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Gift Cards Include Hidden Costs

Report picks best & worst of this year's batch

November 26, 2007    Spanish

But a report from Montgomery County, Maryland, consumer protection officials finds that there's nothing easy about picking a gift card. The report contains valuable information and recommendations regarding gift cards issued by 22 stores and restaurants and 20 banks and financial institutions.

“With consumers annually spending over $80 billion nationwide to purchase gift cards, it is important for them to have good information so they can buy the best cards and avoid the worst,” said Evan Johnson, author of the report.

Consumers looking to prepaid gift cards to assist in their holiday shopping are confronted with understanding and comparing a variety of fees, charges, time limits and rules, Johnson notes. In addition, more sellers this year are offering bank cards carrying the logo of American Express, Discover, MasterCard or Visa, which can be used at more than one store.

Johnson's report analyzes cards based on several criteria, recommends cards with the most attractive features, and warns consumers about purchasing other gift cards. Among its findings:

Top picks Out of the 22 retail cards studied, the 18 recommended are: Abercrombie & Fitch, Best Buy, Blockbuster, Circuit City, Crate & Barrel, Gap, JC Penney, KB Toys, Kohl’s, Lowe’s, Nordstroms, Old Navy, PetSmart, Sears, Sports Authority, Starbucks, Target and Wal-Mart.

Thumbs down The four retail cards not recommended are: Bloomingdale’s, Claire’s, Macy’s and Shell. Bloomingdale’s and Macy’s have expiration dates, while Shell and Claire’s may impose monthly “dormancy fees.” Note that some states and localities now prohibit expiration dates and dormancy fees.

Hidden costs All the bank cards studied impose a purchase/processing fee above the initial value of the cards. They also deduct post-purchase fees and have expiration dates. In addition, the report found that some bank cards, their packaging, or their websites do not adequately disclose the cards’ terms. Terms differ from state to state.

“Sellers certainly do not make it easy for consumers to comparison shop for these cards,” said Office of Consumer Protection Director Eric Friedman. “This report is intended to give consumers a fighting chance to make wise selections.”

The report is available online.

Read the fine print

“We have worked to create protections from hidden fees and expiration dates that drain the value of gift cards before consumers have the chance to redeem them,” Madigan said. “But even with legal protections, a consumer’s number one protection this holiday season is to read the fine print and find out about any expiration dates or fees before purchasing gift cards.”

Little noted, soon forgotten

It's also worth remembering that gift cards are easily forgotten.

A study conducted for Consumer Reports found that 27 percent of gift card recipients have not used one or more of the cards, up from 19 percent at the same time last year. And among consumers with unredeemed cards from last season, 51 percent have 2 or more.

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