ALBANY — New York State retailers that offer merchandise or gift certificates would be required to hold an equal amount of money in escrow until those certificates are redeemed, according to a proposal by Assemblyman Richard L. Brodsky (D., Westchester) and Sen. Kemp Hannon (R., Nassau) last week.
The legislators noted that when the now-defunct Herman’s Sporting Goods was operating in bankruptcy, customers were left holding gift certificates that were not honored. “It’s an unacceptable business practice that must be stopped,” Brodsky said.
The proposal was blasted by James R. Sherin, vice president and director of government relations for the Retail Council of New York State, who said in a statement, “There are plenty of reasons why the bill creates problems for retailers large and small. To suggest that the requirements and burdens foisted upon merchants under this legislation would be easily assimilated by the industry demonstrates a shocking lack of understanding and appreciation of the real world marketplace.
“This bill would make it virtually impossible for some and extremely costly for all retailers in New York State to offer gift certificates,” Sherin charged. “It’s poorly conceived and an extreme overreaction, which would only serve to deprive consumers of purchasing opportunities.”
Sherin pointed to a measure introduced by Sen. James Alesi (R., Monroe) and Assemblywoman Audrey Pheffer (D., Queens), as a more sensible approach, requiring bankrupt retailers to honor gift certificates while their stores are in business.
“The Alesi/Pheffer bill would address, for example, going-out-of-business sale situations in which a retailer may sell its merchandise to a third-party liquidator, who in turn uses the store’s existing space (and name) to sell the merchandise during a liquidation sale,” explained Sherin. “Some third-party liquidation firms refuse to accept any method of payment other than cash or credit cards during such sales, potentially rendering useless a gift certificate purchased from the defunct retailer.”
However, Russ Haven, Legislative Counsel for the New York Public Interest Research Group (NYPIRG), said, “the Brodsky/Hannon bill will guarantee that a gift certificate remains worth its face value and recipients don’t have to look their gift horse in the mouth. Small retailers will benefit because shoppers will buy gift certificates safe in the knowledge that their purchases are protected.”
“When a consumer gives money to a business they expect a good service in return,” stated Brodsky. “Right now, consumers are buying gift certificates only to find them unredeemable because the certificate has expired or the business has declared bankruptcy. By requiring businesses to set aside matching funds in escrow accounts when a gift certificate is purchased and by eliminating expiration dates on gift certificates, New York’s consumers will receive the protection they deserve.”

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