Some Cards Are the Gifts That Keep on Taking

Did you get retail gift cards over the holidays? Better be careful in using them -- and try to use them quickly.

The burgeoning gift card industry has become freckled with all sorts of fees. There are fees to “activate” some cards, as well as fees to maintain them. Some cards even impose so-called dormancy fees if you don’t spend the money soon enough.

Some cards are fee-free. But with no industry standard and inconsistent disclosures by card issuers, some hapless consumers can have the value of their gift cards eaten up by charges before they ever get to the mall.

“When you get those prepaid cards, use them to the hilt right away,” advises David Robertson, publisher of the Nilson Report, a Carpinteria, Calif.-based newsletter covering the credit and debit card industries.

“The longer you hold the card, the more likely that you are not going to get the full purchasing power,” he said.

Unfortunately, many people don’t spend the cards right away. About 26% of the individuals who received gift cards at this time last year still have one or more unused cards in their possession, according to a random telephone survey of 1,000 adults conducted on behalf of Cardavenue, a gift card trading post on the Internet.

Over the last several months, national banking regulators and the California attorney general’s office have issued consumer alerts about the cards. Their main message: Gift cards aren’t all alike, so be sure to read the fine print before you buy -- or before you use them.

There are two basic types of cards: single- and multi-retailer cards. Single-retailer cards are issued by companies such as Target, Macy’s and Borders and are aimed at getting people into a particular store.

Multi-retailer cards, as the name implies, can be used at many different stores. These cards are sold under the Visa, MasterCard, American Express and Discover brand names, among others.

Because retailers don’t want to alienate customers, single-retailer cards generally have fewer fees than multi-retailer cards.

On the other hand, single-retailer cards are much like cash: If they’re lost, they can’t be replaced. And although they may not have as many fees as multi-retailer cards, some single-retailer cards do impose inactivity or dormancy fees, which strike after a card has been left unspent for a set time frame, usually 12 to 24 months.

At that point, the cards will charge from $1 to $2 a month until the value is wiped out. Some of the retailers that charge inactivity fees: Blockbuster, Tower Records and Barnes & Noble.

There are no federal laws to prevent such fees, said Rick Fischer, a partner at Washington-based law firm Morrison & Foerster and a specialist in banking law and payment systems.

Some states, including California, have passed their own laws to curb monthly card charges.

California’s civil code restricts dormancy fees on single-retailer cards to no more than $1 a month and requires that any such fee be disclosed on the card.

Most other states don’t restrict dormancy fees, Fischer said. And although truth-in-advertising laws would seem to call for disclosure of the fees, there’s little oversight, he said.

Fees in general are far more common with multi-retailer cards, Nilson Report’s Robertson said. That’s partly because the costs of providing these cards are higher. The cards are generally branded by credit card firms, such as Visa and MasterCard, but are sold through retailers.

Because the cards can be used anywhere, an individual retailer has little incentive to sell them unless the issuer provides the retailer with a cut. The issuer has additional costs because most of the cards are registered and can be replaced if the consumer loses them, Robertson noted.

The vast majority of multi-retailer cards charge purchase or activation fees; monthly maintenance fees; inactivity fees; reloading fees if the consumer adds value to the card; and replacement fees if they’re lost.

Some multi-retailer cards also charge usage fees and fees to check the remaining balance, said Laura Washington, an editor at Consumer Reports Money Advisor, which does an annual gift card survey.

How stiff are the fees? Activation fees range from about $4 to $10, Washington said; monthly maintenance charges range from $1.25 to $5; replacement fees, from $5 to $10; and the fee to call someone to check your balance can be as high as $2 a call, she said.

If that’s not enough, some cards simply expire -- and those expiration dates can strike as quickly as six months from issue.

Some card fees are paid upfront in cash; others are deducted from the value of the card, according to an advisory from the U.S. comptroller of the currency, the main regulator of national banks.

On the bright side, multi-retailer cards almost always disclose the fees either in fine print on the jackets that hold the cards or on websites sponsored by the issuer.

In any case, the consumer must pay attention, experts say.

“Whether you are giving the card or you received one, you want to check the expiration dates and fees,” Washington said. “That way you won’t be caught off guard.”

Cardavenue (www.card avenue.com) offers the option of selling a gift card if you aren’t likely to spend the money right away. The catch: There are fees. It costs 50 cents to post a card for sale, and the seller will forfeit 6.25% of the card’s value if it’s sold, said Bryan Oekel, a company spokesman.

Kathy M. Kristof, author of “Investing 101” and “Taming the Tuition Tiger,” welcomes your comments and suggestions but regrets that she cannot respond individually to letters or phone calls. Write to Personal Finance, Business Section, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012, or e-mail kathy.kristof@latimes.com. For past columns, visit latimes.com/kristof.