Saturday, September 16, 2023

Gift Cards Suck

Gift cards are a great deal for merchants, a shitty deal for consumers.

I wrote about gift cards before.  They are a crappy deal, and like a hot potato, you should get rid of them as soon as you get one - spend it quickly.  Merchants count on you losing or forgetting about a gift card and a surprising number of them are never spent.  This is free money for the merchants.  It explains why some merchants sell gift cards for below cost, which makes no sense on its face.  But if 20% of gift cards are never spent, you can afford to sell a $25 gift card for $22.50 and still make money.

And yes, some wily folks have figured this out and bought gift cards for below face-value and ended up with a 5-10% effective discount.  Don't expect that to last!

I recounted before how I found several in a drawer somewhere that Mr. See had accumulated as gifts from friends.   When I asked him why these were tucked away, he replied that he was saving them "for special" - some ill-defined occasion when it would be appropriate to use the gift card.  That occasion, being so poorly defined, of course, never occurred.

So I forced him to go out and use the damn things, before they expired or were lost.  In some instances, these sort of things can expire, particularly "gift certificates" from restaurants or local merchants.   According to some sources, a 2009 law prevents gift cards from expiring - for five years.  But some gift card companies can charge "dormancy fees" if a gift card is not used - effectively draining away the balance over time, much as banks do with dormant bank accounts.

Again, this is free money for the gift card issuer.  Note that some States have laws that prevent gift cards from expiring, and also outlawing dormancy fees.  This does not mean a gift card is a good place to stash money.

Gift cards suck for a number of other reasons, though.

To begin with, they promote consumption. You get a gift card for $25 at your favorite restaurant (or even your least favorite restaurant), you are going to go to that restaurant and spend the card - and likely some additional cash. So the card acts as an incentive to spend, which is sort of a reverse gift.  $25 in cash can be put into the bank, if you so desire.   You need not consume it.

Compounding this is they are not easy to use.  I received a rebate from Home Depot for buying paint.  It was a $150 gift card, in this case, a debit card (which are slightly different).  In order to spend it, I had to apply the balance to another purchase at Home Depot, and this required that I know the balance on the card which required that I call in and make a balance inquiry and then enter the exact amount to be debited from the card.   I would have preferred to have just $150 off the original purchase, but again, they are hoping you don't spend all the money or just forget about the rebate.  Rebates, like gift cards, suck.

But beyond that, gift cards have acquired an odious reputation as a means of banking the unbanked, and as a party in frauds. For the very poor, gift cards are a way of paying bills and making purchases, when they don't have a bank account or a good credit rating. You can use a gift card like a credit card, in some cases, but there are often fees involved for purchasing the card, as well as for checking the balance, receiving cash from an ATM and other services. It may be convenient for the poor, but convenience comes at a cost.

In a plethora of Internet scams, such as the "IRS Tax Audit" scam, elderly people are exhorted to obtain gift cards and then send the numbers on the card - along with the scratch-off PIN number on the back - to someone overseas.   Once they have these numbers, they can cash in the value of the card at a local ATM, and it cannot be traced or recovered, ever.

Gift cards have replaced Western Union as the medium of exchange in scams, and arguably are easier to use, less costly and harder to trace than even Bitcoin.

Another scam - which is becoming less common - is where scammers pick up a gift card at a store and then go to the restroom to write down the numbers from the card - and scratch off the cover for the PIN number and write that down.  They then return the card to the rack and leave the store.  An unwitting shopper then "buys" the gift card and charges it with money.  Before they can even get home, the scammer has drained the card of cash value, as they have the card number and PIN.   Changes in packaging have alleviated this problem somewhat.  But if you buy a gift card that is laying out on a rack, be sure the PIN number was not exposed via the scratch-off cover.  If it was, the card is worthless - to you, anyway.

Since these things are involved in so many scams (just like Western Union) and they favor the merchants more than the consumer, the best bet is just to avoid them entirely.  When someone gives me a gift card or a gift certificate, figure out how to use it as quickly as possible.   Putting it "in a drawer, somewhere" until you decide the perfect moment to use it, is probably the worst idea.

And while your intentions may be good, perhaps avoid giving gift cards as gifts.  It is a left-handed gift, as the recipient now has to make the effort to spend it.  But moreover, maybe if people stopped using these cards entirely, they might eventually go away.

Let's hope!