Sten Gazette

Gift cards are a relatively new phenomenon, but since banks and businesses are using them to defraud consumers of literally billions of dollars, class them as one of the All Time Great Scams. They share the other key characteristics of the Great Scams– they take advantage of people’s ignorance, it’s at least 90% legal, and there’s almost no risk of getting caught.

Gift cards are now THE most popular gift for birthdays and Christmas, taking over the number-one spot from apparel this year. Gift card “sales” this year will top 55 billion dollars. Fees collected by the sellers of the cards will amount to more than 4 billion dollars, which the retailers justify as a cost of offering the “service.” But wait, there’s more: they don’t even try to justify the estimated two billion dollars that will not be redeemed because the card is lost, mislaid, or not used quickly enough.

Miss Manners always used to say it was rude to give someone money as a present– it showed you didn’t care enough to go out and select a gift. Most gift cards are exactly the same thing as giving money– cards for a specific item, or type of item, or store, are becoming an exception. It may be that gift cards have become acceptable where you wouldn’t think of giving cash because of the ancient association with the perfectly acceptable “gift certificate.” Gift certificates could be a very thoughtful gift in some circumstances, e.g. when you don’t know someone’s clothing size, or which books and music he likes or already owns, or if you want to give something related to a specialized hobby. Restaurant gift cards or certificates are an excellent example of a thoughtful gift, because the recipient knows you have given it some thought, and made some effort, even if you didn’t know she got food poisoning the last time she ate at the U-Eat Diner. It’s the thought that counts, right? And cash represents an in- your-face lack of thought, unless of course she needs the cash more than anything else you could give her.

There are two basic types of gift cards– the bank-issued “universal” cards and the “store” cards.

The universal cards are simply pre-paid debit cards. The purchaser is opening a bank account with a certain amount of money in it, which the gift recipient can “withdraw” by using the card, and the card is used exactly like an ordinary debit or credit card with any merchant who accepts that flavor of plastic. These cards often have fees associated with them and the balance may well decline automatically if they are not used within a certain period of time.

The “store” cards are issued by just about every class of retailer, and they can only be used for purchases from the retailer from whom they were purchased. They are certainly a more thoughtful gift than a universal card, but almost all of the store card programs are now operated by the same banking companies that issue the universal cards. They may have more generous terms (because the merchant is paying fees to the card provider), but many of them come with fine print that defines time limits and automatic deductions.

There are also hybrids of the two basic types, the so-called “mall cards” where a gift card can be used at any store in a specific mall or shopping center.

Naturally given the scope of the scam, a huge cash-cow, the big sharks are circling waiting for the inevitable feeding frenzy. By big sharks we mean of course the lawyers and governments, and the government lawyers. Three state attorneys general are suing one mall over whether its “mall card” is a bank-issued card or a merchant issued card. Different law would apply, you see, because the state governments think these are two different kinds of transactions and don’t see that they are all part of the same scam.

And at least one state is considering whether unused gift card balances are “unclaimed moneys” that must to be turned over to the state.

The gift card scam has a lot in common with the classic rebate scam, but it might go a step farther toward perfection– not only is it impossible to measure the amount that is stolen, it is difficult to identify the victim. Is it the purchaser of the gift card, or the recipient? Or both?

Just think, if you buy a gift card from an airline (America West is issuing them), you might get to participate in two of the All-time Great Scams at the same time! (Bait and Switch– the Sky’s the Limit, 11/16/04). Which you can also do by giving a card that gets used for something involving a rebate (All-time Great Scams: The Rebate, 12/02/04″).

Wait a second, a frequent flyer program is a form of rebate, so if you use an America West gift card to buy a bait-and-switch ticket for which you get frequent flyer miles, you might really have it covered– three classic scams in one transaction!

Professional con men will tell you that you can’t con an honest man. It used to be true. Today, however, the big cons are perpetrated by big corporations and financial institutions, with the full connivance and support of governments. And the number one song for Christmas should be “Bunco Bells.”

–SG

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This entry was posted on Saturday, December 18th, 2004 at 5:51 pm and is filed under Great Scams. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.