Gift Card Blog - ScripSmart

Why Gift Cards Become Worthless When A Company Goes Out Of Business

Bankruptcy, is one of the risks of any gift card. Ultimately, business is about making a profit and there are times when a business model can't sustain itself. Typically, the business will borrow money in an effort to survive and make the business viable. However, sometimes a turnaround is not possible and the business may have no choice but to file for Chapter 7 Bankruptcy protection. In other words, to close the doors and go out of business for good.

Looking At The Numbers

A recent article by tampabay.com gives some insight into the numbers a bankruptcy judge might see in a bankruptcy case. Sam Seltzer's Steakhouses owed a total of $3.8 million and had just $53,000 in assets.

The $3.8 million in debt is broken into two parts:

1) Secured Debt - Simply put, secured debt is any debt which is associated with some tangible property. For example, a loan for kitchen equipment or a mortgage on a building. Sam Seltzer's had approximately $2 million in secured debt.

2) Unsecured Debt - On the other hand, unsecured debt is all other debt. For example, payments to employees, vendors and so forth. Gift cards also fall into the unsecured debt category. Sam Seltzer's Steakhouses had approximately 1.8 million in unsecured debt, of which $262,000 was owned by gift card holders.

Too Many Hands, Not Enough Money

With $53,000 in assets, Sam Seltzer's could not refund all the gift card holders even if they were first in the long line of people to be paid. Unfortunately for git card holders and according to the Bankruptcy Code, unsecured debt has a lower priority of payment than secured debt. Worse yet, repayment to gift card holders falls towards the bottom of the payment priority for unsecured debt.

Bottom line, when a company files for Chapter 7 bankruptcy, it simply doesn't have the money to meet it's financial obligations. What little money is left often goes to those with a higher payment priority as set by the Bankruptcy Code.

Chapter 13 Bankruptcy - Reorganization

It's important to note, there is another forms of bankruptcy protection, Chapter 13. If a business files for Chapter 13 bankruptcy protection, it intends to reorganize and will likely ask the Bankruptcy Court for the ability to continue accepting gift cards. Blockbuster Video and Claim Jumper are two recent examples of companies filing for Chapter 13 bankruptcy protection, but continuing to accept and sell gift cards. In other words, just because you hear a company has filed for bankruptcy, it don't mean your gift card instantly worthless. It's important to look into the matter and use that gift card ASAP.

ScripSmart Accounts Can Help

Remember, a ScripSmart Account can help you avoid being stuck with a worthless gift card. Just sign up for a free account and add your gift cards.  If we catch wind of a company going under or even in financial trouble, we'll be sure to send you a note via email and hopefully you'll have one last opportunity to redeem that gift card!

The Gift Card Vending Machine

Residents of Providence, Rhode Island now have access to a gift card vending machine. According to local NBC affiliate Channel 10, the new gift card vending machine at Providence Place mall and has filled a void for self-service gift card purchases seven days a week. In fact, up to 6 cards and/or $300 worth of gift cards may be purchased in one transaction.

Only American Express Gift Cards

Initially, we thought this story was about a gift card vending machine which sold gift cards for multiple merchants. It turns out, this new gift card vending machine only sells the Shop Etc. American Express Gift Card. In either case, the Shop Etc. American Express Gift Card can be redeemed anywhere American Express is accepted. There is a $3.00 purchase fee per card, no post-sale fees and and the funds never expire. All things considered, the Shop Etc. American Express Gift Card is one of the best bank-issued gift cards available; it's current Gift Card Score® is 71 of of 100.

Gift Card Score

ScripSmart's Gift Card Score is a patent pending system for evaluating the quality of gift cards. All gift cards are scored utilizing the same algorithm, scores range from 0-100. Gift Card Score makes it easy for anyone to be a savvy gift card shopper.

ScripSmart believes a great gift card is much more than just no fees or expiration date; other factors include: balance inquiry option, gift card replacement policies, disclosure of current gift card terms and the financial condition of the card issuer.

 

Tom Quick Inn Leaves Gift Card Holders Empty Handed

It's happened again, this time in Milford Pennsylvania: good gift cards suddenly turned worthless.

The historic Tom Quick Inn, located in Milford, Pennsylvania, has abruptly closed it's doors leaving customers with no chance to redeemed their gift cards. According the Times Harold, the Inn has had several owners and a slew of problems over the past 10 years; the doors closed on October 1, 2010.

Uncertain Future

It's unclear if the business will open again and accept the gift cards it once issued. Chances of the Tom Quick Inn regaining value are slim to none.

Yesterday, the company's website displayed an  'Access Forbidden' error message and today it appears to be up. In either case, the number for reservations is disconnected and there is a "Closed until further notice due to unforeseen circumstances." sign on the door.

We're putting the Tom Quick Inn Gift Card in the gift card graveyard. Should the gift card come back to life, we'll dig it up.

Supporting Local Business Or Maximizing Gift Card Risk

We believe it's important to support local small businesses. Places like the Tom Quick Inn are unique and provide character to a community. However, buying a gift card from a local small business has both up and down sides.

On one hands, a gift card to a one-of-a-kind restaurant is likely be more memorable than a gift card to a large national chain. It also helps support local business. On the other hand, the risk of losing your money with a gift card redeemable at a national brand is much lower than that of a small business. Furthermore, you're likely to hear about the troubles of a national brand and have one last chance to redeem that gift card.

ScripSmart recommends using any gift card as sooner than later. In the case of a small business gift card, we recommend redeeming as soon as possible.

ScripSmart Accounts Can Help

Remember, a ScripSmart Account can help you avoid being stuck with a worthless gift card. Just sign up for a free account and add your gift cards.  If we catch wind of a company going under, we'll be sure to send you a note via email and hopefully you'll have one last opportunity to redeem that gift card!

Sam Seltzer's Gift Cards Are Still Worth Something

Earlier this year, we wrote about a Florida restaurant chain, Sam Seltzer's, abruptly closing it's doors leaving gift card holders with nowhere to redeem their gifts.

The manner in which the Sam Seltzer's Steakhouse bankruptcy was handled was among the lowest of quality. Not only did customers have no warning the doors were set to close, but the company was selling gift cards up until the last day. In an instant, an estimated $262,000 worth of gift cards became worthless.

That is usually where the story ends: a company goes under and gift cards become worthless.

Harold Seltzer's Steakhouse

Harold Seltzer, served as a key member in the creation of the Sam Seltzer's Steakhouse brand. In fact, it's named after his grandfather, Sam. In 2004 Harold sold his interest in Sam Seltzer's Steakhouse chain in a bitter dispute with family.

It easy to understand Harold's disdain for the way the Sam Seltzer's Steakhouse brand ended. Harold had nothing to do with how the company handled gift card holders and gauging by his response, it's too bad he wasn't in charge of the company at the time.

Harold is so upset, he has decided to make it up to those who were stiffed by the previous owner's of Sam Seltzer's by opening Harold Seltzer's Steakhouse and offer one free prime rib dinner for each Sam Seltzer's gift card presented.

According to the St. Petersburg Times, the Port Richey and St. Petersburg locations will reopen in late October and there is a one card per table limit.

Stepping Above And Beyond

Harold Seltzer is in no way obligated to repay such a debt. However, we believe this is a great move. By accepting the gift cards, Harold is luring back once loyal customers of the popular Sam Seltzer's Steakhouse. I'd love to see Harold's Seltzer's Steakhouse succeed. When I'm in the area, I'll be sure to stop in and buy a steak to support Harold's good intentions.

Not Governed By New Federal Gift Card Laws: Incentive Gift Cards

This is the first post in a series covering prepaid products which are excluded from the new federal gift card rules.

The new federal gift card rules cover most of the prepaid products consumers will receive as a gift this holiday season. However, there are some exceptions and one such exception is for any card given as part of a loyalty, awards or promotional program.

Case and point, InComm recently changed the name of their popular B2B gift card program Smart GiftCard Solutions to the Vanilla Visa Reward Card. Removing the term "gift card" was necessary to avoid being classified as a gift card and therefore governed by the new federal gift card laws. The Vanilla Visa Reward Card is sold directly to businesses in bulk orders of 50 or more. It's intended to be given to consumers for free as part a promotion, employee gift, contest, incentive or sweepstakes.

Here is a quick breakdown of fees one might incur with the Vanilla Visa Reward Card:

• $2.50 monthly fee beginning 6 months from purchase the purchase date
• $5.95 fee for replacing lost, stolen or damaged cards
• Minimum 24 month "Valid Thru" date
• Funds do not expire, but consumers must pay a $5.95 re-issuance fee to access the funds after the "Valid Thur" date

The Vanilla Visa Reward Card fees schedule is similar to what we saw with the Vanilla Visa Gift Card before the effective date of the CARD Act's gift card provisions.

The Vanilla Visa Reward Card's Cousin

The Vanilla Visa Reward Card has a cousin, Vanilla Visa Gift Card; and it offers much more consumer friendly terms. It also falls under the the federal government's new gift card rules and is sold directly to consumers. While the Vanilla Visa Gift Card offers much better terms after the sale it will have a higher purchase fee. Businesses looking for a gift card supplier to sweeten an offer or reward customer loyalty, will likely to find the lower purchasing fee of the Vanilla Visa Reward Card attractive and they will inevitably end up in the hands of consumers.

Consumer Gift Card Tip:

If you receive a gift card from which is not clearly labeled as a "gift card", be sure to double check the terms. It's possible you're recent gift just might come with some short strings. Here are some examples of of when you might receive a incentive card:

• Buy a product and receive a "free $50 Visa Card"
• A gift from an employer to it's employees
• A contest, winner will receive a "$50 Visa Card"
• Spend $500 and get a "free Visa Card"

Below is an example from Big Bear Lake Resort Association's website:

Michigan Changes Unclaimed Property Law For Gift Cards

The State of Michigan needs money and they've shortened the time frame for gift cards, among other items to be considered abandoned property. HB 6421 was signed into law by Governor Jennifer M. Granholm on October 6th, 2010 and is effective immediately.

Thankfully most gift cards are excluded. Per Section 15 (4):

"This act does not apply to a gift certificate as defined in section 3e of the Michigan consumer protection act, 1976 PA 331, MCL 445.903e, that is issued for retail goods or services by a person engaged in the retail sale of goods or services."

That's a really confusing way of saying store-issued gift cards (Best Buy, iTunes, Walmart, etc.) are excluded. See Section 3e for more detail on which types of gift cards are excluded by HB 6421.

However, bank-issued gift cards (Visa, American Express, etc.) are included and are now considered to be unclaimed property after 3 years of inactivity.

Abandoned Before Expired

While Michigan Gift Card Law does not cover bank-issued gift cards, recent Federal Gift Card Law prohibits such gift cards from expiring within 5 years. It's a bit odd the state has decided to consider a Visa Gift Card unclaimed before it can legally expire.

While it may not make much sense to us, at least the law makers of Michigan didn't stoop to New Jersey's level of desperation: New Jersey's recently changed unclaimed property law for gift cards to include both store-issued and bank-issued gift cards. It also shortened the time frame to just two years and is retroactive.

Why You Should Avoid Buying The Walgreens Flu Shot Gift Card

It's flu season again and we just reviewed the Walgreens Flu Shot Gift Card. It's a clever way to market flu shots; however, this gift card falls short in several areas and bucks the trend of gift cards becoming more flexible and more consumer friendly. As a result, there is a 30 point difference in ScripSmart's Gift Card Score® when compared to the standard Walgreens Gift Card.

Walgreens Flu Shot Gift Card - Gift Card Score - 37

At a cost of $29.99, the Walgreens Flu Shot Gift Card is redeemable for one flu shot. Unfortunately the gift card expires in 5 years and is not redeemable for any other merchandise. This is a major drawback, especially considering the fact that the gift card does not guarantee a flu shot for your recipient this flu season.

In the event Walgreens' flu shot supply is depleted, you're recipient will be out of luck and have to wait until next year to redeem the gift. Furthermore, the Walgreens Flu Shot Gift Card does not lock in the cost of a flu shot. If the price increases any time, you're recipient will need to pay the difference.

The Walgreens Gift Card - Gift Card Score - 67

If you're considering the Walgreens Flu Shot Gift Card, we recommend you first consider the Walgreens Gift Card. It's a significantly better option for consumers and unlike the Walgreens Flu Shot Gift Card, the Walgreens Gift Card does not expire. It can also be used for a flu shot or any other merchandise at Walgreens, Rxpress or Walgreens Pharmacy.

Where's The Upside?

It's a bit surprising Walgreens created a product which is so much less flexible and offers no upside in exchange. At the very least, the Walgreens Flu Shot Gift Card should lock in the price of a flu shot for your recipient, guarantee availability of a flu shot this flu season or offer a flu shot at a discounted rate.

It seems it would have been smarter to simply produce a Walgreens Gift Card with a flu shot graphic and keep the same terms: no expiration and redeemable for just about everything at Walgreens. If you buy the Walgreens Flu Shot Gift Card, you're supporting Walgreen's decision to offer a product which is less consumer friendly and your gift just might come with an undesired side effect: a headache. 

ScripSmart's Gift Card Score is designed to help you find and support the best gift cards available; just check the Gift Card Score before you make your next gift card purchase.