Gift cards are a hot present, but some get burned
Major retailers don't impose fees or expiration dates, but banks do.
MCCLATCHY NEWSPAPERS
MINNEAPOLIS -- For the first time, sales of gift cards this holiday season are expected to beat sales of toys and games, music and movies, and far outpace jewelry. Two-thirds of shoppers will buy gift cards this year, and sales are expected to jump more than 20 percent from a year ago, to 80 billion.
But not all gift cards are made equal. Fees can pile up quickly -- and for many shoppers, unexpectedly. Trying to get some cash out of the 50 U.S. Bancorp card from Grandma? That'll cost 15, on top of the 5 initial fee. And the bank will also charge 2.50 a month after a year just to carry the balance.
Such fees have already made some consumers think twice about buying the cards. Danna Schultz was thinking about buying her daughter a Visa-branded Mall of America gift card -- until she read the fine print. In it, she discovered that the card would lose some of its value after the expiration date.
"It's kind of frustrating to think anyone can pay a bank or a retailer some money and you may not be getting anything out of it," said Schultz, 49, of Hastings, Minn. "This isn't worth it. I'll just give her cash."
Looking into it
The fees and rules that can deplete the value of a card are earning increasing regulatory scrutiny at state and federal levels. While retail cards have drawn the most scrutiny in recent years, cards issued by banks such as U.S. Bancorp and Wells Fargo & amp; Co. are even more controversial. A Best Buy Co. Inc. card is only good at Best Buy stores, but consumers can use so-called universal cards at any business that accepts major credit cards such as Visa, MasterCard and American Express. But universal cards tend to expire sooner and carry more fees.
At first blush, gift cards seem to be an ingenious product. They can save harried consumers the time and trouble of trekking to crowded malls and post offices to complete their holiday shopping. And recipients can buy the things they really want.
With their prominent Visa or MasterCard logos, bank-issued cards are especially appealing because they resemble credit cards that can be used anywhere in the country. People can also personalize gift cards with messages and even photos.
"Consumers absolutely love this," said John Owens, senior vice president for debit and prepaid products at U.S. Bancorp. "What does a grandmother know about what a teenage girl wants for Christmas?"
Sales increase
The National Retail Federation, a Washington-based industry group, estimates that retail gift card sales this holiday season will total 24.81 billion, a 34 percent jump over 2005. Target Corp. alone predicts that it will sell 1.5 billion in gift cards.
Gift cards have also proved to be lucrative to banks. U.S. Bancorp, the country's largest issuer of Visa gift cards, sold 1 million cards between 2003 and 2005. By last summer, that number soared to 10 million. Universal cards will generate about 28 billion in sales this holiday season, a 24 percent jump over 2005, according to TowerGroup, a research and consulting firm in Needham, Mass.
American Express says gift cards this year will be second in popularity only to apparel. And while the percentage of shoppers giving apparel -- 68 percent -- was fairly steady from last year, the number of gift card buyers rose to 66 percent of shoppers, up from 57 percent a year ago.
Fees, expiration dates
But consumer groups and state officials have complained that fees and expiration dates unnecessarily sap the value of the cards. Thirteen states already ban or restrict expiration dates and fees on gift cards, including California, Massachusetts and Washington, which have banned expiration dates all together.
Currently, major retailers including Target, Wal-Mart Stores Inc., Best Buy, Gap Inc. and J.C. Penney Co. Inc. don't impose fees or expiration dates on cards.
Banks, however, are a different matter. Universal cards can carry a host of fees, including fees for buying them, using them -- even not using them. The cards can also expire within six months to a year. After 12 months, Wells Fargo deducts 2.50 from the balance every month until the card is empty.
U.S. Bancorp charges consumers a monthly 2.50 "administrative" fee beginning 13 months after the card was bought. Consumers must also pay a 15 fee to cash out the card's balance.
According to TowerGroup, consumers lose 8 billion a year because of unredeemed value, expiration or loss of gift cards.