Gift Card Caution: Buyer Beware
Consider giving cash or gift cards issued by your bank this Holiday Season - rather than merchant-branded gift cards - to avoid redemption problems should a merchant close its business.
The FDIC approved insuring "stored value cards" IF the cards are purchased from banks. The FDIC will recognize card holders as insured "depositors" if the issuing bank fails. FDIC insurance does not cover merchant-brand cards.
With several large bankruptcies came large shocks to consumers holding gift cards in those companies. SharperImage had close to $20 million in outstanding gift cards when it filed. The Bankruptcy Court ruled gift cards are booked as debt owed card holders as unsecured creditors and discharged the debt. Circuit City filed and asked the Bankruptcy Court to allow the company to redeem the cards at stores that will remain open during its reorganization. States Attorney Generals are moving to protect consumers by getting state legislatures to pass laws extending time limits for redemption; e.g., Illinois law allows up to 5 years.