Survey: Consumers don't understand gift cards
General purpose gift cards come with fees many people don't know about.
A consumer survey commissioned by the Consumer Federation of America and undertaken by the Opinion Research Corp. earlier this month revealed widespread misunderstanding of general purpose gift cards, also sometimes called bank or cash gift cards. Most are issued by Visa, MasterCard and American Express.
Only 33% of a representative sample of 1,004 adult Americans know how much these cards cost to purchase, and only 54% are aware that "six to 12 months after purchase, some of these gift cards charge a monthly fee."
A large majority of the more than $50 billion consumers are expected to spend on gift cards this year represents purchase of store cards with no fees or expiration date. But nearly $4 billion, and a growing percentage, will be spent on general purchase gift cards that can be used at most stores. They usually cost $4 to $7 to purchase and sometimes are subject to monthly fees as high as $4.95 as early as six months after purchase.
These general purpose cards are the most controversial gift cards, and were targeted by Congress this year when it passed legislation establishing new consumer protections.
"Consumers clearly like the convenience and flexibility of general purpose gift cards but also are largely unaware of their costs and risks," CFA executive director Stephen Brobeck said.
Know the rules
CFA and the National Association of Consumer Agency Administrators -- the association of state and local consumer protection agencies -- are making available a new consumer brochure on gift cards, which the two organizations wrote. The NACAA will distribute it to member agencies, and American Express will distribute 1.5 million copies to major retailers including CVS and Walgreens.
The brochure's key recommendations for general purpose gift card purchasers are to pay attention to the card's expiration date and charges, especially the initial purchase price and any monthly charges typically assessed after six to 12 months.
The key recommendation to gift card recipients is to use all the card's value as soon as possible, within six months if possible. An estimated 10% of the cards' value is never used, and another percentage is lost through monthly fees assessed.
"Gift cards will be popular gifts this holiday season," said NACAA president Elisabeth Owen, "and it is vital that consumers know the rules to get the best for their hard-earned money."
In the survey, CFA found that 37% of those asked had given or received a general purpose gift card in the past two years, with 25% saying they had given this type of card and 28% saying they had received such a card. The higher household income, the more likely people are to have given or received a general purpose gift card.
For example, 58% of those with household incomes at least $100,000, 37% of those with incomes between $50,000 and $75,000, but only 26% of those with incomes under $25,000 had given or received such a card.
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In a question asked only of those who had received a card, 17% said that at some time they had had "trouble spending the entire balance because a store refused a split payment on a purchase greater than your card's balance."
General purpose gift card issuers claim they are working to reduce this consumer irritant by persuading retailers -- especially all major chains -- to let consumers use the remaining amount on a card and then cover the remaining purchase price with some other form of payment.
The most striking survey findings, however, concerned consumer misunderstanding of general purpose gift cards. In response to four true-false questions:
- Only 33% understand that gift cards cost between $4 and $7 to purchase.
- Just 54% understand that six to 12 months after purchase, some of these gift cards charge a monthly fee (American Express recently dropped monthly charges on all its general purpose gift cards).
- Only 39% understand that some stores will not permit splitting payment for a purchase between a gift card and some other payment method.
- Only 41% are aware that a new federal law that goes into effect next year prohibits fees being charged on gift cards if they have been used in the past 12 months.
This protection was part of credit card reform legislation passed this year. The gift card protections go into effect in August 2010.
Related reading at ConsumerAffairs.com:
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