This holiday season, just say no to gift cards

Consumer groups never liked these cards. Yes, they do give the recipient much more flexibility because they can be used anywhere the credit card is accepted. “But they often have gotcha fees and other anti-consumer traps,” says Linda Sherry, director of national priorities at Consumer Action. For example, they have expiration dates (most store gift cards don’t) and they can be difficult to use.

Scott Sistek of Mukilteo, Wash., saw the value of his Visa gift card melt away when he put it in a dresser drawer and forgot about it for about  a year. He was “shocked” to learn the $50 card was only worth $26.50. After a grace period, the bank charged him a monthly maintenance fee of $3.50. Plus, Sistek was dinged $2.50 when he called to check on the balance.

“I think it’s a really bad deal, “Sistek says. “It sucks for you because you don’t have that much money and it sucks for the person who gave it to you because they paid the full value for it.”

FYI: Many states now have laws regulating gift cards, but these laws do not cover gift cards issued by banks or credit card companies. Many shopping mall gift cards, which are issued by credit card companies, also escape state regulation.

Federal action may be needed
Retailers could put the money they earn from the sale of gift cards into a trust account that would cover the value of the cards and protect the funds from bankruptcy proceedings. But they are not required to do this – so they don’t.

“We believe the federal government should force gift card companies to segregate gift card money and protect it rather than just use it as operating cash,” says Ed Mierzwinski, consumer programs director at U.S. Public Interest Research Group. “That money belongs to the people who have the card in their pocket. It doesn’t really belong to the store.”

A coalition of consumer groups has asked the Federal Trade Commission to require these gift card escrow accounts. A spokesman for the commission tells me the matter is being reviewed.

The bottom line
All gift cards have some sort of downside. Bank cards have fees. Store cards can be risky. “There’s nothing embarrassing about giving someone cash if you don’t know what to buy them,” says Consumer Federation of America’s Jean Ann Fox. I agree. Cash doesn’t expire, it doesn’t have dormancy fees, and you can use it anywhere.

If you already have gift cards, use them as soon as possible. If you get any for holiday presents, do the same thing. Why take a chance the store could close? This also reduces the chance you’ll lose the card or forget about it. Consumer Reports estimates 25 percent of the people who received a gift card last year still haven’t used it.  What are you waiting for? Get out there and buy something already!

More information

• FTC: Buying, Using & Giving Gift Cards
• National Retail Federation Gift Card Survey
• TowerGroup gift card report

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