November 26, 2008

Hon. Thomas P. DiNapoli

Comptroller, State of New York

Office of the Comptroller

110 State Street

Albany, New York  12236

Dear Comptroller DiNapoli:

My letter to you has a dual purpose – to thank you for November 25, 2008 report, “Little Known Gift Card Traps,” but, at the same time, to note what we view as significant shortcomings in its content and implication.

It always is important that consumers shop well-armed with the information they need to make a purchase, and, as you note, current economic conditions only heighten that importance.  We agree and, to that extent, applaud your report for serving New Yorkers well and reminding them of the rules and requirements that gift card sellers must obey in New York State.

We are disappointed, however, that the general tone of the report is more than cautionary – in its urging that consumers “beware of gift card traps this holiday season,” it unnecessarily sounds an all-points-bulletin that comes close to explicitly warning consumers against purchasing gift cards.  And, regrettably, in the accompanying press release telling New Yorkers to “use gift cards for financially troubled stores soon,” your office amplifies the message of an e-mail hoax currently sweeping the globe that mistakenly and recklessly identifies certain retailers as being “financially troubled” and likely to cease operations soon after the holiday shopping season comes to a close.

We would prefer that such unsubstantiated and exaggerated claims be left to the hoax e-mail from which they unfortunately originate – not echoed by a trusted and respected government leader.

I know you will recall from your Assembly tenure that the Retail Council of New York State worked closely with Chairwoman Pheffer and Chairman Fuschillo and their committee members in support of their efforts to draft, pass, and enact the laws that today regulate gift card sales and ensure certain protections to New York consumers.  And it is important to stress – not offer as an aside or afterthought – that the best practices that today feature gift cards that neither expire nor carry “dormancy fees,” provide for replacement under certain conditions, and give to the card-holding consumer considerable leeway in their use of such cards, began with retailers large and small.  These practices are not enacted without significant cost to the merchant, but we want to be sure to respond to our customers’ desires.  And these practices are under constant review and refinement to ensure that we, as an industry, keep current with the demands of the shopper.

The Retail Council, in fact, led an effort during the 2008 Legislative Session to support a bill that would explicitly prohibit expiration dates and dormancy fees on gift cards sold in New York State, and, at certain balances, give to the card holder the option of redeeming the card’s remaining value for cash.  The bill’s caveat – and we think it a fair and consumer-friendly exchange – is that the state of New York forfeit its claim that gift card balances left unused after five years be deemed abandoned property.  It is our understanding that the loudest howls of opposition to this provision came from the Office of the Comptroller.

We refrained at that time from issuing our own statement or report that would urge New Yorkers to use their gift cards soon or the value of the card – against which the retailer applied neither an expiration date nor a dormancy fee – would be subsumed by their state’s government after a certain period of non-use.

In short, we support the requirement that gift cards be sold without expiration or any fee that would diminish its stored value.  That is what consumers expect; that is what we provide.  What consumers do not expect is, perhaps, the most hidden and nefarious gift card trap of all – the state’s claim on the value of the card after a certain period of time.

We appreciate that your report, in certain places, does endeavor to present both sides of the gift card debate.  And in that spirit, we recognize that there are some who argue that New York State is a more appropriate steward of unused gift card balances than a gift card seller or, even, the individual person who owns and holds the card and still intends to use it.  We  respectfully but strongly disagree with this point of view.

The issue also raises a number of questions that New York’s Abandoned Property Law does not yet contemplate – namely, the portability and mutability of gift cards themselves. The older-style paper gift certificates carried a fixed value that, generally, were usable only under certain conditions.

But gift cards as we now know them are an entirely different product.  They may be purchased, used, and reloaded with value over time, used in whole or in part with value remaining on the card.  This feature alone obliterates the hard expiration date that was a fixture of the paper gift certificate (and, in so doing, lent itself to regulation under the Abandoned Property Law).  Consumers like the ease of purchase and the fact that a card can be purchased in one location then sent, reloaded, reused, and enjoyed in an entirely different location.  And, perhaps most critical of all, it can be done with anonymity.

Your press release correctly notes that, in reference to ‘unclaimed gift cards,’ “in most cases no identifying information is provided, making it extremely difficult to return the property to its rightful owner.”  We know that this statement can be roughly translated to say that “the card is no longer good for the holder after five years – even though the store put no expiration date on it and the consumer periodically redeemed portions of the gift card during that time period – but now the state of New York gets to hold the consumer’s money and use it for its own purposes.”

The only way to comply with the Abandon Property Law as you suggest would be to require retailers to somehow and retain from every gift card buyer the necessary personal identifying information of the card’s recipient so that the state could, indeed, return the property to its rightful owner.  But even the most casual privacy advocate would join the Retail Council in abject opposition to such a requirement and procedure.

We think the best strategy is to let the card – and its value – stay with the card holder until he or she uses the card. And in that spirit, then, we urge you to join us in support for legislation that would well and truly protect the consumers whom you address in your November 25 report.  If New York’s retailers are to be expected to sell gift cards without restriction, New York’s government owes its citizens the exact same protection.

It is a matter of balancing consumer privilege and right against state fiscal policy.  For an industry that has for years been directed by New York State government to balance consumer rights against business policy, we think it most timely that the state join us in ensuring New York consumers are protected from the gift card trap set by its own government.

Again, thank you for your report and for joining us in our industry’s effort to ensure that our customers enjoy every shopping experience.  As retailers struggle to make sales and generate sales tax revenue for the state and local governments during this extremely challenging holiday season and beyond, you can be assured of our commitment to our customers and guests and to their full protection and satisfaction.

I also want to assure you of the Retail Council’s absolute commitment to working with you, Governor Paterson, and all state leaders in a constructive fashion over the next several months.  These are difficult times for New York, but we are confident that the right leaders are in place to guide the state into more prosperous times.  We pledge to work with you to help you in that effort, and I hope you will contact me if you wish to discuss any issue in which you might feel the Council can be of assistance.

Best wishes for a happy and healthy holiday season.

Sincerely,

James Sherin
President & CEO
Retail Council of New York State 

cc:   Hon. Audrey Pheffer

        Hon. Charles Fuschillo