By John Breyault, Vice President of Public Policy, Telecommunications and Fraud The final, frenzied sprint to Christmas has many consumers frantically scouring the shopping malls and big-box retailers for those last-minute gifts. Under this pressure, many consumers may turn to gift cards as a convenient gift. While these cards are useful, it’s important to watch out for the “gotcha’s” that too often lurk in the fine print. First, a bit of background is in order. There are two main types of gift cards – closed-loop and open-loop. Closed loop cards are generally sold by retailers for use in a specific store (such as a Target or Best Buy card). They are typically sold for face value, have not expiration dates, and do not change maintenance fees. The profit for the store comes when the card is used to buy merchandise from the store. In comparison, open-loop cards (known in industry jargon as network branded prepaid cards) are offered by credit card companies, malls, and banks. These cards typically charge an up-front fee to buy the card and may or may not charge monthly maintenance fees. They also tend to expire sooner than closed-loop cards. Consumer should be sure to read the disclosures on the cards themselves or their packaging before buying the card to become aware of any “gotcha” fees. Some open-loop card sellers, notably American Express, have responded to federal legislation and the concerns of consumers, by eliminating fees and expiration dates from their gift cards. Regardless of whether consumers give an open-loop or closed-loop gift card this holiday season, advice to the recipients should remain consistent:
- Use the card quickly to avoid monthly maintenance fees and card expiration.
- Keep a receipt for the purchase of the card on hand. This may be needed if the card has to be replaced.
- Be wary of gift cards sold on online auction sites. These are often stolen or counterfeit.
- If a card’s value is too low to cover an entire purchase, a merchant may be able to do a “split-tender” transaction that will allow part of a purchase to be paid with the gift card and the balance to be paid by another means (cash, check, credit/debit card). If an employee seems unsure how to conduct a “split-tender” transaction, ask a manager to help.
- Do not throw away depleted cards. Some merchants may require the card used to purchase merchandise if that merchandise is later returned.
- Shopping online at the last-minute can be hazardous to your budget as overnight shipping can be prohibitively expensive.
- Be wary of “last-minute” sale items. While retailers do offer steep discounts in the days leading up to Christmas, many retailers surreptitiously jack up their retail prices just before the holidays so they can trap shoppers with “big” discounts during the holiday rush.