While the legislature is in session, the National Federation of Independent Business/California will be profiling anti-small business bills and the adverse effect they would have on California’s job creators. This is the first column of the 2010 series.
We’ve all got them in our wallets, purses and desk drawers. They hide from us and we forget that we have them until we “discover’ them again. What are we referring to? Gift certificates – the best one-size-size-fits-all present for those family members or friends that are the hardest to shop for. But as usual, the California legislature can’t leave anything alone…now they’re proposing a change to gift certificates that is no gift for small business, especially mom-and-pop retailers.
Senate Bill 885 doubles the gift certificate redemption provision from a value of $10 to a value of “less than $20” and requires a printed disclosure statement be included on each card or certificate. Doubling the value of the cash-out provision increases the burden already facing small business owners by expanding potential financial liabilities with outstanding gift certificates.
How would a small business operating on a thin profit margin be able to predict and plan for gift certificate cash-outs? They would be required to reserve or hold some of the revenue back and be unable to use it for paying employees, rent or reinvesting in their business to create jobs. It is inappropriate and unreasonable to ask small retailers to unwillingly act as an ATM.
Additionally, when a gift certificate is purchased using a credit card, the small business owner pays an interchange fee for the privilege of accessing the network. For the average small retail business, the purchase of a $20 gift card costs a small retail store owner about $1.00 to $1.50 when the credit company-imposed fees and other costs are counted. Now the small business must “eat” five percent of the card value.
Consider this example: Jane purchases a gift card for her friend John as a birthday present. John holds onto the gift card for several months. During this time, the small retail business owner uses the revenue from that sale to pay their rent, employee wages or purchase additional products. When John finally uses the card, he only purchases a newspaper and asks for the remaining $19.25 in cash. The small business owner is now out $19.25 that has already been spent to keep running their business, plus the another $1.50 for card costs. $20.75! That is one expensive newspaper.
California’s job creators already face a number of challenges during one of the worst recessions in more than 50 years. Being required by law to act as an ATM for consumers puts undue strain on these employers at the worst time possible. The current $10 cash-out limit takes care of those $1.00 and $2.00 gift cards lying around your house. It is time for legislators to leave well enough alone.