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Gift cards growing in popularity but beware their dangers

SALT LAKE CITY — Some gift cards hide in wallets and purses or underneath coupons and school lunch schedules in the kitchen junk drawer. They sit forgotten, a gift arrested in neglect.

This is why Scott C. Marsh doesn’t like them. He thinks, for example, about a $50 gift card he received for the BYU Bookstore.

“I have no idea where it is,” he says.

Cards can be hard to keep track of and carry around, he says.

Marsh, owner of Scott Marsh Financial in Salt Lake City and a professor of personal finance at BYU, warns people to be careful with gift cards. He thinks the potential for them going unused makes them a poor value for consumers. And a large amount of gift cards have gone unused. A study by CEB’s TowerGroup from last year showed $41 billion in gift cards went unused from 2005 to 2011 — about $6 billion a year.

But that may be changing.

Brian Riley, senior research director with CEB’s TowerGroup, says the usage of gift cards has seen terrific improvement since 2006.


Part of the improvement is due to increased federal regulation. Title IV of the Credit Card Accountability Responsibility and Disclosure Act of 2009 placed limits on expiration dates and junk fees on gift cards.

Fees used to be everywhere. There were fees for using the gift card. There were fees for not using the gift card. There were even fees for checking the balance on the card.

With the changes, the amount of unused cards has fallen to 1.6 percent, according to a new study by CEB TowerGroup released on Nov. 19. This is substantially lower than the 10 percent from five or six years ago.

National Retail Federation’s survey from Nov. 14 found 81.1 percent of shoppers will purchase at least one gift card this holiday and will spend an average of $156.86 on cards. Six out of 10 people polled (59.8 percent) said they would like to receive a gift card this year.

The new CEB TowerGroup study projects $110 billion in gift card sales by the end of 2012 — an increase of 10 percent over last year and 34 percent since 2006. The study projects $138 billion in sales by 2015.

“You can’t argue with the numbers,” Judd Lillestrand says. “It’s a huge number. People like them.”

Lillestrand is the founder and CEO of based in Las Vegas.

“(The 2009 regulations are) a good example of a regulation that really worked and made sense,” Riley says.

Lazy shopping

Riley says the increase in federal regulation as well as the economic pressures of the recession have led people to use their gift cards more.

“It is a lazy man’s way to shop,” Riley says.

Riley’s wife began planning her holiday shopping the beginning of November. “I’ll probably do mine on Christmas Eve,” he says with a laugh.

Each person on a list can be given a different gift card from a different store or restaurant. “So you feel like you’ve put a lot of thought in the process,” Riley says.

The NRF study showed 39.1 percent of people will give gift cards this season to department stores, 33.3 percent will buy cards to restaurants and 20.8 percent to book stores, with online merchants (11.2 percent), coffee shops (20.8 percent) and grocery/gasoline stores (12.6 percent) making up the balance.

Ins and outs

Lillestrand says there are a lot of ins and outs to gift cards that are not obvious to many consumers. He says to always look for fees and expiration dates. Gift cards with credit card logos (he calls them bank-issued gift cards) often have more fees and almost always have a purchase fee of $3 or so.

“Not all gift cards are created equal,” he says. “We are talking about individual products.”

Lillestrand’s website uses a set standard to judge the different gift cards and rates them. Things that could affect a card’s rating include:

  • Will a retailer replace a lost or stolen card?
  • Is the card redeemable at all locations?
  • Can the card be used at both the physical stores and online?
  • Can the card be used across the different brands of the same company?

States taking gift cards’ value

Some states are considering unused gift cards as abandoned property and are colleting the value of the card from retailers. Lillestrand says card holders could be in different states and suddenly find their card’s value has been seized by, say, New Jersey. They can still get the money — if they are willing to go through the process of reclaiming abandoned property in another state.

“It gives people a terrible consumer experience,” Lillestrand says. has a section that looks at the various states’ laws on gift cards.

“I don’t think it is unrealistic to have a gift card for five or six years and not use it,” Lillestrand says.

Research in 2011 by Consumer Reports found that about 25 percent of adults still had a gift card that was more than a year old.

Why don’t people redeem their cards? The Consumer Reports survey found:

  • Thirty-seven percent haven’t found anything they wanted to buy.
  • Thirty-six percent haven’t had the time to use the gift card.
  • Thirty-four percent forgot about the card.

Buying your own gift

One way retailers make money off gift cards is because, according to the Consumer Reports survey, two-thirds of people who receive a gift card end up spending more than the card’s value.

“It feels like you are getting a $50 discount,” Lillestrand says. “So consumers tend to spend more. I don’t see that as a bad or a good thing.”

Marsh, however, does see a problem if using cards leads to more spending.

“It is just more efficient to give a cash gift than a gift card,” Marsh says.

“There is nothing wrong with giving cash,” Lillestrand says, “but there are times, for whatever reason, that people would rather give gift cards.”

E-cards are on the rise, Lillestrand says, but are in the minority so far ($3 billion out of the $110 billion gift cards projected to be sold in 2012 according to CEB TowerGroup’s recent study). He sees features with e-gift cards developing — such as a reminder popping up on a smartphone as a person drives by Target that tells the person he or she has a e-gift card for the store.

Such a feature probably wouldn’t help Lillestrand much. He likes gift cards, but he doesn’t have any at the moment.

“I have zero,” he says. “I’ve gotten good at using them fast.”


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