By John Campbell

Unused funds on a stored value card (SVC) are considered unclaimed property in most states. As unclaimed property, these funds are protected under various unclaimed property laws in each state.

Despite unclaimed property laws, some retailers continue to issue SVCs with set expiration dates. Once these cards expire, any remaining funds become pure profit for the card issuer. In a state with unclaimed property laws, this process may be illegal.

Instead of seizing the unused portion of a SVC after a certain period of time, retailers may be required to “escheat” or transfer the remaining balance to the unclaimed property division of the state in which they operate. These laws only apply to SVCs in which the identity of the SVC holder or purchaser can be identified. Depending on the law, a refund of the unused portion may be sent to the last known address of the SVC holder or purchaser, or sent directly to the state.

In states with SVC expiration dates allowed by law, there is usually a minimum number of years that must pass before any SVC can become unusable. Many retailers that issue SVCs with expiration dates allowable by law are required to clearly post the expiration date.

Despite the existence of unclaimed property laws regarding SVCs in several states, retailers that operate on a nationwide scale may not be aware that they need to be in compliance with several different state unclaimed property laws. Complicating matters, there are no current federal laws that regulate the issuance of SVCs.

The Federal Deposit Insurance Corp. (FDIC) has been considering regulations for SVCs for many years. A current FDIC proposal would include SVC funds under the definition of deposits for banks that are federally insured. The value of any SVC, if the proposal becomes law, would be guaranteed up to $100,000. This would put SVC funds in the same category as bank deposits.

The Federal Reserve Board has also taken into consideration the expansion of Reg E of the Electronic Fund Transfer Act to include SVCs. The Act protects bank deposits from fraud and requires banks to provide monthly account information to their depositors. Currently, the act also covers various financial transactions and protects ATM and debit cards. Although the possible expansion of Reg E is still under consideration, it doesn’t look likely at this time. As of Dec. 31, 2005, the board essentially ruled that the substantial costs of applying Reg E. to stored value cards, “which may only be used on a limited, short-term basis and which may hold minimal funds,” outweighed the few benefits.

Regardless of the legal implications of stored value card expiration dates, you need to be aware of some things. When you purchase a SVC, pay attention to the terms and conditions you’re agreeing to when you purchase the card. Remember, you’re basically prepaying for goods and services. By not taking into account any administrative or dormancy fees that may be associated with a SVC, if you wait too long to use your card, it’s value may be significantly less than you anticipated and without realizing it, you’ll essentially “give” money to the retailer that issued the card. In this scenario, an expiration date could be considered very consumer unfriendly.

“The monetary value of the gift card does not belong to the retailer - this money belongs to the consumer, and should be treated same as cash,” said Pennsylvania Public Interest Research Group (PennPIRG) President Beth McConnel. McConnel made the statement to the state’s joint House Consumer Affairs and Finance Committees when urging the passage of House Bill 311, which would make expiration dates on gift cards illegal in Pennsylvania. The bill is still moving through the state legislature at this time.

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John Campbell is the writer and editor of CashBuzz, A financial portal for the rest of us. Check out cashbuzz.com for the latest articles on money management and tips and tricks that can help improve your finances. This article may be reprinted on your Web site if the copyright, author information and active link are included.