Why Stores “Penalize” You For Not Using Your Gift Card Within a Year

I used to work for a retailer, and we issued gift certificates – these days, they’d be preloaded gift cards. Except back then, certificates never had an expiration date.

We hated our gift certificates. And the reason why might surprise you. Today, a lot of retailers start charging fees after a gift card has been unused for a year. Most folks see that as a “penalty” for not using the card, and assume that the motive is sheer corporate greed.

Not exactly.

While I’m not saying it’s any more fair, the reason has to do with accounting. A gift card isn’t a sale by the retailer to you; it’s a “tender exchange.” Meaning, they’ve taken cash, but they can’t count it as revenue because they’ve issued a debt instrument (the card) to you. That card represents a liability until it’s expired, cancelled, or fulfilled – and the accountants have to account for it every single year. It makes the books look funny, too, and a big enough liability like that can make it tough to sell a company, because a potential buyer might look at the outstanding debt vs. the company’s ability to fulfill it and get tweaky.

The fees aren’t so much a penalty as they are an incentive. The merchant really really really wants you to use the card so (a) they can finally count that money as revenue and (b) get the debt off the books.

Again, not saying it’s any more fair, but the motive isn’t purely corporate greed. Call it corporate laziness, if you prefer, as that’s more accurate.

Obviously, some jurisdictions disallow these no-use charges, and some retailers do a better job of disclosing them up front than others.

Frankly, I’ve been in conversations about this with a few retailers, and if they could come up with a better incentive to make you use the card, they probably would. I know one or two smaller ones have tried offering a small discount on your purchase when you use the card within a year (“turn your $100 card into $110 if you use it now!”); those typically don’t have huge success because the discount isn’t usually easy to communicate (people like to buy cards with fancy designs on them, not marketing text).

Keep in mind that a lot of retailers hope your gift card will go to someone who isn’t already a regular customer, thereby earning them the chance to bring in a new repeat customer. So they don’t, in most cases, want to penalize the recipient… they want them to bloody show up and spend the money, already.

BTW – one reason the first folks started charging those “no-use” fees (which are often a few dollars per year) is because there was once talk about letting a consumer cancel a gift card, and get their money back with interest (!!!). Treating the card as a loan instrument, in other words. In that scenario, charging the no-use fee was intended to make the card look less like a loan to regulators, and more like a carrying service. That loan thing never happened anyplace that I’m aware of, but once they had the fees on the books, stores obviously felt inclined to leave it there.

And yeah, I’m sure they don’t hate the income. Remember, I live in Vegas, where thousands of dollars in unredeemed slot machine tickets fly out of town every week. Those expire after a couple of weeks, and we get to keep the cash. We dump it into the pool at Luxor, and all the locals get together once a month and swim in it, while chuckling madly.

Anyway… not saying it’s better or worse, but thought you might appreciate knowing the backstory.

One thought on “Why Stores “Penalize” You For Not Using Your Gift Card Within a Year

  1. rickvanover

    Interesting post – I would love the “get money back” with interest option, but understand why that is not an option.

    I only engage with gift cards on the receiving end with the exception of purchasing them in advance of a purchase exceeding their value for fuel points (example: buy $1,000 Lowes card before remodeling project that costs $1,500 just for the fuel program from grocery store(\)

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