Gift cards often end up in the bin, but extending their life might not help

The New South Wales Parliament is introducing legislation, creating a three year minimum expiry date on gift cards. This reform will go some ways towards solving the problem of unredeemed gift cards. But there are other issues besides short expiry dates.

Research from the United States, which has a five year minimum expiry date, shows an extended expiry term only slightly improves the problem of unredeemed cards.

Minimum expiry dates are just the start of necessary reforms to gift cards. Gift card terms and conditions vary widely, making it hard for consumers to understand what their rights and obligations are.

Data shows that between 10 per cent and 27 per cent of gift cards in Australia go unredeemed.

The use of gift cards in Australia is growing, with about A$2 billion spent and 32 million cards issued in 2014 alone.

But complaints about gift cards are also increasing. So much so that gift cards have featured in two government inquiries in the last five years.

The first was prompted by growing concerns regarding risks faced by gift card holders. The second arose from the failure of Dick Smith Electronics.

Expiry dates aren’t a panacea

Expiry dates are usually clearly identified on the gift card but some online terms and conditions do not specify the term. Enforcing a fixed term would be beneficial to consumers in this regard.

But one government inquiry found no strong evidence that consumers would be assisted by a mandatory minimum expiry date for gift cards.

In fact, it’s possible gift cards with shorter expiry dates have higher redemption rates. The shorter time frame forces customers to use the cards fast, meaning customers are less likely to lose or forget to use the cards.

Furthermore, extending the expiry date increases administration issues and costs for retailers. Some stores even face difficulty in carrying liabilities from the gift cards for an extended period of time. For this reason the United States allows “dormancy fees” to be levied if cards have not been used for an extended period of time, like 12 or 15 months.

Other issues with gift cards

In addition to expiry dates, common problems with gift cards arise from the terms and conditions and the inability to use gift cards when the retailer becomes insolvent. This last point was particularly evident in the wake of the collapse of Dick Smith Electronics.