Clock Ticking On KB Toys Gift Cards, Crystal Mall Settles On Violations

HARTFORD — Attorney General Richard Blumenthal warned that KB Toys, Inc store credit and unredeemed gift cards — recently estimated at 12 million cards unused — will soon be worthless.

After discussions with Mr Blumenthal’s office, the bankrupt KB Toys — which has Connecticut stores in Meriden, Trumbull, Danbury, Waterbury, Milford, and Westbrook — agreed to honor gift cards and merchandise credits at least through the close of business on January 11. The company formerly operated a retail store in the Sand Hill Plaza in Newtown.

KB has also agreed to provide ten days notice to the attorney general’s office, as well as to post notices in its stores, if it determines a particular store will no longer honor gift cards.

The company has agreed to several terms to protect consumers in connection with its store closing sales, including a promise that it will honor all warranties and accept returns of defective merchandise sold during the store closing sales.

Mr Blumenthal said, “The message is: use it or lose it. KB consumers cannot play around. They must cash in their gift cards now. Millions of KB gift cards remain unused and may soon be worthless. The bankrupt toy chain has rightfully and responsibly agreed to honor gift cards and store credits, but only through next week.

“This bankruptcy — and countless others — should compel consumers to redeem any unused gift cards, no matter how seemingly sound the retailer.”

KB has also agreed to notify consumers of its store closing date, or the number of sale days left, by posting such notice at its stores at least five days prior to store closing. KB operates 277 stores nationwide.

In related news, Attorney General Blumenthal announced two days earlier that the owners of the Crystal Mall in Waterford will pay $308,736 — mostly for refunds to thousands of consumers — to settle allegations that they violated the state ban on gift card inactivity fees.

Mr Blumenthal reached the agreement with Simon Property Group, LCC and SPGGC, LLC on behalf of Department of Consumer Protection (DCP) Commissioner Jerry Farrell, Jr, and state Treasurer Denise L. Nappier.

The settlement includes $258,736 in refunds to consumers subjected to inactivity fees on Simon gift cards from August 16, 2003, to January 31, 2005. The remaining $50,000 reimburses the state for investigative and litigation costs and will go into the General Fund.

The agreement settles a lawsuit that Mr Blumenthal filed against Simon in 2004 on behalf of DCP and the treasurer.

“While this restitution is welcome and significant — almost $260,000 back to consumers whose cards improperly lost value because of dormancy fees — it also shows how sadly and starkly deficient the law is,” the attorney general said. “At the time, Simon brazenly devalued gift cards by hundreds of thousands of dollars. Now, the company’s actions would be beyond the state law enforcement because it has shifted to cards issued through a national bank, deemed subject only to federal law.

“We must close the national bank legal loophole, so that unfair restrictions and fees are stopped, whoever issues the cards. I will seek state legislation requiring retailers who use national banks to callously circumvent state consumer protection laws to post prominent warnings that their gift cards are subject to inactivity fees and expiration dates.

“Simon customers effectively paid money for nothing, putting pure unearned profit into Simon’s pocket. Gift cards are supposed to be cash on call, and consumers should get every penny,” Mr Blumenthal added.

Ms Nappier said she is pleased that Simon Property Group has agreed to return money that rightfully belongs to the gift card holder, but cautioned consumers to be aware of the potential hazards of giving and receiving gift cards and gift certificates.

Nappier said, “My administration has always maintained that Connecticut gift card holders are entitled to the full value of their gift cards. That’s why I fought for a law eliminating expiration dates and inactivity fees in the first place.”

Mr Blumenthal estimated that thousands of consumers are eligible for refunds ranging from $2.50 to about $50. The total restitution is the amount that Simon collected in dormancy fees from Connecticut consumers during the time period covered by the agreement. Simon charged consumers a $2.50 per month “administrative” fee on cards not fully redeemed after six months.

The agreement requires Simon to post signs at Crystal Mall informing consumers subjected to inactivity fees on their gift cards between August 13, 2003, and January 31, 2005, that they are eligible to apply for restitution. The signs instruct consumers to contact Mr Blumenthal’s office at 860-808-5420 to obtain claim forms. The notices must stay up until February 2, 2009.

Consumers must submit claims by April 3, 2009, and will receive back 100 percent refunds of the fees charged them. Any undistributed funds will go into the state’s General Fund.

Simon is now issuing gift cards through two national banks, MetaBank and US Bank, to circumvent Connecticut’s ban on dormancy fees. Because they are national banks, their cards are governed by federal law, which allows dormancy fees.

Simon is charging $2.50 a month on cards 13 months and older.

In a small consumer victory, following its review and discussions with Ales Cirikovic and Danela Gjetani, the new owners of Emilio’s Italian Ristorante at 181 Main Street, Southington, the Department of Consumer Protection recently entered into a written agreement with Mr Cirikovic and Ms Gjetani whereby consumer gift cards that had been issued by the prior owner, Emilio Gutic, will be honored.

“We were notified of this situation and subsequently reached out to the new restaurant owners, who have agreed to honor customers’ gift cards that were issued prior to taking over the restaurant last spring,” Consumer Protection Commissioner Farrell said. “This is a positive development for those customers who bought or received these cards prior to the former owner’s sale of the business, and I thank [the new owners] for entering into this written agreement and bringing a quick resolution to the problem.”