banktime.com

The holidays are approaching faster than any of us would probably care to admit – well, certainly faster than I would care to admit, anyway. That means that American retail stores will be shoring up their reserves of gift cards, just waiting for the flood of unimaginative gift shoppers to come pouring in and demanding this festive plastic. Lots of people like buying gift cards, because there is no need to stress over choosing, finding, and wrapping the perfect gift when you can give someone you love the power to get it themselves. Lots of people love receiving gift cards, because really, nobody knows exactly what you want as well as you do. Visa and MasterCard gift cards add a whole new dimension of convenience to giving, because they can be used just like credit cards anywhere that these big names are accepted.

But little do you know, it might actually be a bank that is getting the real gift. Like their close brethren credit cards, “general purpose” gift cards are issued by a financial institution. Anyone with a credit card in their wallet knows that these products come heavily laden with fees, charges, and all kinds of penalties. It would be the worst kind of naiveté to assume that gift card products offered by these companies don’t work in exactly the same way. If the gift card recipient should happen to stick the card in their billfold and forget about it for over a year? That’ll be three dollars per month for an inactivity fee that’s taken off the card’s balance. Loose the card? That’ll be a twelve dollar replacement fee. And these two examples are only the tip of the iceberg. You’d be amazed to see what kinds of fees these products carry. And with new legislation coming down the pipeline that will put a stop on predatory credit card fees, it’s reasonable to expect that banks will make up for all that lost revenue in some other fashion… general-use gift cards might be just the first.

That’s on top of the fact that it already costs money to purchase and load a gift card. Yes, this is in addition to whatever funds you load up on the card as purchase power for your friend or loved one. Just to give you an idea of what I’m talking about, Chase and Wells Fargo charge three dollars and fifty cents for their gift cards, and American Express gift cads can run as high as seven dollars, depending on the value. Unlike store gift cards, general use gift cards cannot be reloaded. So forget at least reusing that pricey piece of plastic if you should want to top off a Visa, MasterCard, or AmEx card you were given… you’ll have to shell out again for another, all-new card. Oh, and don’t forget the fact that they contain none of the same protections as traditional credit and debit cards. So forget about purchase protection, merchant dispute resolution services, or the ability to stop a payment. Much like a bomb, a gift card’s internal time clock is ticking from the moment that it is loaded. These cards frequently come with expiration dates, which you will not be informed of at the time if purchase. Wells Fargo courteously offers you the option of requesting a check for unused balances on a gift card after their four year expiry period… but it will cost you fifteen dollars. See the pattern here?

And that’s to say that the original balance even makes the life of the card. Dormancy fees are one of the biggest hurdles that general-use gift card consumers have to contend with. The value of these cards start depleting rapidly once inactivity fees start kicking in, which is usually after one year. At around three bucks a pop, it doesn’t take long to wipe out a nice gift while you let the card sit forgotten in a back corner of your purse. The Consumer Federation of America found recently that some card companies go so far as to start charging dormancy fees a mere six months after purchase, which is patently ludicrous. I’ll give an honorable mention to American Express, which recently eliminated its dormancy fees and has long had no expiration dates or costs to replace cards that are lost or stolen. On the downside, AmEx gift cards tend to be significantly pricier than their counterparts and also don’t sport as wide an acceptance network as Visa and MasterCard.

Are general use gift cards worth all the fees? It’s truly hard to say. The appeal of these cards cannot be disputed. Everyone loves the equivalent of free money, and you cannot beat the products for their no-hassle availability, even at the last minute. But it’s the height of poor taste to give a gift with strings attached, and that’s exactly what a general purpose gift card happens to be, like it or not. Need to check the balance on your card because you forgot to write it down? Some banks will charge for that. And heaven forbid you use your card on an out-of-country purpose… you’ll find yourself facing foreign currency exchange penalties that would make credit cards blush. If you have set your mind on gifting one of these cards, the best thing that you can do to safeguard your friend’s money is to carefully read the fine print and arm yourself with the crucial information pertaining to the card… and then pass it on!

There are a few other crucial things to remember when using/giving one of the general purpose gift cards that looks and acts like a credit card. When you receive one of these cards, the first thing you should do as soon as possible is to register it online with the card issuer. This might be the only way that you would be able to get a replacement in the tragic event that the card was lost or stolen, replacement fee notwithstanding. If this were to happen to you, you would definitely need to make sure that you reported the card missing right away. If a thief takes a retail joyride with your gift card, you can probably consider it permanently gone. Another reason to register the card online is so that you know which billing address to use for online purchase, should you choose to make any.

You also will want to make sure that you keep track of the gift card balance so that you can spend it completely. Many people do not, and credit card banks count on being able to make extra money off people who do not use up their gift card amount in full. Merchants cannot look up the balance on gift cards, and you might get charged if you forget and need to be reminded (as I already mentioned), so this is something that you really do need to keep tabs upon. The Consumer Federation of America reports that as much as ten percent of all gift card balances never get used. That’s really a crying shame, given the fees that people are paying for these products.

Adding to the trouble is the fact that some stores are not capable of or willing to let you use more than one form of payment on a given sale. So, if your gift card is not enough to cover the full transaction, you cannot buy whatever it is you are trying to purchase. On that note – never, ever throw the card away, even if it is depleted. If you should need to make a return or exchange on anything you buy using the card, you will need the original plastic to complete the transaction so that you can get credit. I cannot stress this enough, and it is because of my personal experience. Many years ago, I was working for a (now defunct) retailer as a summer job when I was a student. The store’s point of sale system was configured to automatically refund the original form of purchase when a customer did a return. This could be very convenient when a customer needed a refund on the credit card they originally used, since they need not dig through their purse and/or wallet to pull it out. It could also totally suck, as one of my coworkers learned the hard way when they processed a transaction a little too quickly for a customer who had bought something – expensive, no less – on a Visa gift card. The customer was livid when they learned that their refund had been processed onto a card that they no longer physically possessed, and it was a lengthy, stressful, and arduous process for the store to reverse the transaction and get the customer a different form of credit.

I’m not trying to completely discourage the use of general-purpose gift cards, although I know I just twisted your virtual ear telling you all sorts of negative things about them. I’m just suggesting that you exercise caution. I do honestly think that a different form of open-ended gift might be a better deal for both you and the intended recipient of your generosity: a check or plain, old cash tend to be the most convenient of all, and with no hidden fees attached! But better days are coming for gift card buyers and recipients. Starting in August of next year, banks and retail stores will face some new rules that are intended to make the gift card industry more consumer-friendly and ethical. Gift card issuers will be prohibited from placing an expiry on products unless the card is older than five years, and cannot charge inactivity fees unless it has been at least one year since the card’s use. The Federal Reserve is also investigating the fees set forth for purchasing and loading gift cards to determine whether these charges are appropriate. In the meantime, gift card issuers have been warned that they must “clearly and conspicuously” disclose all fees to buyers in advance of gift card purchases. Just something to think about as you start your holiday shopping this year!