Warning about gift card charges

[Frederick Skelly]

About 5 years ago I was given a $100 gift card from US Bank as a thank you for helping out a high school kid. I checked the expiration date and it was 2023. So I set it aside for a special tool in the future.

I tried to use it last weekend. It had $16 left on it. Apparently, the company started charging me $2 per month after the first year. Well, it turns out these charges are clearly spelled out on the gift card and on the unopened packaging. So I'm clearly at fault. They gave me another $24 back - charges over the last year. But the rest evaporated. I'm really down because this was a special gift from a kid.

The morale of the story is to read the dang packaging when someone gives you a gift card.

Sadly,
Fred

[Chuck Wintle]

Gift cards are one of the biggest scams going.

[Brian Elfert]

Gift cards are one of the biggest scams going.

Why, exactly? Most stores the gift cards never expire and don't have any fees. The reason store gift cards don't expire in most cases is because a number of states in the USA have laws prohibiting expiration or fees. The OP sounds like they have a Visa or Mastercard prepaid credit cards that are a joke with the fee to buy them and fees for non use.

I make out real good on gift cards for myself during the holiday season. A local gas station chain is giving a $5 gift card if you buy a $50 gift card in the store. I was heading over to buy something at Home Depot for $99 this past weekend so I stopped and bought two $50 Home Depot gift cards and got $10 in gift cards to buy gas with. The same chain will likely be offering a 12 pack of soda pop with purchase of a $50 gift card in a few weeks. I buy the gift card and then immediately use it to buy gas. This station has the cheapest gas prices locally so they aren't jacking up the gas price to give me the 12 pack.

[Mike Henderson]

The reason the merchants want to charge an annual fee is that they have to carry the unused amount that's "out there" (unused) as a liability. Having an annual fee eventually evaporates the liability.

Here in California it's illegal to charge an annual fee on a gift card. But let's say that they give you a card when you purchase something else. Those are categorized as something other than a gift card and they can have all kinds of restrictions. Most have an expiration date where the card is worthless.

Mike

[Myk Rian]

Just recently my sister bought a gift card for our SILs Bday. It seems scammers/thieves scan the card codes with their phone from a handful of cards they grabbed while in the store. After getting the codes, they put them back.
Then their computers keep track of those cards looking for them to be activated. They print a card and go shopping. Our SILs card was worth nothing.

If you do buy one, get it from the middle of the row of cards.

[Kev Williams]

When Paypal first came about, all transactions were totally free. The only catch: The one collecting the money had to wait 3 days. Paypal's entire income came from the interest collected on everyone's money simply 'floating' in their bank accounts for 3 days.

How is the money collected from gift card sales any different? Until the money is traded for something of equal value (which makes the store a profit), the money collected for the card is positive cash flow, able to collect interest or otherwise 'work' for the company. And what of the cards that never get cashed in? That's windfall money. I fail to see any liability? And whatever liability there may be, will be a tax deduction...

[Mike Henderson]

When Paypal first came about, all transactions were totally free. The only catch: The one collecting the money had to wait 3 days. Paypal's entire income came from the interest collected on everyone's money simply 'floating' in their bank accounts for 3 days.

How is the money collected from gift card sales any different? Until the money is traded for something of equal value (which makes the store a profit), the money collected for the card is positive cash flow, able to collect interest or otherwise 'work' for the company. And what of the cards that never get cashed in? That's windfall money. I fail to see any liability? And whatever liability there may be, will be a tax deduction...

The company has to carry the amount of outstanding gift cards as a liability on their accounting (annual report). I suppose there's a way of writing the liability off after enough time has passed. Maybe someone who is an accounting expert can comment.

Mike

[While the company has the money, it's like a loan - eventually it may have to be paid back. Therefore, for accounting purposes, it's a liability, just as a loan would be.]

[Edwin Santos]

The company has to carry the amount of outstanding gift cards as a liability on their accounting (annual report). I suppose there's a way of writing the liability off after enough time has passed. Maybe someone who is an accounting expert can comment.

Mike

[While the company has the money, it's like a loan - eventually it may have to be paid back. Therefore, for accounting purposes, it's a liability, just as a loan would be.]

Mike is correct. Another way of looking at it is that the issuer of the gift card has an obligation to redeem it with goods and services when presented by the holder. This obligation constitutes the liability (for accounting purposes).

Yet another way of stating it is that the sale of a gift card is a balance sheet transaction not an income statement transaction, i.e. debit to cash and credit to a "gift cards outstanding" liability account. When the holder redeems the gift card, the sale transaction would record on the income statement but instead of debiting cash, the gift cards outstanding account would be debited and thus the liability would be reduced.

Unused or unredeemed gift cards are called "breakage" within the industry. For a long time, it was a problem accounting for breakage because most gift cards don't expire so in theory the liability could sit on the books in perpetuity. I'm not that experienced with retailer audit but I heard FASB came up with a rule a few years ago where a retailer can use their own documented history of gift card redemption to establish a pro-rata breakage allowance that will let them book an amount to breakage revenue each year that would debit against the gift card outstanding liability. So for example if the retailer's historical records reflect that 10% of their gift cards go unused, they can book 10% breakage revenue pro rata with the normal redemptions. Again, I don't do this every day, so there may be some tweaks to what I am saying, but I'm pretty confident this is how it works in general.

[Jerome Stanek]

Just recently my sister bought a gift card for our SILs Bday. It seems scammers/thieves scan the card codes with their phone from a handful of cards they grabbed while in the store. After getting the codes, they put them back.
Then their computers keep track of those cards looking for them to be activated. They print a card and go shopping. Our SILs card was worth nothing.
If you do buy one, get it from the middle of the row of cards.

More and more companies are packaging gift cards in sleeves so the numbers are not showing.

[Mike Henderson]

I make out real good on gift cards for myself during the holiday season. A local gas station chain is giving a $5 gift card if you buy a $50 gift card in the store. I was heading over to buy something at Home Depot for $99 this past weekend so I stopped and bought two $50 Home Depot gift cards and got $10 in gift cards to buy gas with. The same chain will likely be offering a 12 pack of soda pop with purchase of a $50 gift card in a few weeks. I buy the gift card and then immediately use it to buy gas. This station has the cheapest gas prices locally so they aren't jacking up the gas price to give me the 12 pack.

When a company gives you a "gift card" when you purchase some other product, in most cases this is not a "gift card" from a legal point of view - it's a promotional card, essentially the same as a "buy one, get one" coupon that you might get for a restaurant. And because of that difference they can put all kind of restrictions on the card. For example, the card may only be good for certain items, or for a group of items. Sometimes they give you two cards, but when you read the fine print, you can only use one per transaction.

But the most important restriction is that the card will have an expiration date, just like a coupon. After that date, it's worthless.

So if you get one of those promotional "gift cards" check the restrictions, and especially the expiration date.

Mike

[lowell holmes]

I have destroyed all cards.

[Gary Ragatz]

A few years back, I received a $50 prepaid Visa card as a gift. I attempted to use it to pay for a meal at a local restaurant - the tab was something like $45. Visa wouldn't authorize the purchase. The owner of the restaurant said that sometimes happens with the prepaid cards, but wasn't sure why.

I did a little digging afterwards and discovered something called "tip tolerance." If you use a prepaid card someplace where you are likely to leave a tip, the card issuer won't authorize a purchase for the full balance available on the card, because if you then add a tip to the bill, the card issuer would be on the hook for anything over the balance on the card. With Visa, I read they use a 20% tip tolerance, so if you have a $50 gift card, they'll only authorize a restaurant purchase of $41.67, and then they'll be covered if you tip up to 20%.

[Eric Danstrom]

I just send cash via USPS 1st class postage or transfer it on PayPal friends and family. There's lots of screwing around to buy and use a gift card. Each side suffers. And if someone gets the card its the same as cash anyway....

[Brian Elfert]

When a company gives you a "gift card" when you purchase some other product, in most cases this is not a "gift card" from a legal point of view - it's a promotional card, essentially the same as a "buy one, get one" coupon that you might get for a restaurant. And because of that difference they can put all kind of restrictions on the card. For example, the card may only be good for certain items, or for a group of items. Sometimes they give you two cards, but when you read the fine print, you can only use one per transaction.


Yes, some stores do give out gift cards that have limitations if they are part of a promotion. The gas station chain in question gave me two regular $5 gift cards when I bought two $50 Home Depot gift cards. I spent the gas station cards within a week to buy gas, but I could have held onto them.

[Dave Lehnert]

As someone else said sound like a prepaid credit card not a gift card.

Stores push gift cards because the redemption rate is very low. for example I was told by a store manager, years ago at his place, that every $100 in gift cards sold, only $3 to $4 is ever redeemed. Nothing like going into a store and hand them free cash.

[Mike Henderson]

As someone else said sound like a prepaid credit card not a gift card.

Stores push gift cards because the redemption rate is very low. for example I was told by a store manager, years ago at his place, that every $100 in gift cards sold, only $3 to $4 is ever redeemed. Nothing like going into a store and hand them free cash.

I think that estimate is waaaay too low. Most gift cards have a redemption rate of 80% or higher (mostly higher). Of course, it depends on what the gift card is for.

But even if someone didn't want the thing that the gift card represents (say a Home Depot Card) most people would sell it at a discount and the buyer would redeem it at par. You'd have to be pretty rich to let $100 (for example) go to waste.

Mike

[I think if you ask Google that question, you'll get some estimates.]

[Jim Becker]

I think that estimate is waaaay too low. Most gift cards have a redemption rate of 80% or higher (mostly higher).

I agree, especially given how gift cards have become somewhat mainstream. Redemption rate may have been lower awhile ago when they were more of the exception. That said, I have had a few that languished for quite a while just because I forgot about them...usually something for some restaurant that was something less common for me to visit, often because it wasn't close by. But none of those were ever devalued. My older daughter did have a pre-paid card a few years ago that had fees in the fine print...

[Günter VögelBerg]

I try to avoid giving people gift cards, and never use the "prepaid" cards. The only exception is some of the at-risk youth my wife and I have mentored. We give them grocery store or clothes store gift cards because they cannot as easily be converted into other discretionary purchases that do not contribute to them making positive life choices.

[Bill Jobe]

Several years ago I bought something that netted me 2 $50 gift cards. May have been my first smartphone, I can't remember.
But by the time I got around to using them I discovered that one had been spent in California, the other in the UK.

[Dave Lehnert]

I think that estimate is waaaay too low. Most gift cards have a redemption rate of 80% or higher (mostly higher). Of course, it depends on what the gift card is for.

But even if someone didn't want the thing that the gift card represents (say a Home Depot Card) most people would sell it at a discount and the buyer would redeem it at par. You'd have to be pretty rich to let $100 (for example) go to waste.

Mike

[I think if you ask Google that question, you'll get some estimates.]


For sure that figure would very form store to store but know form experience that figure is not out of line.