Gift card fiasco

Gift cards are incredibly popular with consumers because of their convenience and simplicity. You give a business your money, the business gives you a plastic card worth store credit, then you give the card to someone as a gift.

Of course, in the Byzantine worlds of accounting, bankruptcy law and tax policy, the transaction is much more complicated. To these bean counters, the next time you buy a gift card you're actually saddling a business with debt that one day might be seized as a tax payment. And there's no guarantee the card can be redeemed.

How does a process so plain get so confusing and risky?

Many major retailers, restaurants and service-oriented businesses are seeking bankruptcy protection as a result of the staggering economy. When they present their books to the court, unused gift cards are not seen by the judge as promises that need to be kept. Gift card holders are considered unsecured creditors, and if they want to cash in their present, they have to get in line behind secured creditors such as suppliers and banks with loans tied to land or buildings.

Anyone who has tried to collect on gift cards from cool-gadget retailer The Sharper Image knows that means consumers get the shaft. The company filed for bankruptcy protection and announced last month that it won't accept its own gift cards, for now at least.

Brian Riley, a senior analyst for financial services consultant The Tower Group, estimates that business closings and bankruptcies could cost shoppers more than $75 million worth of gift cards this year alone.

"You will see a lot of frustration among customers," said C. Britt Beemer, chairman of America's Research Group. "You basically stole out of the customers' pocket. They will never forgive you."

If someone has a gift card in hand, it means someone else has already paid the business for some product or service. It's preposterous that any business operating under bankruptcy protection would refuse to accept gift cards.

Imagine walking into a car dealership and handing over payment for a new vehicle, then not getting the keys. Or swiping your credit card to buy several hundred dollars worth of clothes at a department store, only to have the cashier return your purchases to the store racks.

To make the practice even more ridiculous, businesses in many states -- including Nevada -- aren't allowed to keep the proceeds of unused gift cards. The government considers them unclaimed property, which allows bureaucrats to either auction them or simply transfer the funds directly into the treasury. Nevada's law, sponsored by Assemblyman Ruben Kihuen, D-Las Vegas, and signed by Gov. Jim Gibbons last year, requires 60 percent of the value of unused gift cards to be applied to public school spending.

Consumers take an unnecessary chance in today's economic climate by holding onto gift cards for months or years. But they should have some protection from absurd precedents that permit outright thievery.