Gift Cards Coming With Fewer Strings

By Nancy Trejos
Washington Post Staff Writer
Sunday, December 16, 2007

Gift cards are more popular this year and are easier to use, thanks to key rulings by the Federal Trade Commission and efforts by a number of states to regulate them, several retail experts said.

The National Retail Federation is predicting a merry holiday season for the gift card industry, with sales reaching $26.3 billion, up from $24.8 billion last year. The average consumer will spend about $122.59 on gift cards this year, compared with $116.51 last year, the federation said.

Many retailers have responded to consumer complaints that gift cards are too laden with fees and expiration dates, experts said. In its fifth annual gift card survey, Montgomery County's Office of Consumer Protection found that 18 of the 22 retail cards examined had no fees and no expiration dates and could be replaced if lost or stolen or had scratch-off PINs for security.

Evan Johnson, author of the study, said that 60 percent of retailers' cards had expiration dates and fees when the survey was first conducted, in 2003. "It's hard to find expiration dates on national cards now," he said.

But it wasn't just market pressure that sparked the change of practice among retailers.

Earlier this year, the FTC settled cases against Kmart and Darden Restaurants, the parent company of the Olive Garden, Red Lobster and other establishments, for failing to properly disclose expiration dates and dormancy fees.

States have also exerted regulatory pressure on gift cards. About 30 states now have legislation regulating gift card expiration dates and fees, with some of them enacting laws this year, according to the Montgomery County study.

"As recently as three years ago, nobody paid any attention to them," said Ellen Cannon, managing editor of Bankrate.com. "I guess there was enough of an outcry that states started putting in laws."

Maryland has one of the toughest laws, allowing no fees or expiration dates on retail cards for four years. Virginia requires retailers to clearly print expiration dates on the cards or to provide a phone number or Internet address where consumers can get the expiration date. If the card has a dormancy fee, the retailer has to provide a phone number or Internet address. The District's only stand on the issue is that a merchant can consider a gift card to be abandoned if it has not been used for five years.

Although the gift card industry has become more regulated, many consumer advocates still say people should be vigilant when buying and using cards.

Consumers should be particularly wary of cards purchased from the big four credit card issuers and major shopping mall operators. These cards are not as well regulated and tend to have expiration dates and maintenance fees or dormancy fees, they said.

All 20 bank cards studied by Montgomery County had purchasing and maintenance fees and expiration dates. The iCard Visa Gift Card, for example, expires after six months. Johnson advises consumers to buy gift cards directly from retailers rather than from credit card issuers or mall operators.

Consumers also have to be take more responsibility, experts said. "If you are the recipient of a gift card, use it promptly because if you don't, it may devalue or, more likely, you may lose it," said Jack Gillis, a spokesman for the Consumer Federation of America. "It seems clear that these companies are benefiting from the fact that a lot of gift cards simply don't get used for whatever reason."

A recent survey by Consumer Reports found that many gift cards go unredeemed. In fact, 27 percent of respondents had not yet used gift cards received last year. Tower Group, a research and advisory firm in Needham, Mass., found that $7.8 billion in gift card value will go unused this year. Last year, the firm's study showed that $8 billion had been left unspent.

Most survey respondents said they didn't have time to use their cards. Others said they couldn't find anything they liked or forgot they even had the cards.

Consumer advocates advise gift givers to make sure they buy cards from a business the recipient will actually want to go to. They also say the gift giver has to make sure to include the terms and conditions with the card. Many times, the terms and conditions come separately, the advocates said.

For the recipient, the advocates advise registering the cards with the issuers if they can, in case they get lost or damaged. In addition to using the cards promptly, they recommend spending them to the last penny.

Greg Daugherty, executive editor for Consumer Reports, recommends steering clear of gift cards.

"One of the reasons I think gift cards are appealing is that they're shiny and pretty and seem like more thought went into them," he said. "But money is more convenient and doesn't expire and has no maintenance fees."

Gift card proponents disagree. They point out that not only can the cards be convenient but that many retailers are now personalizing them. For instance, if you buy the Getaway Gift Card from BedandBreakfast.com, you can add a message and a photo.

"It seems that people are trying to find gifts that match the need of the recipient," said David von Storch, president of Vida Fitness in the District, which recently started selling gift cards online. "But because we're all so busy, I think we've all given one too many gifts that get into the regifting pile."