Gift cards have long been a major profit center for retailers because they know that a certain percentage of gift card funds will never be redeemed, which turns into pure profit for the retailer. Gift card retailers have even gone to the point of where they will offer a discount on the face value of a gift card because they know that on average they will come out ahead from unredeemed gift card funds.

Although gift cards have traditionally been a major profit center for retailers, the Federal Reserve is now hoping to make gift cards much more consumer friendly with a new set of rules related to gift cards that will go into effect in August of 2010.

The new regulations hope to eliminate fees and other gotcha’s that diminish consumer’s gift card balances. Under the new set of rules, a gift cards will now be good from 5 years after the date of purchase. After that 5 year period, any unused funds would be returned to the retailer or restaurant.

There are also several states that have looked to tax unused gift cards funds as a source to boost state revenues. Some states have passed legislation that forces retailers to hand over a percentage of unused gift cards to the state government, under the guise that it’s essentially unclaimed property. Since the new regulations prevent gift card companies from eroding balances over time, it’s likely that states that use gift cards as a revenue source will likely see a decline in income.