The newly formed Retail Gift Card Association should address the issue of retailer bankruptcy and what happens to outstanding gift cards.
d Brands, Nike, Applebee's and Marriott International. This is a good development and consumers will be the ultimate beneficiaries.
However, for this to work, the association must address the reasons underlying the bad publicity they got from the media, legislators and consumer groups. One of the main issues has to do with bankruptcy. As the economy gets worse, more retailers are going bankrupt and there is no uniform standard regarding what happens to outstanding gift cards when a retailer goes bankrupt (whether it is Chapter 7 or 11 bankruptcy).
For example, when the Sharper image went bankrupt in 2008, they initially refused to honor gift cards. After pressure from consumer groups and some state Attorney Generals, the company relented, but only allowed customers to redeem part of their gift cards. Similarly, when the Bombay Company went bankrupt in late 2007, they refused to honor gift cards. Gift card holders had to file a claim with the bankruptcy court and were only able to get 25 cents on the dollar.
Furthermore, when electronics retailer Tweeter went bankrupt in late 2008, the company announced they were only going to redeem outstanding gift cards for only 5 days. It was only after Attorney Generals from a few states, including Maryland and Connecticut stepped in did the company extend the gift card redemption period to run until their liquidation sale was complete.
It is true that many of the major retailers that have gone bankrupt recently have redeemed gift cards, like Circuit City, Linens 'N Things and Mervyn's. But without uniform guidelines or standards, examples like the Sharper Image and Tweeter will continue to reflect badly on gift cards in general, thereby hurting all retailers. While consumers have the option of filing a claim with the bankruptcy court should a bankrupt retailer refuse to honor gift cards, that option is not viable since gift card holders are unsecured creditors and would therefore be at the bottom of the pecking order.
Therefore the best thing the association can do is to encourage their members to offer some kind of bankruptcy guarantee where consumers will be assured that they will be able to redeem their gift cards should the card issuer go bankrupt. That will not only generate good publicity but will also boast gift card sales , thereby benefiting the retail industry as a whole.
About the author
Kwame Kuadey is a gift card expert and runs a popular gift card blog at http://blog.giftcardrescue.com. He has written many articles on topics like Gift Card Ideas, Bankruptcy and Gift Cards, and Gift Card Exchange. Kwame is CEO & Founder of http://www.GiftCardRescue.com, an online marketplace where visitors can buy and sell unused gift cards. You can reach Kwame at http://www.kwamekuadey.com.
