By  on August 22, 2007

Retailers beware. Holiday and back-to-school business could be pinched by a bout of gift-card fatigue setting in among customers.

Consumers are voicing frustration with the expiration of card values if they don't use them in a particular period of time; with fees applied to the gift cards during months of non-use that diminish their value, and with the fees sometimes charged to gift-card givers that are in addition to the value they are storing on the plastic.

"People are getting edgy about them," said Candice Corlett, a partner in WSL Strategic Retail.

Three-quarters of the 1,500 adults WSL polled this summer cited several aspects of gift-card use as annoyances when asked about retail practices the consultants considered "irritating." Those gripes were among the leading complaints of the nationally representative group of adults, a list that included ATM fees, food sold past its expiration date and shipping charges for returned items.

Growth in the volume of gift cards being purchased has been showing signs of slowing, from about $29 billion in 2006, up 21 percent from $24 billion in 2005, to a projected $34 billion this year, a 17 percent rise, based on the findings of TowerGroup, a consulting arm of MasterCard Worldwide. And beginning next year, increases in gift-card business are anticipated to slow further, increasing 6 percent in 2008 ($36 billion); 3 percent in 2009 ($37 billion) and 5 percent in 2010 ($39 billion).

When legally permitted, gift cards from Macy's and Bloomingdale's expire two years from the date of the last value added, and those from Blockbuster lapse after 24 months of non-use. That doesn't apply in states that make exceptions, including 17 states for Macy's; six states for Bloomingdale's and eight states for Blockbuster. Neither Macy's nor Bloomingdale's assess fees, according to the joint findings of Tower and the Montgomery County (Md.) Department of Consumer Protection, which publishes an annual survey of gift-card users. The cards issued by Shell Oil, for one, will start costing their holders in 25 states $1.75 a month after they have not been used for a 12-month period.

The prepaid cards from Old Navy, Starbucks, Wal-Mart and Kmart, in contrast, carried neither expiration dates nor user fees. The reverse side of Starbucks' card, for instance, instructs people to "Treat this card like cash." In addition, Starbucks takes the uncommon step of providing a 1-800 number for customers to register their cards as protection against theft or loss. (When a theft or loss of a registered card is reported, Starbucks cancels the card and furnishes a new one.)About $8 billion of gift-card value is going unused annually by U.S. consumers, Tower estimated in its January 2007 report "Gift Cards: How To Keep Them From Becoming Drift Cards." Much of that is attributable to the value remaining on cards that expire before being used up, said Brian Riley, a senior analyst at Tower and author of the report. In many cases, such cards are held by people who don't realize they will expire. "It adds up to millions of dollars," he said in an interview.

"The tendency is to start giving [shoppers] relief" from fees and expiration dates, Riley noted. A National Retail Federation survey of its 220-member gift card working group in March indicated a majority were "moving to no-fee/no-expiration policies," said Maureen Riehl, NRF's vice president, government and industry counsel. Though legal in many states, the dissatisfaction such policies cause is seen by those members as not worth the price in poor customer service — particularly for an instrument like gift cards, "the ticket back into the store," Riehl said.

After several years of 20 percent growth rates in dollar-volume of cards sold, "their rapid growth has outpaced necessary controls to ensure that consumers receive the full value of their purchase," Riley wrote in the Tower report.

NRF's near-term, gift-card lobbying will focus on removing gift cards from the abandoned property laws that enable roughly 25 states to take the value of consumers' expired cards and place it in state coffers. Shoppers can no longer use such cards and stores have no choice but to relinquish the cards' value.

One cause of confusion and frustration for shoppers and merchants is the absence of federal rules governing prepaid debit cards such as gift cards, regulations that have fallen to the states. (The Fair Gift Card Act of 2005 died in Congress.) Twenty-four states had laws in place in 2006 governing some aspect of gift-card use. Arkansas, North Dakota, Pennsylvania and Texas are expected to join the group this year, said Gail Hillebrand, a senior attorney at Consumers Union.

California's regulations are among the most protective of consumers holding the gift of plastic value, said Jean Ann Fox, director of consumer protection at the Consumer Federation of America. The state prohibits expiration dates or user fees on cards redeemable only at an individual store or retail chain, with one exception. The exception is a user fee of $1 a month applicable to reloadable cards with balances of $5 or less that have gone unused for 24 months.Also aggravating for shoppers armed with a prepaid card is that all of the guidelines available when buying a gift card are not always included when the card is presented to its recipient, Fox said. Washington is a notable exception, requiring disclosure of the $1 a month fee it allows on cards bought in the state with balances of $5 or less that go unused for 24 months.

Connecticut, Maine, Montana, New Jersey and Rhode Island have ruled out expiration dates.

"When people get gift cards, they should use them right away," Fox said. "There's nothing wrong with giving a gift of cash. It doesn't expire."

As of January, about 45 percent of gift cards used in the U.S. were being applied to purchases more expensive than the value stored on them, Tower found. But with high gasoline and food prices and slow income growth, consumers have become more cost-conscious — and perhaps reluctant to spend beyond a gift card's value, Corlett said.

"If they get a gift card for $25 at Banana Republic or $50 at Crate & Barrel, they're seeing it as a credit card bill," Corlett said, referring to people's difficulty in finding much they want for their prepaid value at some stores. "People may step back from them this holiday season."

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