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Read the Fine Print Before You Buy Gift Cards

Article Highlights

  • Fees associated with gift cards are posted in a place accessible to the consumer.
  • The Credit CARD Act of 2009 gives consumers more protection from hidden fees or expiration dates associated with gift cards.

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A lot of consumers find it easier to buy gift cards to give as holiday gifts, but are hesitant to do so, as they fear hidden terms and conditions that are not made clear at the time of purchase. Although the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009 made gift card giving more secure for consumers by adding protective rules and regulations, it is still important to practice smart shopping.

Karen Willing, a Legal instructor for South University Online Programs, says not every gift card is protected under the Credit CARD Act of 2009.Those gift cards include, but are not limited to, store loyalty cards, awards, promotional gift cards, paper certificates, and those associated with admission to specific events or venues.

“The big benefit that the CARD Act provided gift cardholders is that cards can no longer expire for at least five years,” says Ruth Susswein, deputy director of national priorities at Consumer Action.

“You can be charged a dormancy fee, [which is a] non-use fee if you haven't used the card in over a year,” Susswein says. “You can also be charged a fee to purchase the gift card, or replace it.”

Consumer Action has a more detailed description of fees that companies can charge customers when they buy gift cards on their website.

You need to be able to get the information before you make the purchase.

Paul Stephens, director of policy and advocacy at Privacy Rights Clearinghouse, says fees associated with gift cards are posted in different places, depending on where a customer purchases the card. If they buy the gift card online, the information should be posted on the website, and if they purchase it at the store, it should be on the card itself or on the packaging.

“You need to be able to get the information before you make the purchase,” Stephens says.

Eric Whisler, Esq., an attorney at Vorys, Sater, Seymour and Pease LLP, says companies are required to post gift card fees to ensure that both the purchaser of the card and the recipient are provided information on any associated fees.  

“For example, if the fee disclosures are on the back of the card and they can’t be seen prior to purchase because of the card packaging, then the fees must also be disclosed to the purchaser on the card packaging or through signage,” Whisler says.

Whisler says that gift card issuers must also disclose a toll-free telephone number and website on the card, so consumers can contact the company with questions about any fees assessed on their card. 

Gift Card Value When the Store Goes Bankrupt

Stephens says if a store declares bankruptcy, determining what will happen to gift cards that have already been sold is very complicated.

“That’s going to depend on the type of bankruptcy,” Stephens says.

Stephens says that consumers have a better chance at getting their money back if the store declares a chapter 11 bankruptcy, instead of a chapter 7, but there are no guarantees that they will be able to use the money on the gift card.

Melissa Giberson, also an attorney at Vorys, Sater, Seymour and Pease LLP, says in a chapter 11 bankruptcy, where a company files for bankruptcy to seek reorganization, the company may ask for special permission from the bankruptcy court to continue honoring gift cards during the bankruptcy.

“Such permission is typically sought where continuing to honor the gift cards is important to preserving customer loyalty and goodwill, which is frequently helpful, and may be essential, to the company’s viability during and after reorganization,” Giberson says. “Where a company seeks and receives this permission, the consumer would be able to continue to use their gift card, although a time limit or other conditions may be imposed for which the consumer should keep an eye out.”

Giberson explains that a chapter 7 bankruptcy is likely to end in a shutdown of the company’s operations, so there is less of a chance that retailers will seek and receive special permission to continue honoring gift cards.

“Where a company either does not seek or does not receive special permission to honor gift cards during a bankruptcy, there is a risk that consumers will not receive a refund or credit for the value of the gift card, or that the consumer may only receive a partial credit or refund,” Giberson says. “This is because holders of gift cards are treated as ‘creditors’ of the bankrupt company, and, like other unsecured creditors, are not entitled to receive money back until after secured creditors (i.e., those with liens) and other ‘priority’ claims (e.g., costs of administering the bankruptcy, employee wages and benefits, and certain taxes) have been paid.” 

Willing says that bankruptcy is not addressed in the Credit CARD Act of 2009.

Is it Safe to Purchase Gift Cards?

Willing says the Credit CARD Act of 2009 should make consumers feel more secure when they buy gift cards, although there are many exceptions stated in the law. 

“That said, it's more protection than consumers had prior, so it's a good start,” Willing says.

Whisler agrees that overall, the Credit CARD Act of 2009 should make consumers feel more comfortable about purchasing gift cards. 

“The Credit CARD Act and Rules should give comfort to consumers that gift cards they give this holiday season will not have hidden fees or expiration dates,” Whisler says. “However, consumers still need to look at the terms of the card to learn if it will expire beyond the five-year minimum required by the Credit CARD Act and Rules or have fees after one year of inactivity.” 

Whisler says that several states also have laws offering more protections than those in the federal Credit CARD Act.

“For example, some states prohibit any expiration date, prohibit all fees, and require cash redemption once the value of the card reaches a specified level,” Whisler says. “Therefore, many national retailers chose to not impose expiration dates or fees on their gift certificates and cards.”

Whisler says consumers having an issue with a gift card should seek advice from an expert, as his responses are just a general overview.

“The information provided by Vorys is for general information purposes, should not be regarded as legal advice, and is not intended to create an attorney-client relationship,” Whisler says.

Gift Card Exchange Sites

Many consumers buy gift cards at discounted prices on sites such as Plastic Jungle, where people sell cards they don’t have an interest in using.

Consumers can continue this gift card exchange on Plastic Jungle without worry, as those on the site do not expire and there are no fees associated with them, says Kristin Morse, vice president of Marketing and Marketplace general manager at Plastic Jungle.

“Merchant-issued gift cards do not have fees associated with them,” Morse says. “If gift cards are bought online, there may be a shipping and handling fee or a customization fee.”

Morse says that Plastic Jungle makes the gift card exchange safe and easy for consumers.

“Plastic Jungle brings an additional layer of convenience by allowing consumers to cash in or trade out unredeemed gift card balances as well as save money by purchasing discounted gift cards on the site,” Morse says.

Author: Laura Jerpi

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