Why can’t I redeem the full value of an open-loop gift card at a restaurant?

Reader Phyllis asks:

My brother gave me a mastercard debit card for 50.00. His wife paid the 4.95 activation fee upfront. However, when i went to use it at a restaurant, they said only 40.00 could be gotten through. I have tried numerous times to redeem the remaining 10.00 to no avail. What can be done about this fraud.

I’ve read a number of times that restaurant POS systems tend to add an additional 20% or more when running credit card authorizations to account for an additional charge in the form of a tip.  This may be something that is automatic and beyond the control of the person running the card.  In your case it seems that the system added an additional 25% for the authorization and would only allow $40 of charge as the additional $10 was included in the authorization.

With a normal credit card you might never know, because when the transaction settles a few days later and the original authorization expires or is removed, you only see the charge for the exact amount you actually paid (including the tip).

This is a problem that has plagued open-loop (which includes MasterCard, Visa, American Express, and Discover) gift cards from the very start.  In addition to restaurants, gas stations tend to authorize specific amounts (often $50 or $75) which causes problems with gift cards as it makes it impossible to put $10 of gas in your car using a card with $10 left on it.

While your missing $10 might be locked up for up to two weeks before the original authorization expires (and this is not a fault of the merchant, it is most likely the card issuer that wants make sure you don’t charge more than you should – but they go too far) you will eventually be able to spend that $10 if you can find a business that will let you charge that much as a separate transaction if your purchase something for more.  This is called a split tender when you use two different payment methods to pay one total charge (like a $10 gift card + cash).  Most if not all closed-loop (i.e. store-specific) gift cards will allow this, but surprisingly few merchants are familiar with how to do this (or willing to) with an open-loop gift cards, despite gift card issuers claims to the contrary.

In 2008 we started a service that allowed people to get the last few buck off their open-loop gift cards, but the powers that be were not happy with it and we had to shut it down.  There are no similar services that we are aware of, so you have to find a merchant that will allow you to do a split tender, or purchase something for exactly $10 to get the full amount off.


2 responses to “Why can’t I redeem the full value of an open-loop gift card at a restaurant?”

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  1. Phyllis Triarsi says:

    Interesting, I finally used the 40.00 at the Pomona Valley Mining Company, but the server who I know said they would not let the 50.00(face value) go through, but there was no tip automatically charged as this answer would seem to represent a lot of cards do.

    I had to tip 20 percent as I always do, but the Master Card Gift card (generic) got to keep the 10.00 and the 4.95 activation fee paid up front.

    I in fact checked the balance after the application of the 40.00 and it showed 10.00; when to Pomona Valley a second time and asked them to put the 10.00 or 9.00 or 8.00 on the card and was denied.

    Went on the site today and it shows a zero balance.

    I do think this is fraud and consumer watch dog groups should be apprised. I will never use or buy a generic master card or visa card again. The only thing I know about this fraudulent group is that to check the balance you have to go http://www.mygiftcards.com.

    I know the server did not misrepresent anything because she brought back the ticket for an approximate 40.00 charge tip not included.

  2. Advocate says:

    I can only guess that there was some time that passed and the “maintenance” fees ate into the balance. Before the Credit Card Act of 2009 restricted this behavior (somewhat), some cards started assessing maintenance fees as soon as 6 months after the card was issued and this fact was often buried deep in the small print.