Costco Gift Card Program Faces Turmoil as Partner's Bankruptcy Leaves Consumers in Limbo
Discount gift cards, long a staple of savvy holiday shopping and bulk retail strategies, have become a source of frustration and financial loss for many consumers following the collapse of a major program. The bankruptcy of Synergy World Inc., which operated a multi-restaurant gift card network sold through Costco warehouses, has abruptly stranded cardholders and raised questions about the risks embedded in these popular promotions.
While federal regulations protect against hidden fees and premature expiration dates, they offer no shield when a company files for bankruptcy. "Federal gift‑card rules limit fees and expiration dates but do not protect consumers when an issuer files for bankruptcy or goes out of business," Consumer Reports has noted. This legal gap has come sharply into focus with the Synergy case.
According to court documents and company statements, Synergy World announced plans to file for Chapter 7 liquidation. Initially, it communicated a final redemption deadline of January 31. However, a reported surge in redemption attempts forced an earlier, immediate shutdown on January 30, leaving consumers who hadn't acted quickly with unusable cards. Over 100 restaurant brands were part of the now-defunct network.
The fallout has been messy and inconsistent. Some local news outlets, like 10 News San Diego, reported restaurant owners seeing a 200% spike in Synergy card usage as news spread. Meanwhile, customer experiences with Costco refunds appear to vary by location, with no uniform corporate policy publicly announced to address the situation.
This incident underscores a widespread issue. A Capital One Shopping study found that 43% of U.S. adults have at least one unused gift card or store credit, with an estimated total of $23 billion in dormant value nationwide. In bankruptcy proceedings, gift card holders are typically unsecured creditors, often last in line for repayment.
"The Synergy situation is a stark reminder that a discounted gift card is only a deal if you can use it," said financial analyst Marcus Chen. "Consumers are essentially extending an interest-free loan to a business, with the added risk of being left with nothing if it fails."
Reader Reactions:
"This is a disgrace. Costco markets these cards as a great value, partners with a third party, and then leaves customers holding the bag when it collapses. Their silence is deafening. They have a responsibility to make this right." – Janet R., small business owner (San Diego, CA)
"It's an unfortunate but known risk. I always use my gift cards within weeks of purchase, especially for smaller chains or third-party programs. This is a painful lesson in reading the fine print and acting fast." – David L., retail consultant (Chicago, IL)
"The $23 billion in unused value statistic is the real story here. It points to a massive inefficiency in the market and a behavioral economics puzzle. Why do we buy these if we don't use them?" – Professor Aris Thorne, economics department (Boston, MA)
"I got a full refund at my local Costco. The manager said they were handling it case-by-case. It pays to be polite but persistent. Still, they shouldn't have partnered with such a shaky company." – Rebecca G., teacher (Austin, TX)
Legal experts advise consumers to treat gift cards like cash intended for immediate use, especially when purchased for financially distressed retailers. As the Synergy World case demonstrates, the window to recover value can slam shut without warning.
This report includes background and analysis developed from original reporting by TheStreet.