Gift Cards

Gift cards may look like credit cards with eye-catching designs, but they have a unique purpose. They're popular to give for birthdays, thank-yous, and the festive holiday season, but complex policies and consumer behavior could risk making them wasteful.

Gift cards and gift certificates are prepaid monetary options that allow the owner to buy goods and services. They have little or no value until activated. Learn what you should know when purchasing and using these convenient gift items.

Types of Gift Cards

In general, there are two kinds of gift cards: retail gift cards and debit gift cards. The buyer sets the card's initial value, whether a custom value or a fixed amount the seller offers, such as $25 or $50.

Retail gift cards are issued by a specific store or brand. You can only use a store gift card with the named seller, such as Target, Best Buy, or McDonald's. These cards are known as closed-loop gift cards because shoppers buy and spend them in the same place.

Prepaid debit cards are often available through credit card companies like Visa, Mastercard, and American Express. These cards are also called open-loop or network gift cards because shoppers can use them anywhere that accepts the card type.

Gift Card Laws

At one point, gift cards commonly caused frustration due to hidden fees and restrictions. Retailers and bank issuers created their gift card policies without clear rules or guidelines, but federal and state laws have evolved.

Gift Card Policy Transparency

The Credit Card Accountability Responsibility and Disclosure (CARD) Act creates federal laws for gift card policies, including:

• Dormancy fees
• Inactivity fees
• Balance inquiry fees
• Service fees
• Expiration dates

Gift card issuers can only charge you for non-use starting at least one year after your last transaction. Plus, gift cards must remain valid for five years after you get the card. However, the CARD Act does not apply to prepaid, reloadable cards.

State Laws for Gift Cards

Many states, like California and Massachusetts, have banned gift card maintenance fees altogether, but many stores offer no fee, no expiration policies in states without specific laws. Retailers often create favorable policies to boost sales and prevent consumer confusion. Research your state's laws for more details.

Tips for Buying Gift Cards

Look for the following terms and qualities when buying a gift card:

• Expiration dates: These dates may vary. Check with the store or bank for more information.
• Dormancy or maintenance fees: These include fees if you don't use the card for a specific period of time.
• Loss and fraud prevention: Check with the store or bank issuer to determine what may happen if you lose the card or fraud occurs. Many stores may offer a gift card replacement in some circumstances, such as if you haven't used the card and it still has its initial balance.
• PIN code: Some bank-issued gift cards require activation with personal identification numbers (PIN). Check with the particular bank to see their policies.
• Reload option: Some stores allow a gift card holder to reload funds on their card for later purchases.
• E-gift card: An e-card is a digital gift the recipient usually receives via email. They can use it in the same manner as a physical gift card.
• Online balance check: You can check some gift card balances online at the issuer's website.
• Free shipping or delivery option: Online purchases often add shipping and delivery fees to the cost of a gift card purchase at checkout. Before buying a retail card, consider whether that store offers free shipping.
• Other use restrictions: For example, "domestic use only" means you can only use the card in the United States.

While new laws have made policies more transparent, consumers should still read the fine print. Gift card purchases bind you to the specific policy.

Tips for Gift Card Recipients

If you have received a gift card, take the following steps to enjoy your gift:

• Activate your gift card: Usually, the back of the card or its packaging will give you instructions to activate the card. Activation tells the card issuer to unlock your card because you are ready to use it.
• Use your gift card: Avoid leaving money on the table via unused gift cards. You can use your give card similarly to using a credit card. If you wait, the retailer might close before you redeem it, especially if it's a local small business.
• Know your balance: Each time you use your gift card, the cost is automatically deducted from the value of your card. Check your remaining balance after using the card to plan for future purchases with it. No law requires cashiers to tell you how much is left on your gift card.
• Keep your gift card after purchases: Hold on to the card if you want to reload it later. Many retailers issue store credit for returns of items you buy with a gift card, but it may be helpful to have the original card available in some cases.

Learn more about buying and using gift cards by reading about other consumer protection laws.

Beware of Gift Card Scams

Bad actors sometimes use gift cards to steal from people. Though most gift card sales are safe, deceptive tactics could trick you out of your money. Taking legal action against scammers can be difficult if they successfully hide their identity.

In one type of fraud scheme, the scammer often poses as a trusted company or institution like your bank. They may say you owe them money or offer you a product or service through emails, calls, or texts.

Then, the scammer might claim to accept payment only through high-value gift cards, such as Apple or Google Play cards. Once you share the card numbers, the scammer can freely use the value without anyone tracking the theft back to them.

The Federal Trade Commission warns consumers to be careful when purchasing gift cards. Only buy cards from reputable sellers. Don't tell anyone else the card number unless you know them and want them to use the funds.

Legal Help for Gift Card Problems

As a consumer, you have legal rights. Learn about your options if you've experienced unfair and misleading business activity involving gift cards. Speak with a knowledgeable consumer protection lawyer to consider what's next.