Gift Cards: The gift that can stop giving

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We support reforms to the financial marketplace that protect consumers from unscrupulous banks and lenders.

By Consumers Union on Friday, September 12th, 2008

Who doesn’t love the idea of gift cards? They are quick, easy to find, and there seems to be one for every retailer under the sun. They even make it easier to buy a gift for even the hardest person to shop for -No more awful ties for Dad!

But what happens when the store files for bankruptcy? Instead of a gift you may be stuck with a worthless piece of plastic. Earlier this year, when Sharper Image filed for Chapter 11, people holding its gift cards were told that they could not get their money back or use the card to make a purchase.

Retailers generated approximately $80 billion spent on gift cards, and about $8 billion was left unredeemed in 2006 according to the Tower Group. It is shocking that there is little to no consumer protection on these gift card funds. Right now, you may be carrying gift cards or worse, even purchase, gift cards that are worthless. As the economy continues to tank, many retailers may be headed for bankruptcy, consumers need the FTC to step up and provide strong protections. The FTC should ensure that retailers segregate and hold in trust gift cards funds. Retailers should abide by the basic rule our parents taught us “You can’t spend money that isn’t yours”.

But that may take a minute. In the mean time, here is an ingenious list of what the FTC can do to provide you with some level of protection.

• Intervene in Bankruptcy proceedings- as long as the doors are open and websites are up, retailers have to accept the full value of the card;

• Develop and maintain a list of bankrupt retailers’ gift card practices and of retailers who have filed for bankruptcy;

• Tell retailers to stop selling gift cards after they declare bankruptcy!;

• Require retailers to inform convenience stores, grocery stores, and other gift card sellers to stop selling cards that are may be no good due to a bankrupt retailer; and

• Require these third party vendors to immediately cease sale of gift cards for bankrupt retailers.

We call on the FTC to implement these common sense requests before the holiday season. If you want to see the very stern letter to Chairman Kovacic of the FTC you can find it here.

Take our gift card survey and check out “Tips on what you can do if you have a gift card”.

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