Video: Report warns of gift card ripoffs

By Herb Weisbaum ConsumerMan
msnbc.com contributor
updated 11/14/2007 8:45:08 PM ET 2007-11-15T01:45:08

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

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.”

Gift cards are expected be one of the most popular gift items again this holiday season. And no wonder. You can buy them everywhere, they’re a green gift (no extra packaging) and there’s a card for almost everything now — including golf courses, spas and state parks.

Customized gift cards are the latest thing. American Express has nine types of gift cards, including ones for kids, teens and newlyweds. Use the movie-lovers AMEX gift card at certain movie chains and you’ll get a free box of popcorn.

According to a recent National Retail Federation survey, 88 percent of consumers plan to buy two or more gift cards this year. The survey found the average consumer plans to spend $122 on gift cards for a total of $26.3 billion, up $1.5 billion from 2006.

All gift cards are not the same
Buy the wrong gift card and it could be worth nothing when your friend or loved ones tries to use it. That’s because some gift cards expire. Others have inactivity fees that will reduce their value by a couple of dollars every month.

A Bankrate.com survey found that store gift cards are the best deal for consumers. There’s rarely a purchase fee, and most have no expiration date. Bloomingdale’s and Macy’s are the exceptions — their gift cards expire two years from the date of last value added. (Note: in some states, such as Washington, by law, gift cards sold by retailers cannot expire.)

Compare that with cards issued by shopping malls and credit card companies. Bankrate.com found that all the issuers they checked charge a fee on top of the face value of the card — from $3.95 to $9.95 — and all of these cards will eventually expire.

“You need to read the fine print to see what the terms and conditions are,” says Ellen Cannon, Bankrate.com’s managing editor. “It can make a big difference in the gift you’re actually giving.”

Consumer Reports has this advice: Think twice about giving gift cards issued by a bank. “While bank cards generally can be used at more retailers than store cards,” the magazine warns, “they're often loaded with fees and restrictions.” If you must give a bank card, the magazine says, find one that doesn't charge maintenance fees until at least a year after the card is issued.

Caution: It’s very risky to buy gift cards from online auctions or classified ads. The offer may be mighty tempting — a $100 card for just $25. But many of the cards sold this way are counterfeit or stolen. There’s no way to know. You could buy one and be left holding the bag.

The bottom line
Buying a gift card is easy, but it still takes some thought. What does the person like? Where do they shop? Is that card worth enough? It can be frustrating to get a $25 gift card when you can’t buy anything in the store for that price. And be sure to send along the receipt — it may be needed to replace a lost or stolen card — plus information on terms and conditions. If you receive a gift card, go online and register it.  This may help you get the card replaced if something happens to it.

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