If gift cards are on your holiday shopping list, you’ll want to shop with legal literacy. 

 

Yes, legal literacy.

 

Gift cards are great.  I love them.  They’re convenient for the gift giver – one size fits all.  They’re convenient for the gift recipient – you can buy want you really want or more of what you want once the holiday sales are in overdrive. 

 

What’s not to like?  Legal risk.  That’s what not to like.

 

Beneath their smooth shiny plastic surface some cards contain legal loopholes. In the past, consumers mostly needed to worry about dormancy fees, small amounts deducted from the value of the card because they are not being used. 

 

Dormancy fees are an embarrassing nuisance.  Imagine how the recipient feels when presenting a gift card for payment only to discover it is worth a fraction of its “just like cash” face value, or nothing at all. 

 

The U.S. Federal Trade Commission clamped down on that practice.  Businesses must now disclose dormancy fees.  As a result, most businesses dropped dormancy fees altogether.  You may want to check the fine print for disclosures on the gift cards you plan to buy so you don’t get an ugly surprise.

 

This year’s challenging economy raises a new legal concern about gift cards: retailers who file for bankruptcy or go out of business altogether.  As it stands now, if the store closes your gift card can no longer be redeemed.  If the store files for bankruptcy, gift card holders stand in line with other unsecured creditors.  Either way, you can kiss power shopping good bye.  It’s not pretty.

 

Although the FTC is being asked to protect gift card purchases with new rules, no final action has been taken to date.  For more information on those developments click here. 

 

Don’t get me wrong, gift cards are still great.  Just be sure to shop with legal literacy. 

Tags: bankruptcy, dormancy fees, Federal Trade Commission, gift cards

This entry was posted on Friday, December 12th, 2008 at 6:36 pm and is filed under Business Blind Spots, Costs. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.