Protection sought for gift card users

Consumer groups are asking the Federal Trade Commission to protect shoppers from losing money on gift cards when retailers file for bankruptcy protection.

The agency should require merchants to segregate funds from gift card sales in a trust account and to honor the cards if the stores are open unless a bankruptcy court orders otherwise, said the petition from Consumers Union, Consumers Federation of America, National Consumer Law Center and the advocacy group U.S. PIRG.

The groups called on the FTC to declare the sale of gift cards without segregating funds and holding the money in trust to be “an unfair and deceptive practice.”

Bankruptcy courts treat gift cards as a loan to the company, not as cash. Shoppers may lose the value of their gift cards if the merchant doesn’t petition the court to allow it to continue to accept its gift cards or if the court denies it. In these cases, the only remaining option for shoppers is filing a claim as an unsecured creditor to a bankruptcy proceeding.