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November 25, 2008



DiNapoli: Beware of Gift Card Traps This Holiday Season

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With the holiday shopping season set to begin Friday, State Comptroller Thomas P. DiNapoli today reminded consumers to spend the gift cards they received last holiday season and warned shoppers to ask appropriate questions when purchasing gift cards this season or they could face significant fees. DiNapoli’s office released a report on gift card traps that includes tips for consumers.

“If you received a gift card last year, spend it soon or the gift card could expire or start to lose value,” DiNapoli said. “The good news is that many large retailers no longer charge dormancy fees. The bad news is small retailers may still charge these fees and have expiration dates. Consumers should be sure they know all the terms and conditions of the gift cards they buy. No one wants to give a gift that shrinks in value if it’s not used right away.”

Watch Out for Small Retailer Dormancy Fees and Expiration Dates
While large retailers are turning away from charging dormancy fees and expiration dates, many small retailers’ gift cards still start to diminish in value if they are not used within 13 months of purchase and many expire a year after they were purchased.

New York State law prohibits retailers from charging dormancy fees for the first 13 months after a gift card is purchased. These fees are set to begin soon for gift cards that were purchased last holiday season and will eat away at the value of the cards.

Be Wary of Pre-paid Credit Cards
Consumers should also ask questions when buying pre-paid credit cards. These cards, which often carry a major credit card logo, may not be subject to state law and the 13-month dormancy rule. That means fees could be incurred soon after the card is purchased.

Use Gift Cards for Financially Troubled Stores Soon
Gift cards for retailers that go out of business or bankrupt can be worthless if they are not used before the store closes or files for bankruptcy. Those consumers with gift cards for financially troubled retailers should use those cards soon to avoid losing the full value of the gift card.

“Under New York State’s gift card law, businesses selling gift cards are required to disclose the card’s terms and conditions to consumers, including any fees. Additionally, the law prohibits monthly service fees unless the card goes unused for an entire year,” said Assemblywoman Audrey I. Pheffer, Chair of the Assembly Consumer Affairs & Protection Committee. “Consumers should keep these rights in mind when purchasing a card this holiday season.”

“Each year, consumers buy gift cards for their loved ones and friends, but it is important that they know their rights to keep their gift card from being diminished by hidden fees,” said Senator Charles J. Fuschillo, Jr., Chairman of the Senate Committee on Consumer Protection and co-author of New York State's Gift Cards Law. “Companies are required to disclose terms and conditions that apply to the gift card before it is sold, so that consumers know all the facts before they make their purchase.”

Gift cards often come with terms and conditions that can decrease the value of the gift card. These include charging:

  • a service fee when the card is purchased;
  • a dormancy fee if the gift card is not used within a certain period of time;
  • a fee to call and check the balance remaining on the card; and
  • a replacement fee for lost or stolen gift cards. The bar code number and proof of purchase are needed to replace cards.

Gift cards may expire and no longer be accepted after a certain period of time. If a balance remains on a card after a consumer makes a purchase, he or she may be required to apply that balance toward another purchase, rather than getting cash back even if only a small amount remains on the card.

Unclaimed gifts cards issued by New York corporations should be turned over to the Comptroller’s office as abandoned property after five years, but in most cases no identifying information is provided, making it extremely difficult to return the property to its rightful owner.

Click here for a copy of the report.

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