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December 2007
Avoid gift card pitfalls
They’re convenient and popular, but gift cards are often loaded with fees, expiration dates, and other hassles
Gift cards are sold nearly everywhere.
They seem like a perfect solution to the problem of what to give this holiday season. Gift cards are offered by banks, shopping
malls, retailers, airlines, restaurants, hotels, Web sites, and even state parks. And you don't have to go far to find them--many
supermarkets and drugstores display racks of gift cards conveniently near the checkout.
But a card is one gift that can keep on giving … grief. That's especially true for bank-issued cards, which often saddle recipients with fees, expiration dates, and other gotchas. Retail cards generally aren't as troublesome but some of them lose value or expire if you don't use them quickly, depending on laws and regulations in your state.
A national survey of 1,500 consumers done last spring by WSL Strategic Retail, based in New York, found gift-card fees and expiration dates were among the top causes of frustration. And that's just among people who attempted to use them. Earlier this year, TowerGroup, a research firm in Needham, Mass., estimated the value of unused gift cards in the U.S. at $8 billion for 2006. And in its fiscal 2006 annual report, the retailer Best Buy revealed a $43 million gain from gift cards that were unlikely to be used.
Similarly, a survey of 1,003 adults conducted in October by the Consumer Reports National Research Center found that 27 percent of those who received gift cards during the 2006 holiday season had not used one or more of them nearly a year later. That is up from the previous year, when 19 percent of consumers had one or more unused gift cards. Over one-third of those respondents said they didn't use the cards because they either forgot about them, lost them, or the cards had expired. But the most common reasons people gave for not spending their gift cards were that they didn't have time to shop (58 percent) or couldn't find anything to buy (35 percent).
Yet gift cards remain popular, not only among givers but also many getters. TowerGroup projects gift-card sales will top $100
billion in 2008, compared with estimates of $80 billion in 2006. Our survey found that 62 percent of consumers plan to give
gift cards this year, second only to clothing (71 percent). They are also the most-wanted gift among women and ranked third
with men.
MANY DIFFERENT TERMS
Gift cards come in two basic varieties. Retailer-issued cards generally can be used only at the issuer's stores and possibly other stores owned by the same parent firm. Retail cards are the least likely to expire or have fees. And there's usually no charge to buy them because retailers make their money not on the cards themselves but on the products and services that customers buy with them.
Bank-issued cards are different. They usually bear the logo of a major credit card and are accepted at most merchants on that credit-card network. Banks tack on a fee, typically $2 to $10, when they sell the cards and might assess other charges, described below.
The terms and conditions of bank-issued cards vary widely, even among those with the same credit-card logo. That makes it difficult for card givers and recipients to know exactly what they're getting. Compounding the problem is that it's not always clear where to look for information--on the card, on the packaging, or on the issuer's Web site.
"I think the biggest thing is to look at fees and expiration dates," advises Evan Johnson, administrator in the Office of Consumer Protection in Montgomery County, Md. For each of the last four years, Johnson's office has conducted a survey of national retail- and bank-issued gift cards, and found many of the problems that we list here.
There are far fewer regulations covering gift cards than debit and credit cards. Unlike in the case of other forms of electronic payment, the risk of unauthorized purchases and billing errors often rests with the cardholder. And generally you won't get a statement showing activity on the card, though such information might be on the issuer's Web site. Another concern: If a card issuer goes out of business, its gift-card holders might be out of luck.
Whether you're giving or receiving a gift card, check the fine print--if you can find it. Issuers don't always disclose all the fees, expiration dates, and other unpleasant details in their advertising, on the card, or on the packaging that comes with it. To get the whole story, read the FAQs and the terms and conditions on the issuer's Web site before buying.
But even that might not protect you. Card issuers often give themselves the right to change the rules in any way and for any reason. The terms and conditions for the American Express Gift Card say the issuer doesn't even have to give you notice of any such changes.
But a card is one gift that can keep on giving … grief. That's especially true for bank-issued cards, which often saddle recipients with fees, expiration dates, and other gotchas. Retail cards generally aren't as troublesome but some of them lose value or expire if you don't use them quickly, depending on laws and regulations in your state.
A national survey of 1,500 consumers done last spring by WSL Strategic Retail, based in New York, found gift-card fees and expiration dates were among the top causes of frustration. And that's just among people who attempted to use them. Earlier this year, TowerGroup, a research firm in Needham, Mass., estimated the value of unused gift cards in the U.S. at $8 billion for 2006. And in its fiscal 2006 annual report, the retailer Best Buy revealed a $43 million gain from gift cards that were unlikely to be used.
Similarly, a survey of 1,003 adults conducted in October by the Consumer Reports National Research Center found that 27 percent of those who received gift cards during the 2006 holiday season had not used one or more of them nearly a year later. That is up from the previous year, when 19 percent of consumers had one or more unused gift cards. Over one-third of those respondents said they didn't use the cards because they either forgot about them, lost them, or the cards had expired. But the most common reasons people gave for not spending their gift cards were that they didn't have time to shop (58 percent) or couldn't find anything to buy (35 percent).
MANY DIFFERENT TERMS
Gift cards come in two basic varieties. Retailer-issued cards generally can be used only at the issuer's stores and possibly other stores owned by the same parent firm. Retail cards are the least likely to expire or have fees. And there's usually no charge to buy them because retailers make their money not on the cards themselves but on the products and services that customers buy with them.
Bank-issued cards are different. They usually bear the logo of a major credit card and are accepted at most merchants on that credit-card network. Banks tack on a fee, typically $2 to $10, when they sell the cards and might assess other charges, described below.
The terms and conditions of bank-issued cards vary widely, even among those with the same credit-card logo. That makes it difficult for card givers and recipients to know exactly what they're getting. Compounding the problem is that it's not always clear where to look for information--on the card, on the packaging, or on the issuer's Web site.
"I think the biggest thing is to look at fees and expiration dates," advises Evan Johnson, administrator in the Office of Consumer Protection in Montgomery County, Md. For each of the last four years, Johnson's office has conducted a survey of national retail- and bank-issued gift cards, and found many of the problems that we list here.
There are far fewer regulations covering gift cards than debit and credit cards. Unlike in the case of other forms of electronic payment, the risk of unauthorized purchases and billing errors often rests with the cardholder. And generally you won't get a statement showing activity on the card, though such information might be on the issuer's Web site. Another concern: If a card issuer goes out of business, its gift-card holders might be out of luck.
Whether you're giving or receiving a gift card, check the fine print--if you can find it. Issuers don't always disclose all the fees, expiration dates, and other unpleasant details in their advertising, on the card, or on the packaging that comes with it. To get the whole story, read the FAQs and the terms and conditions on the issuer's Web site before buying.
But even that might not protect you. Card issuers often give themselves the right to change the rules in any way and for any reason. The terms and conditions for the American Express Gift Card say the issuer doesn't even have to give you notice of any such changes.
