Consumer Law

Gift Cards Come with Strings Attached

People seem to love gift cards. The National Retail Federation expects nearly $25 billion was spent on gift cards in 2010. They're perfect for both sides of the gift - they're easy to buy, easy to use, and no one has to worry about a gift that's the wrong size, color, or style.

Both givers and receivers need to know about the pitfalls that may be lurking in the fine print on gift cards, though.

Funny, But Serious, Too

A gift card from Chipotle restaurants uses some clever humor to warn customers about some of the pitfalls. After warning customers not to eat the card - it's made from corn-based plastic! - the card advises:

  • You can try to use it at another store or restaurant, but it won't be accepted and you'll probably be laughed at
  • The restaurant isn't responsible for unauthorized use of this card, like someone other than you using it to "score a burrito"
  • Lost or stolen cards may or may not be replaced

Humor aside, the warnings are true for many gift cards.

The Basics

There are two basic types of gift cards:

  • Closed loop. These are like the Chipotle card; they can only be used at a specific store or restaurant
  • Open loop. These are connected to one of the popular credit card brands, such as Visa, MasterCard, and American Express. These cards may be used practically anywhere for anything, from groceries to gasoline

Now, each card may be different depending on the store or credit card company. In general though, closed-loop cards usually don't expire or have fees connected to them - either when buying the card or for using (or not using) the card.

Open-loop cards, however, usually have a fee when they're bought - like $5 or $10 "setup" or "purchase" fee. Also, they typically have an expiration date or valid-thru date. After that date, fees may deducted from unused balances on the cards.

Also, as the Chipotle card warns, gift cards are pretty much the same thing as cash. If you lose it, someone else can use it!

New Protections

The Credit Card Accountability, Responsibility, and Disclosure Act of 2009 (CARD Act) gives gift card buyers and receivers a lot of new protections, whether they're open- or closed looped cards. For example:

  • Cards sold after August 22, 2010 must be good for at least five years
  • Fees for non-use (or inactivity fees) can't be charged unless there's been at least 12 months of inactivity, and only one fee per month may charged
  • If your card expires with money still on it, you're entitled to a new card, free of charge
  • As the Chipotle card warns, card issuers generally aren't legally required to replace lost or stolen cards. As a matter of good business, the card may be replaced if you have the original receipt (or a gift receipt) when the card was bought and the store/credit card company can verify that the card hasn't been used-up. After all, anyone can use up their card and then claim it was lost or stolen!
  • Starting in early 2011, card issuers have to explain all fees, charges, and expiration dates before sale and have a website or toll-free number so users can get information about fees, balances, replacement cards, etc.

Gift cards can be the perfect gift for anyone. Just remember to choose and use them wisely, watching out for those pesky fees and pitfalls.

If you have any trouble using a gift card or with fees being charged, contact the card issuer. If you can't settle the problem directly, contact your state's attorney general's office or consumer protection agency, or file a complaint with the US Federal Trade Commission.

Questions for Your Attorney

  • Is there anything I can do if the store I have a gift card for goes out of business?
  • Am I entitled to a cash refund if I return something I bought with a gift card, or can the store insist on an "in store" credit?
  • Can I get into trouble if a gift card I bought online is counterfeit?
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