The Risks of Using Gift Cards
Gift cards may be offered by retailers to encourage consumers to return to their stores. While a free gift card may seem like a generous offer on the surface, consumers should be wary of these types of promotions.
How Gift Cards Benefit Retailers
While a free gift card appears to benefit the consumer, it is actually more beneficial for the retailer. Gift cards are an easy way for retailers to gain loyalty and manipulate consumers into returning to their store. And, when the consumer returns, they will often spend more than the balance of the gift card. In fact, according to a 2008 study by the Journal of Experimental Psychology, the customers paying with a $50 gift card spent 13%-26% more on individual items than those who spent an equivalent amount in cash.
How the Card Act Protects Consumers
Credit Card Accountability Responsibility and Disclosure Act (Credit Card Act) offers certain protections to consumers using gift cards. These protections include:
- A longer period of use – consumers are given at least five years to use their gift cards.
- Grace period before inactivity fees – consumers have one year to use a gift card before a small annual fee is subtracted from the balance. This fee takes advantage of consumers who forget or misplace their gift cards.
Additional Information For Gift Card Users
Gift cards are not always protected by the Credit Card Act. In order to limit gift card use, credit card companies have found loopholes within the language of the Credit Card Act. Credit card companies have figured out ways to restrict when and on what gift cards can be used. For example, retailers can limit the days on which a gift card is acceptable, rendering it useless on the restricted days
A gift card balance may not be protected in the case of bankruptcy or consumer loss. Unlike credit cards, gift card holders are not guaranteed anything if the retailer goes out of business. Additionally, gift cards may not be replaced if the original is lost or stolen.
Gift cards hold less risk than credit cards, but it is still important to use with caution. For the reasons described above, gift cards should be used carefully.