Consider Gift Card Purchases Carefully
During the 2007 Christmas season, an estimated $26.3 billion was spent on gift cards at retailers. Gift cards are the gift people choose when they’re just not sure what to buy someone on their list — but they can become a problem for gift card holders if the retailer goes bankrupt before the gift card is redeemed.
When a retailer goes bankrupt or begins closing stores in an effort to downsize, the Bankruptcy Court considers gift cards “unsecured debt.” This means they don’t always have to honor them once they file for bankruptcy protection, or they may be able to pay them off at much lower values. For example, Consumers Union said an estimated $20 million in unused gift cards were left behind when Sharper Image filed for bankruptcy protection this year; Bombay Company paid gift card holders 25 cents on the dollar when they closed 388 stores.
Some stores that have filed for bankruptcy or are closing stores to downsize operations include: Sharper Image, Bombay Company, Fashion Bug, Lane Bryant, Linens ‘n Things, Levitz, Domain, Fortunoff, Harvey Electronics, Lillian Vernon, Zales, Ann Taylor, Foot Locker, and Circuit City.
With the economy in a state of decline, you might want to consider your gift card purchases carefully this holiday season. If a store is doing poorly, skip the gift card, since there’s no federal protection for consumers to recover that money if the store closes its doors the next day. If you receive gift cards, don’t toss them aside — use them immediately to make sure you can redeem them.
Understand the terms and conditions of gift cards
- Fine print. Gift cards have terms and conditions similar to credit cards.
- Exceptions. Some companies only allow you to use gift cards for in-store purchases but not for online purchases. Other exceptions can apply, too, so be sure you know how and where you can use the card.
- Expiration. Almost all gift cards have expiration dates, regardless of whether the retailer is in financial trouble.
- Fees. There are even gift cards that charge activation fees, transaction fees, inactivity or monthly maintenance fees that reduce the actual value of the card. Ask before you buy — you may not see this information printed on the card itself.
