Gift cards not the best stocking stuffers

Wachovia charges $3.95 to purchase a card. If the recipient doesn’t use the card within 12 months, Wachovia will deduct $2.50 every month from the card’s balance. If the card still has value after its expiration date, Wachovia will charge $15 to issue a new one.

Such policies are one reason consumer advocates suggest stuffing stockings with something other than gift cards.

“They are just riddled with fees and charges that you did not anticipate,” said Pam Banks, senior policy counsel for Consumers Union, the nonprofit organization that publishes Consumer Reports magazine.

Local advocates agree. “What’s wrong with cash?” said Bill Cloud, a spokesman for the Governor’s Office of Consumer Affairs.

Congress addressed gift card fees this year when it passed landmark legislation imposing new regulations for the credit card industry.

The new rules will prohibit expiration dates less than five years after a gift card is issued and ban service, maintenance or inactivity fees unless a card goes unused for a year.

Consumer advocates pushed hard for new rules. While most advocates oppose any gift card fees, they say the new law will eliminate the worst practices.

The portion of the law related to gift cards will not take effect until next year. The Federal Reserve currently is taking public comments on the rules it is proposing to enforce the new law.

While many states limit gift card fees and expiration dates, Georgia has one of the nation’s weakest laws governing the cards. Georgia law places no limits on fees or expiration dates, requiring only that terms are clearly disclosed.

Many major retailers have dropped fees and expiration dates because of negative publicity and lawsuits associated with the fees.

The national Retail Gift Card Association limits membership to stores who agree to offer cards that charge no fees and never expire.

But some retailers and issuers of general-purpose gift cards still charge a range of fees.

“I think the industry has a long way to go,” Banks said. “This was a cash cow for them.”

The Web site for Spa Sydell, an Atlanta spa chain, says gift certificates expire after one year, but can be extended during the first 60 days after expiration for a fee of 20 percent of the card’s value.

At Natural Body spa, gift certificates do not expire. But if a card is not used for a year, the spa will deduct a $2 monthly dormancy fee from the value, according to the company’s Web site.

American Express charges a fee to purchase a gift card. But it broke from other credit card issuers in September when it announced elimination of all monthly fees on gift cards, including those already purchased.

Unlike most of its competitors, American Express doesn’t charge a fee even to replace a lost card and its gift cards never expire.

Monthly fees aren’t an issue for most consumers, said Jennifer Tramontana, communications director at the Network Branded Prepaid Card Association. She said about 95 percent of general-purpose gift card recipients use the cards before the one-year point when some issuers start charging fees.

“People love receiving them and they love the flexibility,” Tramontana said. “They prefer it to cash because it feels like a gift.”

Consumer advocates say it’s crucial to study the terms of a gift card before buying it.

Shoppers should be wary of relying on Web sites to comparison shop. A Wachovia spokeswoman referred The Atlanta Journal-Constitution to a Visa Web site for information about the terms of its Wachovia Visa gift card, which listed a purchase fee of $1.95.

But the spokeswoman later said those terms were outdated and referred the AJC to another Web site, which shows a $3.95 purchase fee and a $2.50 monthly dormancy fee after one year. Wachovia’s Visa gift card expires after about three years.

Jamie Grady, the Wachovia spokeswoman, wrote in an e-mail: “We encourage customers to use authoritative sources and we do our best to make sure that all the correct information is on our company’s website.“

Consumer advocates advise avoiding gift cards that have any monthly fees or expiration dates. “If you’re going to buy one, at least buy one that’s going to hold its value,” said Cloud of the Office of Consumer Affairs.

Advocates say shoppers also need to watch out for cards from retailers that might be on shaky financial ground. Recipients who didn’t quickly use gift cards last year for now-defunct electronics chain Circuit City were left with worthless gifts.

Atlanta’s Spa Sydell chain entered Chapter 11 bankruptcy this year to reorganize, but is still operating.

Atlanta-based Home Depot’s gift card has never imposed monthly fees or an expiration date, making it an industry leader in the trend to shed such fees.

Retailers like gift cards because recipients typically spend 40 percent more than the value of the card.

John Salter, an attorney for the Barnes Law Group, said the promotional value of gift cards makes fees unnecessary.

Former Gov. Roy Barnes represented plaintiffs in a 2004 case that challenged fees and expiration dates.

The challenge failed and the General Assembly later specifically authorized fees when it mandated disclosure requirements.

“The idea that they need these fees and [value] forfeitures to make a profit is completely false,” Salter said.

Some consumer advocates push cash. Before the days of gift cards, grandparents filled stockings with bank envelopes featuring a peek-through window of the bill’s presidential portrait.

“Cash feels better than plastic,” said Cloud, “and I think kids get a kick out of having some cash.”

But many gift-buyers consider cash impersonal or something that won’t be used for a gift.

“If I gift someone cash, that tends to be commingled with household funds,” said Dan Horne, a marketing professor at Providence College who is an expert on gift cards. “A tank of gas I have to buy on the way home is not very memorable.”

Gift cards were redeemed more quickly last year than in previous years, Horne said, and recipients often used cards for practical items.

Retailers are taking steps this year to make gift cards seem more gift-like.

Home Depot has launched a card that a recipient can hold in front of a computer with a Web cam to see a parade of merchandise. Home Depot is also among a group of retailers that allow card purchasers to emblazon a gift card with a picture of a child or a pet to make it feel personal.

Banks, of Consumers Union, thinks consumers have gotten wise about the dangers of both credit cards and gift cards this holiday season. And because of that, she says, she believes many will avoid even the most dressed-up of gift cards in favor cash.

“We’re dealing with consumers who are better informed as to the pitfalls and that’s making cash OK,” Banks said. “At least with cash, you get your present value.”