It said retailers should be required to place money from gift card sales in a trust account that would be used to honor the cards if the merchants continued operations under the protection of the Bankruptcy Court. Consumers Union, Consumers Federation of America, National Consumer Law Center and the advocacy group U.S. PIRG are all behind the proposal.
FTC spokesman Mitchell J. Katz said the agency had received the petition "and we are determining what our response will be."
Unless the federal government steps in and regulates the industry, shoppers will lose the value of their gift cards when a merchant files for bankruptcy. The company can petition the court to allow it to continue to accept its gift cards, but the bankruptcy judge has the option to reject such a petition, which would leave the cards worthless, Giorgianni said. In those instances the only recourse for shoppers is to file a claim along with other creditors.
In cases in which a company is reorganized or sold and remains a continuing business, most owners will get court authority to honor the cards as a way to maintain goodwill with consumers and drive customer traffic, said Marty Zohn, a bankruptcy attorney with Proskauer Rose in Century City.
But in outright liquidations, in which the stores are closed, shoppers will be out of luck in most cases, he said.
State laws, including one in California, have proved ineffective in protecting gift card holders in bankruptcies, said Giorgianni of Consumer Reports.
That's why Consumers Union is recommending that people avoid giving gift cards this Christmas season.
"If you don't know what gift to buy, just give cash," he said. "It's something that never expires."
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jerry.hirsch@latimes.com
