New rules were announced on November 16, 2009, regarding stricter rules to govern fees and expiration dates for gift cards, gift certificates, and general use pre-paid cards. While the rules have not be enacted and are open for comment for the next month, proposals include the prohibition of dormancy fees for a year and the extension of expiration periods to at least five years from the time the funds were loaded and the card sold and issued.
- How would you classify gift cards on the financial statements?
- If a $50 gift card has a five year period before it expires, how should the company selling the card recognize income on it?
- Under the proposed changes, issuers can still charge inactivity fees for gift cards, are limited to one fine per month after a 12-month period. In addition, monthly maintenance fees, balance-inquiry fees and re-loading fees will be allowed. How should these fees be recorded by the issuing companies?
SOURCE: Jaffe, C. “No Gifts, Please,” Wall Street Journal- Market Watch (Retrievable online at http://www.marketwatch.com/story/gift-card-fees-keep-on-giving-to-card-issuers-2009-11-18)