Gift Card Update

This is just a little update on the Gift Card issue, since there was some bit of minor controversy over it in my last post.

I receive a regular newsletter from the Florida Consumer division of the Florida Department of Agriculture And Consumer Services, since I once had to file a complaint against a business and now I'm on their mailing list.

According to Charles Bronson, the Commissioner of the State of Florida, in the department that is actually in the business of protecting consumers, buying gift cards is not the smartest idea.  They reiterate the "breakage" problem, which is the term used to describe the loss of monetary value in a gift card due to expiration, loss of card, bankruptcy, or just plain not using it. 

As I mentioned in my last post, unredeemed gift cards totals over $8 billion a year.  That's $8 billion of pure profit that businesses count on by expecting 10% of the recipients to never use the card.  According to the Commissioner in his newsletter, that's double the amount of money lost from debit and credit card fraud ($3.5 billion)!

The commissioner also cautions against gift cards because of the uncertain economy, which has been termed "the longest recessions since World War II".  He says: "With a staggering number of retail bankruptcies and liquidations transpiring nationwide, savvy consumers are being forced to consider how a card’s value might be affected in the event a company should fail or seek protection from creditors."

He then goes on to say:

It is extremely important for consumers to realize that there is a risk that they might not obtain the full value of their gift cards if a retailer files for bankruptcy or goes out of business. Small operations, such as your local tanning salon or restaurants that are not a part of a chain, are most vulnerable to economic downturns and pose the biggest risk to consumers. When a large retailer or national chain files for bankruptcy protection, millions of dollars may be lost on unused gift cards. Bankrupt retailers may not even have a choice when it comes to honoring the cards. Sometimes they simply can’t afford it and other times the bankruptcy court may not allow them to do so. Bankruptcy Courts look at gift cards as unsecured debt, which means the consumer is not necessarily going to get paid.

Although it's the non-chain businesses that are in the most danger of being unable to honor the gift card, large chains are suceptible too, especially in this economy.  CompUSA was a big chain too, but it still closed.  And a business does not have to close to file for bankruptcy, so just because the business is still around, it doesn't guarantee that your gift card will be honored.  If you buy a real, tangible gift, then even if the store closes or files for bankruptcy after you purchase it, you still have your gift to give and the recipient can still use it.

Although some people have said that they actually enjoy receiving a gift card (and I used to be one of them), I maintain my position that it is a financially dubious choice to make at best, and a financially worthless choice to make at worst ... and the real kicker is that you won't know which choice you've made until after you've already spent your money. 

Mr. Bronson's advice is:  "Advice?!?!?  Do some research before purchasing a gift card from your favorite retailer or local financial institution. Check the company’s website, including its shareholder pages and press releases. Do a Google search of the issuer’s name with such words as “financial trouble” or “bankruptcy.”   If you have any doubt about which gifts card to buy, remember that cash is universally accepted and will make your gift recipient equally as happy."

I don't know about you, but I certainly don't want to go through the trouble of researching every company I might want to buy a card from, down to the shareholder pages and press releases.  If you just do not know the recipient well enough to pick out something personal, send cash and get over the "impersonal" obligatory guilt.  If you insist on doing something "personal", going to the trouble of picking out something the recipient would want is actually a personal gift, whereas a gift-card is a very thin veil to hide the impersonal-ness of the action.  If someone just simply likes gift cards, well, at least know that the giver is taking a risk that the gift might turn out to be completely worthless.  And just what kind of sentiment do you think a worthless or never-used card sends?