July 8, 2002
Home Depot has agreed to stop treating gift cards like cash if they are lost or stolen. Instead, in a settlement with the New York attorney general, Home Depot agreed to replace a lost or stolen card, assuming the customer has proof of purchase and valid identification.

The new policy will be applied nationally, Home Depot said.

Attorney General Eliot Spitzer said he hopes the Home Depot settlement will influence other merchants. He had argued that Home Depot violated state law by misrepresenting its ability to deactivate lost or stolen cards and replace them with a new card good for the remaining balance. Home Depot denied any deception but agreed to pay $45,000 to reimburse the state for its investigative costs.

However, gift cards still offer less protection than traditional credit cards, which limit a consumer's loss due to fraud to $50. While Home Depot says it will replace lost or stolen cards, the consumer could still be stuck losing any amounts charged to the card before it is deactivated.

In addition, consumers cannot contest disputed purchases as easily as they can with a credit card. And, of course, the cards are good only at the store or chain which issues them, meaning the recipient can't shop around for the best value.

As consumers buy higher-value cards, the losses can rise sharply. For example, Home Depot offers gift cards up to $2,500. Consumers are increasingly buying higher-value cards -- to surprise a spouse with the funds for a kitchen remodeling, for example.

Stephen Brobeck, executive director of the Consumer Federation of America, said the agreement seems to balance a retailer's desire to guard against fraud and a customer's claim to the remaining balance. "That seems to be a very fair resolution," Brobeck said, considering the technology used to track purchases.