Oregon Legislature to Confiscate Gift Card Value

For some reason, the Oregon Legislature wants to confiscate the unused portion of all gift cards and gift certificates in Oregon.

Gift certificates and gift card programs are not free to run (and are not always good deals for consumers), but they an turn a profit for the issuer. That profit comes from several sources.

1. Gift cards can increase total business traffic, as when you buy your friend an El Gaucho gift card and he goes to that restaurant when otherwise he may not have done so. 

2. The business gets the money up front and only incurs a cost when you redeem the card - it's a free loan to them.

3. For some - like the KFC "Chicken Checks" of the 1980s - there was a high rate of dropout - the gift was given but never redeemed.  That means the money falls directly to the business' bottom line as profit.  The industry average is approximately 15% drop-out.

On the other hand, gift cards also must be accounted for as a liability on your business' books, much as frequent flyer miles are a liability on the books of the airlines.  Since most businesses don't like to keep endlessly open liabilities on their books, expirations are a way to close those books and reduce liabilities.  If a particular gift card is still not redeemed after (say) ten years, odds are it never will be redeemed.  It was lost or misplaced years ago - you don't want to upset the accountants or investors by pretending those cards are going to all show up and get redeemed.

The Legislature is using an "unclaimed property" concept that I first ran into in the insurance world.  When I was consulting for a large insurer, I ran into something called "Escheats to the State" - when an insurer couldn't pay out a claim or refund or other money owed because it couldn't find the person, the insurer had to set the money aside into a special account.  After three years (it varies by state) the money was forfeited or "Escheated" to the state government.  This is common for unclaimed property of various kinds, but doen't always include gift cards.

That wasn't because the government owned or deserved the money.  Rather, it was a way to remove a conflict of interest.  If the insurer was allowed to keep the money, they might see an incentive to "oops" not find you when they owed you money.  Escheating is a way to ensure that no such conflict arises.  But escheating is entirely inappropriate for gift cards, where YOU control the money.

Also: you cannot offer interest on a gift card without running afoul of banking and investment laws - at that point you're really selling CDs - certificates of deposit.