Gift cards appeal to holiday shoppers

By BILL MEDLEY
Monday, November 13, 2006
For those hard-to-shop-for folks on Santa's list this holiday season, the perfect gift may be a thin piece of plastic.

Gift cards, which are available from nearly every major retailer and restaurant chain, carry the cachet of thoughtfulness without the crassness of cash. As holiday presents, they offer a quick and easy solution for shoppers racking their brains for a gift idea.

The cards are the size of a credit card, typically bear the logo of the retailer and carry a value purchased in advance by a consumer. Some cards are able to be used online or at store locations other than where they were purchased.

But, consumer watchdogs warn, shoppers should be mindful of hidden fees, expiration dates and other problems that can creep up with the purchase of a gift card.

Chances are you will either give or receive a gift card this holiday season. According to the National Retail Foundation, 53 percent of consumers said they would like to receive a gift card as a present this year.

Richard Feinberg, director of the Retail Institute at Purdue University, said gift cards make up a sizeable portion of holiday spending. This year, Feinberg predicts 10 percent, or about $45 billion, of this year's holiday sales will be gift card purchases.

For retailers, the cards are often the gift that keeps giving well beyond the end of the shopping season. The money spent on cards is not counted by retailers until the cards are redeemed, Feinberg said. About 60 percent of gift cards are redeemed after Christmas, providing a post-Christmas boost.

"January is a very important month for holiday sales because of gift cards," Feinberg said in his holiday shopping outlook for this year.

For shoppers who give or receive gift cards, it pays to read the fine print, consumer advocates say. Depending on the retailer or restaurant, some cards can come with monthly maintenance fees, inactivity fees, replacement fees for lost cards, or other costs that aren't immediately clear.

For Buying Cards:

- Read the fine print before you buy. If you don't like the terms and conditions, purchase a card elsewhere.

- Give the receipt to the gift recipient so he or she can verify the card's purchase and value if it is lost or stolen.

- Consider the fees that are embedded with a gift card. It could be embarrassing for the value of a gift card to be gobbled up in fees before the recipient can use it.

For Using Cards:

- Read the terms and conditions as soon as you receive a card. Check the expiration date.

- Treat your card like cash. If it is lost or stolen, report it to the issuer immediately. If you need to replace a card, be prepared to pay a fee and have documentation proving that a card was purchased.

- If the card expires before you use it, contact the issuer. The retailer may extend the date, but may also charge a fee to do so.

Problems and Complaints:

- First, contact the store or financial institution that issued the card. If the complaint is not resolved, you can contact the Federal Trade Commission at 1-800-FTC-HELP. You can also contact your state attorney general.

In some states, cards that go unclaimed for a set period of time revert to the state's unclaimed property division. In other states, the value of an unused card reverts to the issuer if it's not used after a certain period.

Other regulations vary by state, with some requiring retailers to clearly disclose any fees or expiration provisions on the card.

Another device similar to a gift card issued by a retailer is a pre-paid card issued by a bank or credit card company. Such cards are similar to gift cards in that they can carry a pre-set cash amount, but these cards can be used at any retailer that uses Visa, American Express or other major payment systems.

But despite their flexibility and popularity, pre-paid credit cards have been the center of some high-profile disputes.

A Visa card issued by Simon Properties was the subject of a lawsuit brought by New York's attorney general in 2005.

In the lawsuit, the attorney general's office argued that the cards violated a New York state law requiring that fees be displayed on the cards. Simon Properties, which operates several malls in New York, settled the suit by paying $125,000 to the state.

In a statement, Simon said it now affixes a sticker to the cards spelling out the charges associated with its Visa gift cards and points to $400 million in gift card sales in 2004 as proof of "overwhelming acceptance of the Simon Visa Giftcard by America's consumers."

One of the main advantages of using a pre-paid credit card is its flexibility, according to the Better Business Bureau. The organization recommends shoppers look around for the best terms and conditions and lowest fees when considering such a card as a gift.