Gift cards may look like fancy pocket-sized credit cards, but these cards have little or no value until "activated." Learn what to look out for when purchasing or using these conveniently smart and increasingly popular gift items.
Gift cards, as the name implies, are pre-paid monetary gift options that allows the purchaser or gift recipient to buy goods and services at retail and other establishments. There are generally two kinds of gift cards retail or "closed loop" gift cards and bank or "network" gift cards. Retail gift cards are issued by a specific store or brand, and can only be redeemed at the named store, like Wal-Mart, Best Buy, or Applebees. Bank cards, like those issued by Visa or American Express, can be used anywhere the brand is accepted. Gift cards may be purchased online or in-person, with an initial value set by the purchaser.
Gift Card Laws
At one point, gift cards were frowned upon by consumers because of the confusion around hidden costs/fees, expiration dates, strict use policies, and other restrictions associated with the cards. Gift card policies remained largely in the hands of the retailer or bank issuer -- who often operated without any clear rules or guidelines.
As recently as 2010, new rules were established under the Credit Card Accountability Responsibility and Disclosure Act affecting gift card dormancy, inactivity, services fees, and expiration dates. Essentially, gift card issuers cannot charge inactivity fees including maintenance fees, balance inquiry fees, and transaction-based fees -- until one year of inactivity has passed. Also, gift cards must remain valid for five years after the date it was issued.
Many states, like California and Massachusetts, have banned gift card "maintenance fees" altogether, and many stores offer "no fee, no expiration" policies to boost sales and curtail consumer confusion even in states where the law doesn't require it.
The Fine Print: What to Look For
Even though new laws have made gift card policies more transparent, it is still important for consumers to read the "fine print". While laws regulate the time period in which retailers and merchants may charge fees, it is important to know what may happen after the time period has passed.
Below are a few examples of what to look for when buying or using a gift card.
- Expiration dates these dates may vary. Check with the store or bank for more information.
- Dormancy or maintenance fees these include fees that are assessed after a period of inactivity.
- Loss/Fraud Prevention Check with the store or bank-issuer to determine what may happen in the event of loss or fraudulent use. Many stores may offer gift card replacement in limited circumstances, such as if the card has never been used and when the initial balance is left intact.
- PIN numbers some bank-issued gift cards require activation PIN numbers. Check with the particular bank to see their policies.
- Reload option some stores allow a gift card holder the option to reload funds on their card for later purchases.
- E-card an "e-card" is a gift card option that is delivered to a recipients e-mail inbox and can be used in the same manner as a gift card.
- Online balance check some gift card balances may be checked online.
- Free shipping/delivery option Online purchases are generally subject to shipping and/or delivery fees. Check your particular card to see if free shipping is an option the store offers.
- Other use restrictions, such as "domestic use only" means the card can only be used in the United States.
Tips for Gift Card Recipients
- Activate your gift card according to the instructions provided on the back of the card or in the accompanying documentation.
- Use your gift card a gift card is only good if you use it don't leave money on the table. You can use your give card in the same manner as using a credit card, and can sometimes purchase items of greater value than the gift card by using a second form of payment, if the store allows it.
- Know your balance Each time you use your gift card, the amount is automatically deducted from the balance. Be sure to keep a tally of your remaining balance after purchases. Merchants are not responsible for informing you of what remains.
- Retain your gift card after purchases in case you'd like to reload the gift card later, if available, or return a recently purchased item.
If you feel you've been subject to unfair and misleading business activity involving gift cards, or have any other consumer-related problem, speak with a knowledgeable consumer protection lawyer in your area.