Two major players in the gift card market have announced plans to pull out of New Jersey rather than comply with a law that lets the state claim the value of unredeemed cards after just two years.
Blackhawk Network and InComm made separate announcements Thursday that they would quit doing business in New Jersey in June unless the law is reversed.
The companies _ third-party providers of gift cards to malls, groceries and convenience stores _ told The Associated Press it's too hard to comply with the changes in New Jersey's unclaimed property law. The law requires gift card sellers to obtain ZIP codes from buyers so the state can claim the value of unused cards. Without such information, the value of unused cards would revert to the company or to the state in which the company is incorporated.
American Express removed its gift cards from New Jersey last week. As of Monday, the only way for New Jersey consumers to buy AmEx gift cards, which can be used practically anywhere, is direct from the company online.
California-based Blackhawk supplies 175 gift card brands to 1,300 New Jersey retailers, primarily groceries.
Atlanta-based InComm supplies 2,500 retail locations with gift cards for such brands as Visa, MasterCard, iTunes, Macy's and Subway.
"The passage and potential implementation of these legal changes have caused significant uncertainty for New Jersey consumers and retailers," said Blackhawk President Talbott Roche. "As it stands now, Blackhawk Network and its retail partners do not have a cost-effective way to record data from gift card purchasers or their ultimate gift recipients."
Similarly, InComm President and CEO Brooks Smith said the company cannot ensure compliance with the law because its cards are sold through third parties.
"We unfortunately have no choice but to remove all our gift cards and gift card destinations from retail locations in the state of New Jersey," Smith said in a statement.
The state saw unused gift cards, travelers' checks and money orders as potential new revenue sources, projecting $79 million for the 2011 fiscal year. However, retailers sued following enactment of that year's budget, so most of the potential income has yet to be realized.
A federal judge temporarily suspended the collection of ZIP codes, but lifted the injunction last month. The case is pending.
"We're surprised they would take this step before the rules on the collection of ZIP codes had even been published or put into place," said Treasury spokesman Andy Pratt following InComm's announcement. "We're working with them and with other members of the industry in an effort to make sure the transition to these consumer-friendly reforms goes as smoothly as possible."
Pratt said the modifications to the unclaimed property law protect consumers from a variety of gift card-issuer misdeeds, including deflating the value of dormant cards and charging reactivation fees. He also said by claiming unused balances, the state can prevent card issuers from receiving "windfall profits."
However, Roche said Blackhawk's cards carry no expiration dates or dormancy fees so customers are already entitled to the funds on their cards indefinitely.
Shoppers would still be able to redeem a card after two years, if it hasn't expired. But if the state has already laid claim to the money, businesses might have to jump through administrative hoops to get reimbursement _ and therefore stop selling gift cards altogether to avoid the hassle.
New Jersey appears to be the only state trying to collect data at purchase time to help collect unused gift card balances, said Jim Burns, a Newark lawyer representing the New Jersey Retail Merchants Association.
About half the states have some type of law dealing with the collection of unclaimed property, according to data published in January by the National Conference of State Legislatures. Of those that do, few seek to recover the full amount left on a gift card rather than a portion of the balance, and most allow three or five years before making a claim.
In Texas, the name and address of the purchaser is presumed to be the state comptroller in Austin if the owner's identity is unknown, allowing that state to collect more unclaimed balances.