Gift Cards

Retailers from the beginning expressed their commitment to working with the Ontario government to create rules for gift cards. Retail Council of Canada (RCC) was extensively involved in the consultations conducted by the Minister of Government Services in the months leading up to the introduction of the Consumer Protection and Service Modernization Act, 2006. At that time, we indicated our willingness to create rules that respond to the concerns of consumers but also take into consideration the legitimate needs of retailers. RCC's position has not changed since then, and we look forward to working with the government and other affected stakeholders to develop regulations that meet that goal.

We are very pleased that, as a result of our discussions, the government has stated that its intent is to focus only on gift cards purchased by consumers. This is an absolutely critical issue for the retail industry as, despite the name, gift cards are not solely something purchased by a consumer to be given and received as a gift. Rather, retailers often give gift cards away as a promotion or for customer service purposes while many retailers donate gift cards to charity as prizes or to be auctioned off. Gift cards are used by retailers for a variety of marketing and reward initiatives.

We commend the government for recognizing the very real benefits to consumers that gift cards can present and we want to continue to work with them to ensure that retailers are not discouraged from continuing to offer these benefits and be innovative in the way that they do so.

Expiration Dates
Gift cards are one of the fastest-growing products in the marketplace today. The majority of large retailers offer gift cards, and in response to consumer demand, a lot more small and mid-sized retailers are beginning to offer cards as well. Gift cards offer security, convenience and choice to the consumer and these things will continue to drive gift card sales and innovations.

While gift cards are extremely popular, it is important to note that they are still a relatively new and developing phenomenon in the Canadian marketplace. As such, there is a lack of consensus with respect to best practices regarding their administration. One area in which there is a great diversity of practice in the marketplace is with respect to expiration dates.

For most consumers, gift cards burn a hole in their pocket and the vast majority of gift cards are redeemed within a relatively short period of time after issuance. It is in fact only a very small percentage of gift cards that necessitate an expiry date.

While there is great diversity of practice in the marketplace with respect to expiration dates, retailers who place an expiry date on their gift cards do so primarily for accounting reasons. Specifically, retailers must show gift cards as a liability on their balance sheet until the card is redeemed. Expiry dates are a means of clearing the liability with respect to cards that have not been used for a period of time.

Also, managing gift cards becomes more complex and costly over time. The older the gift card, the more difficult it becomes to track the validity of the gift card and how much value it has stored.

Consumer demand has driven the popularity of gift cards and for retailers the needs of consumers will always win out. RCC and its members recognize that some consumers have concerns about expiration dates on gift cards. That is why we are working with the government to eliminate expiration dates on gift cards that are purchased by consumers in a way that is fair and responsible.

Service Fees
Another area in which there is a great diversity of practice in the marketplace is with respect to service fees.

Retailers who levy service fees on gift cards do so primarily to recoup some of the costs associated with them. Depending on the type of card issued, how many are ordered, the type of technology employed, and the services offered with it, the cost of gift card production and implementation can be significant. As such, some retailers charge fees similar to service fees charged by financial institutions for dormant bank accounts in order to recognize the continuing cost to a retailer of maintaining the balance of a card that has not been used for some time. If a retailer engages a third party to manage its gift card program, there is typically a charge for maintaining each gift card "account." These costs are ongoing, whether or not the card is used and continue in perpetuity in cases where cards do not expire. Sometimes, the cost for maintaining a gift card account exceeds the value remaining the card.

RCC and its members recognize that some consumers have concerns about service fees associated with gift cards. That is why we are working with the government to create rules regarding fees that are fair and responsible. For retailers, the needs of consumers will always win out and we look forward to working with the government to develop and implement rules that are fair for all parties.

Disclosure
Most retailers clearly disclose the terms and conditions of the gift card to the purchaser directly on the gift card. However, due to the abundance of information that is communicated, it is sometimes a challenge to fit all relevant terms and conditions on the card itself. For example, in addition to information regarding expiration dates and services fees, if applicable, many retailers include information on where the card can be used and for what purposes, how to access the retailer's customer service personnel, and what the consumer should do if the card is lost or stolen. Other retailers include bar codes and foreign currency conversions in the case of global companies. These space considerations are exacerbated by the fact that terms and conditions are communicated in both official languages. In cases where space does not permit the information to be communicated to consumers directly on the card, some retailers disclose the terms and conditions on the accompanying sleeve and/or on the sales receipt.

Some consumers have expressed concern that they were not aware of the terms and conditions, if any, associated with their gift card. That is why we are working with the government to create rules regarding what information is communicated to consumers and how that information is disclosed. Having standards in this area will assist both retailers and consumers alike.

Timing
There has been some concern expressed that the new rules respecting gift cards in Ontario will not be in place for the busy holiday shopping season, when the bulk of gift cards are purchased and exchanged.

Gift cards are a complicated issue and we commend the Minister, his staff, and the dedicated public servants at the Ministry of Government Services Policy and Consumer Protection Services Division for their transparency and readiness to consult with the retail industry and other affected stakeholders before proceeding with rules that will have both a financial and administrative effect on our sector.

We look forward to working with the government on the regulations and ensuring that retailers are equipped to implement them without any disruption in service to either the consumer or the business.