Class Action Blog : Consumer Fraud, Consumer Protection, Securities and Antitrust Lawyer & Attorney : Meiselman, Denlea, Packman, Carton & Eberz

Many people find it easy and convenient to give their friends and family gift cards to retail establishments so that the celebrant can choose their own particular gift at a store or through the retailer’s Internet website. But what happens to your gift card when a retailer that has taken in large sums of money through the selling of these gift cards, files for bankruptcy protection and determines to reorganize or to cease to exist. The answer is it depends. In some cases companies have eventually reneged on these gift card and left tens of thousands of gift card holders with worthless cards despite the fact that the retailer took in millions selling them. Examples of familiar companies whose gift cards are now worthless, and against whom consumers no longer have any recourse abound: Blockbuster, Circuit City and Linen’s and Things are just a few examples where the value of any unredeemed gift cards has been forever lost.

Bankruptcy courts in which these failed retailers have filed generally determine a date after which the gift cards will no longer be able to be used. For instance, Borders, which announced just over one week ago that a deal by the parent company of the Book-of-the-Month-Club to purchase Borders assets had been scrapped, is now hurriedly selling off all books and other merchandise and closing all stores at dates to be determined in the coming days and weeks, once the inventory is sold. Borders stores that have not yet closed are accepting the gift cards, and so too is Borders.com. If you are holding an unused Borders gift card, we strongly suggest that you use it today or risk losing its value.

If you are holding unused gift cards of a retailer that has filed for reorganization, we may be able to help you recoup some or all of the value of that gift card if the bankruptcy court determines that the surviving company can eventually stop honoring them. If you are holding a gift card to the plus-size clothing seller Deb Shops or the gourmet food seller, Harry & David, please contact us to discuss your legal options.

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A little-noticed provision of the credit card reform bill passed by Congress and signed by President Obama on May 22, 2009, targets abusive practices in the pre-paid gift card business.

Congress, the White House, consumer groups, and industry lobbyists have mainly focused on the new protections that the law provides consumers who hold revolving-debt credit cards. Among other things, the act prohibits banks and credit card companies from raising the interest rate on existing debt; rate increases can only apply to new charges. The law also prohibits banks and card companies from charging interest on late fees and over-limit fees, and limits the availability of credit cards to college students, who have been aggressively solicited and have run up substantial debt in recent years. As one news account explained, the “overwhelming” support for the bill in Congress “reflected the public anger over the practices of banks and credit card companies, with lawmakers pointing to sudden and unexplained interest rate increases and indecipherable terms as major complaints.”

But the law also targets at least two abusive practices in the gift card business that have provoked numerous consumer complaints and lawsuits in recent years. 

First, the law provides that no gift card can be sold with an expiration date of less than five years. Second, the law generally prohibits so-called “dormancy” and “inactivity” fees.   The goal is to prevent the value of these gift cards from evaporating, giving a windfall to merchants and card companies while leaving consumers empty-handed.

The gift card abuses are especially unfair because the expiration dates and fees are often hidden from consumers. In a series of lawsuits, including a class action brought by our Firm, the New York appellate courts have held that consumers can sue gift card companies for inadequately disclosing the cards’ expiration dates and dormancy fees. (The same court discussed the issue in more detail in another recent case).  The new federal law should put a stop to these abuses in the future.  Summaries of the Credit CARD Act of 2009 are available from the White House, the Congressional Research Service, and the law’s sponsor, Sen. Chris Dodd (D-Conn.)

If you've purchased a pre-paid gift card with dormancy fees and/or an expiration date, please contact us to discuss your legal options.

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