By David Dorf on Dec 01, 2008
Just about all retailers offer gift cards these days. They make shopping so much easier for people struggling to find the perfect gift. You can even get a $100,000 gift card from Four Season's if you're feeling particularly generous. (Let me know if you need my mailing address.) But gift cards have a dark side as well. Consumer Reports (the magazine) estimates that around 25% of gift cards purchased in 2007 have yet to be redeemed. That's a boon for retailers, but a bust for consumers.
With the down economy and over 6,000 announced store closings, you have to be extra vigilant. There's an email floating around that says the following:
I wanted to give everyone a heads up that if you tend to give gift cards around the holidays, you need to be careful that the cards will be honored after the holidays. Stores that are planning to close after Christmas are still selling the cards through the holidays even though the cards will be worthless January 1. There is no law preventing them from doing this. On the contrary, it is referred to as bankruptcy planning.
The email goes on to list retailers that are closing stores. While there is some truth to this email, its not a serious as one might think. Many retailers are closing particular stores, not closing shop. So if your local Gap closes, you might have to travel across town to spend your gift card.
When a retailer files for bankruptcy, things get a little more complicated. According to the California Department of Consumer Affairs, "a gift certificate or gift card sold by a seller that seeks bankruptcy protection may have no value. However, the holder of the certificate or card may have a claim against the bankruptcy estate." Retailers that file Chapter 11 (like Circuit City) are just re-organizing, so they usually continue to issue and redeem gift cards. However, if you're in possession of a gift card from a retailer that filed Chapter 7 (like Sharper Image), then you're a creditor just like any other and must "stand in line" to get paid, in which case you probably won't get full value.
The bigger issue for consumers isn't that a retail chain goes out of business. Its that consumers tend to not redeem the cards, leave residual value on the cards, or blow the cards on items they would not normally have purchased in the first place. Sometimes you just can't beat a check tucked in a sappy hallmark card.