The Perils of Gift Cards
If you receive a gift card, USE IT as soon as possible.
As the holidays approach, with it comes the consternation and head scratching about what to get for your family and friends. For many, the answer to that question will be a gift card, but before putting down your money for a piece of plastic, consider whether your good intentions will actually result in something that the receiver can use. For those receiving a gift card, take heed of these dangers and use your gift card right away.
There are three main concerns that every consumer should have when purchasing a gift card:
1. The gift card merchant may go out of business or declare bankruptcy
2. A chain retailer may close the branches near to you
3. Fine print: i.e. expiration dates and monthly fees.
1) If the gift card merchant goes out of business or files for bankruptcy, your gift card is probably worthless. That's right, even if the merchant doesn't actually shutter its doors and manages to restructure its debt through bankruptcy to continue operating, gift cards may still not be honored. In bankruptcy proceedings, unused gift cards are treated as a form of debt, and holders of gift cards are unsecured creditors. Even if a store wants to continue to honor gift cards, if they have filed for bankruptcy, it's up to the bankruptcy judge as to whether or not the store will accept them. If the judge says no, gift card holders are out of luck unless they file a claim with the bankruptcy court, and even then, there are no guarantees of success.
(Important note: Store credit, say, for items returned with a receipt and the like, are the same as gift cards. The credit is considered a debt and you are an unsecured creditor. If the merchant declares bankruptcy, you are, once again, out of luck.)
2) Merchants may close the store or stores near the gift card recipient. Gift cards are a heck of a lot less useful when the nearest store is 50 or 500 miles away instead of 5. In an age of overexpansion and some big companies cutting back their number of stores, this is a real danger.
3) Some gift cards may have fine print, such as an expiration date, a monthly fee for every month after X months, etc. Several states have outlawed these practices, but if your state allows it, the value of a gift card can be quickly eaten up in fees. Check the terms and don't let this happen to you.
The bottom line is that while gift cards are convenient, they carry a danger that the recipient won't be able to get the full value out of them. If you receive a gift card, USE IT as soon as possible. If you hold on to it until a later date, you run the risk that you will be unable to use the card.
Assisted by Jed Sorokin-Altmann
