Retail store gift cards continue to be a consumer-friendly credit product, with fees and expiration dates the exception rather than the rule. The retailers can make a profit from the merchandise users buy.
Gift cards from the major credit card issuers, though, still carry an assortment of fees. All continue to charge monthly "maintenance" or "dormancy" fees, ranging from $2 per month to $3, if the gift card isn't used within a certain period of time. All but American Express have expiration dates.
Bankrate surveyed the top 25 retailers, as identified by the National Retailer Federation, about the costs, terms and conditions of the gift cards they offer, both plastic and electronic. We also surveyed the four largest credit card companies: American Express, Discover Card, MasterCard and Visa.
Among the other findings in the study:
• The maximum amount allowed on cards has increased in a number of cases, with Best Buy topping the list: Gift cards purchased in stores have a limit of $9,999. J.C. Penney has raised its maximum to $500 from $250.
• State laws prohibiting expiration dates have had some effect. Thirteen states have banned them, and although the laws apply only to local retailers, not national ones, some national issuers have voluntarily done away or loosened their card expiration policies.
• More retailers are allowing gift cards to be used online. Both Lowe's and Sears allow all gift cards to purchase merchandise online.
• A number of retailers, such as Food Lion, Hannaford and Kash n' Karry, now offer reloadable gift cards.
• Personalized cards are a new trend. Wal-Mart allows customers to upload photographs to create their own cards, and American Express offers personalized gift cards on which the recipient's name can be embossed.
• AmEx gift cards can also be purchased in stores this year, whereas last year they were available only online. Target and Bloomingdale's have added e-cards, which can be used online but not in stores.
• Some merchants have done away with some fees while others have introduced them. American Express has eliminated its $3.95 fee to purchase a card; now they charge only a delivery fee. Discover Card and Safeway used to offer free shipping; now Discover charges $3.95 to $6.95, depending on packaging, and Safeway charges $2.50 for delivery.
• Of the electronic cards surveyed, only J.C. Penney allows the cards to be used to purchase merchandise in stores. The others -- Wal-Mart, Costco, Target, Macy's, Bloomingdale's and Kohl's -- allow electronic gift cards to be used only online or for catalog purchases.
Gift cards still growing
Americans are preparing for the holiday season -- the busiest spending season of the year -- and they are expected to spend $457.4 billion, according to the National Retailer Federation. For years, apparel has been the No. 1 holiday gift. This year, though, the gift card is going to give that paisley tie or green sweater a run for the money.
According to the 2006 American Express Gift Card survey, 66 percent of shoppers plan to give a gift card this year, compared with 57 percent last year. (Apparel-givers are holding steady at 68 percent.) Another holiday survey by Deloitte & Touche showed that consumers are buying more gift cards, 4.6 cards per person compared with 3.9 last year. So whether you're on the giving end or the receiving, chances are there will be a gift card in your pile of holiday gifts.
For businesses, this means big bucks. Sales of open-loop gift cards (those from the major credit card companies that can be used anywhere the credit cards are accepted) are projected to reach $2.14 billion, up 60 percent since 2005, according to Tim Sloane, director of the Debit Advisory Service at Mercator Advisory Group. He expects closed-loop gift cards (those that can be used only at the retailer where they were purchased) to top out at $53.4 billion this year, a modest increase of 3 percent from the previous year.
If the post-holiday shopping season of 2005 is a guide, merchants will be busy well into January. A survey by Accenture conducted in January 2006 showed that 81 percent of gift-card recipients had already used their cards by the time the survey was conducted, and 43 percent planned to use them within a month of receiving the gift card.
"Kids are getting gift cards, and they have no other income," says Dan Horne, a gift card expert and marketing professor at Providence College. "They're going out to consume."
Retailers also benefit because recipients typically spend more than the gift card total. "At lower-end retailers, such as Target, customers spend 110 percent of the face value of a card," says Horne. "And it's 200 percent of the face value at the high end, at places like Nieman Marcus."
Fee frenzy
The great drawback of gift cards has been the fees associated with them. "The consumer is buying these cards, and they hand the card to someone else, and (the recipient) is the one who is bearing the cost," says Horne.
On some cards, there are maintenance fees if the card isn't used after six months or a year, or an expiration date. There is a fee for replacing a lost or stolen card. There is a fee to cut a check if the cardholder wants the balance refunded. There is a fee to check available funds. But this may be changing.
The Office of the Comptroller of the Currency, which oversees national banks, thought consumers needed more information on fees and terms, too. In August 2006 it issued guidelines for national banks that are selling gift cards, emphasizing the need for disclosure of policies and fees both on the card and on a separate brochure to be handed out with the gift card. The gift card itself must have the expiration date; the amount of the monthly maintenance fee, dormancy fee and any other fees; and additional information for customer service, including a toll-free number or Web site address.
The ride-along printed information (which might be as simple as a receipt-style slip of paper) must include several bits of information.
Disclosure for gift cards issued by national banks:
• The name of the issuing bank.
• Other fees (replacement, balance inquiry, cash redemption, etc.).
• How to replace a lost or stolen card.
• How to track balances, "split payment" information (whether payment for a transaction can be made with the gift card and another form of payment such as cash or a credit card).
• How to resolve problems with the card.
• Names of merchants where the card can be used.
• When the issuer can change the terms of use.
"Simon Mall has good gift-card disclosure," says Horne. "It's much clearer; it articulates just what's going to happen. They've just taken the lead. They've said, 'We want these fees,' and they professionally provide an understandable disclosure statement."
States try to help the consumer
Not surprisingly, Simon Property Group, the nation's largest operator of retail malls, has been at the center of the gift-card-fee-and-expiration-date discussion. A number of states have passed laws that forbid expiration dates and fees on gift cards. The states are: California, Connecticut, Louisiana, Maine, Maryland, Massachusetts, Nevada, New Hampshire, North Dakota, Oklahoma, Rhode Island, Vermont and Washington. However, their jurisdiction over gift cards issued by national banks, which are regulated by federal law, is being challenged.
Simon Property Group, whose cards are prepaid Visa cards issued by MetaBank, won a victory over New Hampshire's attempt to forbid its dormancy fees. New Hampshire law does not allow expiration dates or fees on gift cards. Simon challenged the state law in a 2004 suit, saying federal banking laws supersede state laws. A federal district court judge ruled in August that since the Simon gift cards are issued by national banks, they come under federal banking laws, which at present do not prohibit fees and expiration dates.
Similar suits have been filed in New York, Connecticut and Massachusetts. The New York suit resulted in Simon changing its gift card program so that the expiration date is now 13 months after the card is issued, up from six months. The other suits are still pending.
Bankrate.com's survey reflects the effects of these changing laws, too. Target plastic gift cards, for example, have no expiration date in some states and, in others, gift cards expire two years after issue date.
E-gift cards stay 'e'
Of the seven electronic gift cards Bankrate surveyed, only the J.C. Penney card can be used to purchase merchandise in stores. All the others -- Wal-Mart, Costco, Target, Macy's, Bloomingdale's and Kohl's -- can be used only online or for catalog purchases. The Target e-GiftCard can be used at Amazon.com as well. Delivery is via e-mail and all deliver within 24 hours. Only Target's e-GiftCard has an expiration date: 15 years from date of issuance, subject to state laws. None of these retailers charges other fees for their cards or for their use.
As the world of gift cards continues to grow, it will also continue to change, responding to consumer wishes and demands. |
