The Gifts That Keep On Giving*

* unless, of course, you've just discovered that the gift card you're about to use carries a few stipulations

February 08, 2004|By Meredith Cohn | Meredith Cohn,SUN STAFF

Gift cards have never been more popular. Turned out in multiple colors, designs and denominations, they're available for sale on the counter next to the cash register or on a nearby display.

As much as $1 of every $10 spent last Christmas was on one of those plastic cards that allows recipients to chose their own gifts from the store.

But while gift cards have become more accepted by givers and receivers, the fine print on back has not.

A confusing array of rules about expiration dates and fees among national retailers has drawn the ire of consumers and the attention of lawmakers.

State legislatures around the country have begun passing laws to regulate the cards and gift certificates, their paper predecessors. Others, including Maryland, intend to take up the issue this year. Faced with growing animosity, some retailers say they will change policies that make the cards useless or diminished in value after a year or two.

"It's thievery, and I don't understand how people get away with it," said Phil DeFlavis, who owns a Perry Hall hair salon and supports the Maryland bill that would ban expiration dates on the cards. "Cards and certificates should be the same as cash."

DeFlavis said he has been in business for 37 years and would honor any gift certificate issued over the years. But he finds that other local merchants do not return the favor.

Several years ago, some of his employees gave him $200 worth of gift certificates for shops at White Marsh Mall. They expired in six months, and no store would honor them when he tried to cash them in after that period, he said. He has avoided buying gift certificates or cards since. The mall's manager says merchants there now honor expired certificates.

Most recipients of holiday gift cards in December used them within weeks, but a few held on to them or did not spend the entire balance. Some estimates put the unused balances nationwide in the billions of dollars.

A consumer movement over gift-card rules began in California in 1997, when that state banned expiration dates on gift certificates. Another law passed there last year specifically banned expiration dates on the cards and limited "dormant account" fees that typically apply after a year or two.

Since then, other states have taken up the issue.

Maine, Massachusetts and Connecticut banned or extended expiration dates. More than a half-dozen other states have restrictions. A few states require clearly displayed expiration dates, limited fees and replacements for lost cards with proof of purchase. Some federal lawmakers are also considering bills on the subject.

"It's like giving someone $100 and then taking it away, or taking it away a little at a time," said state Sen. Katherine A. Klausmeier, a Baltimore County Democrat who introduced the bill that would ban expiration dates in Maryland. "That's people's hard-earned money. They're taking advantage of the public."

National retailers have begun lifting some of the rules, perhaps to avoid dampening enthusiasm for gift-card buying.

Amazon.com, the online retailer, reported selling 70,000 of the cards in one day before Christmas. Retail analysts estimate that up to 10 percent of the $20 billion spent during the holiday season was used on cards, possibly doubling the previous year's gift-card sales.

Sears and bookseller Barnes & Noble were among the first to end expiration dates on their cards, and others followed, said Frank Jones, a Baltimore lawyer who specializes in retail and Internet issues. "California is so big, it has so many consumers, it affected industry standards," said Jones, an attorney with Whiteford, Taylor & Preston LLP. "Retailers thought if the law is heading that way, and they could generate consumer good will, why would they want an expiration date?"

Accounting problems prompted retailers to place expiration dates on gift cards in the first place, Jones and other experts said.

After selling a card, stores cannot log the revenue until the card is redeemed. Retailers wanted a defined time after which they could clear their books. Surveys have found that 5 percent to 14 percent of cards are never redeemed, Jones said.

Many retailers have hired third-party companies to administer their gift-card programs and deal with bookkeeping problems.

Despite all the confusion generated by the fine print and the varying state laws, gift cards have not translated into a barrage of complaints. The Maryland Attorney General's Consumer Protection Division reported six complaints about cards or certificates last year.

Legal experts say expiration dates are not against the law in most cases if clearly displayed. And some retail analysts argue that it might not be fair or practical to require stores to honor them forever, or limit fees, when there is a cost for them.

Kurt Barnard, president of Barnard's Retail Consulting Group in Upper Montclair, N.J., said most cards are used within weeks. Expiration after a year is reasonable, he said.

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