$8 Billion in Unredeemed Gift Cards - More than Double Credit and Debit Card Fraud

That's not the headline of Tuesday's ADN article in the money section. Instead they have "With gift cards, easy buy becomes personal." It's a story, by Detroit Free Press reporter Greta Guest about how

Holiday gift card sales have soared 44% from $17.2 billion sold in 2003 to $24.8 billion sold during the 2006 holiday season, according to the National Retail Federation.

[I've linked to the Detroit Free Press article because it doesn't show up on the ADN website. I'm guessing that's because it was a syndicated article. The Freep article is a little longer than the ADN article.]

Everything in the article is about how convenient gift cards are as presents. My skeptical mind began thinking about the gift cards my daughter got for graduation that she found five years later. How many people never use their gift cards, because they fall behind the desk, or get left in a pocket of pants that are no longer worn? And why didn't anyone at the ADN Money section ask that question? This was just a fluff piece promoting gift cards.

I'm thinking, 1% of $24 billion is, quick, can you figure it? 24+ seven zeros. $240,000,000. If just 1% of the people who got gift cards lost their cards it would come $240 million - a quarter of a billion dollars. OK, ok, people who got $100 cards are less likely to lose them than people who got $10 cards, or are they? And what about the people who use up only $22 of a $25 card? And besides, what if it's two percent or even five who lose their cards? The companies get free money. Maybe I can sell gift cards to my garage.

So I emailed Greta Guest, the reporter, and asked if she had gotten information on unredeemed cards too, because it wasn't in the ADN story. She said she had and sent me to the Free Press online story. In fairness to the ADN, it wasn't in the Free Press story either. Well, she emailed back, she'd written an earlier story on the topic which had all that.

That story is "Gift cards are popular, but many sit unused" published November 14, 2007. If the ADN published that one I don't recall seeing it and I can't find it on their site. That article says,

Consumer Reports, which started a public education campaign Tuesday, warns shoppers that when unredeemed, gift cards can turn into a windfall for retailers. When a gift card goes unused, retailers in many states can take the card value as income.

But they do have to report it as income. However, in some states, including Michigan,

the value of unused gift cards is collected from companies by the state after five years

In the fourth quarter of 2006 after last year's holiday season, Nordstrom recorded $8 million in income from unclaimed gift cards unused for five years or more. Massachusetts-based research service TowerGroup estimates that nearly $8 billion was lost last year because of unredeemed, expired or lost gift cards.

Did you catch that? $8 Billion unredeemed. The National Retail Federation says there was $24.8 billion in gift cards sold in 2006. That's just under 1/3 that's unredeemed. But it isn't quite that neat. The articles said most cards are void after five years, so this may be five years worth of sales. But the start of the article was that there was a 44% increase in the last three years.

The Consumers Union says

Consumer Reports is also releasing its latest survey, which finds that 27 percent of gift card recipients have not used one or more of these cards, up from 19 percent at the same time last year. And among consumers with unredeemed cards from last season, 51 percent have 2 or more.

Among the reasons that gift cards have not been redeemed:

• Over half (58%) of consumers indicated not having the time; followed by not finding anything they wanted (35%).
• Nearly one-third (32%) of respondents who have unused cards from last holiday season did not use their gift card because they forgot about it.
• A good proportion of consumers (7%) will never redeem their gift cards from last season because the card is lost (3%) or expired (4%).

And it gets more complicated. TowerGroup who made the $8 billion estimate based that on much more than retail gift cards.

Research and advisory firm, TowerGroup, expects gift cards to be a major hit again this holiday season. Combined gift card sales in the U.S. will exceed US$80 billion in 2006 - a more than 20% increase over their 2005 level - with breakdown by segment as follows:

* Retail: $29 billion [$4+billion more than NRF estimate]
* Restaurant / Fast Food: $18 billion
* Miscellaneous (gas, services, etc.): $12 billion
* Universally accepted (i.e., bank-issued): $23 billion

Despite the popularity of gift cards with consumers, the space continues to be a source of controversy in terms of fee-structures and redemption rules. While retailers do not generate revenue until a card is either used or permitted to be declared as dormant, they do receive a "free float" on unused cards. One large retailer recently showed a $42 million benefit to its income statement for unused gift cards more than two years old.

In any case, instead of a fluff piece on how great gift cards are, the ADN at least should have told us that (from the TowerGroup again)

the unused value on these cards, often referred to as "breakage" in the payments industry, has a bigger impact on consumers than the combined total of both debit and credit card fraud. While debit and credit card fraud in the U.S. totals $3.5 billion annually,

But we all know that the ADN, like most media, have a rabid liberal bias, so they always put an anti-business slant on their stories.

And while you're at it ADN Money folks, what happens to the unredeemed amount in Alaska? Do the retailers keep it or does it go to the state like unclaimed money in banks? Or is it all collected where the companies have their headquarters?