Bankrate gift card survey: Consumers need to be wary

New research by Bankrate.com of nearly three dozen leading retailers and credit card issuers show that gift cards are becoming more consumer friendly this holiday season -- but consumers still need to be wary or the gift could be gone.

Bankrate researchers surveyed the gift cards available from the 20 largest U.S. retailers, plus the offerings from Visa, MasterCard, American Express and Discover. The survey was conducted the week of Dec. 6.

The key findings of the survey are:

• Those nasty fees and expiration dates that make recipients cranky are going away (in fact, some states have outlawed them);
• Only a handful of the companies contacted have expiration dates for gift cards;
• Dormancy fees that reduce the value of the card over time are rare, as well.

"The devil is in the details," says Karen Christie, vice president of research and editorial services for Bankrate.com. "Verify how long the card can be used, whether there are any fees that will reduce the value of the gift and whether your recipient will be able to use 100 percent of the value of the gift to purchase merchandise, receive cash back or both. Be sure that your recipient can get a new card issued for the remaining balance if the card is lost or stolen, and keep all of the receipts from the purchase."

The findings are mostly good for consumers and retailers, says Dan Horne, an associate professor of marketing at Providence College in Providence, R.I., and an authority on gift cards (he's referred to by Smith Barney as the "gift card guru").

"The back-end fees, the dormancy fees, are in real tiny print, and those aren't communicated to the ultimate user," he says. "Those get everybody riled up ... I certainly advise (retailers) to stay away from dormancy fees. I don't think, ethically, it's right. You have the money; you're not incurring any loss.

"The other issue, I think, is it's going to be a public relations nightmare. Why would you take someone walking into your store with money and make them mad? I can't imagine treating customers that way. In such a competitive environment, it doesn't make sense to me to make a customer mad over money you already have."

Back-end fees and expiration dates are there to get the recipient to use the card because the card issuer can't record the sale as revenue until it's been used.

"They don't want to carry these things on the books," says Deby Samuels, vice president of marketing for Comdata, parent company of Stored Value Systems, one of the world's leading providers of electronic gift cards. "It's not booked as revenue until they're used. You've given me money, but you haven't taken products out of my store yet. That's what accounting principles tell them they have to do.

"Because gift cards are bigger items, holiday revenue is not reported until January. What used to be very clean -- everything bought by 6 pm. Dec. 24 was holiday revenue -- now, you don't know what will happen. It's changing the way we report holiday revenue."