Tuesday, March 4, 2008

Gift Cards = Loans? Really?

Are you holding any gift cards that you have purchased or received as gifts? Any that are worth any substantial amount of money?

Read today’s Associated Press article in the Northwest Herald on Page 2A about cancellation of gift cards when the issuer goes into bankruptcy.

The recent Chapter 11 filing by Sharper Image has pushed this topic to the forefront. Apparently, the bankruptcy code treats gift cards as “loans”, and that makes you an unsecured creditor of the company that just filed bankruptcy.

Isn’t this the dumbest thing you’ve heard of? Well, maybe not the “dumbest”, but it ranks right up there.

There is no way that a gift card is a loan to a company. It is advance payment for a purchase to be made in the future. Cash. Good money paid now, so that a piece of plastic (or a paper gift certificate) will entitle the bearer to goods in the future. Unspecified goods that have been paid for in full. Gift card issuers tell you that the card cannot be exchanged for cash; in other words, you cannot present the Gift Card, ask for your “loan” to be paid off.

What a joke! Can you just imagine walking into a retailer, gift card in hand, and asking the cashier to pay off the company’s loan?

Wouldn’t it be interesting to have the time, money and skill to go back and trace how this “preferred” gift card treatment got into the bankruptcy code in this form? My guess? Strong lobbying by corporations, so that they’d be able to hang onto the cash they received and not have to part with it in more difficult financial times.

What if a gift card had been purchased with a credit card? You can do that. Could you have recourse by filing a claim with the credit card issuer that the merchant (the gift card issuer, now bad-guy) failed to honor the gift card and refused to deliver merchandise that had been paid for?

What should you do now? Spend those gift cards. Don’t hold them. Reading about any retailer bankruptcy in the newspaper might just shut the door on any value of that piece of plastic.

Also, be alert for "inactivity fees" charged against any gift card that you’ve had in your wallet or purse for a long time. Many cards were issued that advise you, in fine print that you’ll need a microscope to read, that your credit balance will be charged fees after “x” number of months, if you don’t use the card. Illinois law may prohibit inactivity fees now, but cards issued prior to the change in law might still incur those fees.

It doesn’t hurt to argue with a merchant, if you get stung with inactivity fees. I helped one consumer a while back who had received two gift cards worth $110 as gifts. She had neglected to use them promptly and, when she did go to the store to use them, she found their value had been reduced to $65. She asked me for help, and I contacted the store on her behalf. The manager recognized the customer-relations problem right away and, after our second conversation, agreed to restore the lost value. But this was not a bankruptcy situation. Had it been, the manager’s hands would have been tied, and he would not have been able to restore the original value to the cards.

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