Don’t get burned - Off Duty, Technology - Army Times

Don’t get burned

Peer into any family’s closets and you’ll find the tokens of previous holidays. Scented candles. Reindeer sweaters. A stuffed bass that sings “You Are My Sunshine.”

Gift cards are designed to reduce closet clutter. They’re always the right color and the right size. While the National Retail Federation estimates that gift card sales will drop about 6 percent this year — reflecting a slowdown in overall spending this holiday season — nearly two-thirds of consumers plan to buy them, according to a survey by Deloitte. And 55 percent of consumers say they would like to receive a gift card, according to the NRF.

But the warm feelings generated by a gift card could turn cold in a hurry if the retailer that issued the card goes out of business. Gift card holders have few rights when a retailer files for bankruptcy. And with retail bankruptcies expected to rise next year, that’s a real concern.

Some consumers have already been burned. When Sharper Image filed for bankruptcy earlier this year, gift card holders were informed they could no longer use them. The company later asked the court to allow it to accept gift cards if holders spent twice the value of the card on a single purchase. Consumers Union estimates that unused Sharper Image gift cards totaled $20 million.

When a retailer files for bankruptcy, gift card holders are considered unsecured creditors, said Michelle Jun, attorney for Consumers Union. It’s up to the retailer to ask the bankruptcy court to allow it to continue accepting gift cards. If the retailer doesn’t make that request, or the court denies it, gift card holders have to get in line with all the businesses and individuals that have claims against the retailer. “If you have a $50 gift [card], it’s pretty burdensome” to file a claim for relief, Jun said.

Consumers Union recommends that consumers give cash this year instead of gift cards. “It’s hard to know what retailer will sink tomorrow,” Jun said.

For some givers, though, sticking a couple of twenties in an envelope seems awfully cold. If you’re determined to give gift cards this year, choose wisely. Some tips:

• Consider the financial health of the retailer.

When Linens ’N Things filed for Chapter 11 bankruptcy in May, it said it would continue to honor gift cards in all of its stores. But consumers might have a hard time redeeming them: After failing to find a buyer, Linens ’N Things announced that it is liquidating its merchandise and closing its stores.

• Opt for “open loop” gift cards.

The major credit card issuers all offer gift cards. These cards can be used anywhere, eliminating the need to gauge the financial health of a specific retailer. But they also contain more restrictions than gift cards issued by retailers.

• Give gift cards for necessities. In Deloitte’s annual holiday shopping survey, 17 percent of consumers surveyed said they planned to buy gift cards for gasoline, up from 13 percent last year.

A gift card for gas “isn’t exactly an exciting gift, but it’s very practical, and in these economic times, probably very much appreciated by the people getting it,” said Stacy Janiak, Deloitte vice chairman. And what if you receive gift cards this holiday season? Don’t let them gather dust, said Ellen Cannon of Bankrate.com. “Spend them by New Year’s.”