When stuffing stockings, beware of presents that keep on taking
Planning to buy a gift card this holiday season? Be sure to read the fine print.
That’s a lesson that Joel Valmonte learned the hard way. Valmonte bought a bunch of gift cards during the 2004 holiday season, including a few that he kept and one that he gave to his friend Douglas Burford.
But neither Burford nor Valmonte knew that leaving these cards unspent could cost you. The two sued Bank of America Corp. this year, claiming that the company nibbled away at their cards’ value through a series of fees.
“I realized I was paying a fee to purchase a card,” said Valmonte, an Ontario real estate agent. “But the fees that they charged after that didn’t make sense to me.”
Bank of America spokeswoman Shirley Norton said the bank had done nothing wrong and was vigorously defending itself against the suit.
In the meantime, however, the bank has stopped issuing gift cards.
Valmonte’s attorney, Michael Adele, said the fees that triggered the suit were common, particularly on so-called open loop cards that allow consumers to buy goods and services at multiple retailers. Cards good at only one store are less frequently nicked by fees.
BofA started dinging Valmonte’s card for a $2.50 monthly service fee after six months and demanded a $15 “reissue fee” to tap the card’s balance after the expiration date.
“The problem is if you buy somebody a $25 gift card and they leave it in their wallet and try to use it a year later, they’ll find out that it’s been eaten up with all these user fees,” said Adele, an attorney with Weiland, Golden, Smiley, Wang Ekvall & Strok in Costa Mesa.
“I can imagine nothing worse than being a grandmother, giving a card so your grandchild will be able to pick out what they want, and then have all the value sucked out through service fees before your recipient gets a chance to use it,” he said.
Marketers of the gift cards say they are meant to be used, not saved. A consumer can avoid the bulk of the fees if the card is spent promptly.
“This product is designed as a gift, so the recipient can buy something special,” said Robert Sherman, a spokesman for American Express Co.
“If you gave someone a check, they might be inclined to deposit it and pay the [electric] bill,” he said. “This is to be spent on something special, and we recommend that people use it to do just that.”
But consumers frequently grumble about the cards’ restrictions and costs.
“We get a lot of complaints after the holidays because people get gift cards for Christmas and then they find out that they can’t use them the way they thought, or they discover that they’ve got all sorts of fees,” said Jim Hood, president of ConsumerAffairs.com. “If people had any idea how many restrictions there are, they would never give the cards.”
A recent survey of 500 consumers, conducted by consulting firm Accenture Ltd., found that 82% either purchased or received a gift card in 2005.
The previous year, a survey by MasterCard International Inc. determined that 70% of consumers got a gift card. Multiretailer cards, the ones most often criticized for high fees, are just one segment of this market.
Single-retailer cards, such as those issued by Starbucks and Borders, are far less likely to charge purchase fees or monthly service fees, said Rick Fischer, partner with the Washington offices of Morrison & Foerster, a national law firm.
But terms vary widely, partly because about half the states, including California, restrict fees charged on single-retailer cards, Fischer said.
Those limits usually do not apply to multiretailer cards, which are governed by banking rules that generally require disclosure but do not restrict fees.
The end result is that fees on multiretailer cards are common and by no means standard. Buyers and recipients of gift cards, beware.
Most multiretailer cards carry a purchase fee -- usually $3 to $6. Outside of that, fees vary widely.
American Express, for example, generally charges $3.95 to issue a card. If the card isn’t used after 13 months, there’s a $2 monthly service fee, Sherman said. A replacement card costs $5.95. But the company recently rescinded its $10 fee for cashing out the balance after the card expires.
Visa International and MasterCard leave fees up to their issuing banks, which are given no guidelines on how much they can charge, said Channing Barringer, a Visa spokesman.
U.S. Bank discloses on its website that it imposes a monthly service fee of $2.50 on gift cards after six months. To check the balance by phone costs 50 cents after the first two calls. Need to replace a card or cash out the balance? Pay $15.
As a result, a $25 gift card issued by U.S. Bank, if it isn’t used, would be worth just $10 at the end of the year -- not enough to pay the fee to cash out the balance.
Gift cards offered through Wells Fargo & Co. and Washington Mutual Inc. don’t get hit with monthly service fees until after a year.
However, PrivaCash Inc.’s gift cards impose significantly different terms. These cards carry a $4.95 monthly maintenance fee and a $5-a-month “dormancy” fee if they are not used for 120 days. There’s also a $1.50 charge when they are used to get cash or when their balances are checked at an automated teller.
Adele, Valmonte’s attorney, said the huge variations should warn consumers to shop carefully, making sure to ask about all the potential costs.
ConsumerAffair.com’s Hood has a different take:
“Just give cash,” he said.
Kathy M. Kristof welcomes your comments but regrets that she cannot personally answer all letters and e-mail. 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 previous columns, visit latimes .com/kristof.
