Before you decide to buy a gift card, you need to know what to look out for. If the retailer that issued the card files for bankruptcy or goes out of business, the person you gave the card to may get caught up in red tape. Here are some things you need to know to help you make sure retailers and issuers don’t cash in at your expense.
It used to be that consumers only worried about hidden fees and charges that could wipe out the value of a gift card, but with today’s economy there’s more you need to consider! A common question is what happens to your gift card if a retailer files for bankruptcy protection –does it suddenly become worthless? The answer is “it depends.” If the bankruptcy court gives the retailer permission to continue accepting gift cards, you may be all right. But if the retailer doesn’t ask the court for permission or the court says “no” then gift card holders have to get in line with all the retailer’s other creditors. If you have a gift card and the retailer goes bankrupt you can file a legal document called a “proof of claim” with the court – including whatever information you have about the value of the card as well as a photocopy of it. Bankruptcy allows for the payment of claims depending on what assets the company still has available. But the reality is – filing a claim with the court over a $50 gift card is something most people don’t have the time to do.
There is a lot of confusion as to gift cards being insured by the FDIC. Cards issued from an FDIC insured institution can be insured the same as bank deposits, but in the case where a retail store or chain goes bankrupt or out of business and the funds weren’t put into a special account – the FDIC isn’t going to pay out on the retailer’s gift cards. .
So what’s the best thing to do? Ideally, give cash. If you don’t want to give cash, consider gift cards or debit cards from the major credit card companies. American Express, MasterCard, Visa and Discover all offer gift cards that can be used just about everywhere, so you do not need to worry if a specific retailer is about to “go under.” But remember, this type of gift card usually has more restrictions than gift cards issued by individual retailers. You have to watch out for expiration dates, monthly service fees and other fees. State laws may offer some protection, but usually not as much as you would think.
Do your homework before you buy a gift card. Don’t buy a gift card from a retailer or financial institution that is having problems. Do a Google search of the issuer’s name and include words like “financial trouble.” Also – if you do buy a gift card, make sure you hand over a copy of the terms and conditions on the card as well as your receipt to the person you give the gift card to.
If you have received a gift card, don’t hold on to it. Spend the whole thing as soon as possible! The longer you wait to use a gift card the greater the chance it will be lost or stolen or forgotten – and of course the more likely it is the card will loose value due to time lapsing, fees and the possibility of the retailer having financial troubles. Sometimes it makes sense to register a gift card if the option is available to you. Make sure you keep any information you have on the terms and conditions of the card. And if the person who gave it to you doesn’t provide that information – look on the card for a website you can access which will tell you what you need to know.
If you have a gift card and the issuer of the card gets into financial trouble but hasn’t yet filed bankruptcy or closed their doors, you should redeem the card or any balance left right away. If it’s a gift card for a retailer that has closed its local stores, go to the retailer’s website and see if you can redeem your gift card online. If the retailer stops accepting gift cards or closes local stores and they won’t let you redeem gift cards online, check with your state’s Attorney General’s office. They might be able to help. Also, if the gift card was bought with a credit card, the person who bought the card might be able to obtain a chargeback from his or her credit-card company.
If all else fails and its not worth your while to file a legal claim, you can try the competition and see if they will cut you a deal. For example, Brookstone gave a one-time 25% discount to people who brought in their Sharper Image gift cards and certificates, regardless of the original value. Good solution to a bad situation. In these tough economic times, consumers and retailers alike have to be careful and creative.