Card Games: N.J. Law Could Jeopardize Gift Card Market

Card Games: N.J. Law Could Jeopardize Gift Card Market

Retailers count on gift cards to add to their one-stop-shopping appeal. So why did the business almost come to a halt in New Jersey?

Gift cards — a key front-end traffic driver and merchandising display — nearly vanished from supermarkets, pharmacies, convenience stores and other retail stores in New Jersey.

“The gift card market could have collapsed,” John Holub, president of the New Jersey Retail Merchants Association, Trenton, told SN.

It’s due to a change in the state’s “unclaimed property” law. The law was originally intended to give the state rights to items like uncashed paychecks and abandoned bank accounts. The owners could recover the unclaimed properties by contacting the state.

In 2010, a bill was introduced to expand the law to include gift cards. The bill would require that unused gift card balances go to the state, rather than to gift card companies. Consumers would still be able to obtain the funds by contacting the state.

In order for the state to keep track of where consumers purchased their cards, the proposal called for retailers to obtain the ZIP code of every gift card buyer.

The NJRMA, gift card companies and other industry participants objected to the ZIP code requirement, saying retailers would be unable to comply without significantly increasing their labor and technology costs. Further, many feared that such data collection would delay the checkout process.

“It would be a complete administrative nightmare,” Holub said.

The NJRMA and several gift card issuers took the matter to court, and won an injunction, which was set to expire in April 2012.

As April 2012 loomed, rather than comply with the data collection requirement, American Express pulled its gift cards out of the New Jersey market. (Photo: American Express gift cards are missing from a Wegmans display in New Jersey.)

“We took the steps at the time we believed were necessary to be fully compliant with the law,” said American Express spokeswoman Vanessa McCutchen.

Two key third-party gift card providers — Blackhawk Network and InComm — threatened to do the same.

Citing technological hurdles created by the new law, InComm said it would not be able to ensure compliance, and planned to eliminate the Vanilla Visa Gift Card and Vanilla MasterCard Gift Card programs from over 1,500 retail locations in New Jersey.

Blackhawk Network, Pleasanton, Calif., is a Safeway [4] subsidiary that represents over 175 different brands and offers a “Gift Card Mall” merchandising display. If it left New Jersey, more 1,300 retail locations across the state would have been affected.

ShopRite, part of the Wakefern Food Corp. [5], Keasbey, N.J., would have been one of them. While ShopRite wouldn’t comment on the aforementioned legal situation, it voiced support of gift cards.

“We offer the purchase of gift cards in ShopRite stores as a convenience to our customers,” said spokeswoman Santina Stankevich. “Our customers appreciate the ability to purchase a quick gift for a friend or loved one while shopping for their weekly groceries. It’s just another service we offer our customers to create the best possible shopping experience.”

Four-Year Moratorium

In late June, just before Blackhawk and InComm were to pull out of New Jersey, the legislation was amended to include a four-year moratorium on the ZIP code collection.

Since the ZIP codes requirement was postponed, American Express announced it would return to the New Jersey market, and Blackhawk and InComm said they would stay, too.

“We are delighted to be able to once again offer our gift cards to consumers in New Jersey through our third-party sellers,” said McCutchen of American Express.

But NJRMA’s Holub says the moratorium is only a temporary reprieve.

“We can’t support any legislation with a ZIP code requirement, tomorrow or four years from now,” he said.

Gift cards are ill-suited for the unclaimed property law because — unlike a payroll check — the people who own them aren’t necessarily the people who bought them, said Holub.

For this reason, he questions the state government’s motives.

“It was clearly a money-grab,” he said.

A spokesman for the New Jersey Treasury Department was unavailable for comment.

The NJRMA will continue its legal challenge, pushing for legislation to repeal the law in its entirety, said Holub.

“If we are unable to repeal it, all of the concerns we have today will still exist in four years,” he said.

Gift card providers confirm that they will once again consider leaving the market if ZIP code collection is ever mandated.

“We plan to continue selling gift cards in New Jersey indefinitely as long as there is no requirement to collect consumer data at the point of sale,” Brooks Smith, president and chief executive officer of InComm, Atlanta, said in a statement.

“In the end, the data collection requirement negatively impacts all gift card issuers as well as New Jersey businesses and consumers, and we are hopeful that our continued efforts will result in further improvements to the law and continued protection for consumers,” said Smith.

InComm will work over the next four years to have any data collection requirement permanently removed from the law, said Smith.

Blackhawk will do the same. The company remains hopeful that it can work with lawmakers on a permanent amendment that benefits the customers, state and retailers.

“The four-year moratorium on requiring collection of personal data at point of sale offers a temporary solution, and provides us with an opportunity to work with lawmakers to protect the long-term interests of our customers over the coming years,” Talbott Roche, Blackhawk’s president, said in a statement.

Sidebar: Law and Order in N.J.

TRENTON, N.J. — A revision to New Jersey’s Uniform Unclaimed Property law has changed the way gift-cards are handled.

According to the new law:

• Unused funds of gift cards issued after June 30, 2010, go to the state after five years.

• Beginning Sept. 1, 2012, merchants must give cash refunds upon demand if the balance of the card is less than $5 and it has been used at least once.

• Beginning December 1, 2012, gift cards may not be sold with fees or expiration dates.

While the initial proposal required merchants to start collecting ZIP codes from those who purchase gift cards, a law signed in June includes a four-year moratorium on that mandate. Beginning July 1, 2016, merchants will be required to collect ZIP codes.

Sidebar: Gift Card Spending Tops $1B

BOSTON — Front-end spinner racks with gift cards have added to supermarkets’ one-stop-shop appeal — especially during the holidays.

Gift card spending topped $100 billion this past holiday season, surpassing 2010 sales by $9 billion, according to the Corporate Executive Board’s TowerGroup here, a financial services research and advisory firm.

TowerGroup attributes much of the growth to increased consumer spending and greater ease of gift card use — especially cards that can be used at multiple merchants.

Among other findings: 

• TowerGroup predicts that gift card sales will exceed $130  billion by 2014.

• Gift card spending has increased year-over-year since 2005 by an average of 6%. Growth is expected to continue at this rate.

• The gift card market is anticipated to exceed $200 billion  by 2021.

Meanwhile, holiday shoppers were expected to spend an average of $155.43 on gift cards last holiday season, the highest amount since 2007 and up from $145.61 in 2010, according to the National Retail Federation’s “2011 Holiday Consumer Intentions and Actions” survey, conducted by  BIGresearch.

The survey found that gift cards remain the most requested holiday gift, marking the fifth year in a row gift cards have topped consumers’ wish lists.

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