New state law eliminates fees on most gift cards

OLYMPIA – Until last week, gift certificates – like those increasingly popular plastic cards for coffee, books, meals or movie tickets – were often like secret-agent tape recordings on “Mission Impossible.”

After a certain period of time, they’d self-destruct.

Many of the companies issuing the cards imposed fees that would nibble away at the value of an unused card. When people went to use the card, they’d get an unpleasant surprise: Much of the value was gone.

No more, at least in Washington. In a deal with retailers, the state Legislature this spring unanimously passed House Bill 3036, which bans expiration dates on most gift certificates sold in the state.

“Gift cards in the past few years have exploded in popularity, but a lot of people would just forget to use them,” said Mike Gowrylow, a spokesman for the state Department of Revenue.

The new law took effect July 1. In most cases, the law says, it’s illegal for someone to issue a gift certificate or gift card that contains an expiration date or fee. The benefit to consumers, Gowrylow said, is expected to be “tens of millions of dollars.”

There are a few exceptions. The new law doesn’t apply to:

• gift certificates from a financial institution,

• certificates given, for free, to employees, customers or charities

• or gift certificates sold by an arts or cultural group, although these must be good for at least three years.

Also, if a card has less than $5 left on it and hasn’t been used in two years, the law allows the issuing company to charge fees of up to $1 per month.

At least seven other states have similar laws, and according to the legislative news service Stateline.org, lawmakers in 22 other states are or were considering such laws this year. California was the first state to ban gift certificate expiration dates, with a law passed in 1996. Washington’s law is unusual, because it allows people to cash out a gift card or certificate when it contains less than $5.

The interest from lawmakers mirrors a rise in popularity in the cards. According to Consumers’ Union, the nonprofit group that publishes Consumer Reports magazine, nearly $45 billion worth of gift certificates were purchased last year, up 15 percent from the previous year. During a legislative hearing this spring, Starbucks said that 10 percent of its sales are paid for with a Starbucks card.

Under state law, companies must declare the value of unused gift cards as “unclaimed property,” and turn the money over to the state where the owner, if known, lived. About $2.7 million a year was turned in to Washington, Gowrylow said, and only about $100,000 per year was later claimed.

If the owner is unknown, the money goes to the state where the company is incorporated. For tax reasons, that state is often Delaware.

“So Delaware was getting gobs of money on gift cards that were purchased in this state,” Gowrylow said.

Under the new law, the unused value must still be turned in to state officials after a certain period of time, Gowrylow said. But since the cards never expire, companies can seek a refund for any old cards that get used.

The new law applies to gift certificates bought in Washington, but things get complicated when a Washingtonian buys one over the Internet from a company in another state, Gowrylow said.

“Buy local to be sure,” he said. “As long as you buy it in Washington from a company doing business here, then the law applies.”