Originally created 12/12/04

Gift cards can carry hidden costs

NEW YORK - Publicist Scott Black started looking at purchasing gift cards a couple of years ago, when he realized how much it cost to ship holiday presents to customers and family.

"Whether for a client or my mother-in-law, it seemed silly to spend $50 on a gift and then $20 to ship it," said Black, 40, president of the TimePiece Public Relations agency in Dallas.

He's become a big fan of gift cards, which are prepaid cards that look like credit or debit cards that recipients can use to purchase goods or services. Black even sends them to his mother, who is an avid reader.

"I get gift cards to the book stores near her," he said. "For her, the hunt for a new book is as exciting as getting the gift."

The most popular gift cards are sold by retailers, including department stores, restaurants and music shops, for use in their own outlets. Others are available through financial institutions and generally carry the logos of Visa, MasterCard, American Express or Discover. These can be used wherever the branded credit cards are accepted.

Although increasingly popular with American consumers, gift cards are not without their drawbacks.

A study done by the Division of Consumer Affairs in Montgomery County, Md., found that some gift card issuers do not offer replacement cards if the originals are lost or stolen.

Many extract "inactivity" or "dormancy" fees if a card isn't used within a year or other set period of time, reducing the value of the card by as much as $2 a month. Some gift cards, especially bank-issued cards, cost $3.95 to $11.95 to buy and expire after a year or 18 months, the study found.

"Consumers should understand a gift card's policies before they buy," the Maryland agency said.

Despite potential problems, the cards are gaining increasing consumer acceptance because they help make gift-giving easy, said Tara Weiner, national managing partner of consulting firm Deloitte & Touche USA's consumer business industries practice.

"Gift cards are convenient for the giver and convenient for the recipient, who can choose a gift they truly want," Weiner said.

A survey conducted for Deloitte & Touche found that 64 percent of consumers intend to buy gift cards this holiday season, up from 60 percent in 2003. About half said they would purchase cards for stores or products, some 34 percent intend to buy cards for restaurants and 27 percent expect to buy cards for services.

But the Deloitte & Touche survey also found that more than a quarter of the people who received gift cards during the 2003 holiday season hadn't fully redeemed all of their gift cards a year later.

"You want the gift cards to be fully taken advantage of," Weiner said. "That suggests there's an opportunity for retailers to consider promotions around gift cards" after the holidays.

Ruth Furman, 38, of Las Vegas, used to avoid gift cards because she felt they were impersonal. Now she considers them the best way to make sure her eight nieces and nephews get exactly the gifts they want.

"I go out of my way to find out what they like, where they shop," Furman said. "I want the kids to get something they're really going to like and they're really going to use."

That translates to Barnes & Noble and Borders gift cards for nieces who like to pick their own books and music as well as a Toys R Us gift card for a three-year-old nephew who likes Thomas the Tank Engine toys.

"I try to send the cards with a note, and that helps make it more personal," Furman said.

Still, there are consumers who don't want anything to do with gift cards.

"I just hate them," said Kathy Posner, 49, a retired advertising executive. Instead of putting gifts under the Christmas tree, "we're becoming a nation that puts envelopes under the tree," she said.

Posner said she holiday shops through the year, trying to match gifts to the wants and needs of friends and family.

"Frankly, I would rather have you spend $10 and give me something you've thought about than spend $50 and hand me a gift card that says to me, 'I don't have time to think about you,'" she said.


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Ask about fees before buying gift cards

The Treasury's Office of the Comptroller of the Currency and a number of state consumer agencies suggest consumers look into the terms and conditions on gift cards before they buy. Some things to look out for:

- Is there a charge for purchase of the card? Gift cards issued by retailers generally don't have upfront costs, but bank cards that carry the logo of companies such as Visa, MasterCard, American Express and Visa can cost $3.95 to $11.95 to buy.

- Does the card have an expiration date?

- Are "inactivity" or "dormancy" fees deducted from the value of the gift card if it isn't used in a set period of time?

- Are replacement cards available if a gift card is lost or stolen? Is there a charge for the replacement?

- Exactly where can the cards be used? Can they be used on the Internet, or only for in-store purchases?

- Can the cards be swapped for cash?

Sources: Office of the Comptroller of the Currency, www.occ.treas.gov

Montgomery County, Md., Division of Consumer Affairs: www.montgomerycountymd.gov

New York State Consumer Protection Board: www.nysconsumer.gov


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