NSW gift card regulation producing more harm than good

Moves to regulate the sale of gift cards with a lack of evidence have been excessive in New South Wales (NSW), with the Government regulating a popular product for retailers which had no serious issues.

In October last year, the NSW Government introduced a three-year minimum expiry limit for gift cards issued in NSW. The Australian Retailers Association (ARA) have suggested that based on the complexities arising from applying compliance regimes on businesses which operate both in and out of NSW, the best practice solution is to exempt interstate businesses from the legislation. If not, this raises the possibility of jurisdictional issues and constitutional challenges based on restricting trade and commerce between states.

There has been some suggestion that if an attempt was made to fine an issuing business in another state (particularly one that was not aware of the new legislation), there would be a basis to legally challenge the legislation. On behalf of our members, we have suggested the obligation be removed for interstate businesses issuing gift cards, as this obligation would be inoperable.

Therefore, we are confused as to why the NSW Government have gone down this path. This is a similar misstep to when the same Government imposed lock out laws, greyhound racing bans and introduced a badly crafted container deposit scheme. In the case of gift cards, we clearly have an ambitious Fair-Trading Minister who thinks keeping consumer rights advocates happy will win votes for a traditionally conservative, pro-business political party. Interestingly, while proposals to regulate gift cards have been around for some time at State and Federal levels, ultimately they have all decided regulation of this low-cost scheme will provide little benefit to consumers, while increasing non-redemption, breakage rates and the retailer’s financial liability.

The ARA have gathered substantial evidence from previous consultations on this issue, which indicated the breakage rate was a remarkably low 3%. A key driver for gift card redemption is the 12-month expiry period, as shorter redemption periods drive consumers to use their gift cards in the first few months of issue. This evidence suggests longer redemption dates may cause consumers to forget about cards, which increases breakage rates.

The ARA, on behalf of the NSW Business Chamber (NSWBC), Australian Sporting Goods Association (ASGA), Franchise Council of Australia (FCA), Pharmacy Guild of Australia (PGA), and Restaurant and Catering Australia (RCA), all disapproved of the proposed reforms to NSW gift cards, as previous Federal Government inquiries into the operation of gift cards have found no associated consumer benefit to altering the regulations.

The ARA have recently made a submission to NSW Fair Trading’s (Fair Trading) consultation on amendments to the recently passed legislation for gift cards, suggesting further changes and exemptions.

As ARA members still hold a significant amount of gift cards in stock, whose terms and conditions will soon be rendered outdated, the ARA are concerned retailers will have very little time to sell these products before 31 March this year.

With the implementation date fast-approaching, the ARA are concerned the six-month transition period will not allow retailers enough time to offload non-compliant stock, and will be pushing for a more reasonable 12-month transition period.

This early implementation date means Fair Trading’s changes will need to be rushed through Parliament in February – just three months after the legislation was passed, and weeks before it commences – leaving very little time or detail on how it will work for retailers.

Fair Trading has proposed this raft of changes, so soon after the legislation was initially passed, because as it stands, it clearly would not work. Certain exclusions for specific gift card categories (such as cinema vouchers), a meagre six-month transition period, and forcing retailers to notify consumers of the changes during the short transition period is not only confusing for retailers and consumers but extremely impractical.

Although these regulations are frowned upon across the industry, we are grateful we were able to reject the original proposal – which included no expiry date – which would have seen retailers carrying the financial liability forever.

The ARA maintains the overall view, that best practice for regulating gift card sales in NSW is to abandon this complex and unnecessary legislation and to implement an industry-backed Code of Conduct. The ARA sees regulation as a serious impediment and additional cost to small and medium retailers issuing gift cards with major retailers, potentially incurring significant red tape costs and having no choice but to pass these on to the consumer.

There is a worrying trend amongst Governments to increase red-tape and regulation to keep every minority stakeholder happy. The Government needs to realise that endless regulations ultimately costs both retailers and consumers; who are both key stakeholders at the fast-approaching State election.

The ARA works to ensure retail success by informing, protecting, advocating, educating and saving money for its 7,500 independent and national retail members, which represent in excess of 50,000 shop fronts throughout Australia. For more information visit www.retail.org.au