American Express has announced that it will cease offering prepaid gift cards in New Jersey. The state passed a law some time ago allowing unused funds to be claimed by the state after a period of inactivity.
State on hunt for cash
The state of New Jersey passed a law, according to the Washington Post, two years ago dealing with unclaimed funds in prepaid gift cards and traveler’s checks. It’s called an escheat law, which gives the state authorization to claim unclaimed property or funds if they are just sitting there, like unused traveler’s checks or debit card balances.
New Jersey’s law gives the state of New Jersey the right to any money left over on prepaid cards or any traveler’s checks if the cards or checks aren’t used for two years. It also mandates that any company selling the cards has to record the ZIP code of the buyer.
American Express and the Retail Merchants Association, among other groups, sued to prevent having to gather ZIP codes from customers, but a federal judge ruled against an injunction against the ZIP code rule.
AmEx pulling cards from stores
As a result of the lifted injunction, American Express is pulling all prepaid gift cards from stores in the state of New Jersey. Customers will have to order them directly from American Express. According to the Consumerist, the decision was partially because of penalties American Express might face if any retailers selling American Express gift cards decided not to collect ZIP code information.
The law, passed in 2010, has already paid dividends to the state of New Jersey. Unclaimed traveler’s checks brought an additional $35 million in revenue in 2010 and a further $79 million in 2011 as New Jersey claimed all the unused traveler’s checks it could find.
After the new ruling, the state projects $1.5 million to $3 million per year from traveler’s checks that go unclaimed. The state hasn’t projected any potential revenues from prepaid cards.
Lawsuits against the state challenging the legality of the law are still pending before federal courts, and New Jersey legislators are trying to repeal the law.
Other card issuers may follow
Visa and MasterCard, which offer prepaid gift cards as well, have not announced an intention to do likewise. However, more states may add laws similar to New Jersey’s as budget shortfalls continue.
Unused gift cards and traveler’s checks are just a part of the $32 billion being collectively held for the rightful owners by state governments, according to Fox Business. All 50 states have a department that holds unclaimed property or funds, waiting to be claimed.