE JUDICIARY COMMITTEE
Senator Ellen M. Corbett, Chair
2009-2010 Regular Session
SB 885 (Corbett)
As Introduced
Hearing Date: March 23, 2010
Fiscal: No
Urgency: No
ADM:jd
SUBJECT
Gift Certificates: Redemption
DESCRIPTION
This bill would allow any gift certificate or gift card, as
defined, with a remaining cash value of less than $20 to be
redeemed in cash for its cash value, and would require that a
gift certificate contain a statement to that effect.
This bill would delete provisions of current law that allow for
a dormancy fee for nonuse of the gift certificate or card if
specified conditions are met.
BACKGROUND
Over the last several years, gift cards have become increasingly
popular as a means of gift-giving. According to TowerGroup, a
financial consulting firm, Americans spent $88.4 billion on gift
cards in 2008, but left $6.4 billion unspent and more than $100
million in gift card value was "compromised" in bankruptcies and
liquidations. Also according to TowerGroup, in 2009, Americans
spent $87 billion on gift cards, an estimated $5 billion of
which will go unredeemed. It is also reported that, in the
U.S., 40 percent of recipients do not use the full value of
their gift cards. Often the unredeemed amounts go back to the
retailers as revenue. This is a staggering amount of money for
consumers to lose.
Because of the concerns outlined above, Senator Corbett authored
SB 250 (Corbett, Ch. 640, Stats. 2007). Senate Bill 250 allowed
(more)
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any gift certificate with a cash value of less than $10 to be
redeemed in cash for its cash value. The bill exempted donated
gift certificates and gift certificates for perishable food
products from existing law's restrictions on expiration dates
and service fees. Senate Bill 885 is intended to build upon and
strengthen SB 250 by giving California consumers the full value
of their gift cards by allowing them to redeem for cash gift
cards with a cash value of less than $20. Additionally, the
bill would delete the dormancy fee provisions, which would also
ensure that consumers receive the full value of their gift
cards.
CHANGES TO EXISTING LAW
1.Existing law provides that "gift certificate" includes gift
cards, but does not include any gift card usable with multiple
sellers of goods or services, provided that the expiration
date, if any, is printed on the card. This exemption does not
apply to a gift card usable only with affiliated sellers of
goods or services. (Civ. Code Sec. 1749.45.)
Existing law provides the following:
a. it is unlawful for any person or entity to sell a gift
certificate that contains an expiration date or a service
fee, including, but not limited to a service fee for
dormancy, except as specified;
b. any gift certificate sold after January 1, 1997, is
redeemable in cash for its cash value, or subject to
replacement with a new gift certificate at no cost to the
purchaser or holder;
c. any gift certificate with a cash value of less than $10
is redeemable in cash for its cash value; and
d. a gift certificate sold without an expiration date is
valid until redeemed or replaced. (Civ. Code Sec.
1749.5(a)-(c).)
Existing law provides that any waiver of the provisions
relating to gift certificates is contrary to public policy,
and is void and unenforceable. (Civ. Code Sec. 1749.51.)
This bill would allow any gift certificate with a cash value
of less than $20 to be redeemed in cash for its cash value.
This bill would require a statement to be printed on the gift
certificate in at least 10-point font stating that any gift
certificate with a cash value of less than $20 is redeemable
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in cash for its cash value. The bill would provide that the
statement may appear on the front or back of the gift
certificate, but must appear in a location where it is visible
to any purchaser prior to purchase.
2.Existing law provides that a dormancy fee may be charged on a
gift card, if all of the following criteria are met:
a. the remaining value of the card is $5 or less each time
the fee is assessed;
b. the fee does not exceed $1 per month;
c. there has been no activity on the card for 24
consecutive months;
the holder may reload or add value to the card; and
d. a statement is printed on the card in at least 10-point
font stating the fee amount, how often the fee will occur,
that the fee is triggered by card inactivity, and at what
point the fee will be charged. (Civ. Code Sec. 1749.5(e).)
This bill would delete these dormancy fee provisions.
COMMENT
1. Stated need for the bill
The author writes:
In these difficult economic times, consumers should have the
right to ready access to liquid assets, including the cash
value of their gift cards. The remainder on their unused gift
cards could make the difference in paying bills and making
ends meet.
This problem is so common that around $5 billion in gift cards
goes unspent every year. After a few years the retailer gets
to claim the consumer's money as profit without supplying a
product or paying sales tax. Companies have claimed as much
as $43 million in profit from unspent gift cards in one year.
While consumers gained new rights under SB 250 (Corbett, Ch.
640, Stats. 2007), many retailers are refusing to comply with
the law. Starbucks was taken to court in three counties by
the District Attorney and agreed to pay $225,000 in civil
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penalties for not complying with the law.
2. Raising the redeemable cash value of gift cards from $10 to
$20 would contribute to the positive trend of keeping more of
the cash value of gift cards in consumers' hands
A retail trade organization estimated that gift card sales
amounted to $82 billion in 2006, with 10 percent - $8.2 billion
- of that lost to customers due to unredeemed value on the
cards, or expiration, or loss of the gift card. This means
that, in 2006, approximately $8.2 billion nationwide was
retained by retailers. In 2009, $87 billion was spent on gift
cards and the unredeemed amount went down to $5 billion, meaning
that consumers are retaining more of the value of their gift
cards.
Between 2006 and 2007, SB 250 was enacted, allowing consumers to
redeem in cash a gift card of less than $10 for its cash value.
The author argues that, while these figures are nationwide, it
follows that if the amount redeemable is expanded to less than
$20, the unredeemed value amount should continue to drop and
consumers should therefore retain more of the value of their
gift cards. A number of other states, including Maine,
Massachusetts, and Montana allow for redemption for cash.
3.Removal of the dormancy fees will further increase the
possibility that consumers will receive the full value of a
gift card that has a remaining value of less than $20
Current law provides that a service fee for dormancy may be
charged if all of the following criteria are met: a) the
remaining value of the gift card is five dollars or less; b) the
fee does not exceed one dollar per month; c) there has been no
activity on the card for 24 consecutive months; d) the holder
may reload or add value to the card; and e) a statement is
printed on the card stating the amount of the fee and how often
the fee will occur. (Civ. Code Sec. 1749.5(e).) Dormancy fees
reduce the cash value of the card over time, possibly to zero if
the card goes unused. This bill would delete this section of
the statute. As a result, this bill would prohibit the
imposition of dormancy fees.
The author argues that by deleting this section consumers will
be more likely to be able to redeem the full value left on a
gift card up to the less than $20 limit, which is particularly
important in these economic times. As Consumers Union notes,
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"[t]his bill will [allow] consumers to redeem their gift cards
down to the last penny-simply by giving them the ability to
redeem the remaining value on gift cards with a cash value of up
to $20." Additionally, the Congress of California Seniors
writes that the bill will particularly help seniors living on
fixed incomes who need every penny they are entitled to.
4.Disclosure statement is intended to increase compliance with
the law
Current law does not require a statement on a gift card with a
cash value of less than $10 that states that it may be redeemed
in cash for its cash value. As the author notes there has been
a problem with compliance by retailers under SB 250. One
example of that is the prosecution of Starbucks for failure to
comply with SB 250. A number of consumers, including a
Sacramento woman, have complained that they have had trouble
getting some retailers to follow current law. This particular
woman had difficulty getting cash for her $5 gift cards at
various fast-food outlets. This may just be a problem of
ignorance of the law or an unwillingness to comply.
To rectify this problem SB 885 would require a statement to be
printed on the gift certificate in at least 10-point font
stating that any gift certificate with a cash value of less than
$20 is redeemable in cash for its cash value. The bill would
also provide that the statement may appear on the front or back
of the gift certificate, but must appear in a location where it
is visible to any purchaser prior to purchase. The author and
supporters argue that these provisions will increase compliance
on the part of retailers and provide consumers explicit notice
of their rights.
5.Opponents' arguments
Opponent the National Federal of Independent Business (NFIB)
opposes SB 885 primarily on the ground that it may hurt small
businesses. The small business concerns appear to fall into
three primary categories.
First, NFIB argues that doubling the gift card redemption value
from less than $10 to less than $20 would increase the burden on
small business owners by expanding potential financial
liabilities with outstanding gift certificates. The author and
supporters make three points here. First, gift cards or
certificates draw people to businesses, often especially to
small, boutique businesses. Second, the author has found that
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approximately half of gift cards or certificates are for $20-25.
Third, they assert that NFIB's position would result in
consumers not getting the full value of the gift card. It would
be unfair for consumers not to receive the full value of their
gift cards.
Second, NFIB argues that because small businesses operate on a
thin profit-margin, they would not be able to predict or plan
for gift certificate cash-outs. This argument seems to be both
a red herring and to beg the question: Why would a small
business issue gift certificates or cards without the
expectation that they would be redeemed? Do not small
businesses encourage and expect consumer business from such
cards and certificates, even if not issued by the business
itself? Is this not a way of generating on-going, long-term
business?
Finally, NFIB argues that when a gift certificate is purchased
using a credit card the small business owner pays a so-called
"interchange fee" for the ability to access the network. This
interchange fee is not unique to small businesses (all
businesses generally pay such a fee as well as other fees). The
fee is the cost of doing business if the business chooses to
accept them as a form of payment.
CVS/CAREMARxK also opposes the bill on many of the same bases as
NFIB and contends that it will increase the potential for the
fraudulent use of gift cards. The author disputes that
contention and asserts that fraud is already a crime, punishable
by fines and imprisonment.
Support : California Labor Federation; California Public
Interest Research Group; Congress of California Seniors;
Consumer Action; Consumer Attorneys of California; Consumer
Federation of California; Consumers Union
Opposition : CVS/CAREMARxK; National Federation of Independent
Business
HISTORY
Source : Author
Related Pending Legislation : None Known
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Prior State Legislation :
SB 250 (Corbett, Ch. 640, Stats. 2007) (See Background.)
AB 175 (Calderon, 2005) would have required that a gift card
usable with multiple sellers clearly and conspicuously disclose
its purchase price, any dormancy or regularly recurring
maintenance or service fee, and the fee to obtain any remaining
value on the card. The bill would have exempted from the above
requirements any card distributed for free, as specified, and
prepaid calling cards. This bill was withdrawn by the author
from hearing in this committee.
AB 656 (Corbett, Ch. 319, Stats. 2004) revised and recast the
provisions applicable to gift certificate refunds when a gift
certificate recipient does not redeem the gift certificate
within a specified time.
AB 2090 (Liu, 2004) would have deleted the dormancy provisions
of Civil Code Section 1749.5, and would have thereby prohibited
dormancy fees on gift certificates. This bill was never heard
in a policy committee. The bill was withdrawn by the author
from hearing in the Assembly Business and Professions Committee.
AB 1092 (Harman, Ch. 116, Stats. 2003), among other things,
generally prohibits the sale of gift certificates that contain
service fees; allows dormancy fees under specified
circumstances; and defines "gift certificate" to include "gift
card."
Prior Federal Legislation :
S. 2969 (Fair Gift Card Act of 2004) would have made it unlawful
for any person to impose a dormancy fee, inactivity charge or
fee, or a service fee on a gift certificate, store gift card, or
general-use prepaid card. Certain exemptions and penalty
violations would have applied. This bill was referred to the
Committee on Banking, Housing, and Urban Affairs; it did not
move out of that committee.
H.R. 85 (Gift Card Protection Act of 2005) would have required
the Federal Trade Commission to promulgate a rule providing that
it would be an unfair or deceptive act or practice for gift
certificates to have an expiration date, service charges, or
dormancy fees. This bill was referred to the Subcommittee on
Commerce, Trade and Consumer Protection; it did move out of that
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committee.
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