Doron F. Eghbali Business Law Blog on Lawyers.com

The holiday season and accompanying shopping spree have spurred retailers to offer gift cards to customers, often for free. Despite the fact such specious generosity is better than nothing, consumers should exercise caution concerning what gift cards they obtain.

1. SOME BACKGROUND ON GIFT CARD ADVANTAGE TO RETAILERS

To understand why gift cards are not necessarily free easy gifts for consumers, we need to understand why retailers love them. In fact, gift cards offer retailers an exceptional opportunity to draw willing, able and ready customers to their stores. Such customers tend to even shop more than the ones spending only cash. A 2008 study by the Journal of Experimental Psychology found the customers who paid with a $50 gift card spent 13%-26% more on individual items than those who spent equivalent amount in cash.

2. SOME PROTECTIONS TO CONSUMERS THROUGH CARD ACT

Credit Card Accountability Responsibility and Disclosure Act (C redit Card Act),provided important benefits to consumers. Among some of the benefits related to gift cards were the following:

• FIVE YEARS TO USE YOUR CARDS: Consumers now have five years to use their cards. Before the Card Act, consumers had only two years to use their cards.
• ONE YEAR BEFORE INACTIVITY FEE KICKS IN: Consumers now a really nice break before inactivity fee kicks in, usually around $2.50 per month. Consumers tend to forget, misplace or think they can use their gift cards for some indefinite period without any severe penalty. Now, this feature protects most of us.

3. STILL, SOME CAUTIOUS NOTES FOR GIFT CARD USERS

A. GIFT CARDS ARE USUALLY NOT PROTECTED BY CREDIT CARD ACT

Credit card companies have found a loophole to avoid relatively consumer-friendly provisions of Credit Card Act by placing restrictions on WHAT AND WHEN gift cards must be used. For instance, retailers place limitations on the days a gift card could be used and on what specific items. This means if a gift card recipient does not spend the gift card during the specific days AND on specific items delineated, the gift card is useless.

B. GIFT CARDS ARE NOT GUARANTEED AGAINST RETAILER'S BANKRUPTCY OR CONSUMER'S LOSS

It is important to ascertain gift cards are neither guaranteed against retailer going out of business nor consumer losing or having the card stolen. In fact, in 2008, when Linen-n-Things went out of business, gift card recipients did not recover anything.

Similarly, gift cards are like cash, if you lose them or a thief steals them from you, you have lost the money with no recourse.

4. GIFT CARDS ARE NOT AS EVIL AS CREDIT CARDS, JUST EXERCISE CAUTION

Gift cards could be helpful to consumers if we know the perils and exercise caution as to what gift cards we purchase. In fact, we should look for retailers offering gift cards without any strings attached,i.e. no time limitation and no product limitation, to the extent possible.

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DORON EGHBALI is a Partner at the Beverly Hills Offices of Law Advocate Group, LLP. He Primarily Practices Business , Rea l Estate and Enter tainment Law. Doron Can Be Reached at: 310-651-3065. For More Information, Please, Visit: HERE.