September 11, 2008
Chairman William E. Kovacic
Federal Trade Commission
600 Pennsylvania Avenue, NW
Washington, D.C. 20580
SUBMITTED BY FAX AND REGULAR MAIL
Re: Protect Consumers’ Money Held on Bankrupt Retailers’ Gift Cards
Dear Chairman Kovacic:
Consumers Union, the nonprofit publisher of Consumer Reports ®, Consumer Federation
of America, the National Consumer Law Center (on behalf of its low income clients), and
U.S. PIRG call upon the Federal Trade Commission to protect consumers from losing
billions of dollars held on retailer gift cards.1 This comes at a particularly important time
as more large retailers file for bankruptcy.
Gift cards do not have adequate consumer protections, particularly when a retailer files
for bankruptcy. Consumers are now discovering their gift cards may be greatly devalued
or not worth anything at all when a retailer declares bankruptcy. There is no guarantee to
consumers that they will be able to obtain the prepaid value on their gift cards from
struggling or bankrupt retailers.
Currently, unused gift card funds are treated as a debt and to honor the card the
bankruptcy court orders the retailer to honor the card. The retailer may or may not
request the court to allow it to continue to accept its gift cards. The consumer is left
without the ability to use the card if the retailer does not make this request or if the court
denies the retailers’ request. The consumer may be left with one option, which is the
cumbersome task of filing a claim as an unsecured creditor in the bankruptcy proceeding
to obtain the value on their gift card.
For example, consumers with Sharper Image gift cards suddenly held significantly
diminished or worthless cards when the retailer filed for bankruptcy early this year.
Initially, consumers were left empty-handed when Sharper Image ceased accepting its
1 “Retailer” includes all merchants that provide consumer goods and servic