Look this gift horse in the mouth

Herb Weisbaum • Profile • E-mail

How could anyone not like gift cards? They are easy to buy and great to receive — the perfect present for the hard-to-buy-for person on your list. With a gift card you never give the wrong size or color. So why is Consumer Reports launching a public education campaign to warn shoppers about the pitfalls of gift cards?

“We’ve gotten a lot of complaints from readers recently about them, and it’s clear that an enormous amount of money is going to waste here,” says Greg Daugherty, the magazine’s executive editor.

Consumer Reports says about $8 billion — or about 10 percent — worth of gift cards given during the 2006 holiday season still have not been redeemed.  Some cards were lost, others are forgotten. It seems like we all have a few. “I have them around my house in various places,” Daugherty tells me.

He’s not alone. The magazine surveyed gift card recipients and found that 27 percent of them have not used one or more of the cards they received last year. Why not?

• 58 percent said they didn’t have time
• 35 percent said they couldn’t find anything they wanted to buy
• 32 percent said they forgot about the card
• 4 percent said they tried to redeem the cards too late — they had expired
• 3 percent said the cards were lost

If you get a gift card — Register it. Some cards must be registered with the issuer, especially if you want to use the card for purchases online or by phone. Some issuers, such as Crate & Barrel and Starbucks, won't replace a lost or stolen card unless it's registered. — Spend it quickly. Use the card as soon as you can, especially if it expires or has a monthly maintenance fee. — Spend it to the last penny. If the card balance gets so low that there's nothing you can buy, ask a merchant to do a split-tender transaction. That involves using the remaining card balance for part of the transaction and another form of payment for the rest. Some merchants insist that the second form of payment be cash or check. Many Internet and mail-order companies don't allow split-tender transactions at all. And it might be difficult with some bank-issued cards. — Hold on to it. Don't throw out the card when the balance is zero. Some issuers and merchants require it for returns. Source: Consumer Reports

To launch its gift card campaign, Consumer Reports bought a full-page advertisement in Tuesday’s New York Times. The ad called unused cards “easy money” for retailers.

“That couldn’t be further from the truth,” says Ellen Davis of the National Retail Federation. “Unredeemed gift cards are hardly easy money.” 

Davis says merchants want people to spend their gift cards as quickly as possible because gift cards do not count as a sale until they are redeemed. “So if you buy a gift card this holiday season and the recipient doesn’t spend it until 2009, a retailer is not going to be able to put that gift card on their books until 2009,” she says.

Retailers also hope that when you come in with that gift card you’ll spend more than the value of the card. Consumer Reports calls that another downside to giving gift cards.

In most states, if a gift card is not used within a few years it is considered unclaimed property, and the retailer must give that money to the state. “It’s not leftover money that most retailers can put in their pocket,” says Davis.

Consumer Reports sees it differently. The retailer can take advantage of the float – investing the money spent on the gift card until it’s used to buy something. “It’s not a good thing for consumers regardless of where the money happens to be on the accounting ledger,” says Daugherty. “It’s a winning proposition for stores all around, but not for consumers.”

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