Archive for the ‘Fees & Breakage’ Category

This has got to be the most laughable report I have seen.  The Gerson Lehman Group recently released a study that claims that prepaid cards are more cost effective than a checking account.  They compare a checking account, at $300-$400 in annual fees to a prepaid card with $150-$250 per year in fees.  I am guessing they chose a specific financial scenario that made the cards look more beneficial.

The other big things they left out:

A checking account builds a credit history, prepaid cards not so much
A checking account, you know, allows you to write checks
There are many many checking accounts that have NO fees
Checking accounts are safer and include FDIC backing
Inability to reject unauthorized charges on prepaid debit cards

But don’t just listen to me, read Consumers Union’s assessment of prepaid card.

Sometimes the fine print doesn’t even tell you the full story.  Like this customer who received a $50 promotional gift card from Hollister for purchases she made there.  The purchases were made on Dec 16 and when they tried to use the card the following February, they were told the card expired on Jan 31st.  That sure doesn’t seem very generous of a promotion to give someone a gift card good for only a month.  In addition to that, neither the gift card or the packaging had any expiration date on it, and in fact the gift card said “no expiration date” right on it.

But Hollister customer service wouldn’t budge from its position that the card would not be honored because it had expired.  But then the customer contacted the local newspapers consumer advocate who contacted Abercrombie & Fitch, Hollister’s parent company.   They immediately changed their position and even went as far as to give the customer double what they were entitled to, a $100 gift card.

What can we learn from this story?

a) Companies regularly make a habit out of nickel and diming people through the small print, even when it doesn’t say what they intended it to say.

b) Resolving an issue with a company through the media almost ALWAYS works!  Contacting your local TV, radio, or newspaper’s consumer advocate, if they have one, is a very good tool for getting a company to budge on its unreasonable position.

Looks like JetBlue wins the award for worst gift card ever. One customer won a contest by American Express that allowed her to buy a $100 JetBlue gift card for $70. The reality of using the card however was a huge pain. She spent over 2 hours on the phone trying to redeem the card, dealt with an number of clueless JetBlue customer service reps that couldn’t figure out how to apply the card, and was ultimately charged $15 for using the card over the phone. Where else exactly was she supposed to use the card as they don’t allow you to use them online. This reminds me of a conciliatory $25 United Airlines gift certificate we were given after long delayed flight that could only actually be used at the airport. Thanks for nothing.

Ok, this is sort of a good idea. An entrepreneur is working to create gift cards that have a customer selected expiration date. After that date, the remainder balance on the card is donated to a charity, minus (and here’s the hitch) a percentage of the remainder that the issuer gets to keep. Pretty smart way to get customers to be happy about losing their gift card breakage.

As always there will be loopholes to the protections offered by the Credit Card Act of 2009 that card issuers will try to exploit. One such loophole, chronicled here, is that reloadable cards that are not marketed as gift cards are exempt from the provisions of the regulations under that act, which makes no sense considering those are more like credit cards which are the main focus of that legislation anyways. With this loophole, look for prepaid open-loop (Visa) gift cards to be instead convereted into reloadable cards that don’t say gift on them.

As we’ve stated a number of times, there are many companies that either aren’t aware of the laws around gift cards, don’t train their staff properly, or just don’t care to obey them. So when company refuses to give you cash back for your gift card valued under $10 (in California), it may not be worth the couple of bucks to you to file a complaint with the proper authorities, but it will help the next guy who tries to get their money.

Do the right thing.

Looks like there is a proposed bill SB885 in California which aims to raise the amount you can get cash back for on a gift card (close-loop only) from $10 to $20 and to do away with dormancy fees.

I’ve found this to be true with many problems. One couple was promised a gift card by ADT as a promotion for signing up for a security system, but despite months of waiting and many calls, it didn’t come. So they called their local news channels problem solver, they contacted ADT, and the gift card finally came. The unfortunate truth is that often it is only the threat of negative publicity that will get companies to do the right thing. (story)

According to this Sacramento Bee article, the author had a lot of trouble getting cash back for gift cards that were valued under $10, which is clearly spelled out under a California gift card law that has been in force for over two years now. This is similar to the problems with trying to use a low value Visa or MasterCard gift card at a point of sale via a split tender transaction, where you pay with two forms of payment, your low value gift card and something else. Open-loop card issuers claim that this is possible but in reality very few retail locations either allow this or have trained their clerks to be able to do this. Are you really going to take a retailer to task for not giving you back $5 when they should by law? I wish more people would, then perhaps retailers would properly educate their staff

It seems that banks aren’t the only ones out to screw customers with the small details. This news story reports that many stores will gladly cancel a lost gift card but they won’t replace a lost gift card without the original receipt. I have never heard of anyone saving a gift card receipt.

Amex seems determined to provide the best gift card product. One customer reports their gift cards being lost in the mail, so Amex simply invalidated the old cards and send him new ones. (story)

As this Forbes article indicates, fees on bank gift cards are far from dead. While this will change somewhat when the new gift card laws take effect in 2010, banks seem to be trying to wring as much out of their gift card customers as they can right now. Worst offender? Bank of America’s gift card doesn’t have any dormancy fees; the card simply becomes worthless after 9 months and can get you an overdraft fee.

Enjoy it while you can BofA.

The Fed announced its new proposed rules for Gift Cards from the responsibility given to it by the Credit Card Accountability Act of 2009. The major change from rules on gift cards previously discussed is that rather than allowing monthly fees after 12 months, they will require that no fees be charged until 12 months of inactivity have passed. That won’t matter for people who receive a card and put it in a drawer.

The other interesting proposal is regarding the expiration of a gift card and the expiration date printed on the card, as it is with almost all open-loop (Visa-type) gift cards. In some states, these cards often have expiration dates that is before they are legally allowed to expire. The new rules include two proposals, one that would require the expiration date on the card to be at least 5 years out from the purchase of the card, and the other to allow for a shorter expiration date to be printed on the card but to allow consumers to receive a new card at no cost. It seems that it is up to Congress to suggest which proposal should be adopted

Here is a handy guide that compares gift cards on fees and other things. has jumped on the no-fee band wagon and now offers Visa gift cards with no expiration or maintenance fees. As far as I can tell, this applies to all the fees they previously had, including the monthly administrative fees, fee to close an account, fee to replace a lost or stolen card, balance inquiry fee, etc.

As reported in this story, and increasing trend is to give consumers gift cards instead of rebate checks for mail-in rebates. The retailer wins twice because (a) only about 40% of mail-in rebates are ever mailed in, and (b) most people don’t use up the full value of their gift cards; normally 10% of the value on gift cards is left on the table.

An interesting article in the New York Times examines (reloadable) prepaid cards and their fees. Issuers of these cards tout them as an alternative to bank accounts and credit cards, especially for those who are unable to get either. Prepaid cards, it turns out, have even higher fees than non-reloadable open-loop gift cards. In one example, the MiCash Prepaid Mastercard has the following impressive roster of fees:

$9.95: Activation
$1.75: ATM withdrawl
$1.00: ATM balance inquiry
$0.50: Per purchase
$4.00: Monthly maintenance
$2.00: Inactivity per month after 60 days
$1.00: Call to customer service

The industry claims that these cards are cheaper than checking accounts. Many banks offer low balance checking accounts for less than $10. By contrast, even the cheapest prepaid card averaged over $20 per months in fees.

Here is a recent Consumers Union report on prepaid cards.

Vendors that issue reloadable prepaid cards are crying foul over the legislation that will create the new Consumer Financial Protection Agency. They claim that it will make it impossible for anyone but banks to issue the cards. At the heart of their argument is their claim that they help millions of consumers that don’t use the banking system or are using these cards are a budgetary tool.

This is a load of crap. We’ve reported before how these type of cards have the highest fees, have very little fraud protection, and don’t help customers build credit. While this legislation may be a little wide in its unintended consequences, it is time someone stepped in to set this industry right.

This is interesting. Here is an article that completely hammers what they call “rebate cards.” The claim is that companies make rebates incredibly hard to get and by issuing rebate cards instead of checks, they make them hard to spend too. They are so bad in fact that the Canadian government calls them deceptive and has outlawed issuing rebates in cards; rebates in Canada must be sent by check.

Why are Canada, the FTC, Attorneys General, Offices of Consumer Affairs and others so down on rebate cards?

1. You can’t check the balance except by going to a particular website.
2. You can’t tell how much is left at the point of sale.
3. It is very difficult to use the card as well as another form of payment for a single purchase
4. It is nearly impossibly to spend all the money on the card.
5. The cards additionally carry onerous fees.
6. The terms of the card were not fully disclosed at the time of issue.

Does any of that sound familiar? Rebate cards it turns out are nothing more than open-loop (Visa etc.) preloaded gift/debit cards.

Why is it that when these cards are issued as rebates everyone is hopping mad, and yet when they are called gift cards, people are running out to buy them? Open-loop gift cards have been the fastest growing segment of the gift card market for several years.

It is an interesting piece of consumer psychology to understand why losing money on a rebate card gets people fuming and yet the many billions more that are lost every year on open-loop gift cards harly raises an eyebrow. Perhaps understanding why people react differently to these two scenarios will help us understand how to get people outraged at the almost smash-and-grab tactics of the gift card issuers that causes consumers to lose so much money every year. Then we might see some meaningful legislation to fix this problem.

Virtual gift cards aren’t new, but this article in the Portland Press is very excited about a new virtual gift card offering by a local company.

Bottom line: Virtual gift cards are a bad idea. If you think it is hard to remember to spend a gift card when you have it in your wallet, try remembering to spend them when they are sitting in an email on your computer.