By Rita R. Robison, Consumer Specialist, Blogging at The Survive and Thrive Boomer Guide

Guest Blogger

With the sale of gift cards this holiday season expected to reach $100 billion in the United States, it’s likely that you’ll be buying or receiving one or more of the popular gifts.

While gift cards are often an easy way surprise the ones you love, you may find that the convenient cards have drawbacks.

In 2006, shoppers lost about $8 billion due to unused, lost, or expired gift cards, according to the article “Avoid Gift Card Pitfalls” on the site ConsumerReports.org. Problems with gift cards can include:

• Cards that lose value or expire.
• Fees charged to the buyer of the card.
• Unclear card terms and conditions.
• Problems knowing where to find the terms and conditions – on the card, the package, or the issuer’s Web site.
• Not being notified of changes in the terms and conditions. 

The National Consumers League believes it’s important to know about these two kinds of gift cards:

• “Closed-loop” cards – Cards sold by retailers, with their logos. You can only buy items from the retailer who sold the card. The cards tend to have few or no fees or expiration dates. The retailer makes money from the markup they charge on the items purchased not from the sale of the card.
• “Open-loop” cards – Cards sold by credit card companies, malls, and banks. They can be used at any company where the card is accepted. Major credit card companies sell these cards directly. Banks and other companies also sell closed-loop cards that work on the networks of the credit card companies. Card issuers make money from (1) an up-front fee based on the amount of the card and added to the cost of the card, (2) post-sale fees, in the form of maintenance, dormancy, or inactivity fees that get charged after a given amount of time, usually six to12 months, and (3) transaction fees when the cards at swiped, which merchants pay to accept the cards at their businesses.

“Closed-loop cards offer less flexibility but are generally less expensive to buy and use,” according to the league. “Open-loop cards can be used in many more places, but consumers pay for the convenience in add-on fees.”

The league offers these tips for those who buy and use gift cards:

• Encourage those who receive gift cards to use them right away to avoid losing the value of the cards to fees.
• Ask for a gift receipt for each card purchased and give it to the person receiving the card. This way, the card can be replaced if it’s lost or stolen.
• Read all terms and conditions before buying a card. If the terms aren’t disclosed or if they’re too difficult to understand, you may want to purchase a different card.
• Be wary of gift cards sold on online auction sites. These cards are often stolen or counterfeit.
• Keep all gift cards and receipts in a safe, easily accessible place so they don’t get lost or go unused.
• Be sure to register the card soon after it’s received, if registration is required.
•  Ask if you can use also an additional method of payment, if a card’s value is too low to cover an entire purchase.
• Be aware of state laws on gift cards. These may affect expiration dates, fees, and card replacement.
• Don’t throw away depleted cards. Some merchants require a card for returns.

The league has developed a Bill of Rights for Gift Cards to improve how the cards are used. Among the changes called for are no expiration dates, fees need to be limited, and terms, and conditions should be clear.

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